The Economic Cost of Rolling Back Schengen Vincent Aussilloux European Parliarment, Committee on Transport and Tourism Wednesday February 28, 2017

France Stratégie’s study Assesses the economic consequences of permanent controls within the Schengen Area – a return to pre-1995 situation Study focuses mainly on France but gives some insight for other European countries 2 main types of economic consequences are assessed: Short-term impacts directly due to additional time to cross borders due to the controls Longer term macroeconomic impact due to indirect effects on international trade 28/02/2017

1. Direct short term costs 1) Additional administrative costs (budgetary impact) Investment to restart controls Running costs No estimates from France Stratégie, estimates done by Rand Europe 2) Economic costs Tourism Cross-border workers Freight Estimates done by France Stratégie Etude réalisée par RAND Europe : Pour la France : Investissements (coûts fixes) entre 880m€ et 2,1 Md€ (soit 0,05 < < 0,1 % PIB) Coûts de fonctionnement entre 150,9 et 251,5m€ par an (soit 0,006< < 0,012 % PIB) Pour l’ensemble de la zone Schengen : Investissements entre 7,4 et 19,8Md€ (soit environ entre 0,05% et 0,16% du PIB) Coûts de fonctionnement entre 2,2 et 3,6 Md€ par an (soit entre 0,02% et 0,03% du PIB) 28/02/2017

Impact on cross-border workers Impact on freight Impact on tourism Impact on cross-border workers Impact on freight Import export by road 85% of Trade - 22 million tons transported by 3 million trucks in both direction Additional transport time: 30’ to 1h Additional costs: 60m€ to 120m€ on both imports and exports Shared among consumers, producers and carriers Tourisme: 83 millions de touristes restant plus d’une nuit 122 millions d’excursionnistes Les dépenses des voyageurs étrangers représentent 2,4% du PIB - Données 2014 Conséquences probables du rétablissement des contrôles aux frontières: Découragement des excursionnistes et baisse des courts séjours Baisse des recettes touristiques estimée entre 500m€ et 1Md€ Frontaliers: 350 000 travailleurs frontaliers Allongement du temps de trajet domicile-travail (10 à 20 min) → coût socioéconomique supporté par les frontaliers (perte de bien-être) estimé entre 250m€ et 500m€ 28/02/2017

Summary For a total estimated cost of 1bn€ (lower bound) 28/02/2017

2. Long-term indirect costs Several types of economic impacts (see Ademmer et al., 2015, for a short literature review) Trade in goods and services Migration flows Foreign direct investment and financial flows France Stratégie’s assessment focused on the trade impact 28/02/2017

Two-stage evaluation method Estimate of Schengen effect on the intensity of trade between 2 countries Original estimates by T. Mayer and C. Umana Dajud on bilateral trade flows: +10% Rolling back Schengen equivalent to a 3% ad valorem tariff Why? - direct costs - indirect impacts on mobility of people, production network… Simulate the impact of a 3% tariff in a macroeconomic model MIRAGE (CEPII) 28/022017

Impact on trade Change in bilateral trade between EU and EFTA members In % from the reference scenario by 2025   Importer France Schengen-EU EFTA Non-Schengen EU Exporter -11.4 -10.8 1.5 Schengen EU -11.5 -10.5 2.0 -13.7 -12.5 -12 6.5 1.9 1.6 3.2 -0.3 28/02/2017

Impact on GDP Change in GDP by 2025 due to the return of border controls within the Schengen Area   ΔGDP in % Schengen Area -0.79 France -0.50 Schengen EU -0.86 EFTA -0.80 28/02/2017