T HE EXTERNAL FACE OF THE COMMON MARKET

This final empirical section addresses the impact of enlargement on the EU’s common trade policy. As the world’s largest market, the EU has become a heavyweight in the area of trade, with some considering it to be a force for the liberalization of international markets (Hanson 1998), while others point out the protectionist behavior of the EU in certain sectors (Bomberg and Peterson 1999: 115; Meunier 2000). Although the data set does contain a proposal on banana market liberalization, I draw on Bomberg and Peterson’s in-depth analysis on decision making in the external trade.⁴⁴ In various sectors the trade patterns divert from natural patterns of a truly free market and in many ways are schizophrenic (Bomberg and Peterson 1999: 90-92) with some sectors undergoing total liberalization and others becoming increasingly protectionist. As internal negotiations on trade policy are often more tedious than external negotiations, it is somewhat astonishing that the existing academic literature has failed to assess the repercussions of enlargement on trade policy. The interviews carried out with EU-officials and CEEC diplomats served to overcome this analytical deficit by mapping out future constellations after accession. This enables us to forecast whether the balance will tip towards free trade or protectionism. As the political cleavage in this policy domain is one of the largest in EU politics and because the CEECs’ preferences may be decisive in the formulation of future trade agreements, trade with non-EU countries was a topic of discussion in nearly all interviews. The experts were requested to share their insights on the orientation of the relevant country in industrial and agricultural trade. Unlike issues of regulation or process/product standards, we can presume a significant degree of variation in terms of the individual countries’ standpoints:

44 As some states advocate a preferred trading status for former colonies (Bomberg/Peterson 1999: 108), a restriction to this one case may lead to distortions.

Figure 7-14. External Trade in industrial goods (aggregate stan. dev. of results: 6.28)

PL F E P

GR I CY

A B L IRL

M SLO LT SQ LV EST

CZ SK H D NL DK S FIN GB

0 10 20 30 40 50 60 70 80 90 100

0 – Protectionist: maintain all tariffs and non-tariff trade barriers to protect national industrial protection 100 – liberalization: completely abolish all tariffs and non-tariff trade barriers

(preferences EU-15: Bomberg and Peterson: 1999)

EU 15 EU 25

Minimum – Maximum 0 100 0 100

Mean 46.7 55.2

Median 50 66.7

Median by weighted Council votes 50 50

Standard Deviation 44.2 40.3

Skewness .12 -.29

(see Appendix C for calculation technique)

The pinpointed SQ symbolizes the current trend towards liberalization (see Hanson 1998), thus the dismantling of existing trade tariffs and a significant reduction of protection for many industries. According to international trade theory, comparative advantage emerges from differences in national factor endowments (Kenen 2000: 19-21). Consequently, the CEECs are assumed to have a distinct advantage in the production of labor and resource-intensive products, where as the EU excels in the production of human-capital intensive and research &

development goods (Weise, Bachtler, et. al. 2001). For the most part, the ongoing transformation process has been driven by trade liberalization and openness, which are synonymous with the dismantling of national trade restrictions and currency convertibility.

The results can thus be interpreted along the following lines. The industrial export tigers (H, CZ, SK) whose diverse and specialized export sectors are steadily anchored in the world economy, see no necessity for the maintenance of national tariff barriers to protect domestic industrial production (see table 7-8). Thus, in coalitional terms, they are likely to align themselves with NL, DK and other industrial states. Yet those states who must cope with the legacy of disproportionate mass industrialization and whose export sectors have failed to firmly establish themselves on the world market, here Poland, express a firm orientation towards protectionism.

Table 7-8. Trade data CEEC-10

Imports

as % of GDP Exports as

% of GDP Exports as % of Imports

Trade integration

Trade Openness

competitiveness ranking WEF

CY 36.1 4.4 12.2 25.7 - -

CZ 63.2 57 90.3 60.4 2.01 34

EST 84.5 63.1 74.6 73.5 0.79 30

H 69.1 60.5 87.6 58 2.19 28

LV 44.5 26 58.5 36.3 0.68 45

LT 46.4 31.5 67.9 40.7 1.12 40

M 95.6 68.7 71.8 78.6 - -

PL 31 20 64.7 22.1 2.68 46

SK 66 61.4 93.1 64 3.02 42

SLO 56.1 48.1 86.3 52 - 27

(sources Trade Integration Eurostat 2000; Trade Openness Bodenstein and Schneider: 2001; Microeconomic Competitiveness Ranking Index 2002 World Economic Forum; others Eurostat 2002 )⁴⁵

Despite a steady tendency towards liberalization and de-regulation, PL perhaps demonstrates the greatest structural disparities of all CEECs because of its over-bloated agricultural sector and the high proportion of heavy industry. This has complicated the structural transition from low-skilled, labor-intensive production to more technology-oriented, skill-intensive engineering (as is the case in H) (see Burgstaller and Landesmann 1999). Thus, all signs point to PL siding with the existing coalition of protectionist states, in particular in issues involving steel, machinery and metals. The fundamental realignment of international trade patterns has also had a along-lasting impact on the Baltic States (EST in particular) who have removed nearly all tariff and non-tariff barriers in an unprecedented tempo, and are thus assumed to support free trade policies.

