European Integration
1992 and all that

The main effects of the completion of the European internal market will be felt in international trade. In Discussion Paper No. 678, Programme Director L Alan Winters considers the European Commission's `official' estimates of the effects of the `1992' programme (published in the 1988 Cecchini Report) and compares them with the results of a major CEPR research programme, `The Consequences of 1992 for International Trade'. According to the Commission's estimates of the `Costs of Non- Europe', which were conditional on the `1992' programme's completion and full implementation, removing barriers to intra-EC trade and impediments to EC production would reduce EC imports by 10% and boost intra-EC trade by 6.5%, together implying welfare gains to the Community of some 80 billion ecu. Removing trade barriers in imperfectly competitive markets would enhance competition and efficiency and add another 40 billion ecu, while scale economies would add a further 60 billion ecu.

Winters maintains that the Commission's methodology may systematically overstate the welfare benefits of `1992' while seriously underestimating the effects of the two later stages of the analysis. It also ignores the distribution of benefits among member states, on which no consensus has yet emerged. Some predict large gains to the poorer, low-wage economies of the `periphery' from their better ability to exploit their comparative advantages in the richer EC North markets, while others argue that industry will migrate to the `core', to be closer to large markets and reap the external economies of agglomeration.

Winters then reviews the research conducted under the auspices of this CEPR research programme, much of which has been published in Discussion Papers summarized in this and previous issues of the Bulletin and presented to the programme's final conference, reported in issue 49. He concludes with some key policy implications of this research. First, it is essential to maintain competition within the Community, through both competition policy and open borders. Second, the `1992' programme complicates the formulation of trade policy; member states' interests differ, so current institutions which stress national interests may be unsatisfactory. Third, the effects of policy are difficult to predict in integrated markets, since they depend on subtle and often unmeasured factors; so intervention is very risky. Finally, the effects of `1992' on other countries arise primarily from improvements in the Community's regulations and efficiency rather than from discriminatory policy, so there is no reason for the EC to compensate its trading partners for the programme's effects.

European Trade and Welfare after `1992'
L Alan Winters

Discussion Paper No. 678, June 1992 (IT)