The Political Economy of Eastern European Trade with the European Community: Why so Sensitive?

Abstract

EC trade with Eastern Europe Jim Rollo and Alasdair Smith Despite agreements to open trade with Eastern Europe, the European Community has retained a substantial degree of protection against imports of ‘sensitive’ products, notably agricultural products, textiles and clothing, and steel. This article investigates how sensitive these products really are. It is true that the targeted products are important to the EC economy, particularly in the poorer or declining regions. Yet trade with Eastern Europe only amounts to a very small proportion of the size of these sectors. When a large increase in imports is simulated, the overall effects on the Community are not insignificant, but are well within the range of the normal experience of economic change. Even without taking into account the fact that Eastern markets for EC goods would also grow, trade liberalization is welfare-increasing, particularly far Eastern Europe. Thus ‘contingent protection’, which may seriously deter investment in Eastern Europe, may simply be protectionism in any sector in which Eastern Europe is successful.