With the potential exception of PL, whose vital economic interests are intruded on by full-scale liberalization, the data lead to the conclusion that enlargement is not an obstacle to further industrial trade opening, but perhaps the institutions by which external trade discrepancies are mediated (see below). As for the stability of the existing preference profiles, a fundamental shift may occur, with the existing protectionist states losing relative power.

45 0 = high degree of economic openness; Openness= weighted index of the liberalization of the short- and long-term capital regimes, degree of import and export liberalization; see Bodenstein/Schneider 2001)

Figure 7-15. Kernel Density Estimates: EU-15 vs. EU-25 in industrial trade

However, the data imply that there is a swift divide between trade in industrial and agricultural goods, with CEECs positions rapidly shifting towards protectionism. Here Germany also frequently slipping into the group of states that resist agrarian trade liberalization (Bomberg and Peterson 1999:96). Unlike industrial trade, a realistic danger of conflict intensification exists, with some states bearing more extreme preferences than the existing protectionist coalition.⁴⁶

Figure 7-16. External trade in the agricultural sector (mean standard deviation of responses: 7.95)

(preferences EU-15: Bomberg and Peterson 1999)

EU 15 EU 25

Minimum – Maximum 16 100 0 100

Mean 54 49.6

Median 50 50

Median by weighted Council votes 27.8 27.8

Standard Deviation 36.2 37.3

Skewness .31 .34

(see Appendix C for calculation technique)

A supreme degree of variation among the CEECs could be extracted here, as agricultural trade – both within and beyond the accession negotiations – has evoked vehement emotions in the CEEC populations. With the exception of highly competitive Hungary, the dilemma for CEEC farmers is straightforward: Their position in domestic markets is weakened by the

protectionism EU-15 free trade

flood of subsidized western goods, while they remain simultaneously locked out of their major potential export market – the EU (Sharman 2003: 27). Although accession may benefit CEEC farmers by allowing them market access, they will remain at a distinct competitive disadvantage vis à vis EU-15 agricultural producers, as they will only enjoy a fraction of the direct subsidization which EU farmers receive (see section 7.1). This predicament has certainly not enhanced the overall productivity and competitiveness of the sector. The playing field for CEEC farmers is further distorted by old-fashion production techniques and infrastructural deficits.⁴⁷ Thus until a sustainable level of agricultural competitiveness is reached vis à vis the EU-15 and internationally, the CEECs (excluding H) will presumably serve as an obstacle to further agricultural trade liberalization.

In external trade agreements, the EU must negotiate as a unified entity in the shadow of the diverging preferences mapped out above. Unlike most policy areas in which legislative competencies are shared by the Com, EP and Council, trade policy remains one of the last bastions of sole Council legislative power on the legal basis of article Art. 133. As for the voting rule applied, uncertainty arises, as QMV is applied in the traditional goods sectors, whereas unanimity governs the growing non-goods (service) sector, with the states having considerable discretion in the ratification process (Meunier 2000: 107). French pressure at Nice hindered the EU from applying QMV to all areas, producing a myriad of exceptions where unanimity still governs decision making.⁴⁸

This institutional framework - designed to keep a balance between reaping the benefits of a large internal market while retaining some degree of national sovereignty – appears to be vastly outdated, if one takes into account not only the spectrum of heterogeneity, but also the salience of trade for the CEECs. The risk of gridlock illustrated by the data suggest that a strategy of linking internal reform with territorial expansion is a vital necessity for the common trade policy. As enlargement will transform the EU into super heavyweight in international commerce, the existing decisional structures must be subject to a profound revision. As Meunier (2000) demonstrates, the bargaining authority is greatest in the presence

46 It was not possible to specify a preference value for Slovenia.

47 The highly salient preferences of PL, in particular, can also be ascribed to the fact that Polish peasants were not collectivized. This means that small, private, and non-competitive farms are the dominant type (Sharman 2003: 15).

48 The exceptions are cultural, audiovisual, educational, social, health, traffic and transportation services (see Nice Treaty Art. 133, paragraph 6)

of an institutionally anchored common position which is not subject to internal controversy.

This internal lock-in - in particular in the case of a conservative or protectionist EU - allows little flexibility in external negotiations (Schelling-Conjuncture), making it more difficult for the counterpart to extract a favorable outcome or seek bilateral agreements with disgruntled preference outliers. However, the data make it clear that applying unanimity to aggregate state preferences may be a relic of the past in light of the increased level of disagreement that enlargement entails. The tedious process of accommodating diverging national standpoints in a common EU position will overstrain the EU’s capacity for diversity management and raise the costs of consensus.