1. Beyond enlargement: The EU’s “new neighbours” Ben Slay Director, UNDP Regional Centre Bratislava UNECE Executive Forum: Competing in a Changing Europe 11 May 2004, Geneva

2. Key challenges after 1 May n For EU-25: –Internal governance reforms –Lisbon “knowledge society” agenda n For new EU states: –EMU accession n Easy for Baltic states, not so for Central Europe –Absorption of structural, cohesion funds n For both: Trans-border “new neighbour” issues in Western CIS, Balkans

3. Who are the EU’s “new neighbours”? n EU “hopefuls” in SEE: –Countries now negotiating for accession: Romania, Bulgaria, Croatia –Preferential access to EU markets: these countries plus Turkey, Western Balkans n Western CIS: Russian Federation, Ukraine, Moldova, Belarus –No “date for a date” –No preferential access to EU markets

4. How do they compare? Preferential EU market access No preferential EU market access “Date for a date” Bulgaria, Romania, Croatia XX No “date for a date” Turkey, Western Balkans Russia, Ukraine, Belarus, other CIS

5. How competitive are these economies? n Potentially: very competitive –GDP growth exceeds EU averages n Particularly in Western CIS countries –Low unit labour costs –Locational, logistical advantages n Key: preferential access to EU markets –SEE countries have it, CIS countries don’t

6. Result: Different patterns of integration n South East Europe: –60-80% of SEE trade with EU-25 –Since 2000 SEE has attracted significant FDI from EU-focused multinationals –Repeat of Central European experience? FDI-led restructuring of manufacturing, energy, finance n Western CIS: –Russian Federation is largest export market, source of FDI (smaller levels) –EU markets very important for Russia, but largely for energy exports

7. It’s also about cross- border issues... n Migration: –Legal (labour force growth) –Illegal (trafficking) n HIV/AIDS, TB –HIV prevalence rates much higher in Western CIS than new EU members n Environment/international waters –Tisa River basin –Baltic Sea n Organised crime

8. ... And about governance n State sector—Good governance means: –Decentralisation, to empower regions, municipalities, communities –Public administration reform, to modernise state structures, make them market friendly –Tax reform, to broaden tax bases, reduce grey economy, promote MSMEs n Private sector—Good governance means: –Corporate governance reforms, to improve investment climate –Public-private partnerships (e.g., IT sector)

9. Conclusion: New challenges for EU-25 n Will “Schengen curtain” bring new barriers to free movement of goods, services, people? –Will “European anchor” move eastward? n Challenges for EU-25: –Reduce de facto trade discrimination against Western CIS countries –Don’t close EU’s eastern border to labour flows from “new neighbours” n Challenges for “new neighbours”: –More reform –Better governance