|
Background: Finnish economic relations with the USSR
The share of the Soviet Union in total Finnish foreign trade averaged 16% in 1953-1990. This share peaked at about 25% in 1983-1985, as the price of oil, the major Soviet exportable, surged and the US$, the pricing currency, was strong. In 1986-1990, as both oil and the US$ became weaker and the Soviet economy stagnated, Finnish exports to Western markets boomed and those to the USSR declined, not only relatively by falling to 12.7% of all exports, but also absolutely, declining from Finmark (FIM)18bn (current) in 1985 to less than FIM13bn in 1990.
The high level of Finnish-Soviet trade was not due to the bilateral trade and clearing system then in existence. Rather, the Soviet authorities used the bilateral trade system for political reasons to maintain a higher Finnish share in Soviet imports from the West - 10-15% in the 1980s - than would have been warranted by Finnish competitiveness. As this political preference became absent or nonoperative, Finnish exports to Russia were bound to decline even without the Soviet collapse. The fact that Finland has again become one of the major non-CIS trading partners of Russia reflects not only geographical proximity but also the benefits of Soviet-era traditions.
The Soviet Union inherited a few previously German-owned enterprises after the war, but showed no interest in further investment in Finland. Neither were the Finns encouraging such investment. Finnish companies built a few large-scale projects in Russia, but had no investment in the USSR. After joint ventures became possible in the late 1980s, about 350 Finnish-Soviet joint ventures were registered by early 1991 (3).
In numbers of joint ventures, Finland was third after Germany and the USA. Almost all Finnish establishments were minor. Experiences of joint ventures were mixed and most were converted to fully or majority owned Russia-based companies when this became possible. Cooperation with a Soviet co-owner was often complicated and joint ventures were rarely able to enjoy a level playing field.
The collapse of the Soviet economy in 1991 together with the abolishment of bilateral trade led to a collapse of Finnish exports to the USSR from almost FIM13bn in 1990 to FIM4.5bn in 1991 (4). The share of the former Soviet Union and the Baltic States (5) in Finnish foreign trade bottomed out at about 6% in 1992. Because misunderstandings on this point abound, it is important to emphasise that this was an important, though not the major reason, for the Finnish economic crisis which wiped-out 13% of GDP in 1991-1993. After collapsing in 1991, Finnish exports to Russia stagnated in 1992 and only started to grow in 1993. This growth still continues. After annual growth of about 100% in 1993 and 50% in 1994, growth was only 6% in 1995 but 34% in 1996. Finnish enterprises are confident that this growth will continue, largely irrespective of the state of the Russian macro economy. Russian figures differed widely from these Finnish statistics especially in 1993-1994 and again in 1996. A particularly large part of imports seems to have escaped Russian statistics and the tax man in those years.
As elsewhere, Finnish foreign trade with the USSR was with Moscow, i.e. with the central authorities and state-owned foreign trade organisations. True enough, the so-called border trade outside the centralised protocols also existed, but its share remained minor. Seen from the Baltic viewpoint, something like 80-90% of their trade was with the non-Baltic USSR immediately before independence was restored. The rest was divided between intra-Baltic trade and trade with the non-Soviet abroad. Even the 5-10% of trade with developed market economies was handled by Moscow and Leningrad-based Soviet foreign trade organizations. This was the hub and spoke trade structure typical of centre-periphery relations.
The reorientation of Baltic trade flows after 1991 was fast and sweeping. Though statistics - especially concerning transit and trade with the CIS - are less than perfect, an interesting picture emerges (6). In 1993-1995 total exports from all three Baltic countries expanded rapidly but unevenly. By 1995, Estonian exports-per-capita of about US$1,200 equalled that of Hungary, whilst those of Latvia - US$500 - and Lithuania - US$750 - were on a par with Poland. Only Estonia can probably be characterised as a case of export-led growth. Altogether, Baltic exports were US$5-8bn in 1995. Their imports totalled US$7.3bn. One would expect a trade deficit in a fast growing economy as investment goods are shipped in. The statistically measured growth performance of the Baltic countries is however quite modes (7) and the evidence of a particularly large share of investment goods in their imports is less than convincing (8). The trade deficits - in 1996, 22% of GDP in Estonia, 15% in Latvia and 11% in Lithuania - therefore give rise to serious concern (9). Also current account deficits - about 10% of GDP in Estonia and estimated at 7.0% of GDP in Latvia and 8.7% in Lithuania in 1996 (10) - are clearly excessive.
