DP1002 | The Liberalization of European Steel Trade


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This paper constructs a simple model of the steel sector in Europe distinguishing eight West and two East European regions. It models the production of steel and also the various trade restrictions extant in 1992. It uses this model first to calculate the output and welfare effects of rationalizing the sector to remove the excess capacity experienced in 1992 and second to explore the consequences of the mutual trade liberalization between Eastern and Western Europe envisaged under the Europe Agreements. The latter allow major increases in output in the East (18%) and offer Western steel users significant welfare benefits (ECU 190 million). Eastern consumers and Western producers suffer (smaller) losses, but total output in the EU falls only by about 1.5%.