1 TRADE POTENTIAL IN AN ENLARGED EUROPEAN UNION: A RECENT APPROACH 1 Enrique Martnez-GalÆn*, Maria Paula Fontoura** and Isabel Proena*** * ISEG, Technical University of Lisbon, and Portuguese Ministry for Finance ** ISEG, Technical University of Lisbon *** ISEG, Technical University of Lisbon, and CEMAPRE Abstract : This paper aims to evaluate the trade potential of manufactured products between the members of the EU25 in the threshold of its Eastern enlargement. We estimate, for 2002, a cross-section gravity model, whose coefficients will be used to project the natural trade relations between them. Relatively to previous evaluations of trade potential, we include in the gravity model a variable related to the countries complementarities in terms of their Commodity Composition of Trade and we opt for a Poisson Pseudo-Maximum Likelihood Estimator. The latter is confronted with the OLS estimator normally used in this type of models. JEL Codes: C31, C51, C52, F14, F15 and F17. Keywords: European Union to 25 members, Trade Potential, Gravity Model, Poisson Pseudo-Maximum Likelihood Estimator, Commodities Composition of Trade in Manufactures. Corresponding author: Enrique Martnez GalÆn/Maria Paula Fontoura, Department of Economics, ISEG. Room 416, Rua Miguel Lupi, n. 20. 1249-078 Lisbon, Portugal. Telephone: + 351 21 3952800 - Fax: + 351 21 3925850 Mobile phone: + 351 93 4281140 (during the conference) Email: emg@dgaeri.pt 1 The authors are indebted to J.M.C. Santos Silva for his helpful comments. Useful remarks received at the 4 th annual European Economic and Financial Society conference, held in Coimbra were equally welcomed. Isabel Proena and Enrique Martnez-GalÆn gratefully appreciate the financial support received from Fundaªo para a CiŒncia e a Tecnologia, under the FCT/POCTI, partially funded by FEDER, and the Fundo de Apoio  Comunidade Cientfica, respectively.