Foreign trade in the first year after the Czech Republic’s accession to the EU

The development of foreign trade between May 2004 and April 2005, i.e. for the 12 months following the Czech Republic's accession to the EU, can be characterised by a significant year-on-year improvement in the trade balance, which reached positive figures, and fast growth in foreign trade turnover, particularly exports of goods.

Chart 1
Year-on-year growth in goods exports and imports was very high in the initial months after accession
(percentages)

From May 2004 to April 2005, the annual moving trade balance showed a surplus of CZK 11.2 billion, an increase of CZK 78.5 billion year on year. Exports of goods in this period rose by 23.8%, whereas imports of goods increased by 17.5%. Foreign trade turnover grew fastest during the first six months after accession (growth in exports exceeded 30% and growth in imports rose by almost   26%), when continuing positive changes on the supply side were accompanied by the favourable influence of growing external demand and expectations of further global economic growth. The lifting of the remaining customs barriers to trade with the EU, which had an impact on the realisation of postponed transactions, also played a role. By contrast, the more considerable year-on-year improvement in the  trade balance was apparent  in the second half of the period under review, when it improved by CZK 56.4 billion . In the first months following EU accession  its development was, to a certain extent positively influenced by the fact that importers, who expected stricter customs measures affecting imports of some commodities from third countries,  increased their stocks in advance.

However,year-on-year improvement in the trade balance was not visible in all commodity groups and was linked primarily with a sharp increase in the surplus on machinery and transport equipment. The surplus on machinery amounted to CZK 173.8 billion, up by CZK 94.5 billion on a year earlier. Within this category, three subcategories contributed to this improvement  most significantly - road vehicles, electrical machinery, apparatus and appliances, and general industrial machinery and equipment, whose overall balance improved by almost CZK 71 billion year on year. The improvement in the trade balance was counteracted by a widening deficit in the mineral fuels category (up by CZK 21.6 billion to CZK 83.9 billion) resulting from increasing prices of oil and natural gas. The annual changes in balance on the remaining eight SITC categories were less significant (in the order of CZK billions). Their overall balance improved by just CZK 5.5 billion year on year, ending in a deficit of CZK 78.7 billion. They accounted for almost one half (48.5%) of the overall foreign trade turnover in the given period. The categories containing agricultural and food commodities, where trade was affected most by the changes in the customs regulations, did not record a significant change in balance either.

Chart 2
The year-on-year improvement in the trade balance was mainly due to machinery and transport equipment
(year-on-year changes in balance by SITC commodity group; May 2004 - April 2005; CZK billions)

These developments show that the direct impact of the Czech Republic's accession to the EU (the changes in the customs regulations and the simplification of administrative work at borders) was not central to the improvement in the trade balance. Positive effects from the inflow of foreign direct investment remained the decisive factor. The indirect impact of EU accession, which meant that the Czech Republic entered Europe's community of advanced market economies, seems to have been more important. In addition to the primary requirement of cost minimisation, this fact could also be a factor behind the significant transfer of production from Western Europe to the Czech Republic, which considerably contributed to the improvement in the trade balance in the second half of the period under review.