Summary

With the EU enlargement on 1 May 2004 and the accession of 10 new member states, the EU's already very strong economic and political power in trade negotiations will increase. The European Commission will negotiate on behalf of the EU-25 all trade deals in the World Trade Organisation (WTO), as well as in bilateral and regional agreements. In addition to the implementation of all EU trade agreements, acceding countries will apply the Common External Tariff (CET) and the EU trade defence measures, such as anti-dumping and anti-subsidy, in force at that date (1). Tariffs in external trade will fall from 9% to 4% and the EU-25 will account for approximately 18% of world trade.

At the same time, with EU enlargement, internal trade in goods and services within the EU will further increase and be liberalised. The EU-25 will represent a market of 450 million consumers and will be the world's largest single market.

While increased trade across borders in the EU-25 can bring economic benefits and help create an area of peace and security, there is a danger that, based on current developments, trade will be promoted as a goal in itself rather than a means to promote sustainable development. If the current model of trade liberalisation is promoted the following scenarios are likely:

The European Commission, which conducts sustainability impact assessments on all trade agreements since the year 2003, has failed to also undertake an independent assessment of the environmental, social and economic impact of EU enlargement and has not suggested mitigation measures in order to prevent negative impacts.

In this context, there is a danger that social and environmental considerations are put on the backburner, that unsustainable production and consumption patterns will increase and that trade liberalisation is promoted within a model that disregards social and environmental sustainability. In addition, there is also a danger that trade developments following enlargement will have a negative impact on developing countries in terms of market access to the enlarged EU, investment flows and aid. This could further accentuate the North-South gap, representing a step in the wrong direction within the overall objective of building a fair and sustainable global trading system. It is extremely worrying that no sustainability impact assessment of EU enlargement has been conducted, and that therefore its economic, social and environmental consequences for the EU as well as for other trading partners have not been duly evaluated.

The impact of enlargement on the accession countries
According to the European Commission, from the point of view of trade, the enlargement has already taken place, given that almost all trade has already been liberalised. However, in order to understand trade patterns and its consequences, it is necessary to consider the enlargement as the latest step of a longer process that started in the early 1990s. From the point of view of trade and investment flows, May 1st is only an official date that crowns a process of economic liberalisation initiated over a decade earlier under the guidance of the international financial institutions. Therefore, if in the short term the enlargement is not going to bring massive changes in trade patterns within Europe, its significance lies in the type of economic model that is being fostered in CEECs.

After a shock-therapy in price and trade liberalisation, and within the dominant discourse of competitiveness at any cost, the EU seems to be pushing for an economic model in CEECs which in certain areas is paradoxically more market-based than in the West. A telling example is Latvia where, by 1998, about 95% of formerly state-owned enterprises had been privatised (3). This seems to be supported by an underlying assumption that, in the debate about liberalisation and intervention, orthodox liberalism is the role model, thus ignoring the positive aspects of CEECs' economies, such as certain aspects of state regulation that guaranteed reasonable social standards or public services provision. The consequences are the closure of thousands of state-owned enterprises that employ a considerable part of the labour force of CEECs and are unable to withstand the shock of international competition. This process has been encouraged by a corporate-led agenda, in which multinational corporations (MNCs) tend to see CEECs as extremely attractive markets, with low-wage labour and potential for catch-up economic growth.

Trade in natural resources and agricultural goods
The problem of trade liberalisation and sustainability can be exemplified by Latvia, which is becoming an exporter of low-added-value products and of natural resources. Latvia is rich in forestry, about 40% of the territory being covered by wood. In the 1990s, Foreign Direct Investment (FDI) in the wood-processing industry resulted in a rapid increase in timber output, which is now experiencing an average annual growth of 20-30%. Demand for wood and wooden products in EU countries (especially the United Kingdom, Germany, Sweden and Finland) is high, so exports of these low-added-value products increased reaching up to 40% of total export value (4).

Increasing exports of natural resources with low added value is clearly not sustainable in the long term and is leading to monoculture forests, as currently only the most profitable types of trees are being planted. This represents a serious threat to the future of Latvia's forests and biodiversity. A similar situation can be observed in Slovakia: due to the Association Agreements, export quotas of timber were relaxed, leading to a rapid increase in exports. As a result, almost 40% of extracted raw timber, with little or no added value, is currently exported, and despite increased timber extraction, Slovakian domestic demand is still not met.

Current trends in agricultural trade are also a cause for concern from the point of view of food security and the environment. The agricultural share of the economy in the new members is significantly larger than in the EU-15. It is therefore essential to promote a trade system that allows for sustainable agricultural development. Instead, farmers in CEECs are forced to give up many of their traditional activities in order to specialise in the few sectors where they can compete with the West. This process promotes large-scale intensive farming, damaging small farms, local producers and preventing the development of an environmentally sustainable agriculture.

