Wednesday, May 05, 2004

Free trade is as free trade does

Foreign companies are watching very carefully what enlargement will mean for trade with the new member states, who have had to adjust all their tariff rates to those of the EU. To a great extent and rather cautiously this has been welcomed, since many of the rates will now be lower. For many, however, the change will not be a happy one.

Banana importers from Central America will now be facing a 75 per cent tariff in the East European countries, having previously had almost none. There will also be severe limits on how much they will be able to sell before those tariffs rise to an impossible 750 per cent.

Quotas and tariffs on the sugar trade will mean a steep rise in sugar prices in Eastern Europe, which will adversely affect much of the confectionary trade, a big and important part of food production and food export. Many large international food companies have invested in the countries in the east and may now find production prohibitively expensive.

As ever, it will be the poorer Third World countries that will be hit both by the tariffs on agricultural goods and the likely subsidies poured into some industrial sectors. But as tariffs on machinery, appliances and some types of chemicals are likely to go up, richer importers are likely to be affected.

The outcome of all these upheaval will not be clear for months to come. The same applies to the effect all this may have on the so far successful East European economies.

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