Geographical trade reorientation has also been more uneven than sometimes assumed. The share of the CIS - mostly Russia - in foreign trade is still more than half in Lithuania, about a quarter in Latvia and slightly more than a fifth in Estonia. Quite probably, these figures are underestimates. As foreseen early on (11), intra-Baltic trade has remained decidedly modest. No bilateral Baltic trade share reaches 10% and minerals are usually the prime traded good.
Roughly, the fifteen EU member states account for 40% of Lithuanian, 50% of Latvian and 60% of Estonian foreign trade. Estonian EU trade is strongly dominated by Finland and Sweden with a combined 40-50% share of all foreign trade. In Latvia, these two countries account for less than a fifth of all trade and in Lithuania only for a few percentage points. In the two more southerly Baltic countries, the share of the twelve non-Nordic EU members rose rapidly to about 30% of all trade. Thus the overall trade orientation of the three Baltic countries actually differs to some extent. Lithuania trades with Russia and the non-Nordic EU in that order; Latvia with the non-Nordic EU and Russia; and Estonia with Finland, Russia and Sweden. Germany, the overwhelming economic power of the Baltic Sea region, is in addition to Russia the only important trade partner common to all the Baltic countries with bilateral trade shares of at least 10% and usually higher with each of the countries. For Germany, on the other hand, the whole Baltic Sea region is decidedly a secondary trade area with about an 8% share of all trade.
Indeed, the trade dominance of Germany in the region is such that two thirds of the foreign trade of the Baltic Sea region countries is accounted for by Germany. Of intra-region trade, Germany has about 35%, while Russia and Finland trail with a 10% share each. Such trade within the region is, with a share of 60-70% of total trade, crucial for the Baltic countries. Finland has almost 40% of its total trade with the region, mostly with Germany and Sweden. For Russia, the figures are 18% for exports and 25% for imports.
Baltic foreign trade balances clearly deteriorated in 1996. The situation was worst in Latvia, where real export growth was just 1.1%, while imports, particularly those of intermediate consumption goods, boomed by 13.6%. In Estonia exports almost stagnated in dollar terms while imports grew almost by 10%. Only in Lithuania did both imports and exports seemingly grow robustly in dollar terms, by 17% and 14% respectively.
Foreign investment figures in the region remain controversial. In the World Bank view, Estonia, the smallest of the three countries, had by end-1995 attracted about one half more foreign direct investment than the two other countries combined (12). Most of the investment comes from Sweden and Finland. The flow to Latvia has been about one half of the Estonian level. After declining in 1995, it picked up in 1996 and may have been as high or higher than in Estonia, where the 1996 level was only about one third (13) or one half (14) of the one reached in 1994-1995. Investment flows to Lithuania have remained modest. In Latvia, Denmark and Britain are relatively major investors, as is Germany in Lithuania. It is interesting to note, in view of Germany's dominant trade position, that it is nowhere in the Baltics the main investor. There is also major Russian investment in each of the countries which is probably underestimated in the statistics.
Activities of Finnish enterprises in Russia and the Baltics in 1991-1996: An Overview
Like other countries, Finland had difficulties in following the speed of the collapse of the USSR and the birth of the new Russia. During the last months of the USSR, a new treaty on the fundamentals of Finnish-Soviet relations was negotiated to substitute for the 1948 Treaty of Friendship, Cooperation and Assistance. New Russia soon adopted the same treaty. In January 1992, a new most favoured nations based trade agreement was signed, confirming that trade should be on market conditions. A separate treaty was soon signed concerning cooperation in the so-called neighbouring areas, originally the regions of Murmansk, Karelia, St. Petersburg and its environs, but later widened to embrace also the Arkhangelsk region. These were quite nonspecific treaties, mainly notable for confirming the adherence to IMF and GATT principles in trade. But they also provided for a degree of continuity while underlining the change in rules and institutions. As Finland became an EU member, the Korfu agreement became the defining set of rules for Finnish-Russian economic relations.
