Benefits and risks of Slovakia's accession to the EU
Integration effects

In general, the integration effects are associated above all with the benefits of the customs union. These are effects arising from the removal of trade barriers, which expands the market and is a precondition for the further development of trade. The process of preparation for membership in the EU Customs Union did not start until the Europe Agreement between the European Union and the Slovak Republic was concluded and gradually implemented. Through the gradual implementation of the Europe Agreement over the period of 10 years, i.e. by the end of 2000, a free-trade zone in industrial products was created. This has considerably contributed to the sizeable increase in the volume of mutual trade. At present, almost 60% of Slovakia's exports go to the EU and 50% of its imports come from the EU. Therefore, it is not expected that the adoption of the Common Customs Tariff will have a major impact on increase in the trade volume between Slovakia and the current EU Member States.

As regards territorial application, for Slovakia the introduction of the Common Customs Tariff will basically mean continuation of the current situation, since it will relate to the same group of countries, for which Slovakia already applies conventional customs duties. From the standpoint of the customs duties, the introduction of the Common Customs Tariff will lead to a rise in certain Slovak conventional customs duties (mainly for agricultural commodities), however, since this will concern only a small group of countries, with a 4.3% share in Slovak imports, this fact is not of great importance. The accession to the European Union will also mean the adoption of all EU preferential tariff regimes. Since their territorial scope is greater than that of Slovak preferential regimes, their adoption will result in wider application of preferential tariffs by Slovakia than at present.

In addition to CEFTA, EFTA, the Baltic States and countries of the generalized system of preferences, to which Slovakia provides special preferential tariffs already, it will have to also provide preferential tariffs to a numerous group of developing countries from Africa, the Caribbean and Pacific, as well as Mediterranean developing countries. Nevertheless, there is little probability that the adoption of EU preferential regimes will have a major impact on mutual trade between Slovakia and the countries that they cover. Overall, it can be said that Slovakia's accession to the EU and the related adoption of the EU's common trade policy should not have a major impact on Slovakia's foreign trade with countries of the future EU and third countries, nor its commodity structure. As regards EU non-tariff measures, most commonly used are agreements on voluntary export restraints, which cover almost 14% of the EU's mutual trade exchange, which is approx. 6% of imports of all countries. As for commodities, the highest protection by means of quotas, another form of non-tariff measures, is provided for textile and agricultural commodities.

These are continuously updated in accordance with the results of GATT/WTO negotiations and bilateral agreements. This concerns commodities that are also sensitive for Slovakia's trade exchange. In EU practice, extensive non-tariff measures are used for the protection of consumers, the environment, plants and animals. They are to a major extent already contained in the Slovak legislation, especially as far as international agreements are concerned. Important non-tariff measures at the governmental level include technical barriers, different VAT rates and excise duties. Unlike in the EU, Slovak non-tariff measures have had only a negligible impact on Slovakia's foreign trade in recent years.

In 1997-2001, the value of imports of goods subject to safeguards was at the level of 0.2%. For this reason, it can be expected that the adoption of the EU system of non-tariff measures will result in a slightly higher protection of the Slovak economy. Slovakia's integration into the EU will have a decisive impact on qualitative competitiveness, which can be measured in particular by growth in productivity and price levels, and by shifts in the sectoral structure of the economy and structure of the manufacturing. More intensive inflow of foreign direct investment (FDI) to the Slovak economy is how the integration into the EU can help the most to ensure productivity growth, which is the key factor of a substantial increase in competitiveness. It can be expected that the EU single market will provide more opportunities for Slovakia in the field of foreign direct investment inflow by advancing the processes of intrasectoral micro-specialisation aimed at greater utilisation of economies of scale, as well as by deepening the process of product differentiation in the EU and imitation in Slovakia.

Both of these processes will mean the deepening of the process of international redistribution of production within the enlarged EU, which is closely related to direct investment abroad. This should lead to the gradual alignment of the volume of FDI in Slovakia with the volume usual in EU countries, where per capita FDI volume is substantially higher than in Slovakia at present (approx. US$ 800 in Slovakia). The EU average is around US$ 3,000. When estimating the volume of FDI after accession to the EU, we built upon the premise that by around 2008 Slovakia could approach the per capita FDI volume in the Czech Republic, which reached US$ 2,300 in 2000. The estimated productivity growth is therefore based on the hypothesis that the FDI inflow to the Slovak economy will be more intensive after accession to the EU and the presumption that domestic investors' investments will become substantially more effective. The key purpose of both forms of investment should be major modernisation of technologies and intensification of product innovation, which should then be reflected in significant productivity growth. According to model calculations, taking into account the above estimate of the developments in the FDI volume, productivity in Slovakia could grow at the average annual pace of 3.7% in 2004-2008, compared with 2.5% in 2001-2003.