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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.
* * *
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 Mjøset'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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