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Enlargement of the European Union: Evaluation and Outlook
economic growth, economic cooperation
Author Yoonjung Kim, Cheolwon Lee, Taehyun Oh, Chorong Kim, and Yooduk Kang Series 23-35 Language Korean Date 2023.12.29
This study assesses the previous enlargement of the EU and investigates the potential enlargement EU in the future. The European Union has established itself as a politically and economically integrated community in the European region, and it continues to evolve. The biggest change in the EU in the last two decades was the massive enlargement of the EU to the countries of Central and Eastern Europe in 2004, when eight Central and Eastern European countries joined the EU together at the same time. The discussion of EU enlargement, which has been stagnant since the last enlargement when Croatia joined the EU, seems to have been revitalized by the recent Russian invasion of Ukraine. As further changes in the EU are becoming increasingly visible, the purpose of this study is to draw implications for Korea’s future strategy to cooperate with the EU candidate countries. To this end, Chapter 2 provides an understanding of the EU’s enlargement process, and Chapter 3 lays the groundwork for future conjectures through an economic and political assessment of existing Central and Eastern European countries since their accession to the EU. In addition, Chapter 4 examines the prospects for the accession of the candidate countries through a diagnosis of their current economies and governance, and Chapter 5 examines Korea’s cooperation with the existing Central and Eastern European countries and the current status of cooperation with the candidate countries. We conclude with the prospects for further enlargement of the EU and policy implications for Korea’s future cooperation in Chapter 6 .
Chapter 2 first examines the process of EU enlargement, the incentives for enlargement from the EU’s perspective and the incentives for membership from the member states’ perspective. We then discuss how the fulfillment of the Copenhagen Criteria, a prerequisite for EU accession, is assessed. According to these criteria, a country must meet three main requirements to be eligible to join the European Union. First, politically, democracy, the rule of law, and human rights must be guaranteed, as well as the respect and protection of minorities. Second, economically, it must have a functioning market economy and sufficient capacity to withstand competition within the European Union single market. Finally, it must have the administrative capacity to apply the acquis communautaire regulations, criteria, and policies of the European Union, including its objectives as a political, economic, and monetary community. The fulfillment of the Copenhagen Criteria is assessed through the EU’s negotiation process with the accession candidates on 35 policy areas (chapters). We provide an overview of EU enlargement, with examples of the main issues that may arise during negotiations and discussions of changes in the EU’s enlargement strategy following the recent Russian invasion of Ukraine.
Chapter 3 analyzes the economic and political outcomes of EU enlargement, focusing on the existing accession countries. The economic performance of Central and Eastern Europe after enlargement is analyzed by focusing on macroeconomic variables, such as GDP, GDP per capita, trade share with the EU, foreign direct investment (FDI) inflows, current account changes, and industrial structure changes. The beta-convergence analysis, which looks at convergence across countries, shows that Central and Eastern Europe has been able to enjoy a catch-up effect based on its high economic growth rates since joining the EU. In this regard, we can cautiously conjecture a link between the significant increase in FDI inflows and the development of the manufacturing sector following EU accession and economic growth. On the other hand, in terms of convergence within individual countries, we observe income disparities in the economic centers of each country, suggesting that EU accession is not a panacea. In the case of political performance before and after EU accession in Central and Eastern Europe, the World Governance Indicator data shows that improvements in democracy and rule of law occurred during the accession process. Microeconomic analysis using Eurobarometer data shows that individuals with relatively higher regards of their subjective economic conditions and assessments of domestic democracy are likely to have relatively more positive perceptions of the EU. Also, individuals with perceptions that the EU as a community sharing common values or political solidarity can be associated with having relatively more positive perceptions of the EU. It is worth noting that the explanatory power of the variables for evaluating the EU differs between Central and Western Europe. A detailed analysis of the mechanism is beyond the scope of this study, but it is a topic worth exploring further in future research
Chapter 4 analyzes the overall economic conditions and industry characteristics of the candidate countries, focusing on macroeconomic indicators, in order to provide a more detailed analysis of the candidates’ prospects for future accession, and to identify factors that may pose challenges in the EU accession negotiation process. Although there is no direct reference to the size of economy or the income level in the EU accession negotiations, countries with low income can have issues in satisfying the Copenhagen Criteria. In particular, we found the strong negative correlation between the income level of existing accession countries at the start of negotiations and the length of time for the negotiation to join the EU. This suggests that, given the current income levels of accession candidates, it will likely be a very long time before they finally join the EU. The candidate countries are also showing relatively weak state of governance compared to the Central and Eastern Europe at their time of accession, which