EU expansion to boost exports, says economist

Most export sectors stand to gain from the planned enlargement of the EU, according to a new analysis. Even the food processing sector is likely to benefit, as it produces a different range of products from those in which the accession countries specialise, says Dr Frank Barry of the UCD Department of Economics.

Trade between Ireland and the 10 central and eastern European states due to join the EU next year "can be expected to double in the coming years", according to analysis published in the latest edition of the Irish Banking Review.

Irish trade with these countries has expanded rapidly, says Dr Barry. But Ireland still trades more than 40 times as much with the rest of the EU as it does with the 100 applicant states, yet EU GDP is only 20 times larger. This suggests that trade can at least double with these states, and since they are likely to be growing rapidly the trade expansion could be even quicker. "Therefore there will be huge opportunities for Irish exporting firms to exploit over the coming years," the study says.

Previous studies have shown that the food processing, clothing and textile sectors in the current EU 15 are most vulnerable to competition from the new entrants. But Dr Barry believes Irish food processing is not overly threatened, as it is based on beef and dairy products, while the food sector in the accession states is primarily cereal-based. But the Irish sector is likely to suffer from the withdrawal of export subsidies that assist those exporting outside the EU.

Other sectors, such as textiles, clothing and footwear, could be vulnerable to lower-cost imports. Dr Barry is fairly sanguine on the dangers, believing that Irish firms could also benefit from outsourcing part of their production to lower-cost locations and that the employees are now more highly skilled and can thus more easily move between sectors.

The accession states may compete with the Republic for foreign direct investment, the paper says. Some have followed the Irish lead in offering low corporation tax rates and have cheap labour costs. There is little evidence of investment being attracted away from Ireland to these states, Dr Barry writes, and an analysis of imports and exports suggest fears of direct competition between Ireland and the accession states for particular categories of foreign direct investment "may be overstated".

Finally, at €90 million per annum for the first few years, Dr Barry believes Ireland's expected contribution to the net cost of enlargement is easily manageable, although were costs to be redistributed between the EU 15 in line with current income levels, the cost could rise sharply.