The Effects of China’s WTO Accession on the Production Structure of the European Union

The aim of this paper is to examine how China’s accession to the World Trade Organization (WTO) in late 2001 affects the production structure of the European Union (EU). In addition, strategies for adjustment are discussed in some detail. The research problem is addressed by examining key determinants of production structure derived from traditional international trade theories (Ricardian model, Heckscher-Ohlin model and Krugman’s (1980) model of economic geography) as well as from Porter’s (1990) theory of competitive advantage. Moreover, the model of Aghion, Alesina & Trebi (2007) on the effects of political regimes on the growth of advanced industries is introduced as it helps to determine whether China is likely to succeed in moving up the value chain and thus challenge the EU in the production of high-tech goods. While the theories examined in this study provide valuable insight into the research question, they all have flaws. Consequently, none of them is able to predict the production structure of a country or a region with complete accuracy. As the underlying theories are unable to produce exact and indisputable results, no econometric testing is conducted. Instead, this paper considers aspects from several theories with a discursive approach. It is evident that China’s WTO accession has different effects in different European industries and countries. China’s distinctive advantage in the production of labour-intensive goods will contract these industries throughout the EU. The European textile and clothing industry, for example, is unable to compete with China once trade barriers are lifted. In contrast, high-tech industries are predicted to succeed in the EU due to the relatively skilled labour force and highly democratic political regimes of all EU countries. However, attention needs to be turned from protecting globally inefficient industries to fostering innovation in the EU. The need for adjustment is greatest in the new member states in Central and Eastern Europe as they lag behind the rest of the EU in innovation performance and their current production structure is similar to that of China’s. Hakutermit: International trade theories, economic integration, production structur