DP825 | EC Imports from Eastern Europe: Iron and Steel

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This paper uses a schematic computable model of the iron and steel sectors in the European Community (EC) and Eastern Europe to explore the effects of trade policies on those sectors. In particular it explores the partial opening of EC markets to Eastern producers. Following a discussion of trade policy in iron and steel it models EC liberalization in two ways, and finds that in neither case will trade liberalization have dramatic effects. East European exports to the EC could double, or more, with completely free trade, but since these flows are small relative to both EC consumption and East European output the overall impact is limited. The EC might get a welfare gain of up to ECU 544 million, but if the EC steel sector is significantly cartelized the net effects would be around zero. Eastern Europe may gain substantially (12% increase in employment) if the EC markets are open and East European producers can take steps to correct their supply distortions. It is plain that the EC internal regime, and how East European producers are incorporated into it, will be a major determinant of the costs and benefits of liberalization in iron and steel.