The ability to withstand the forces of competition after EU accession is one of the main criteria for EU membership. While many analysts, and in particular EU officials, expressed concern that the economies of the acceding countries had not been ready judging by this criteria, the recent tendencies provide evidence to the contrary. These tendencies are the following.

 

The first one is the openness of the acceding countries, and the Baltic states in particular. Openness is usually measured by the share of foreign trade in a country’s GDP. In the Baltic states it stands at around 100 percent or more. The level of trade protection is another illustrative indicator. Unlike some other Central European countries, the Baltic states are less protectionist than the EU. This is particularly evident in the case of Estonia. The most recent studies show that the level of protection would increase after Lithuania joins the EU. As 1999 data show, the price of imports from fourteen third countries would increase by 90.15 million litas and for some goods it would go down by 10.83 million litas, while the price of exports would rise by 27.9 million litas and drop by 0.37 million litas respectively.

 

Second, a continuous increase in exports to the EU also indicates the ability of companies in the acceding countries to compete in the Single market. This is particularly notable in the case of Lithuania, whose national currency is fixed to the US dollar, which has appreciated against euro since euro has been introduced.

 

Third, surveys of foreign investors indicate that the benefits of trade liberalization between acceding countries and the EU and the resulting competition have already been quite visible. Interestingly, some investors say that most benefits of economic integration have already been achieved.

 

So competition, except in such protected sectors as agriculture, entails benefits rather than threats, and some of the candidate countries are more open to competition than some of the members states. Interestingly, some of the EU member countries are increasingly concerned about “harmful competition” from the candidate countries.

 

 

As progress in negotiations is being made, there is a growing apprehension of the amount of investments that the candidate countries will require to meet EU rules and norms. While different estimates and exact numbers may be quoted here, the most important are the implications of these investments. First, they imply an increasing need of funds to finance the adoption of standards of products and production processes. This in turn means that some comparative advantages of corporations in the acceding countries are likely to be lost in the process of harmonization. As the most recent issue of The Economist claims, “By encouraging trade and investment, enlargement will certainly contribute to prosperity. But by obliging the applicant countries to adopt laws that maybe inappropriate for them, it could also neutralize that potential benefit.” Investment needs also imply higher budgetary expenses. Finally, while the regulatory costs are becoming quite visible (and this may be one of the reasons behind the declining support for the EU in some acceding countries), benefits will become apparent only in the longer-term and will depend to a large extent on the policies of regulatory institutions.

 

It is interesting to note that, as economic integration is proceeding and the acquis is being adopted, the technique called regulatory impact assessment is being increasingly applied. In Lithuania, qualitative regulatory impact assessments have been made for about two thousand EU norms. Regulatory impact assessment is indispensable in formulating well-considered negotiation positions, informing society and better understanding the impact of EU regulations. However, it should be kept in mind that impact assessment has its limits and is sometimes overshadowed by political concerns related to the adoption of EU norms.

 

 

The most popular explanations of the benefits of joining the EU revolve around EU funds, as this seems to be easier to sell to the people. For example, according to a recent study the net balance of EU funding for Lithuania (according to a “realistic scenario”) would constitute around 279 million euro, or two percent of the country’s GDP. However, several important political and economic implications are at issue here. First, there is a danger that unreal expectations will be created. This can already be observed in the case of the long promised SAPARD program. Second, in many cases EU funds are likely to benefit specific groups of the population, and with co-financing required this might result in higher budgetary needs. The co-financing coupled with Lithuania’s payments to the EU budget would almost equal the receipts from the EU budget (the co-financing alone would amount to around 238 million euro). Third, a potential supply of fundings is likely to mobilize interest groups and create stronger incentives for corruption. It is also likely to distort investment incentives. The dilemmas facing the acceding countries in reforming the agricultural sector are a good illustration of this problem. One might ask what incentives farmers in the acceding countries might have to restructure and increase their efficiency when the EU itself provides a role model of how to rely on support from the state budget and protection from external competition.

 

 

This is an important aspect and it has been seen in the previous enlargements as well. Accession into the EU implies more regulation of economic activities and most probably the establishment of new regulatory institutions. This, together with a likely increase in financial support from the EU, creates incentives and possibilities for “regulatory capture” and “administrative corruption.” Therefore transparency of the regulatory process, simple rules and clearly defined functions are of primary importance. With the period of “extraordinary politics,” to use the phrase of Mr. Balcerovitzs, gone in the past and institutionalization of the channels of interest representation, the ability to resist demands of interest groups is being increasingly curtailed. This is particularly important in the areas that are still undergoing reform, such as agriculture and the energy sector.

 

What does exactly EU membership entail?

 

Here it is useful to remember two well-known methodological problems of scientific efforts to estimate the impact of EU membership. One of them refers to the distinction between integration measures and general reforms in the acceding countries. Although some already claim that the transition process is over, reforms in such sectors as agriculture or energy  form part of both EU accession and the creation of conditions for a market economy (it is more evident in the energy sector than in agriculture). So, the problem of distinguishing what is being done specifically for the sake of joining the EU will remain. This is not only a methodological challenge. It may also become a politically sensitive issue when the people in the candidate countries have to be informed about the benefits and costs of EU membership.

 

Second, there is an old and well-known problem of the “moving target.” Although the EU is rather conservative and slow to change, it is likely that the enlargement will eventually change the EU itself. We already know the proposals of the German government to divide the competence between EU institutions, EU institutions and member states and to devolve some policies, like agriculture or infrastructure, to the level of member states or regions. We also know the debates on, for example, taxation policies in the EU on the one hand and deregulation of financial markets and energy markets on the other. This means that in some five years the EU might look quite different from what it is now. While this is clearly a topic for a separate discussion, it also means that the impact of EU membership might eventually involve aspects that cannot be seen at the present moment.