Finnish trade relations with the Baltic countries have been based on market principles since these countries liberalised their foreign trade in 1991-1992 (Estonia and Latvia) and 1993 (Lithuania). Soon after, these countries negotiated free trade agreements with EFTA and in 1995 signed Europe agreements with the EU. The Europe agreements still remain to be ratified by all the EU countries. The Baltic countries agreed upon free trade in industrial goods in 1994 and in agricultural goods in 1996. A customs union is planned for 1998.
Tables 2-4 give the level and structure of Finnish trade with the whole geographical area of the former Soviet Union(FSU). Table 5 does the same for the three FSU Baltic States alone. Russia accounts for the major share, some 67% of this trade. The Baltics account for one quarter. As an export market, the Baltics have risen to about 60% of Russia, while the non-Russia CIS, mainly Ukraine and Kazakhstan, are far behind. As Russia accounted in 1996 for slightly less than 7% of Finnish foreign trade, the share of the FSU (geographical area) has returned to be almost equal to what it was in 1990. The intensity of Finnish trade with Estonia, in particular, is quite phenomenal. Finnish exports to Estonia are worth about US$600 per Estonian. This is higher than per capital exports to wealthy Sweden, and compares with the figure of about US$15 for Russia. Indeed, a number of gravity model studies imply that Finnish-Estonian, Finnish-Latvian and Swedish-Estonian trade flows in early-to-mid 1990s were higher - in some cases much higher - than their potential levels as forecast by factors such as GDP and distance (15).
A relatively large share of Baltic trade consists of East-West transit, basically oil, oil products and other primary products from Russia to the West as well as different commodities from the West to Russia. Measured in tons, an overwhelming majority of Russian trade through the Baltic Sea uses Baltic harbours, in particularly Ventspils, Tallinn, Riga and Kleipeda. Estimates regarding the impact of transit on GDP are at times quite high, but remain very unreliable as well as sometimes politically laden. Somewhat peculiarly, many Russians tend to see transit through the Baltic harbours as a waste of money and even as a political risk. Plans for additional harbour capacity in St. Petersburg and the Leningrad region abound, but resources are scarce. Therefore, dependence on Baltic and partially also Finnish harbours will continue (16).
In the early 1990s, many Finnish authorities believed that the country should become the major gateway between World markets and Russia. Such hopes were partially based on the fact that the small number of harbours remaining in Russia were already congested and on the generally poor shape of the road network connecting Russia and Europe. But there were also exaggerated hopes of economic recovery in Russia, especially in the North-Western regions. It is now generally understood that although the neighbouring areas remain part of the Finnish home market, St. Petersburg and environs are probably relatively declining regions due to their heavy dependence upon military-related production and research that Russia will not be able to maintain. Fortunately, no major infrastructure investment has been made on gateway grounds, and though some may be forthcoming - the Helsinki/St. Petersburg/Moscow transportation link is an EU priority - they need proper justification.
The role of St. Petersburg in many Finnish calculations has also failed on another account in that the city has lost all the battles that it has taken up against Moscow. It has a declining economic base, it has not become Russia's leading financial centre, nor a special economic zone, and it has been unable to defend military production, research and development. Relative to St. Petersburg, Moscow is a boom city. But St. Petersburg still has several million inhabitants (17), many representatives in Moscow decision-making and a crucial geographical position. A regional approach to Russian foreign economic relations may become topical in the near future, since the general opening up of the Russian economy has either failed or - to the degree that it has taken place - might prove unsustainable due to rising protectionist pressures. Thus, thinking in terms of special economic zones might well come back, and if so, St. Petersburg would be a prime candidate and Finland - as well as potentially at least Estonia - would be uniquely positioned to utilise it. A related feature is the growth in outward processing. Finnish textile companies employ in this way some 4,000-5,000 people in North-Western Russia. This is however an activity which is particularly dependent on the vagaries of the Russian tax and customs regimes. In Estonia, the situation is naturally much more stable. A Finnish electronics component company is in fact by far the largest Estonian exporter.
