Studies Eastern European Markets
Eastern European Markets
November 2004

Alari Purju:
FOREIGN TRADE BETWEEN THE BALTIC STATES AND RUSSIA:
TRENDS, INSTITUTIONAL SETTINGS AND IMPACT OF THE EU ENLARGEMENT
Electronic Publications of Pan-European Institute, 14/2004
The whole report as a pdf-dokument


Abstract

The paper analyses foreign trade developments between the Baltic States and Russia. The general commodity and geographical patterns of foreign trade of the Baltic States are described. The exports of the Baltic States have been determined by their economic potential inherited from the Soviet Union and further adjustments through privatisation, inflow of foreign direct investments (FDI), creation of new enterprises and integration with developed economic networks. The structure of the Baltic States’ imports has been induced by the necessity to purchase fuel and other raw materials.

The specialisation amplitude is expressed by commodity concentration, trade coverage ratio. The natural resource based items are dominating in the commodity sections with the highest trade coverage ratio.

The impact of institutional settings of foreign trade between the Baltic States and Russia is described in the next part of the study. After EU enlargement, the EU25 has a widening range of agreements starting with the PCA and followed by the Common Space, Eastern Dimension (covering regions of Russia and the Ukraine, Moldova and Belarus), and Wider Europe program (covering a wider set of new neighbours).

Several important regulative issues covering foreign trade and critical for the access of the Baltic States to Russian markets has become a competence of the EU, but no fast solutions have been seen until the end of 2004.

Conclusions

Before EU enlargement, the EU15 had PCA with Russia and Europe Agreements with enlargement countries. Russia, on the other hand, had bilateral relations with the enlargement countries.

After EU enlargement, the EU25 has a widening circle of agreements starting with the PCA and followed by the Common Space, Eastern Dimension (covering regions of Russia and the Ukraine, Moldova and Belarus), and Wider Europe program (covering
wider set of new neighbours).

After joining the EU, external tariffs had to be adjusted to the EU common tariffs. The result for Estonia and Latvia was abolishment of so called double tariffs. However, trade was still hindered by non-tariff measures. The dominating items of exports of the Baltic States had very little connection with exports to Russia. Among commodity chapters creating at least 10% from total exports in each country, there was no single commodity chapter in Estonia and Latvia where exports to Russia created at least 10% of total exports of particular commodity group. In Lithuania’s exports, inside the second largest group vehicles, transport equipment (XVII), and inside the forth group, machinery and equipment (XVI), exports to Russia created 22.3% and 11.6% of exports of respective commodity chapters.

Trade with Russia increased in the beginning of current decade. Estonia’s exports growth was highest, annual average being 24.0% for covered period. Lithuania’s exports increased in average by 8.3% and Latvia’s exports by 1.1%. Imports increased respectively by 13.9%, 3.7% and 4.6%.

All the Baltic States had a deep foreign trade deficit with Russia imports exceeding exports several times. Estonian exports to Russia were 155.9 million EUR and imports from Russia 491.4 million EUR in 2003, for Latvia respective figures were 137.5 million EUR and 405.3 million EUR, for Lithuania 548.5 million EUR and 1931.6 million EUR. One reason for foreign trade deficit would be directly connected to different foreign trade policy applied by the Baltic States and Russia. If Estonia, Latvia and Lithuania supported access to their domestic markets with missing or very low level of customs tariffs, Russia applied against Estonia and Latvia so called double tariffs due to missing MFN regime with those countries.

The whole report as a pdf-dokument


More information
Turku School of Economics and Business Administration
Pan-European Institute
Turku, Finland
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http://www.tukkk.fi/pei

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