1 February 2002 • Development Opportunities Offered at Sectoral Level by EU Enlargement • Peter Mayerhofer, Gerhard Palme

The effect of eastern enlargement will vary greatly between sectors of the Austrian economy, not least due to the current framework of trade policies. In goods trade enlargement simply completes the progress made by the process of liberalisation hitherto. Trends visible since the opening of the east will be continued or (moderately) enhanced. Trade in services, on the other hand, will experience considerable change through the impending integrative step. The freedom of establishment and new ways to render services across borders will create an entirely new competitive regime in some industries.

Nevertheless, differences in the legal framework will only explain differentiations in terms of how sectors are affected by the EU's enlargement. The extent to which positive or negative development potentials will follow for each of the sectors will ultimately depend on their competitive capacity. This contribution thus analyses the competitive position of the secondary and tertiary sectors broken down by sectoral details. To this end, sector characteristics were obtained from modern integration theory which should be the cause of variations in the development in the case of integration. Based on this and using multivariate cluster analyses, industries were combined into groups which can be expected to have similar development potentials in the case of enlargement.

The findings draw a basically positive picture both for the secondary and tertiary sectors. In manufacturing, 47 industries, i.e., almost half of the 99 industries, show positive characteristics; another 17 are in a neutral competitive position vis-à-vis the new competitors from the CEECs. Foreign trade will develop favourably across a wide range of industries; and even industries that are disadvantaged in theory are increasingly succeeding in their exports to Central and Eastern Europe.

Similarly, positive expectations can be found for the services industries. Many of them, such as data processing, financial services, real estate, much of wholesale trading and producer services, will be among the winners of enlargement. Only 18 of the 70 services industries studied show negative characteristics. Unfortunately they include high-employment industries such as construction, parts of retail trade and transport. Yet even for these industries it has been shown that there are no grounds to fear any large-scale threat to domestic operations: the supply structure in the CEECs is full of gaps, and efficiency as well as the demand perspectives of Austrian suppliers are generally sound. In addition, the inclusion of (temporary) protective mechanisms for sensitive services in the EU's negotiating position has taken the sting out of the problem that competition between border-crossing services will be biased by unequal competitive conditions. The transition periods thus created should be used for proactive preparatory measures.