been taking place. This is however far from being free trade. The EU has imposed several
anti-dumping and price-fixing arrangements, which largely restrict the CEEC exports of
particularly “sensitive goods“ such as industry products, apparel and agricultural production.
The trade liberalization succeeds in an asymmetric way, where the CEEC disposes longer
time periods for tariff reductions. This points to the expectation of larger welfare changes on
the side of the CEEC after the completion of the trade liberalization. In the following we are
considering the effects of trade liberalization between the EU and the new accession countries
using a multi-commodity, multi-country trade CGE model. However, full EU membership
involves a much deeper integration of commodity and factor markets through the Single
Market program (which will reduce real trade cost) and includes in addition the adoption of
EU policies in the fields of e.g. anti-dumping, state aids and competition policy, and the
participation in the EU common agricultural policy (CAP) and the European structural funds
(ESF).
Trade integration holds a clear potential for mutual welfare gains for the incumbent
EU countries as well as for the entrants. Since trade liberalization involves larger tariff cuts
for the CEECs than for the EU (imports from CEECs amount only to 4 per cent of EU
imports, but two-thirds of the CEECs imports are from the EU), initial protection levels
suggest that income gains from enlargement are much higher for CEECs than for the EU
(Baldwin, Francois and Portes 1997). Following Francois (1997) CGE models are able to
capture (i) static allocation effects emphasized by the classical trade theory, (ii) the so-called
pro-competitive effects, stemming from the interactions of different market structures and
trade policies and (iii) the effects of the accumulation of the human and physical capital.
Static efficiency gains from trade
Traditional theory emphasizes static welfare effects. The most common trade barriers
are taxes on imported and exported goods known as tariffs. The reduction of tariff distortions
promises the usual welfare gains. Tariffs tend to shift resources from the export industries to
the import competing industries, through the increase of the domestic price of the imported
goods. Thus they protect the operations of the home industries with regard to import
competition. The EU applies relatively low trade barriers vis-a-vis the rest of the world in
comparison to the accession countries, although the protection of agriculture is considerably
higher. Well-known perfect competition allocation effects on the sectoral level are trade
creation, trade diversion and terms of trade effects. Both trade creation and trade diversion