ESTONIAN FOREIGN TRADE IN THE FIRST HALF OF 1995(*)

(*) Throughout the analysis data for the first half of 1995 is being compared to the respective data of the first half of 1994. - Editor's note.

In the first half of this year the export of goods was up 25.5% and import up 33.8% compared to the same period last year (see Table 1).

The more rapid increase of import led to the increase of the trade deficit by more than 1.3 billion kroons from the first half of 1994. Changes in Estonia's trade balance over the period from 1993 to 1995 are given in Figure 1 .

Structure of Foreign Trade Turnover

In the first half of this year Estonia's foreign trade turnover was 30.2% bigger than in the first half of last year (see Table 2). Increase was recorded in all categories of goods, with the exception of foodstuffs. The reduced share of foodstuffs trade in the turnover was the biggest change recorded over the past year. While until 1995 the export of foodstuffs had outstripped import - although the positive balance was constantly declining - then this year the situation changed: over the first six months the import of foodstuffs outstripped the export by 222.9 million kroons. One of the reasons for this is high customs tariffs applied on Estonian foodstuffs by Russia.

With respect to the first half of 1994, the most rapid increase occurred in the trade turnover of machinery and equipment; the share of this group was the biggest in the overall turnover in the first half of 1995. Machinery and equipment, and mineral products, were the two main categories responsible for the trade deficit.

Trade increased quickly in timber, paper and products thereof, as well as products of chemical industry and plastics.

Increase was a bit slower in the turnover of mineral products, transport vehicles and metals. The share of these products decreased respectively in the overall turnover.

The volume of Estonia's foreign trade turnover is more and more influenced by goods sent to Estonia from abroad for processing. In the first half of this year the share of such goods in the overall trade turnover was 5.4 percentage points bigger than a year ago (see Table 3). The increase has been the biggest in the processing of machinery and equipment. Although the volume of clothing, footwear and headgear processed was up one-third from the level of last year the share of this group decreased in the overall volume of processed goods. Processing accounted for 47% of the total turnover of clothing, footwear and headgear and 36.8% of the turnover of machinery and equipment.

As we can see from Table 4 , the main user of Estonia's cheap skilled labour was Finland whose goods accounted for more than 50% of the turnover of goods sent to Estonia for processing.

Structure of Export

Changes in the structure of export in the first half-year are similar to changes in the structure of the entire foreign trade turnover, with the decline in the share of foodstuffs standing out even more markedly (see Table 5). However, while the export of products of the food industry decreased, the export of animal products increased. Less foodstuffs was exported to the East while the export of animal products (fish and dairy products) was up due to increased export to mostly two countries, Great Britain and the Netherlands.

Besides foodstuffs, the volume of export of metals and products thereof also decreased. The fall concerned mostly exports to Germany and Sweden; the export of these products to the Netherlands, Latvia and Lithuania increased.

The biggest increase (nearly 80%) was recorded in the export of machinery and equipment. This was facilitated by the increase in the share of machinery and equipment sent to Estonia for processing. This mostly concerned trade with Estonia's Nordic neighbours: in the first half of 1995, 55% of exported machinery and equipment went to Finland and 15% to Sweden.

The export of timber, products of chemical industry and mineral products also increased rapidly. Timber exports increased to the Nordic countries, Germany, the Netherlands and Denmark; more products of chemical industry were sold to Latvia, the USA, Great Britain, the Netherlands, Russia and Finland; more mineral products went to the Netherlands, Germany, Belgium, Lithuania, Belarus and the Ukraine.

Structure of Import

Import increased in all ten groups of goods included in the analysis (see Table 5). The biggest increase concerned the import of paper and paper products, mostly from Finland, Germany and Great Britain. In case of machinery and equipment, the increase was brought about by processing which we discussed above. Thus, the import of machinery and equipment increased first and foremost from Finland and Sweden. The share of products of chemical industry from various countries also increased as a share of the total imports.

A positive change was the small increase of the import of foodstuffs (imports decreased mostly from the Netherlands and Germany) and mineral products (from Finland and Lithuania). This led to a fall of more than three percentage points in the share of those two groups in total imports. The import of products of the food industry decreased also in absolute terms.

