e-mail: david.vanzetti@elspl.com.au website www.elspl.com.au

Frandsen, S. E., Jensen, H. G. and Vanzetti, D. M. (1998) 'Expanding 'Fortress Europe: Implications of European enlargement for non-member regions', First Annual Conference on Global Economic Analysis, Purdue University, West Lafayette, Indiana, USA, June 8-10.

The enlargement of the European Union to include several central and eastern European countries has led to speculation concerning its potential impact on particular non-members and the multilateral trading system and world trade more generally. With the World Trade Organisation taking a greater interest in the nature of regional trade arrangements, the European Union would be keen to show that the trade diversion effects are minimal and that in this and other respect it conforms to WTO requirements. In contrast, non-members would find it in their interest to use the European wishes to enlargement to push for further trade liberalisation in Europe.

Agriculture is one of the more sensitive sectors, and given the significant discrepancies between current protection levels in the existing and aspiring members, regional integration has the potential to alter trade flows in a number of products. This article provides a quantitative assessment of the possible impacts of European enlargement on non-member countries. This is done using the latest GTAP database (the pre-release of version 4) and a modified version of the standard GTAP model (special attention is given to modelling the instruments of the CAP and the Agenda 2000 proposal). The focus is on the agricultural sector, as this is where the contentious issues arise. Using reasonable assumptions, trade diversion in the various components of the agricultural sector was found to be minimal.