Available statistics on direct investment in Russia leave much to be desired (18). It seems that of all Finnish foreign investment, only a couple of percentage points have gone to Eastern Europe as a whole. Russia has been next to Estonia as the second most popular target country in the region. Poland comes next. Within Russia, St. Petersburg and the Leningrad region are the most frequent sites, with about 60% of Finnish investment projects. If the figures available are comparable, Finnish investment in Russia was in 1990-1995 less than 2% of all foreign investment received by the country. Finland, which ranked third among the early founders of joint ventures, now probably ranks 10-12 in terms of cumulative investment flows and 8-10 in terms of numbers of foreign owned companies. It is only in neighbouring, small and poor Karelia that Finns are the most important investors. In St. Petersburg, Finns rank third.
Most foreign investment in Russia goes to the energy and construction sectors. Hardly any Finnish investment does. Finnish investment has gone primarily into the service sectors. Only 9% of projects were by the end of 1994 in the production of goods. Most of the investment is in small-scale establishments with less than 10 people employed. This also helps to explain why perhaps only one half of all Finnish enterprises active in, for example, St. Petersburg are recorded in official Finnish sources. There are only a few Finnish direct investments in Russia employing hundreds of people. These are descendants of early joint ventures in furniture and cables. Their experience, as well as that of all Finnish investment in Russia, is mixed. In 1995 investor expectations were less optimistic than in 1993 (19). Learning has thus taken place. The instability and unpredictability of the administrative, legal and political environment - in particular taxation - is regarded as the foremost problem. Crime is much less of a problem. Overall, though some investment is clearly successful, the Finnish attitude towards investment in Russia is clearly much less optimistic than that concerning trade.
Even in forestry, the backbone of Finnish industry, no large-scale investment has taken place. The former Finnish paper mill in Svetogorsk, now a few kilometres outside the border, is owned and operated by a Swedish group, who have serious problems. The same is true of several other forestry investments in Russia. The Finnish forest industry fells and imports large amounts of roundwood from Karelia. This single export revenue of the Karelian republic is however endangered by environmental concerns particularly in Germany, a crucial market.
Instruments and policies in Finland's economic policy vis--vis Russia
The role of government policies in current Finnish-Russian trade is marginal, especially when compared with Soviet state trading. Since Finland became a member of the EU in 1995, foreign economic policy vis--vis Russia is exercised through three main channels: EU trade policy, the Finnish-Russian Commission for Economic Relations, and the Policy on Neighbouring Areas. On the Finnish side, the Ministry of Foreign Affairs has main responsibility for all these three channels although other officials - in particular the Ministry for Trade and Industry - also participate.
- The Finnish-Russian Commission for Economic Relations
- Finland decided in 1991-1992 that a government-level political framework would be needed for trade and cooperation with the new market-oriented Russia, since the role of political decision-making would remain important. Therefore, the Finnish-Soviet Commission for Economic Relations was transformed into a Finnish-Russian Commission. On the Russian side, it was for quite some time chaired by Deputy Prime Minister Oleg Davydov (who spent years in Finland building the Loviisa atomic power station), on the Finnish side by a Cabinet Minister nominated to oversee "Eastern Trade" (currently Mr. Ole Norrback, Minister for European Affairs). The Commission has three permanent working groups (trade, energy and traffic) and several ad hoc working groups (investment, entrepreneurship, shipbuilding, standards and certificates, Bashkortostan, Nenetsia and the Komi Republic). The number of working groups is radically smaller than with the USSR, when the Soviet planning system made it convenient to have a formal forum for any industrial branches of importance in trade. The rise of the regional approach is also notable. Several other Russian regions have also been interested in having an ad hoc working group of their own. The competence of the Commission is also narrower than with the USSR. Trade policy competence is with the EU, and there is no longer any state trading. Although getting the Russians to attend a meeting is often not all that easy, the Commission is regarded as a useful conduit for contacts, information and negotiations.
