An import surge from the CEECs into the EU would be expected to raise demands for protection, although the EU has had until now only a small trade deficit with the CEECs, and it is anticipated that the CEECs will offer wide opportunities for foreign direct investment. In Discussion Paper No. 1049, Olivier Cadot and Research Fellow Jaime de Melo examine the adjustments and opportunities that are likely to occur during the transition period of the Europe Agreements. Taking a political economy perspective and using a case study to detect the likely long-term effects of CEEC integration for France, a typical wealthy EU member, the authors attempt to detect potential demand for protection at the sectoral and regional level. Recent aggregate figures for trade and direct investment are reviewed, showing that French trade relations with the CEECs have as yet failed to expand by as much as a simple gravity relationship would predict, while French direct investment in the area remains small.

The paper then considers disaggregated trade data: simple trade expansion simulations are carried out suggesting that job creation and destruction at the regional level is likely to be marginal. The paper closes by drawing a comparison with France's adjustment to the EU's 1986 Southern enlargement (to Spain and Portugal), showing that fears of job losses turned out in that case to be largely unfounded, while Spain attracted significant amounts of French direct investment.

France and the CEECs: Adjusting to Another Enlargement
Olivier Cadot and Jaime de Melo

Discussion Paper No. 1049, June 1995 (IT)