Foreign Trade Turnover and Balance with Major Trade Partners

The most characteristic trend in Estonia's foreign trade recently has been the continuing increase in the share of the leading trade partner Finland and the proportional reduction of the share of Russia in total trade turnover (see Table 6). Since the majority of imports passed through Finland during the period under study, trade deficit with Finland was particularly large.

In the first half-year major changes occurred in the trade balance with Russia. While until recently, Russia was an important export partner for Estonia (particularly in case of foodstuffs), the situation has been reversed by now: the total volume of goods imported from Russia outstripped by more than 500 million kroons the volume of goods exported to Russia in the first half of 1995.

Although the foreign trade turnover with Norway, Italy, the USA and Great Britain is not large, it has been increasing rapidly, particularly the trade with the first two countries. Trade turnover with Lithuania remained practically unchanged. The only decrease among Estonia's 15 major partners was recorded in trade with the Ukraine.

The balance of export and import was still negative with Germany, Italy and Belgium, and the deficit increased. The biggest surplus was recorded in trade with Latvia, as in earlier periods. Trade balance was also positive with Lithuania, Great Britain, Belarus and the USA, with a considerable increase in surplus recorded in trade with Great Britain and Belarus. With the USA, last year's negative balance turned positive in the first half of this year. The trade deficit became smaller with Sweden, the Netherlands and Denmark.

Major Export Partners

In the first half of 1995, export increased to all Estonia's major partner countries, with the exception of Russia, whose share in total exports fell sharply (see Table 7). The overall volume of export to Russia decreased mostly due to a drop in the export of two groups of goods - transport vehicles and foodstuffs - while the export of various other goods (mineral products, products of chemical industry, metal products) to Russia increased.

The export to Finland increased nearly 50% and correspondingly Finland's share in the total volume of export also increased. As compared to the first half of 1994, Finland replaced Russia as Estonia's No 1 export partner. A large part of products exported to Finland was made up of goods that had been earlier sent to Estonia for processing (textiles and products thereof, machinery and equipment).

The export to Lithuania and Latvia (products of food industry export to these countries decreased considerably), and that to Germany increased slower than average. The share of those countries in overall exports fell correspondingly. Export of goods more than doubled to the Netherlands (animal and mineral products, metals); the USA (products of chemical industry and textile products); and Poland (food and chemical industry products); export nearly doubled to Norway and Belarus (foodstuffs and mineral products). Poland featured among Estonia's 15 major export partners for the first time.

Major Import Partners

Imports increased from 12 of Estonia's major import partners and fell from three countries (see Table 8 ). The latter were the Ukraine (a nearly 50% drop), Lithuania and France.

Imports from the Ukraine decreased in such categories as products of the food industry and metals, and in case of Lithuania the import of metals decreased.

The role of Finland as Estonia's import partner increased even further. Imports from Russia increased by nearly one-third as compared to the first half of 1994, and its share remained more or less unchanged. Among imports from Russia the biggest increase was recorded in products of chemical industry, timber, textile products, metals and transport vehicles.

The role of Sweden, Germany, the Netherlands and Denmark as Estonia's import partners decreased slightly. The most rapid increase concerned imports from Norway and Italy.

Structure of Estonia's Foreign Trade Broken Down by the Major Trade Partners (**)

(**) Analysis is based on data of the trading country. - Author's note.

1. Finland

The foreign trade turnover with Estonia's largest trade partner Finland continued developing at a rapid rate: both export and import increased by nearly 50% over the period examined (see Table 9 ). But since the volume of imports more than twice outstripped the volume of exports, the large existing trade deficit has been constantly increasing. In the first half of 1995, trade deficit with Finland accounted for 87% of Estonia's total trade deficit.

The most important change in the structure of both imports as well as exports was the sharp increase in the share of machinery and equipment, by 9.9 percentage points in exports and 6.3 percentage points in imports. As we said before, this rapid increase in the trade turnover with Finland can mostly be put down to machinery and equipment brought to Estonia for processing (see Table 10).