implies that achieving the Copenhagen Criteria and adapting to the EU legal framework is likely to be a major challenge for the candidate countries. Nevertheless, based on the current state of negotiations and the analysis in Chapter 4, we conclude that Serbia and Montenegro are the most likely candidates to join the EU, while Ukraine, given its geopolitical specificities, is also a key candidate and will be discussed in more detail in this study. However, it is unlikely that the EU will be able to rush the accession process at a rapid pace, as this could lead to a weakening of integration and increased governance problems. In addition, as accession is ultimately decided by a unanimous vote, the possibility of reducing benefits for the existing beneficiaries of EU Cohesion Funds - the countries of Central and Eastern Europe - is likely to be a major issue. For the candidate countries, it may be very difficult to fulfill the EU accession conditions if their economic and governance levels are not significantly improved, and other factors such as territorial disputes stemming from historical issues and protracted discussions may weaken the incentives for the candidate countries to improve their governance
Chapter 5 examines the changes in economic cooperation with Korea after the accession of Central and Eastern European countries to the EU and analyzes the economic cooperation between the candidate countries and Korea. We found that FDI from Korea increased around the time of accession of Central and Eastern European countries to the EU, and that these investments were mainly concentrated in Poland, the CzechRepublic, and Hungary to establish production bases within the EU single market by taking advantage of relatively low-cost labor. Trade between Korea and Central and Eastern Europe has also increased significantly since the EU enlargement, mainly in Central and Eastern European countries with relatively better governance. The investment and trade was concentrated in manufacturing, and the data shows that automotive and construction-related industries have entered the market. In the case of the major accession candidate countries, economic cooperation is not large in terms of trade or investment currently, but in the case of Serbia, it is gradually becoming more active. In particular, it is worth noting that Serbia has lower wages and a lower corporate tax rate compared to Central and Eastern Europe, and Montenegro is the most advanced candidate in the accession negotiations, although its trade with Korea is still minimal. In the case of Ukraine’s reconstruction project, which has received a lot of attention recently, it is necessary to consider cooperation with Poland, which is likely to be a basecamp of the reconstruction project. Forming strategic alliances with European companies that have established joint ventures with Ukrainian companies can be a recommended strategy for participating in the reconstruction project
Chapter 6 combines the findings of the previous chapters to provide an outlook on the prospects for future EU enlargement and provides policy implications for Korean companies’ entry strategies in the accession candidate countries. At this point, it seems that it will take quite a long time for the candidate countries to join the EU, but nevertheless, the EU is increasingly adding momentum to the potential enlargement. In sum, it is necessary for Korean companies to proactively draw up strategies for entering the candidate countries in the medium to long term. Given Montenegro’s friendly relations with Serbia, it is necessary to take an integrated view of entering both countries. Since Croatia is expected to take on a large part of the shipping logistics previously handled by Slovenia due to their joining of Eurozone and the Schengen Area in 2023, the ripple effect is likely to affect Montenegro as a neighboring country of Croatia. Serbia is a candidate with relatively active trade with Korea and is considered the most likely candidate to increase trade and investment with Korea. Among the three candidate countries that we focus in this study, Serbia is more likely to take over the manufacturing role of Central and Eastern Europe in the future. We conclude that Serbia is a candidate country that should be considered for priority entry and cooperation. Ukraine’s case poses geopolitical uniqueness as Ukraine is currently at war. Due to the ongoing war and current security threats, EU accession is
much more uncertain for Ukraine than other candidate countries. In addition, it is unclear when the reconstruction project, which has been attracting attention recently, will begin. It is crucial to utilize the existing cooperation with Poland and Korea to participate in the reconstruction project from a long-term perspective.
Chapter 2 first examines the process of EU enlargement, the incentives for enlargement from the EU’s perspective and the incentives for membership from the member states’ perspective. We then discuss how the fulfillment of the Copenhagen Criteria, a prerequisite for EU accession, is assessed. According to these criteria, a country must meet three main requirements to be eligible to join the European Union. First, politically, democracy, the rule of law, and human rights must be guaranteed, as well as the respect and protection of minorities. Second, economically, it must have a functioning market economy and sufficient capacity to withstand competition within the European Union single market. Finally, it must have the administrative capacity to apply the acquis communautaire regulations, criteria, and policies of the European Union, including its objectives as a political, economic, and monetary community. The fulfillment of the Copenhagen Criteria is assessed through the EU’s negotiation process with the accession candidates on 35 policy areas (chapters). We provide an overview of EU enlargement, with examples of the main issues that may arise during negotiations and discussions of changes in the EU’s enlargement strategy following the recent Russian invasion of Ukraine.
