Are EU New Member Countries Competing against Southeast Asian Countries?

As far as the European market is concerned, the New Member Countries (NMC) have significant advantages over their extra-EU competitors. This argument is based on two sets of strong evidence: (1) statistics indicating the share of imports originating from inside and outside the EU, and (2) distinct benefits that NMCs enjoy but are not attainable by non-EU members.

First, as the chart below shows, the EU MSs’ main partners for imports of goods in 2018 were other EU MSs. It also indicates that several NMCs are the main import partners of other EU MSs:

  • Poland is the second main partner for Czechia and the third main partner for Latvia and Lithuania;
  • Czechia is the second main partner for Slovakia and the third main partner for Austria;
  • Hungary is the third main partner for Romania;
  • Slovenia is the third main partner for Croatia; and
  • Lithuania is the main partner for Latvia.

The second chart further illustrates that, in 2018, the 28 EU MSs imported a total of €5.426 trillion of goods, of which €3.446 trillion (or 64%) came from another EU MS. Both the charts indicate that the NMCs benefit significantly from the Single Market, both by selling their goods within the EU and by buying from fellow MSs in more favourable terms.

Secondly, the Directorate-General for Economic and Financial Affairs (2009) highlights many aspects of the accession process that benefit the MNCs, such as:

  • significantly improving living standards in NMCs, with income per capita rising from 40% of OMC average in 1999 to 52% in 2008;
  • the rapid modernisation of NMC economies, with the share of services in their GDP growing from 56% in 1995 to 63% in 2006;
  • investment from OMCs acting as a key driver of economic transformation in the NMCs;
  • investments and activities funded under cohesion policy being instrumental in facilitating the restructuring process in the NMC;
  • a new framework for product market regulation in the NMCs;
  • integration of NMCs agricultural markets and rural economies to the EU; and
  • workers in the NMCs profiting from improved employment opportunities at home and abroad.

The report also points out two intriguing implications in its comparison between the NMCs and Southeast Asian (SEA) economies. Firstly, while both the NMCs and the SEA countries experienced rapid economic growths, domestic demand had a higher contribution to growth in the NMCs, making the NMCs less sensitive to the adverse shocks of fluctuating foreign demand. Thus, the NMCs appear to have more sustainable economies than the SEA countries. Secondly, concerning the contribution of institutional factors, the NMCs had to implement sound macroeconomic and structural policies in the run-up to EU accession. Furthermore, the existing EU policy framework contributes to a further strengthening of macroeconomic fundamentals and reducing uncertainty. The NMCs’ potential competitors elsewhere in the world, including SEA, are trying to mimic this institutional advantage, but it remains the EU’s unique privilege for now.

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