The economic growth brought by the enlargement of the European Union must not be exaggerated, but nor should it be belittled. In the opinion of many companies, it is the best thing that has happened to the EU in the face of global competition that is harsher than ever," says Erik Forsman, a director at the Confederation of Finnish Industry and Employers.

EU enlargement is part of the ongoing globalization that is revolutionizing the traditional structures of the world economy and trade. The EU, which grew by ten new Member States in May, is now a large market with shared rules and regulations, more than 450 million consumers and its own internal dynamic.

"The effects of the enlargement on trade and economic growth must not be blown up out of proportion. On the other hand, the significance in terms of companies' shared operating environment must not be underestimated," Forsman points out.

Efficient and smoothly running engine

At this moment the new Member States account for only five per cent of the gross domestic product in the EU region and two per cent of the single market trade. In the short term enlargement is expected to increase the new Member States' annual economic growth by 1 to 2 percentage units. Growth in the old members will remain at between 0.1 and 0.2 percentage units.

Forsman believes that, in order to ensure positive economic effects, it is important that the new Member States carry out to the letter all the single-market obligations required by their accession treaty.

"The single market is the EU's engine for economic growth. It must operate efficiently and smoothly," he emphasizes

Production for new members

Mutual trade and production investment in the new Member States started to grow strongly thanks to the free trade agreements made in the 1990s. Obstacles to trade and investment were removed and bringing the new Member States' economic legislation into line with the single market system began.

"As a result of these measures and the favourable economic conditions in the new Member States, numerous European and non-European companies began investing and transferring their production to the new Member States in an unprecedented manner," Forsman explains.

"The trend will continue and can gain in strength if production costs and corporate taxation in the new Member States remain much lower than what they are in the old Member States.

Competition even harder

Competition on the enlarged single market will be even harder in all sectors. Contributing greatly to this will be the western companies already established in the new Member States, which in their new or modernized production plants will be able to use up-to-date production methods to produce more efficiently and more competitively.

Forsman thinks the free mobility of labour is the most important of the fixed-term single market restrictions. Like many other Union countries, Finland placed a two-year restriction on mobility and this can be extended, if necessary, but not over more than seven years.

"We should be afraid that it will hardly be possible to alleviate the depletion in the workforce caused by the retirement of the big age groups in the next few years with labour available from the EU's new Member States."

More investment and cooperation

Investment by Finnish companies and the special form of economic and industrial cooperation in the new Member States will increase in the next few years, probably considerably," Forsman believes.

In the past few years Finland's exports to the new Member States have remained at almost the same level. In 2003 they accounted altogether for 7.1 per cent of exports. The biggest export countries were Estonia (EUR 1.1. billion), Poland (EUR 862 million) and Hungary (EUR 356 million). More than half the exports are technology industry products, followed by products from the forest and chemical industries.

Imports from the new Member States last year went up by about ten per cent. Imports too are dominated by technology industry products, in addition to which large amounts of timber and wood products, such as furniture, are imported as are clothing products. Most of the imports come from Estonia.

Investment from Finland in the new Member States has shown a marked increase since the turn of the decade. They accounted for just under 3 per cent of Finland's total foreign investment in 2002. Of this, just over a third, EUR 600 million, went to Estonia. Next came Poland and Hungary, both with EUR 350 million.