Neven Mimica skilled labour as wages are less flexible due to the strong position of trade unions(Anderton, Brenton and Oscarsson, 2002). While the above reasoning focuses on the notion of comparative advantage, there is a second mechanism that shapes international trade. When countries become more and more equal, they increasingly engage in intra-industry trade, that is, trade with similar products of similar quality. Gains from trade then arise from economies of scale, specialisation and diversification. Intra-industry trade is largely neutral in its effect on wages and employment of the workforce involved in the production process. Already today, trade by“pre-enlargement” European Union countries with new member countries and accession candidates is largely intra-industry trade, and fears of job losses from trade need to be revisited(Aturupane, Djanov and Hoekman, 1997). When it comes to the highly disputed topic of service relocation, data analysis for business services until 2002 gives a mixed picture. The UK was a clear net outsourcer, Germany slightly so. France was a net insourcer. In absolute terms, France, Germany, the UK and the Netherlands are among the top ten outsourcers but were also among the top five recipients of global outsourcing(Amiti and Wei, 2004). Service relocation is still a very small percentage of the total phenomenon but it is increasing at a much faster pace(Amiti and Wei, 2004). As far as intra-firm offshoring is concerned, popular concerns address both the fear of investment diversion from source countries to new host countries and the consequences on source country labour markets. One often gets the impression that FDI is a one-way street from developed to developing and transition economies. However, based on their actual GDPs, developing countries export more FDI than developed countries and the largest recipients of FDI are still the US, Germany, and the UK(UNCTAD, 2004). Whereas generally countries are assumed to benefit from increased competitiveness of their firms, real effects also depend on the structure of the labour markets. Inflexible and sticky labour markets are a major reason why offshoring can have negative effects on the home economy. Whereas every dollar of corporate spending shifted offshore can generate up to$1.14 in US wealth, the same dollar spent by a German company leaves its home economy on average 20 cents worse off(McKinsey Global Institute). In France, every outsourced dollar spent on investment abroad by French companies left the French economy with a loss of 15 cents. Policy makers in Europe and other developed economies cannot remain idle. Institutional reform and sound labour market policies are needed, as is an 156