Lithuania’s Economic Interests in the European Union

This article analyses the impact that the implementation of EU principles and acquis communautaire regulating individual policies formulated at the EU level will have on the Lithuanian society and economy.
Interests of individuals living in any country differ depending on their personal preferences, profession, age, education, experience, wealth, etc. Because of the natural differences in individual interests, attempts to define the interests of a state’s citizens (society or nation) are only relative. The desires that are shared by all individuals or a country’s citizens are a feeling of safety and the ability to choose an occupation or activity freely, to realise one’s ambitions and hopes and to create one’s well-being, without violating other individuals’ rights and liberties.
The interests of citizens of a state can be defined as their safety and realisation of freedoms and economic activity. The economic interests of a country’s residents are the creation of welfare. The most favourable conditions for this are created by free exchange, competition, and private property. All of them create incentives to carry out effective economic activities. Internal and external safety can only relatively be separated from the pursuit of economic interests.
Because each country is surrounded by other countries and exists in an international environment, the pursuit of its interests is affected by external factors. These factors can pose a threat to the shared interests of people and, on the other hand, can provide more opportunities for their implementation.
While reacting to the environment, both individuals and state institutions seek to minimise the likelihood of threats and to create conditions for complete exploitation of opportunities offered by the international environment. For example, countries enter into military alliances in order to reduce the likelihood of external military aggression. To diminish uncertainty, participants in international relationships (states, enterprises, and individuals) exchange information or establish regular communication forums – organisations, associations, contracts, etc.
On the other hand, the international exchange of goods, services, factors of production, or ideas, as well as the elimination of barriers to their exchange, provide more opportunities for citizens of a country to realise their economic interests. In this way, exchange, innovations, effectiveness and the creation of welfare are stimulated. That is why international economic relationships are being liberalised, regional groups of free trade are being established, and favourable conditions for foreign investments are being created.
EU entry is based on an assumption that membership in the EU will ensure better conditions for the pursuit of the Lithuanian people’s interests than its alternatives will. More specifically, it is assumed that: EU membership reduces external threats and increases external scope. How can these assumptions be verified and what affects the implementation of Lithuanian people’s economic interests? In other words, how will EU membership affect the Lithuanian economy?
First, one needs to define what integration is and what EU membership really implies. Lithuania’s membership in the EU entails the following: (1) eliminating barriers to a free movement of goods, services, capital and labour between Lithuania and the EU; (2) implementing EU acquis communautaire; and (3) delegating the power of decision making and enforcement supervision to EU institutions, as well as the right to participate in decision making bodies and to influence further developments inside the EU.
As the following discusses only economic interests, it should be noted that policy issues determined by way of co-operation and co-ordination inside the EU currently include law and order, home affairs and common foreign and safety policy. Lithuania’s plan to join these areas may diminish external threats and strengthen order at home.
To make a more precise assessment of the economic impact of Lithuania’s EU membership on the interests of the people in the country, it is worth distinguishing general principles that guide activities in the EU from specific legal acts that regulate concrete policy areas formulated on the EU level. General EU principles (democratic order, a market economy, respect for human rights and freedoms) – the principles that must be obeyed in order to be accepted in the EU – are in line with the interests of Lithuanian society and the goals of the reforms pursued in Lithuania.
The foundation of the EU is a single market; that is, a free movement of goods, services, labour and capital. Lithuania’s participation in the single market will provide more opportunities for its people to pursue their interests: to trade, travel or work freely on the entire territory of the EU. True, this rule of “four freedoms” has not been fully implemented in EU countries yet, but these are only exceptions to the rule.
Currently, the EU is formulating its position on various economic policy issues: common economic policy, common agricultural and fishery policy, and common transport policy. Also, adjustment of policies regarding social safety, environment protection, energy, and research and technology development is taking place. The impact of the implementation of legal acts regulating these areas in Lithuania depends on the standards of concrete legal acts. As a rule, fund redistribution policies do not match the interests of society as a whole and are beneficial only to certain groups at the expense of other groups. Depending on the factors that determine EU membership’s influence on the Lithuanian economy (these factors are discussed below), the adoption of the standards of EU economic regulations may act either curtail or advance the Lithuanian public’s interests.
As mentioned previously, integration also includes participation in the institutions that adopt common decisions: the European Union, the Council of Ministers, the European Parliament, etc. This may also be regarded as both an opportunity and an impediment, because it will further the national interests, if this opportunity is taken, but will make it obligatory to accept decisions made by the majority of EU member-states, even if Lithuania’s representatives do not approve of them.