In case of textile products, too, processing played a major role. But here the stage of rapid increase has already been passed, although the share of processed goods was even bigger in the total turnover of clothing, footwear and headgear.

Compared to the same period a year ago, the export of foodstuffs, metals and transport vehicles to Finland decreased in the first half of 1995 in both absolute and relative figures. In imports, only the share of transport vehicles decreased. Besides machinery and equipment also the import of paper and paper products increased.

2. Russia

The export to Russia decreased slightly over 10% while the export increased by nearly one-third (see Table 11 ).

The fall in exports was mostly caused by the sharp decrease in the main export article - foodstuffs. But the result is also influenced by the particular period against which the comparison is made. Namely, in the first half of 1994, and in the second quarter in particular, export of food to Russia increased sharply in anticipation of the high customs tariffs Russia was planning to impose on Estonian goods from July 1, 1994.

Due to the discriminating customs policy of Russia, Estonia's trade surplus with its eastern neighbour turned into a considerable deficit by the end of the first half of 1995. The import of transport vehicles and metals and metal products also contributed to the deficit.

Although the biggest deficit was recorded in the group of mineral products, their import from Russia increased rather slowly. At the same time a considerable increase occurred in the volume of mineral products exported from Estonia to Russia - over the first six month of 1995 their share increased to 11%. A similar trend could be seen in the trade with the products of chemical industry.

3. Sweden

The export of goods to Sweden was up by one-third, and imports increased by 25% (see Table 12). As a result, the foreign trade deficit fell slightly, amounting to 3.4% of the trade volume between the two countries in the first half of 1995.

The major changes in the structure of export included the fall in the share of metals and an increase in the share of machinery and equipment. The share of timber, a major export article, increased even further.

In the structure of import the most important change was the sharp increase of the share of the transport vehicles which can partly be attributed to the excise duty applied to transport vehicles in Estonia from April 1. Another major change was the considerable fall in the share of foodstuffs in imports.

Only timber, metals and furniture had a positive trade balance, and the surplus increased in case of the first and the last article.

Sweden is also sending more and more goods to Estonia for processing (see Table 13). The bulk is made up of clothing, footwear and headgear, but also machinery and equipment. In case of clothing, footwear and headgear, the share of processed goods amounted to 67.9% of the total turnover, and 42.4% in case of machinery and equipment.

4. Germany

The export to Germany increased less than the import from Germany (see Table 14). This increased even further the already gaping trade deficit, which amounted to 22% of the trade turnover of

the two countries in the first half of 1995.

In absolute terms, the export of foodstuffs and products of industry, as well as metals decreased. The twelvefold increase in the absolute volume of transport vehicles exported to Germany was mostly due to their processing in Estonia. The export of timber increased nearly 50%.

The most significant change in the structure of imports was the considerable fall in the share of foodstuffs, transport vehicles and clothing, footwear and headgear. At the same time, the import of metals and products thereof increased. An increase was also recorded in the import of products of chemical industry, paper and paper products, and machinery and equipment.

In the first half of 1994, a number of groups of goods had a positive trade balance (metals, clothing, footwear and headgear, timber and paper, furniture, mineral products), and in 1995 the surplus increased (with the exception of metals and metal products). The sizeable deficit of some other groups of goods (machinery and equipment, products of chemical industry and foodstuffs) resulted in the increase of the deficit in the overall trade balance.

5. Latvia

Trade balance with Latvia has always had the biggest surplus for Estonia. The considerably more rapid increase of imports as compared to exports in the first half of this year, however, reduced the surplus: while last year the surplus amounted to 55% of the total turnover then this year it was 43% (see Table 15).

In the structure of exports the biggest change was the fall in the share of foodstuffs. The export of foodstuffs slid down by nearly half, mostly such goods as fats and oils and products of the food industry. The export of animal products increased. Besides food, a drop was also recorded in the export of mineral products, which means that while in the first half of 1994 Estonia sold 86 million kroons worth of electricity to Latvia then in 1995 only 36 million kroons worth was sold. In the structure of exports the leading position went to the products of chemical industry.