Typical trade barriers in Russia include various demands for certificates, slow-downs and arbitrary fees at the border, arbitrary fees set by the militia, arbitrary taxation of foreign-owned companies, unstable legislation etc. These issues are regularly raised in the Commission and at other meetings. Indeed, they may be the single most laboursome set of issues facing Finnish foreign trade authorities. EU channels have also been used for communicating Finnish worries to the Russians. Part of the problem is spontaneous devolution of decision-making in Russia; another the existence of various authorities in Russia that may hinder trade (not primarily foreign trade authorities, but the customs, the militia, the tax police, the Ministry of Communications etc). It is understood that progress in these matters - and it has taken place - will always be slow and complicated. Russia will never become an easy operational environment. Common history and experiences may have nurtured in Finns the stamina needed to do business in Russia.
- Finland and EU policy vis--vis Russia
- When Finland became a member of the EU in 1995, trade policy competence moved to Brussels. The EU-Russia PCA has thus supplanted earlier Finnish-Russian agreements. The PCA is also more detailed and contains a better formula for solving eventual disagreements than the earlier Finnish-Russian agreements. As Finland adopted EU external tariffs, Russia claimed compensation alleging losses of about FIM250m annually. This demand was later dropped, as Finnish calculations only amounted to a tenth of the Russian figure and Russia was not entitled to such compensation, not being a member of GATT.
Finland has been an active participant in the preparation of EU strategies for Russia and the Baltic Sea Area. It has a strong position in TACIS, and has argued successfully for making the environment a TACIS priority, for making cross border activities acceptable in TACIS and for making TACIS-Interreg cooperation possible. Arguably Finland is the only EU member with a specific interest in cooperation with Russia. Inter alia, this arises from the 1,300 km of common border.
- Policy on neighbouring areas (20)
- As Western assistance to Russia became topical in 1991-1992, Finland decided to concentrate its efforts on the neighbouring areas (Karelia, Murmansk region, St. Petersburg, Leningrad region and later also Arkhangelsk region). The need for concentration was obvious given the relative scale of any conceivable Finnish efforts. The neighbouring areas were also a natural choice for reasons of Northern know-how, earlier experience, logistics and security. On the other hand, these are in the main poor, even impoverished areas, and Arkhangelsk region was later added as a priority primarily due to the energy resources of Nenetsia. Clearly, there are now valid reasons for looking in more detail at several other regions of Russia as well. This is evident on several levels: business relations, trade and investment promotion, and even diplomatic representation. Within the neighbourhood areas, the emphasis has shifted from the Republic of Karelia to St. Petersburg and the Leningrad oblast.
Because of the relative poverty and often poor development prospects of many of the neighbourhood regions, it is increasingly argued in Finland that the country has become a prisoner of the initial geographical priorities set. But on the other hand, only concentration on the geographically adjacent regions allowed for the peculiarity of experience of the past five years. Cooperation with the neighbouring areas is a many-layered web reaching from grassroots civil society, aid and cooperation, to formal state policies. Only in 1996, as a new Strategy on Neighbourhood Areas was accepted, was a decision reached to coordinate these activities by the Ministry of Foreign Affairs. Formerly, even government ministries had quite independent and uncoordinated policies.
The amount of financial aid given by the state was FIM440m in 1990-1996. In addition, there were guarantees for about FIM50m. Adding other finance, the recent annual volume of neighbourhood areas projects has been around FIM200-250m. Altogether, a wide variety of about 400 projects have been implemented, and about 120 projects are currently being implemented. Many of them - such as support for private farms in Karelia - have been failures, other - especially in education, energy and environmental matters - have been more successful. The major contribution of this policy has been the direct contacts that thousands of Finns and Russians have built. This has created a large bank of practical knowhow and experience. Any small Helsinki Ministry of a few hundred employees will have tens of people practically involved in this cooperation, and the same is true of regional administrations and the civil society. The political benefit involved is obvious, but such practical expertise also helps in attracting outside finance from the EU and international financial institutions.