This is particularly true of Poland, where the CAP is leading to an increase in cheap imports and intensive farming. Polish environmental NGOs have warned against the growing use of nitrates and pesticides, which could seriously harm Poland's unique agricultural landscape and biodiversity within a few years (5). If instead, the right support and training were to be offered, Poland's extensive farming sector, with its high input of manual labour, would provide good opportunities for the production of organic and other high-value products. Instead, larger farmers and agri-businesses tend to impede an agricultural policy reform that truly combines policy objectives of food security and food sovereignty with environmental sustainability.

Investment
In the quest to attract MNCs, CEECs offer ideal conditions: low wages, well-educated workers, industrial tradition, high unemployment rates and a willingness to re-launch the economy at any cost, including the demise of social protection systems. This is likely to result in a race to the bottom in which social standards are sacrificed in order to attract investment. In July 2003 a European Commission report warned that all the accession countries except Estonia and Latvia had corporate tax breaks that could frustrate the EU's internal market by diverting revenue and investments (6). In Poland, tax breaks in 14 "special economic zones" were considered as unfair.

The Czech Republic has become one the region's largest recipients of FDI. This has had positive effects on the overall economy, creating employment in the manufacturing sector and in local supplier companies. However, all-out liberalisation has dangerous side-effects: as a natural transit country in the middle of Europe, the Czech Republic can easily become another Austria, suffering from heavy pollution by intense lorry traffic. The European Commission estimates that the Czech Republic will see an increase of lorry transit by 40% after the accession (7). In addition Hypermarkets are mushrooming throughout the country, increasing from 2 in 1996 to over 60 in 2000. Meanwhile, the share of sales by international retailers has grown from under 20% in 1993 to about 65% in 1999 (8). The invasion of international shopping chains has forced the closure of small retailers, decreased local employment in many areas and increased customer car dependency.

In general, with more trade and investment, lorry transit in the EU-25 is expected to increase by two thirds by the year 2015 (9).

Consequences for third countries
The European Commission argues that third countries will benefit from an increased single market and a simplified and enhanced access to the acceding countries' markets. Less developed countries (LDCs) however, see a much less rosy picture. EU enlargement can affect developing countries negatively in different ways. Firstly, imports from LDCs may be replaced with more expensive imports from the new member states. Secondly, investment flows may now go to low-labour-cost areas within the EU, rather than to LDCs. Thirdly, the costs of integrating new member states may decrease aid flows to LDCs (10). In addition, there is concern about the absence of any tradition in CEECs of providing development aid and establishing development cooperation policy (11).

A major concern for LDCs is agricultural trade. Agricultural exporters from developing countries fear that EU enlargement will further increase trade protection and raise subsidies in the acceding countries (12). Banana imports, for example are subject to very low or no tariffs in CEECs, which implies that there will be an increase in trade protection. African, Caribbean and Pacific (ACP) countries have called on the EU to "take urgent action to avert the threat posed to ACP banana exports to the EU" (13) as well as other commodities.

Conclusion
This paper has outlined some scenarios of potential impacts of EU enlargement on trade, people and the environment. In order to gain a better understanding of the issues at stake and to prevent potential negative impacts, the European Commission should conduct a sustainability impact assessment of EU enlargement. Such an assessment should review environmental and social impacts of trade liberalisation measures and identify potential mitigation measures in order to combat negative effects. This study should be conducted immediately with civil society participation. The outcome should be integrated into EU policy-making from the start of EU enlargement in order to develop a sustainable and fair EU-25 in a globalised world.

(1) European Commission, Trade implications of EU enlargement: Facts and figures , Memo/04/23, 4-2-2004.

(2) European Commission, Trade and EU Enlargement: Towards More Trade in an Enlarged Union http://www.europa.eu.int/comm/trade/issues/bilateral/regions/candidates/index_en.htm (accessed 26-3-2004).

(3) Friends of the Earth, Trade and Environment in CEE countries , 2002, Budapest

(4) Friends of the Earth, Trade and Environment in CEE countries , 2002, Budapest

(5) Source : PKE-Friends of the Earth Poland, document Polish agriculture after accession , 31-3-2004.

(6) Financial Times, '' As the region's prospects dim, investors admit: 'Our enthusiasm for central Europe has taken a big hit' '' , 23 July 2003.

(7) Friends of the Earth, Trade and Environment in CEE countries , 2002, Budapest

(8) Source: Incoma Research (quoted in Friends of the Earth, Trade and Environment in CEE countries, 2002, Budapest)

(9) Manfred Stolpe, German transport minister at Mobility Forum, Stuttgart, April 2004.

(10) EU-LDC Network website: http://62.58.77.238/themes/euenlargement/index.php

(11) G. Anthony Hylton, Beyond Lomé: Challenges and Prospects for ACP Countries in Trade Negotiations Insights, February 2003 Vol. 2, Issue No.1, ECDPM-ICTSD, http://www.ictsd.org/tni/tni_english/TNI_EN_2-1.pdf

(12) EU-LDC Network website: http://62.58.77.238/themes/euenlargement/euenlarge_research.php

(13) 6th Meeting of the ACP Ministers for Trade (31/7 - 1/8/2003) http://www.epawatch.net/general/search.php