Most questions revolve around the transfer and enforcement of EU legal acts into the Lithuanian legal system. As it is known, implementation of acquis communautaire is one of the underlying preconditions to becoming an EU member that will be applied without exceptions. The impact of the implementation of concrete EU legal acts on the Lithuanian people and economy will depend on several factors (see diagram).
First and foremost, there is a difference between the current economic policy in Lithuania and the EU policy. There is also a difference between concrete legal acts. In other words, while evaluating the impact of integration, one must consider not only the impact of EU legal acts in general, but also how the situation in Lithuania will change before and after accession.
However, there are several considerations that must be taken into account while making such an assessment. First, integration is not an instant occurrence but a long-lasting process that began eight years ago by concluding the first trade and economic partnership agreements, by eliminating barriers to trade, by establishing trading relationships with EU countries. Second, it is frequently difficult to distinguish between economic reforms resulting from the general transition process and integration policies, particularly when general principles are at issue. Third, it is hard to tell what economic policies Lithuania would pursue in the future if EU integration did not take place. Fourth, the EU itself is constantly changing, new legal acts are being enforced (“the moving target problem”), and essential institutional and budgetary reforms are underway.
For these reasons, it is possible to make an approximate evaluation of the impact of EU membership on Lithuania by assessing the economic effects of concrete policies that are applicable in the EU if Lithuania were to implement them today.
There are several categories of EU policies that produce different economic effects:
1. Apart from removing barriers to economic exchange, the application of certain forms of economic regulation will have a positive effect; for example, a shift from mandatory to voluntary certification.
2. The Lithuanian society will face negative ramifications from areas of redistribution like agricultural policy, which are designed to address the needs of individual sectors. EU agricultural policy is based on a system of interventions, price regulation, benefits, subsidies and market protection. In the EU this policy was prompted by social and political goals; however, its negative economic outcome is obvious.
3. Implementation of certain policy provisions may have a mixed impact. For example, implementation of general trade policy, apart from other measures, will require the unification of external customs duties. Whether import duties applied by Lithuania will increase or decrease depends on concrete categories of commodities and third parties. For instance, taking into account customs duties levied on the main fifty categories of imported goods in 1999 in Lithuania and the EU, it can be seen that, as far as Lithuanian-Russian trade is concerned, import duties will rise for thirty groups of commodities and will decrease for only one group (regardless of the fact that oil, which is not taxed in the EU, accounts for about 50 percent of Lithuanian imports). Regarding trade with the United States, import duties will increase for 36 categories of commodities and will drop for only one group. An increase in the level of import duties implies a distortion of trade and an adverse effect on the country’s welfare. On the other hand, EU membership may reduce the possibilities of third countries to manipulate trade restrictions with respect to Lithuania and provide Lithuania with an opportunity to strengthen its negotiation capacities.
4. Finally, positive effects in certain areas are possible only after a rather long period of time and after solid investments are made, for example, after certain standards of environment protection have been implemented. A rapid adoption of these standards would be disastrous to business, which, in turn, would transfer a share of these costs to consumers.
The level of informal integration of Lithuanian and EU markets is another factor affecting the impact of EU membership. The more intensive this integration is (inter-trade, overseas processing, settlements in euro, etc.), the greater the likelihood that EU membership will benefit the country’s entire economy. Therefore, it is important to create conditions for the development of economic exchange, which is currently impeded by non-tariff barriers and trade protection (antidumping) applicable in the EU.
Finally, the impact of implementing EU acquis communautaire will depend on the implementation itself: on the appropriateness of measures to achieve the goals outlined in the directives; on the timing and sequencing of their adoption; and on whether the possibilities for interest groups to take advantage of EU entry in order to preserve their privileges or create new ones will be eliminated.
In conclusion, the overall impact of EU membership on the Lithuanian society and its economic interests will depend on all of the above-mentioned factors. It is impossible to estimate this impact, or, more specifically, the impact of various factors that have different effects in quantitative terms. Given the current situation, it is obvious that the removal of obstacles to economic exchange between Lithuania and the EU would best serve Lithuania’s economic interests. The sequencing of the implementation of EU economic regulations depending on their impact and negotiations over transition periods are equally important.
To that end, it is necessary to make at least an approximate evaluation of the regulatory impact of EU membership on individual groups of the Lithuanian society and the country’s economy as a whole. Such analysis would help not only to increase the benefits for the Lithuanian society and to reduce the negative effects of various regulatory restrictions, but also to enhance the culture of public administration, to rationalise economic policy and to educate society about the implications of EU membership. Having said all that, it is important to note that the policies pursued by the Lithuanian government (-s) will be the most consequential since the ratio of opportunities and restrictions very often depends on the country itself.
This article is based on a presentation to a conference “Lithuania’s Economic Interests in the EU” organised by the Centre Union on June 2.