- Orientations for the future
- The Government of Finland published the first part of its futures report to parliament in late 1996 (21). This report contains a relatively frank discussion on Russia's future. It notes the exceptionally difficult starting point of Russia's reform, and also the problems Russia has had in settling on a reform policy. The weakness of the Russian state is emphasised, and this is also reflected in a lack of consistent reform strategy, especially in the uncertainty concerning the long-term competitive advantages of the country. The peculiarities of the political system may impair the predictability of the system, but although the key features of Russian capitalism are already visible, the current favourable political and economic trends could still be jeopardized. Fast growth is not to be expected in Russia. Therefore, although the Finnish Government does regard Russia as a major player in the European economy, the analysis presented in the report clearly seems inconsistent with any major new public sector efforts to increase trade and investment in Russia. The official Finnish view on Russia's future is sombre; the private one often even more pessimistic. But as the trade figures show, success stories also exist.
A Baltic economic region? From the Hanseatic League to a Euroregion
The idea that the Baltic sea rim might be a distinct economic region seems to go back to the idea of a new Hanseatic league, raised by the (Social Democratic) regional leaders of Northern Germany as a counterweight to the perceived southerly orientation of (Christian Democratic) Germany. German unification and the moving of the capital to Berlin were also seen as a boost to the northern and Baltic regions of Germany. Though the exact contents of the idea remained to be specified, leaders, especially of the Baltic states, were eager to seize the opportunity to emphasise their traditional Baltic Sea Europeanness. In 1995, the idea was made official in that Sweden and Finland joined Germany and Denmark as members of the European Union, the three Baltic countries signed Europe Agreements and applied for membership in the Union (22), a decision was made on the temporary application of the Corfu agreement with Russia, and the Baltic region was mentioned in the communique of the Cannes Summit (23).
Baltic Sea regional cooperation has long roots, especially in such natural areas as environmental protection (24), transport and safety at sea. Altogether, it is estimated that there are about 70 different Baltic Sea region cooperation bodies. Some are old, but most have been established in the 1990s. Their participants range from universities via labour unions to chambers of commerce and other civil society organisations. Reflecting both a link to the tradition of Nordic cooperation and current realities, the major institution for regional cooperation, the Council of Baltic Sea States, includes also Norway and Iceland on one hand and the European Commission on the other. Thus the Baltic Sea region is not merely a creation of Brussels Eurocrats but an outgrowth of long existing links and processes. Naturally, EU political and financial support is also of great importance for the success of such cooperation. PHARE assistance alone has reached more than ECU125m for the three Baltic states, Latvia being the largest recipient. On the other hand, Baltic cooperation has so far not received the kind of major boost from EU developments and policies that were expected by the optimists. The Baltic Sea region does not have the same priority as the Mediterranean, and this will be reflected in future enlargement talks. Adopting the Northern German viewpoint, one again notes that while German trade with the Council of Baltic Sea States increased by a quarter in 1991-1995, the trade of Schleswig-Holstein with the region at best stagnated (25).
One highly probably direction in further regional cooperation is infrastructure, and energy supply in particular. The Nordic electricity providers have been utilizing trans-border links since the early 1960s. Links with Germany are also well-established. There also exist links between Estonia and Russia, Estonia and Latvia, Lithuania and Latvia as well as between Poland and Germany. A ring link around the Baltic Sea is technically feasible and might become reality within the foreseeable future. Other current discussions concern natural gas. The idea of diversifying Finnish (and possibly Baltic) gas supplies to include Norway (in addition to Russia) has so far stumbled on the unwillingness of Sweden to increase purchases from Norway. Meanwhile, another possibility has surfaced. Within ten years or so, the West European gas deficit has to be fulfilled whether from Algeria or Russia. One of the possible routes for Russian gas would be via Finland to Germany either through the Baltics or utilising the Baltic Sea seabed. But there are other possibilities as well.
