Costs and benefi ts of association

In order to identify the main costs and benefi ts of association, earlier research on similar costs and benefi ts may be useful. Several – but not many – authors have come up with overviews of the costs and benefi ts of earlier accession processes of EU-candidate countries. Neueder (2003) looked at the costs and benefi ts of accession to both existing and future EU members, in the 2004 enlargement. The main impacts he discussed were trade impacts, impacts on employment, impacts on the standard of living, and fi nancial support from the EU. He paid particular attention to impacts on labour-intensive industries and the agricultural sector. Cuipagea et al. (2004) focused specifi cally on the costs and benefi ts of Romania’s integration into the EU. They distinguished between economic and political impacts, and direct and indirect impacts. The main cost categories associated with accession are costs related to the adoption of EU norms and policies, costs related to compliance with the standards implied by these norms and policies, costs of assuming the status of an EU member, and costs related to the modernization of Romanian economy. As far as benefi ts are concerned, these concern fi nancial support to Romania, (other) benefi ts resulting from EU membership, and acceleration of reforms and the transition process.

Butković, Dujmović, Ondelj (2007) addressed benefi ts (not costs) of EU accession of Croatia, and distinguished between political benefi ts (including those regarding the functioning of the public administration) and economic/

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social benefi ts (differentiating between various economic sectors). Assessing the – rather scarce – research on costs and benefi ts of accession, it is worth noting that quantifi cation of costs and/or benefi ts is done in a very limited way and often involves data on fi nancial support from the EU only. The time dimension, i.e. that costs often precede benefi ts, is touched upon by most authors, but not elaborated upon. Other studies have focused on the overall effect of accession in terms of GDP growth over time (see for example Campos, Coricelli, Moretti 2014, for different waves of enlargement).

All in all, earlier research on accession is informative but does not provide a comprehensive and detailed overview of impacts. Fortunately, the recent literature on the impacts of DC-FTAs is more extensive, although, as mentioned in the introduction, there is an overriding focus on trade effects. Regarding these trade effects Baier, Yotov, Zylkin (2016) show, among other things, that for third countries that already have trade agreements with the EU in place prior to the implementation of DC-FTAs, these trade effects are generally smaller than for countries without such prior agreements. Prior to the DC-FTA Georgia had GSP+ status (GSP:

Generalised Scheme of Preferences), Ukraine had GSP-status, and Moldova was entitled autonomous trade preferences. Some authors focus specifi cally on agricultural trade (see for example Van Berkum 2015); this is interesting in the case of the EaP, as the DC-FTAs with Georgia, Moldova and Ukraine substantially differentiate in terms of acquis compliance requirements – linked to SEM access – between various agricultural goods, and between the countries involved.

A recent study by Adarov, Havlik (2016) provides a very comprehensive overview of the content of the DC-FTAS with the three EaP countries, of earlier research into impacts of DC-FTAs in Georgia, Moldova and Ukraine, as well as detailed quantitative analysis of these impacts. Table 1 is based on their summary of benefi ts and costs of DC-FTA implementation, but substantially amended and adapted. It shows the benefi ts and costs for various sectors within society: the business sector, the labour market/

workers, consumers, the public sector, and society at large. Each impact is labelled in terms of the dynamics of that impact: short-term and/or medium term and/or long-term. Overall, costs are mainly short- and medium-term, whereas most long-term impacts involve benefi ts.

Nico Groenendijk, Implementation of DC-FTAs in the EU Eastern Partnership:…

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Table 1. Cost and benefi ts of association, based upon Adarov & Havlik (2016: 71), amended and adapted

BENEFITS t COSTS t

Business sector

Decreased costs of imports/inputs Increased exports due to access to EU markets (and indirectly RoW), but restricted in some sectors (e.g. agriculture)

Increased domestic market effi ciency, better business environment, higher level of competitiveness, possibilities to be part of global value chains Financial and technical EU assistance to businesses

Higher FDI infl ow

Better access to fi nance, lower costs of capital, but limited to larger companies

Potential access to EU-SEM public procurement

– increased competition from EU producers

Wage increases due to labour mobility (but de facto limited except

for brain-drain, accelerated outfl ow)

ML Unemployment due to restructuring (esp. low-skilled labour in ineffi cient industries)

Higher consumer prices due to higher compliance costs, and due to removal of state aid

Elimination of some products due to non-compliance with EU standards

SM

SM Public sector

Financial and technical EU support for public sector reform

Higher tax revenues due to expanding tax base

Better public governance due to public sector reform

SM ML ML

Costs of implementing public sector reform, training, new expertise

of sovereignty in some policy areas Higher income inequality S: short-term effect; M: medium-term effect; L: long-term effect

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The dynamics of costs and benefi ts, and popular support