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Finland

Finnish-Soviet Cooperation

Originally established in the chaos of the postwar years, Finnish-Soviet economic ties developed apace during the entire postwar period as the two countries experimented with new forms of interaction between seemingly incompatible economic systems. During the Cold War, the two countries found this trade especially important. The Soviet Union was Finland's largest trade partner, while Finland was the Soviet Union's largest Western client until the 1970s; in 1987 Finland still placed third in Soviet trade with the West. Although the relative importance of Finnish-Soviet trade had declined in the 1980s, the two countries still needed each other's business, and they sought to compensate for the setbacks in trade by expanding other forms of cooperation.

Finnish-Soviet trade developed out of interim agreements negotiated in the immediate postwar years, especially the 1947 Treaty of Commerce, in which the Finns and the Soviets agreed to expand bilateral trade and to extend to each other most favored nation status. During the late 1940s, annual agreements set trade targets, but in 1950, with the end of reparations deliveries in sight, the two partners agreed on the first of the five-year trade plans that continued to regulate trade in the late 1980s. These plans, which contained commodity quotas for both imports and exports, allowed both sides to anticipate deliveries--a plus for Finland's shipbuilding and other heavy industries. Annual trade protocols, negotiated in accordance with the five-year plans, provided a detailed list of expected exchanges. Although in the Soviet Union the government traditionally monopolized foreign deal making, in Finland private firms were free to negotiate with minimal government interference. The parties to individual transactions set the terms of exchange--including delivery dates and prices--which generally reflected world market conditions. A licensing system, covering both imports and exports, enforced the planned trade balance.

The barter arrangements of the early postwar years soon gave way to a ruble clearing account jointly administered by the BOF and the Soviet Foreign Trade Bank. Under this scheme, individual transactions did not need to balance, provided that total trade balanced in each five-year period and that payment imbalances did not exceed a ceiling of about 5 percent of the annual value of trade. Other payment arrangements were developed when needed. Between 1956 and 1965, for example, the Soviets made hardcurrency payments to cover the costs of imported materials in Finnish shipments to the Soviet Union. In addition, barter still played a role in border trade, which was regulated by a special section of the annual trade protocol.

During the 1960s and 1970s, the two countries further institutionalized their economic relationship, often as a result of negotiations initiated from the Finnish side. In 1960 the Finns, invoking the most favored nation clause of the 1947 Treaty of Commerce, negotiated a free-trade agreement to compensate the Soviet Union for the FINEFTA agreement. In 1967 the two states established the Finnish-Soviet Intergovernmental Commission for Economic Cooperation, which set the five-year and the annual trade projections and studied other forms of cooperation. In 1973, after signing a free-trade agreement with the EEC, Finland became the first Western nation to reach an agreement with Comecon; Finland complemented this agreement with bilateral freetrade treaties with most East European Comecon members. Another important step toward improved ties came in 1977, when Finland and the Soviet Union decided on a fifteen-year Long-term Economic Plan meant to smooth out trade fluctuations between the five-year plans.

Despite these elaborate institutional arrangements, prospects for expanding Finnish-Soviet trade dimmed after 1986, when falling oil prices sharply reduced the Soviet Union's ability to finance imports from Finland. Soviet consumer goods sold poorly on the Finnish market, and the Soviets reportedly preferred selling their few competitive industrial products in hardcurrency markets, making it hard to find substitutes for oil imports. The Finns, long unchallenged in Eastern markets, found increased competition from other Western exporters. The reform movement initiated by Soviet party leader Mikhail S. Gorbachev had both advantages and disadvantages for the Finns. In the long run, increased flexibility and new emphasis on consumer goods were likely to improve prospects for trade. Finns experienced immediate difficulties, however, when Moscow decided to decentralize foreign-trade decision making, reducing the importance of long-standing Finnish contacts in the Soviet Ministry of Foreign Trade. As a result of these developments, analysts predicted that Finnish-Soviet trade might decline by as much as 10 percent per year in 1988 and 1989, unless world oil prices rose again.

In the late 1980s, concerns about falling exports to the East filled the business press with reports of the difficulties faced by Finnish agriculture, textiles, leather goods, and shipbuilding, sectors particularly dependent on the Soviet market. Many analysts believed, however, that the Finns would find ways to preserve their exchanges with Soviet enterprises. Aware of their common interests, policy makers in the two countries addressed immediate problems and invented new forms of East-West cooperation. At the end of 1986, the Soviets agreed to convert the Finnish surplus on the clearing account to a loan paying interest at world rates, with guarantees on the ruble's exchange rate. In early 1987, Finland's state petroleum company, Neste, arranged to import increased amounts of Soviet oil, which it reexported, sometimes after refining operations.

In the spring of 1987, a Finnish firm became the first Western enterprise to establish a joint venture with Soviet partners by investing in an Estonian paint factory. Later, Finnair agreed to form a joint venture to renovate and operate a luxury hotel in Moscow. The two sides were also exploring compensation projects, in which Finnish enterprises would help to build industrial facilities in the Soviet Union and would accept a share of the resulting output as full or partial payment. In March 1988, Moscow announced plans to list several Soviet companies on the Helsinki Stock Exchange. Thus, although FinnishSoviet trade might well decline in the late 1980s and early 1990s, it appeared likely that the Finns would find ways to maintain and to improve the long-standing economic relationships with their neighbors in the Soviet Union and Eastern Europe.

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The OECD's annual economic survey, Finland, most recently published in April 1988, is an authoritative and readily available summary of the Finnish economy that includes up-to-date statistical tables. The Financial Times (published in London) provides regular coverage and occasional surveys of Finnish economic and business developments. The Economist Intelligence Unit's quarterly Country Report: Finland and annual Country Profile: Finland outline economic and political trends and include up-to-date statistical material. The Yearbook of Nordic Statistics, published by the Nordic Council of Ministers, provides official economic statistics in a format that allows comparison with other Nordic states; the Statistical Yearbook of Finland, issued by the Central Statistical Office of Finland, supplies more detailed statistics, although it is less widely distributed.

No comprehensive survey of the Finnish economy exists in English, but a number of publications offer partial views. Finland and Its Geography, edited by Raye R. Platt, although now rather dated, offers a geographical introduction to economic affairs. Fred Singleton's The Economy of Finland in the Twentieth Century sketches the historical background. Dieter Senghass's The European Experience and essays by Risto Alapuro, Matti Alestalo, Stein Kuhnle, and Kimmo Kiljunen analyze the country's economic development in comparative frameworks. David Arter's Politics and Policy-making in Finland and Lars Mj°set's "Nordic Economic Policies in the 1970s and 1980s" explain the institutional and international influences on economic policy making. The Bank of Finland Bulletin offers in-depth analytical articles on topics of current interest, and the varied publications of Finland's government and of Finnish producer groups, generally available from the Embassy of Finland in Washington, give information about particular sectors. (For further information and complete citations, see Bibliography.)

Data as of December 1988


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