In road transport, a Via Baltica route from Helsinki (and St. Petersburg) through the Baltic countries to Warsaw has been under development since 1985. The connection is operational, but growth in traffic has been less than hoped for, partially because some of the border crossings involved have formed bottlenecks. These problems are now basically a matter of the past, and it remains to be seen whether traffic will increase sufficiently to justify necessary further investment. There is also a parallel rail connection, but it is only used for passenger traffic. Maintenance of the connection is currently endangered by the small amount of traffic and the financial problems of the Baltic railroads.
Concluding Comments
The Baltic Sea region is not a single market. It consists of a number of countries or regions (26). Even in the process of European integration, a unified market is not in sight. Poland and possibly Estonia will become Union members in the foreseeable future. Even the road to free trade with Russia remains a long one. But still, the context of the Baltic Sea region is no longer the long-forgotten times of the Hanseatic League but European integration.
This emphasised, one has to point out an important caveat. In some dimensions at least, a true civil society network of relations is crucial. From the Finnish point of view, this is true of the relations with Russian neighbourhood areas, but especially concerns the grassroots integration between Southern Finland and Northern Estonia. In just a few years, the amount of passenger traffic between Helsinki and Tallinn has bypassed the long-established flow between Helsinki and Stockholm. A similar phenomenon can be seen in the large number of cooperation bodies and initiatives linking the Baltic Sea region countries on different levels.
Perhaps somewhat paradoxically, such links between Finland and Russia are only possible on the basis of stable governmental relations and borders that remain exceptionally well guarded on both sides. Though experiences cannot be readily transferred, one should ask whether something similar should not be needed to a greater extent than is now available over such borders where development of cooperation still poses great challenges. This seems to concern, in particular, Russian-Baltic relations, but also to some extent intra-Baltic and Lithuanian-Polish relations. There has been much progress, but there is still a long way to go, even if one were to admit that the closeness of Nordic cooperation and prospective Finnish-Estonian integration are products of exceptional historical and linguistic circumstances.
From an economic point of view, it is also interesting to note that in most cases trade integration is much more pronounced than foreign direct investment. The small size of most of the markets involved is one natural explanation, but one also has to remember that the Eastern Baltic shore countries still have much to do to attain the standards of politico-economic stability (and EU Pillar Three aspects) that investors would take for granted elsewhere in Europe. Market integration in finance, telecommunications and services is still relatively underdeveloped.
Table 1
EBRD's Evaluation on the Progress of the Baltic and the Russian Economies
(.PDF/6Kb)
|
Table 2
Structure of Finland's trade with the area comprising the Soviet Union 1989-1996 %
(.PDF/25Kb)
|
Table 3
Value and structure of Finland's trade with Russia, the Baltic States and the other FSU countries in 1992, 1994 and 1996 - FIM m
(.PDF/28Kb)
|
Table 4
Value and structure of Finland's trade with Russia, the Baltic States and the other FSU countries in 1992, 1994 and 1996 - %
(.PDF/28Kb)
|
Table 5
Finland's trade with the Baltic States (Estonia, Latvia and Lithuania) in 1992, 1994 & 1996 -FIMm
(.PDF/34Kb)
|
Footnotes
Parts of this paper utilise an earlier paper on Finnish-Russian economic relations written for the Instituto Affari Internazionali, Rome.
The EBRD view on the progress of transition in the Baltics and Russia is summarised in Table 1. See EBRD Transition Report, October 1996.
Laurila, Juhani: "Experiences of Finnish-Soviet Joint Ventures", Bank of Finland Bulletin 66 (1992): 3, 6-9.
Rautava, Jouko and Juhana Hukkinen: "Russia's Economic Reform and Trade Between Finland and Russia", Bank of Finland Bulletin 66 (1992): 4, 3-7.
Any terminology used in this paper for reasons of brevity and convenience is not intended to imply that the Baltic states had ever been legal parts of the USSR.
Lainela, Seija and Pekka Sutela: The Baltic Economies in Transition, Bank of Finland A:91, Helsinki 1994; Korhonen, Vesa: "The Baltic Countries' Changing Foreign Trade Patterns and the Nordic Connection", Review of Economies in Transition (Bank of Finland) 1996:3, 17-32.
