MOST IMPORTANT COSTS AND BENEFITS IN THE PROCESS OF EU ACCESSION

1.1. Direct effects of integration

All effects of integration in European Union can be divided in direct and indirect. Direct effects can

be directly calculated and they have more precise quantitative determination. Indirect effects primarily relate to sectoral effects, as well as to the effects of resource allocation and redistributive effects of incomes and wealth. They are more difficult to quantify.

The main direct effects are:

1) Trade creation effect (changes in domestic demand due to the reduction of tariffs and import prices)

2) Trade diversion effect (change of the foreign trade direction from one partner to another)

3) Balance of payment effect (influence on payment balance due to the previous two effects which may lead to worsening or improvement of PB)

4) Government revenue (changes of budget revenues as the result of tariff abolishment, leading to lower revenues per unit price of import, but to higher total revenue according to growth of trade scope i.e. increase of revenue base)

5) Consumer Welfare effect (effect of growth of consumer welfare due to the lower import prices)

1.2. Indirect and other effects of integration are:

1. Budget – transfer effects where all accession countries are classified into net users (Structural Fund, Cohesion Fund, Common Agriculture policy, as well as funds in the preaccession period), while EU member states are classified into the group which aliments these funds. These transfers influence the increase of investments, public expenditure, farmers’ income, and, finally, the GDP in new member states.

2. Indirect economic effects – gains:

- Allocation effects (in conditions of complete competition)

- Effects on foreign trade

- Effects of trade rents (on basis of difference between higher domestic and lower import prices)

- Allocation effects (in terms of incomplete competition), the most important being welfare effects for consumers: reduction of monopoly prices, growth of production scope, positive effect due to reduction of monopoly strategy of price determination and market segmenting.

3. Costs of alignment:

- Most important for new members, since they lead to negative production effect i.e. drop in production and unemployment growth due to the opening to foreign competition),

- Among side effects, there are costs of the social programme for employees who lose their posts

- Costs of modelling the institutions in accordance with EU demands

- Costs of implementation of rules arising from the Acquis, most important being the ones in the area of environment protection, agriculture, transport, energy and standardisation.

4. Indirect political benefits:

- Increase of international security,

- Use of geo-strategic advantages due to EU membership,

- Support to stability, democracy and rule of law

- FDI growth due to the decrease of political risk.

Judging by their generality, the costs and benefits may be divided into:

a) Microeconomic effects (consumer and producer effects, price changes, resource allocation, redistribution of income)

b) Macroeconomic effects, such as: effects on payment balance and budget, effects on GDP growth, effects on FDI growth, effects on price level, effects on employment, effects on consumption and investments.

// SCEPP, Comparative Analysis of Costs and Benefits of European Union Accession in the selected countries, November 2002

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