have to implement the whole body of EU directives but to develop their own environmental
policy strategies for compliance with this international agreement.
There is meanwhile a bulk of literature providing quantitative evidence on the
economic effects of the full integration of the Central and East European Countries into the
EU (Francois 1998, Baldwin, Francois and Portes 1997) as well as the Kyoto Protocol
(Weyant 1999, IPCC 2001). However, there is a lack of quantitative research on the linkage
of trade and the environment in the context of the EU enlargement. In this paper we analyze
the interactions of different environmental policies under the Kyoto Protocol and trade
liberalization between the EU and the CEECs using a comparative static multi-sectoral, multi-
regional computational general equilibrium model (CGE). We find that the trade liberalization
in terms of abolishment of tariff barriers provides large gains for the CEECs while integration
holds only modest efficiency gains for the EU member states. It does not show a significant
impact on carbon abatement policies, however it mitigates welfare losses caused by
environmental policies. The set up of our paper is as follows. Firstly, we briefly introduce the
most important environmental policy issues in the transition countries and the impacts of the
environmental policies on the pattern of trade. Secondly, we give an overview of the course of
trade liberalization, its presumed economic effects and the impacts on the environment.
Thirdly, we outline a CGE Model, which was constructed for the analysis of economic-
environmental questions. Fourthly, we present and discuss the results of several scenarios
concerning trade and environmental policies in the context of the EU enlargement and the
Kyoto protocol. In the last section we conclude and point out some lines for future research.
2. The state of the environment and environmental policy in Central and Eastern
Europe Countries
The real state of the environment in transition countries after 40 years of socialism has
become subject of increasing concern. In spite of different natural and climatic conditions the
transition countries have similar environmental problems, in particular high air, water and soil
pollution. Air pollution is mainly due to SO2, NOx, CO emissions and dust particles, caused
by the combustion of the low-quality coal in power plants and heavy industry (chemistry and
metallurgy). The deposit of SO2, CH4 and N2O has led to higher acidification of the soils, has
contributed to the decrease of soil fertility and ultimately has prevented the growth of new
forests (e.g. the sulfur triangle). The used agricultural methods led to soil erosion and loss of