Again, the statistics are generally unreliable, but if one accepts the figures used in the European Commission Economic Reform Monitor, the top Baltic growth performance so far is Lithuania's 3.5% in 1996, this being the only country in the region to have ever topped 3% in GDP growth. In 1996, four Central European countries grew faster than the best Baltic country.
Latvia is a case in point. According to the Ministry of Finance, "the share of capital goods (in imports - PS) is inadequate, and the growth rate in this sector is very slow". Biletens Latvijas Republikas Finansu Ministrija 1997: 1, 44.
Pautola, Niina: "The Baltic States and the European Union Enlargement: Achievements and Challenges", in Kari Liuhto, ed.: The Baltic States and the European Union Integration, Institute for East-West Trade, Turku School of Economics and Business Administration, Turku 1997, pp.53-90.
For Estonia, see Esti Pank/Bank of Estonia Statistical Datasheets June 1, 1997, for the other countries see Biletens Latvija Republikas Finansu Ministrija 1997: 1, 50, citing figures by Deutsche Morgan Grenfell. In the latter source, the estimate for Estonia is only 4.5%.
Sorsa, Piritta "Regional Integration and the Baltics: Which Way", Policy Research Working Paper 1390, the World Bank, Washington D.C., December 1994.
World Development Report 1996, The World Bank, Washington D.C. 1996, Figure 3.2, p.64.
EBRD Transition Report Update, April 1997, p.42.
Eesti Pank/Bank of Estonia Statisitical Datasheets June 1, 1997, Table 29. The halving of net direct foreign investment was a consequence of an increase in Estonian investment aborad from EEK29.1m to EEK480.9m together with a decrease of inward investment from EEK2,312.9m to EEK1,665.7m. The decline took place in investment into capital stock, which dropped by about four fifths, while investment in net loan capital increased.
For references see Korhonen, Vesa: op.cit., 1996.
Finland has a harbour capacity that is similar to that of the Baltic Sea Eastern coast (Russia and the Baltics) combined. The shortest route from Arkhangelsk region to Western Europe goes via the harbours of Northern Finland. Due to high costs, Finnish harbours are basically competitive only in high-value goods. An oil pipeline is also planned from Kirishi refinery to Porvoo in Southern Finland.
Though the population is growing older and is expected to decline by about a million by 2020.
Laurila, Juhani and Inkeri Hirvensalo: "Direct Investment from Finland to Eastern Europe: Results of the 1995 Bank of Finland Survey", Review of Economies in Transition (Bank of Finland) 1996: 5, 5-25; Borsos, Julianna and Mika Erkkilâ: "Foreign Direct Investment and Trade Flows Between the Nordic Countries and the Baltic States", Research Institute of the Finnish Economy, Discussion Papers No.540, Helsinki 1995.
A similar change had not taken place concerning investment in Estonia.
Technically, the Baltic countries are also regarded as part of the neighbourhood areas, and the amounts of money used for cooperation with them are similar to the ones used in Russia. However, this paper only discusses assistance to Russia.
Finland and the Future of Europe, Prime Minister's Office Publications Series 1996:4, Helsinki 1996.
Poland naturally has had a Europe Agreement since 1991 and applied for membership in 1994.
Kivikari, Urpo: Hansan perilliset, Otava, Helsinki 1996 is a Finnish view on Baltic Sea economic region, also available from the same publisher in Swedish, English, German and Russian.
For a discussion in a wider context see Darst, Robert G.: "Bribery and Blackmail in East-West Environmental Politics", Post-Soviet Affairs 1997:1, 42-77.
Weyrach, Peter M.: "Baltic Region Economic Development and Cooperation" (in Finnish), Suomen Lâhialueet 1996:4, 10-15.
Setting the borders is not simple, as seen above. Only historical reasons explain why Iceland is at least in some connections an insider while Belarus and the Pskov region are outsiders.
![[ Go to Index ]](../../../icons/btn-indx.gif)
![[ Go to Homepage ]](../../../icons/btn-home.gif)
![[ Go to Homepage ]](../../../icons/btn-next.gif)
|
