Business implications of EU enlargement

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The Czech republic is expected to join the European Union in 2004 in a group of ten Central and East European countries. The issue of EU enlargement is quickly becoming the most pressing for companies doing business in the region. Recently, the Economist Corporate Network which is part of The Economist Group, in cooperation with business advisor Ernst & Young published a report assessing the business implications of EU enlargement.

According to the study, the main obstacles to accession now are negotiations over agriculture, failure to ratify the Nice Treaty with the Irish facing a second referendum in autumn, and membership referendums in the candidate countries. Whereas the population in the enlarged EU will increase by 20 percent, its GDP is expected to grow by only 4.4 percent and the average GDP per capita will fall by 13 percent. Economists estimate that accession could bring around 5-9 percentage points of additional real GDP within ten years.

The report states that most of the immediate trade and foreign investment benefits of accession have already been reaped during the past decade, but most of the long-term benefits will not be felt for another five years. At the same time, during this transition period, the functioning of the Single Market will be restricted by poor implementation and enforcement of EU regulations, official transition periods for free movement of labour, delays in opening internal borders and a waiting period before joining the eurozone.

I spoke to Viliam Gracz, Ernst & Young partner in Prague, about the business implications of enlargement and asked him first about its immediate effects on the Czech economy: