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Trade Liberalisation Benefits to EU Member States. By Cordula Thum
Jul 20, 2002

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  • Comment Board

    There are several factors that explain the relative large gains for the EU.

    Firstly, agriculture is currently rather highly protected in the EU and liberalization in this area could provide important benefits for EU consumers.

    Secondly, EU producers of industrial products would stand to make gains from improved access to foreign markets, especially in developing countries, where they currently face relatively high trade barriers. One important difference between the EU and the U.S. is that, because of NAFTA, the latter already conducts a much larger share of its trade on a relatively free basis. This means that, in relative terms, the impact of further multilateral liberalization on the degree of access to foreign markets is likely to be more important for the EU than for the U.S. In absolute terms, the U.S. will have the greatest benefits from liberalizing the service sector (US$150 billion), less benefits in manufacturing (US$31.3 billion), whereby the EU has significant gains in the manufacturing sector (US$63.6 billion).

    Thirdly, given that the EU is the world’s largest exporter of commercial services, and given also the high share of services in EU GDP (accounting for over 70% of GDP), it is hardly surprising that the simulations suggest that the EU stands to make large gains in the service sector (US$103.4 billion).

    However, it is important to stress the fact that the prediction of potentially large welfare gains for the EU derives mainly from its current pattern of protection. An important general equilibrium effect of EU liberalization will therefore arise from the incentive for resources to move out of relatively highly protected sectors and into sectors in which the EU has a comparative advantage or which benefit from scale economies (see box 1). With further liberalization, EU services sector would be in a relatively stronger position to expand and take advantage of improved access to foreign markets.

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