Press Release Contact: Dr Tim Evans (President, CNE) + 32 (0) 2 506 4000 or +44 07956 969523, tim.evans@cne.org Embargoed until 00.01am Saturday 4 December 2004

BRUSSELS, 04 DECEMBER 2004 — Today, Europe's leading Brussels based free market think tank, the Centre for the New Europe (CNE) launched its latest Environment report: The Cost of European Environmental Regulations in the Accession Countries of Central and Eastern Europe.

Attacking as wholly counter-productive an endless stream of ill-thought through and overly-burdensome environmental regulations imposed on Central and Eastern Europe authors Dr. Tim Evans and Dr. Sean Gabb assert that hundreds of thousands of jobs are being unnecessarily jeopardised in the region:

"Today, it is clear that much of the unemployment in Central and Eastern Europe could be avoided if western regulators had not insisted on billions of Euros being spent on what are often ill thought through and counter-productive environmental regulations. In the run up to COP 10 East Europeans should be wary of the overall direction of travel in Europe."

Whilst many of the accession countries have a good overall record in the transformation process the environmental regulations now being imposed are having a devastating impact:

"With the introduction in 2005 of the highly bureaucratic European Trading Scheme, itself designed to achieve the highly questionable Kyoto targets of cutting carbon emission by 8 per cent, unemployment could again rise in the former communist countries and many hundreds of thousands of people could be unnecessarily put out of work."

For CNE it would be an ironic tragedy if entry to the European Union, which was one of the chief motivations for the privatisation and liberalisation agenda in Central and Eastern Europe, should turn out to be the chief cause of arrested progress now membership has been achieved.

Highlights from the paper follow:

The paper argues that the damaging costs of converging environmental protection within all new former communist member states of the European Union are becoming increasingly clear for all to see. The cost of the Czech Republic's compliance with European Union regulations has been estimated at more than 1.1 percent of gross domestic product. With Czech gross domestic product per capita being comparable to that of the other post-communist new member states of Central and Eastern Europe - Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia - it is possible to take the whole population of these countries at around 70 million and to extrapolate a total cost of around $560 million across the whole region. "

However, even these costs do not take into account the impact of compliance on economic activity. These are considerably greater. The post-communist new entrant states are much poorer than the western 15 member states. Gross domestic product per capita in the United Kingdom, for example, is $28,350. In the Czech Republic, it is $6,740. In Slovakia, it is lower still, at $4,920. Regulatory compliance costs which are seen as a burden in the fourth richest country in the world will have a much greater impact in countries that are, in terms of national wealth, barely above the developing world. "

The International Institute for Applied Systems Analysis now puts the transition costs between 1.6 per cent of GDP per year for Slovenia to 3.2 per cent of GDP per year for Poland. "

Looking at the total cost of compliance, rather than the annual cost, figures vary greatly from country to country. The most serious case is that of Estonia, where costs estimates attain some 70.4 per cent of Estonia's GDP in 2001. "

In Poland, government officials estimate that the total investment needed to the country's meat plants into compliance with EU regulations will be about $900 million per year. The Polish Agency for Reconstruction and Modernisation is providing some subsidised credit, but the bulk of the required capital will have to come from the plants' own profits or from foreign investors. When the full impact of entry to the European Union is felt, hundreds of smaller plants are expected to close. "

In Estonia, oil shale provides over 75 per cent of the country's total energy supply, making it the only country in the world where oil shale is the primary source of energy. This is produced by the state-owned Eesti Põlevkivi (Estonian Oil Shale) in the northeast portion of the country near Kohtla-Järve. It is consumed for power generation by the Eesti Energia and Kohtla-Järve Soojus electric companies and for shale-to-oil processing by Kiviter AS. Eesti Põlevkivi forecasts a significant drop in production after 2006, as the country begins to implement European Union regulations on pollution from the oil shale industry. This will lead to a direct rise in unemployment in the energy sector, and to increased costs throughout the economy, as factories and other energy users convert existing plant to deal with other fuels. No one knows what the full costs of compliance will finally be. "

In reality, the cost of compliance with all European union regulations has been imposed almost wholly on the new member states. Since 1989, Germany has spent about €600 billion on its eastern lander since unification, with Brussels supplying another €28 billion. For Austria, Finland and Sweden, the EU set aside €1.5 billion for their enlargement costs when they joined. For the 10 new member states, the European Union has budgeted €35 billion, net of contributions, between 2004 and 2006. These countries have been left to sink or swim by themselves."

With hundreds of thousands of jobs now at stake in Central and Eastern Europe, there has already been a huge adverse impact. For example, in April 2004, the Government of the Czech Republic closed 81 food companies, mostly involved in meat production - because they violated European Union health and environmental regulations. Today, fears are rightly being expressed across the region that the situation is set to worsen. Accoring to Anna Osmushkina, Latvia's leading fashion designer: "Latvia is very weak and is not fully ready to join without problems. Financial support from the EU will not be enough for Latvian companies to quickly adapt to European regulations and many local companies will go bankrupt." "

While many of the Central and Eastern European accession countries have a good overall record in the transformation from command to market economies, they are mostly carrying an already high burden of unemployment. The environmental regulations now being imposed will make this situation even worse. "

Overall, the accession countries of Central and Eastern Europe have made remarkable progress since 1989. For the Centre for the New Europe it would be an ironic tragedy if entry to the European Union, which was one of the chief motivations for the reform process, should turn out to be the chief cause of arrested progress now that it has been achieved.

For more information contact CNE President, Dr. Tim Evans, on +32 (0)2 506 40 00; GSM +44 (0)7956 969523. The Cost of European Environmental Regulations in the Accession Countries of Central and Eastern Europe by Dr. Tim Evans and Dr Sean Gabb is available on-line at www.CNE.org and www.CNEenviornment.org.