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Finland Ties to West European Markets
Although trade with Western Europe developed slowly in
the
early postwar years, by the 1980s it was more important
than
trade with the East. During the early and mid-1950s, when
the
West European countries liberalized trade and exchange
regulations under the OEEC, Finland maintained import and
export
controls inherited from World War II and the reparations
years.
Conducting almost all trade under bilateral agreements
(except
for occasional trilateral deals worked out with the Soviet
Union
and another East European country), Finland saw its trade
grow
only slowly. Thus, although the forest industries were
competitive, the economy as a whole remained isolated. The
Finns
did participate to a limited extent in international
economic
organizations, joining the International Monetary Fund
(IMF--see Glossary),
the World Bank (see Glossary),
and the General Agreement on Tariffs and Trade
(GATT--see Glossary) in the
late
1940s. The country also became a member of the Nordic
Council and
agreed to a Nordic labor market, but did not favor a
Nordic
common market because of Soviet opposition. Faced by the
growing
movement toward West European economic integration after
1955,
Finland ran the risk of remaining on the sidelines, not
only
because of Soviet pressures but also as a result of
domestic
protectionism.
It was not until 1957 that the Finns first shifted
their
policy toward Western Europe in a move designed to protect
access
to traditional export markets, especially in Britain, and
to
shift economic activity to branches in which the country
had a
comparative advantage at a time when extensive economic
growth
was reaching its limits. The new policy package combined
an
austerity program, a sharp currency devaluation, and
multilateral
tariff reductions for trade in industrial goods arranged
through
the Helsinki Club, which was a model for further trade
agreements. In effect, Soviet opposition had blocked
Finnish
membership in the OEEC, leading the Finns to set up the
Helsinki
Club, which the OEEC countries, agreeing to apply their
liberalized import lists to Finnish goods, then joined. In
1958
Finnish authorities further liberalized trading conditions
by
making the Finnish mark convertible in European markets.
Since the late 1950s, Finland has consistently pursued
freer
trade in industrial products with the members of EFTA and
the
EEC, while protecting domestic agriculture to maintain
food
supplies and while controlling oil imports to safeguard
trade
with the Soviet Union. Under the FINEFTA agreement, signed
in
March 1961, Britain and other EFTA states extended
associate
membership and free-trade arrangements to Finland. In 1969
Finland joined the Organisation for Economic Co-operation
and Development
(OECD--see Glossary),
the successor to the OEEC.
Although the OECD played a minor role in commodity trade,
its recommendations regarding cooperation among industrialized
free-market economies touched on issues such as freer trade in
services and liberalized capital transfers. When two
important
trading partners, Britain and Denmark, switched from EFTA
to the
EEC, Finland (like the other EFTA states) negotiated with
the EEC
an industrial free-trade agreement that came into effect
in 1974.
In 1986 Finland became a regular member of EFTA, the
Soviet
Union's finally having recognized that the organization
posed no
threat to its security or its trade interests. Under these
freetrade agreements, virtually all Finnish industrial goods
entered
West European markets duty-free (but they sometimes faced
troublesome nontariff barriers). These arrangements led to
rapid
increases in trade with Western Europe, stimulating
specialization and improving economic efficiency in
Finland.
Finnish business intensified its interest in Western
Europe
during the mid-1980s and the late 1980s, as falling oil
prices
led to a curtailment in trade with the Soviet Union. In
1986 and
1987, the Finns managed to shift trade smoothly from
Eastern to
Western markets, a development that soothed trade worries.
Despite this success, in early 1987 prominent Finns voiced
fears
that the EC's plan to unify its markets by 1992, a plan
approved
in June 1985, might harm Finnish trade interests.
According to
this line of thought, the elimination of the remaining
hindrances
to trade in commodities, the establishment of free markets
in
services and capital, and the further harmonization of
European
macroeconomic policies would favor EC products, reducing
Finnish
access to EC markets. Commentary became especially heated
after
reports that other EFTA states, including Norway and
Austria,
were considering joining the EC, as Portugal had done in
1986.
Moreover, the tendency for EC countries to expand
cooperation
from economic matters to security questions made Finnish
membership in the EC politically impossible.
Informed analysts noted that, as it had in the years
after
1957, Finland could maintain access to European markets
without
undermining its independent foreign policy. Although
deepened
integration among the EC countries would tend to reduce
EC-EFTA
trade, Finland and the other EFTA countries were not
defenseless.
As a group, the EFTA countries formed the EC's largest
trading
partner and could exert considerable pressure on EC
harmonization
decisions. Indeed, the EC had demonstrated some
willingness to
cooperate with the EFTA countries in April 1984, when
representatives of the two trading groups issued the
Luxembourg
Declaration, which called for reduced technical barriers
to
trade, for common norms in information technology and
telecommunications, and for greater cooperation in
multilateral
research and development programs. Even if EFTA efforts
lagged,
Finland could maintain trade ties with the EC by aligning
national technical norms, commercial practices, and
economic
policies with those chosen by the EC. Other arrangements
were
also possible. For example, in 1986 Finland joined the ESA
(which
included other non-EC countries), participating in the
group's
earth observation satellite program as well as in basic
research
efforts. In effect, expanded technical cooperation offered
the
prospect that, while integration with the EC countries
would
extend far beyond commercial agreements during the 1990s,
Finland
could participate without sacrificing political
neutrality.
Data as of December 1988
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