European Union Enlargement: Economic and Financial Implications for the United States
June 24, 2003

Staff-prepared summary of the East European Studies discussion with Keith Crane, Senior Economist, RAND Corporation

Since the adoption of the Agenda 2000 in 1997, Europe has been abuzz with debates on the pros and cons of EU enlargement. On this side of the Atlantic, discussions of EU enlargement have often been conflated with – if not completely overshadowed by – debates on NATO enlargement, in which the US has a far greater role. When EU enlargement is directly addressed in this country, analysts tend either to roll their eyes at the unnerving complexity and improbability of enlargement, or to describe an ominous enlarged EU that, with 25 members, will create the largest market in the world.

In this mix, Keith Crane's straightforward assessment of the economic and financial consequences of EU enlargement is a breath of fresh air. By focusing attention on the positive aspects of enlargement not only for the EU member states and accession countries but also for the US we are reminded that as Americans we too have a stake in this monumental European transformation.

On May 1, 2004, eight countries from Central and Eastern Europe (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia) will become members of the EU. When this happens, the EU will bond itself to a group of dynamic, rapid-growth economies, which could have a very positive impact on the more static markets in the West. For acceding countries, EU membership will mean access to much-needed structural funds and visa-free travel to countries (such as the UK) that will invite free movement of labor immediately upon accession.

As the strict regulations of the acquis communautaire and Euro-zone standards are implemented in East Europe, the US will no longer have to micro-negotiate product standards with individual countries in the region, and there will be an immediate net decrease in tariff rates. US corporations, particularly pharmaceuticals, will appreciate the higher protection offered by the EU to intellectual property rights. Enlargement will also mean that the irritants in the EU-US trade relationship will be carried over to the acceding countries. These irritations include the controversy surrounding Genetically Modified Foods and Organisms, the Common Agricultural Policy subsidies, restrictions on US-produced television and entertainment, and the responsibility of manufacturers to recycle automobiles and electronic equipment.

Questions remain on where the EU is going in the long term. Accession negotiations will continue with Bulgaria, Romania, and Turkey, and a formal pre-accession process has been initiated with the Western Balkan countries. As of yet, no clear limits have been placed on the EU's enlargement potential. Crane argued that this boundary ought to be drawn in the near future.