Chapter 3 analyzes the economic and political outcomes of EU enlargement, focusing on the existing accession countries. The economic performance of Central and Eastern Europe after enlargement is analyzed by focusing on macroeconomic variables, such as GDP, GDP per capita, trade share with the EU, foreign direct investment (FDI) inflows, current account changes, and industrial structure changes. The beta-convergence analysis, which looks at convergence across countries, shows that Central and Eastern Europe has been able to enjoy a catch-up effect based on its high economic growth rates since joining the EU. In this regard, we can cautiously conjecture a link between the significant increase in FDI inflows and the development of the manufacturing sector following EU accession and economic growth. On the other hand, in terms of convergence within individual countries, we observe income disparities in the economic centers of each country, suggesting that EU accession is not a panacea. In the case of political performance before and after EU accession in Central and Eastern Europe, the World Governance Indicator data shows that improvements in democracy and rule of law occurred during the accession process. Microeconomic analysis using Eurobarometer data shows that individuals with relatively higher regards of their subjective economic conditions and assessments of domestic democracy are likely to have relatively more positive perceptions of the EU. Also, individuals with perceptions that the EU as a community sharing common values or political solidarity can be associated with having relatively more positive perceptions of the EU. It is worth noting that the explanatory power of the variables for evaluating the EU differs between Central and Western Europe. A detailed analysis of the mechanism is beyond the scope of this study, but it is a topic worth exploring further in future research
Chapter 4 analyzes the overall economic conditions and industry characteristics of the candidate countries, focusing on macroeconomic indicators, in order to provide a more detailed analysis of the candidates’ prospects for future accession, and to identify factors that may pose challenges in the EU accession negotiation process. Although there is no direct reference to the size of economy or the income level in the EU accession negotiations, countries with low income can have issues in satisfying the Copenhagen Criteria. In particular, we found the strong negative correlation between the income level of existing accession countries at the start of negotiations and the length of time for the negotiation to join the EU. This suggests that, given the current income levels of accession candidates, it will likely be a very long time before they finally join the EU. The candidate countries are also showing relatively weak state of governance compared to the Central and Eastern Europe at their time of accession, which implies that achieving the Copenhagen Criteria and adapting to the EU legal framework is likely to be a major challenge for the candidate countries. Nevertheless, based on the current state of negotiations and the analysis in Chapter 4, we conclude that Serbia and Montenegro are the most likely candidates to join the EU, while Ukraine, given its geopolitical specificities, is also a key candidate and will be discussed in more detail in this study. However, it is unlikely that the EU will be able to rush the accession process at a rapid pace, as this could lead to a weakening of integration and increased governance problems. In addition, as accession is ultimately decided by a unanimous vote, the possibility of reducing benefits for the existing beneficiaries of EU Cohesion Funds - the countries of Central and Eastern Europe - is likely to be a major issue. For the candidate countries, it may be very difficult to fulfill the EU accession conditions if their economic and governance levels are not significantly improved, and other factors such as territorial disputes stemming from historical issues and protracted discussions may weaken the incentives for the candidate countries to improve their governance
Chapter 5 examines the changes in economic cooperation with Korea after the accession of Central and Eastern European countries to the EU and analyzes the economic cooperation between the candidate countries and Korea. We found that FDI from Korea increased around the time of accession of Central and Eastern European countries to the EU, and that these investments were mainly concentrated in Poland, the CzechRepublic, and Hungary to establish production bases within the EU single market by taking advantage of relatively low-cost labor. Trade between Korea and Central and Eastern Europe has also increased significantly since the EU enlargement, mainly in Central and Eastern European countries with relatively better governance. The investment and trade was concentrated in manufacturing, and the data shows that automotive and construction-related industries have entered the market. In the case of the major accession candidate countries, economic cooperation is not large in terms of trade or investment currently, but in the case of Serbia, it is gradually becoming more active. In particular, it is worth noting that Serbia has lower wages and a lower corporate tax rate compared to Central and Eastern Europe, and Montenegro is the most advanced candidate in the accession negotiations, although its trade with Korea is still minimal. In the case of Ukraine’s reconstruction project, which has received a lot of attention recently, it is necessary to consider cooperation with Poland, which is likely to be a basecamp of the reconstruction project. Forming strategic alliances with European companies that have established joint ventures with Ukrainian companies can be a recommended strategy for participating in the reconstruction project
Chapter 6 combines the findings of the previous chapters to provide an outlook on the prospects for future EU enlargement and provides policy implications for Korean companies’ entry strategies in the accession candidate countries. At this point, it seems that it will take quite a long time for the candidate countries to join the EU, but nevertheless, the EU is increasingly adding momentum to the potential enlargement. In sum, it is necessary for Korean companies to proactively draw up strategies for entering the candidate countries in the medium to long term. Given Montenegro’s friendly relations with Serbia, it is necessary to take an integrated view of entering both countries. Since Croatia is expected to take on a large part of the shipping logistics previously handled by Slovenia due to their joining of Eurozone and the Schengen Area in 2023, the ripple effect is likely to affect Montenegro as a neighboring country of Croatia. Serbia is a candidate with relatively active trade with Korea and is considered the most likely candidate to increase trade and investment with Korea. Among the three candidate countries that we focus in this study, Serbia is more likely to take over the manufacturing role of Central and Eastern Europe in the future. We conclude that Serbia is a candidate country that should be considered for priority entry and cooperation. Ukraine’s case poses geopolitical uniqueness as Ukraine is currently at war. Due to the ongoing war and current security threats, EU accession is
much more uncertain for Ukraine than other candidate countries. In addition, it is unclear when the reconstruction project, which has been attracting attention recently, will begin. It is crucial to utilize the existing cooperation with Poland and Korea to participate in the reconstruction project from a long-term perspective.
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