Integration, Trade Policies, Factor Movements and the European Competitive Order: Problems of CEEC-Accession to the EU

The aim of the Europe Agreements is to prepare the CEECs for eventual accession to the EU. At present, they are essentially confined to liberalization of commodity trade, although many barriers remain for sensitive products, and as a consequence, factor price equalization via trade is severely hindered. Immigration into the EU is still under national jurisdiction and practically excluded. The only remaining transmission channels — capital movements and technology transfers — suffer from insufficient financial markets and other unsolved transition problems in most CEECs.This situation is analyzed in terms of an extended Heckscher-Ohlin model, allowing for transaction costs, which may be different for trade, migration, and capital movements.