In case of imports, the biggest change was the fall in the share of mineral products and the increase in the volume of foodstuffs and clothing, footwear and headgear.

Trade balance with Latvia was positive for the majority of groups of goods and in case of several groups the surplus increased. However, the trade surplus for foodstuffs decreased considerably.

6. The Netherlands

Trade with the Netherlands involved mostly foodstuffs which dominated both in export and import. A year ago trade balance with the Netherlands was in big deficit (trade deficit amounted to 31.3% of the total turnover). In the first half of this year, the deficit dropped to 2.4% (see Table 16) since exports to the

Netherlands have doubled and imports have increased only 20%.

Among foodstuffs exported to the Netherlands animal products predominated; the assortment of imports was very wide. The rapid increase of the export can be attributed to such goods as metals, timber and mineral products.

In the structure of imports, the most important change concerned the decline of the share of machinery and equipment and the

increase of the share of transport vehicles.

The deficit of the general trade balance was reduced first and foremost by the decrease of the negative balance of the export and import of foodstuffs, and the increased surplus of mineral products and metals.

7. Lithuania

Trade with Lithuania developed relatively slowly: the export increased 7.3% while the import fell 4.3% (see Table 17 ). The trade surplus increased.

The slowness of the increase of the export was caused mostly by the steep decline in foodstuffs exports; at the same time the export of mineral products, metals and products thereof nearly doubled. The share of chemical products, too, increased in exports and these have become the most important export article in trade with Lithuania.

In imports, the most significant change was the sharp fall in the share of mineral products.

8. Denmark

The export of goods to Denmark increased by one-third and imports from Denmark rose by one-fifth (see Table 18 ).

The increase of exports can mostly be attributed to the increased export of timber, furniture and mineral products.

In imports, the most significant change was the shattering fall in the import of mineral products and the leanness of the share of foodstuffs. The import of metals and products thereof, as well as machinery and equipment increased rapidly.

The main reason for a deficit in trade with Denmark was foodstuffs, machinery and equipment, and products of chemical industry. The deficit was reduced by the increased export of mineral products, which had a considerable surplus.

9. Great Britain

Great Britain belongs to the countries Estonia's trade relations developed most rapidly during the first half of 1995: both export and import increased over 60% (see Table 19). The surplus has nearly doubled since 1994.

While in the first half of 1994, the structure of exports was comparatively one-sided - 65% of it was timber - then this year it became more versatile, covering foodstuffs (including animal products). Export of chemical products and clothing, footwear and headgear also increased.

The structure of imports remained relatively stable, the share of foodstuffs slightly decreased and the share of chemical products and paper increased.

The 1994 deficit in food, clothing, footwear and headgear and transport vehicles turned to surplus in the first half of 1995. The biggest surplus still came from trade in timber and timber products.

10. The Ukraine

Exports to the Ukraine increased while imports suffered a steep fall (see Table 20). This resulted in a eightfold increase in the trade surplus.

Although the total volume of exports increased, mostly on the account of mineral products, the export of most other goods dropped (timber, paper, clothing, footwear and headgear, metals and products thereof, furniture).

While in the first half of 1994 half of total imports was metals and metal products, then this year their import dropped threefold. The import of other goods decreased as well, with the exception of chemical products and transport vehicles the import of which increased over 70%.

Trade balance with the Ukraine was in surplus for most groups of goods. The biggest surplus came from foodstuffs and mineral products.

11. The USA

Trade with the USA also developed rapidly, with the export more than doubling and the import growing by nearly 50% (see Table 21). The trade deficit of the first half of 1994 had turned into a considerable surplus in the first half of this year.

The structure of exports was relatively one-sided, being confined to clothing, footwear and headgear mostly. A considerable increase was recorded in the export of chemical products.

In the structure of imports the most important change was the steep decline of the import of foodstuffs and transport vehicles, and an increase in the import of clothing, footwear and headgear, products of chemical industry, machinery and equipment.

trade surplus.

12. Italy

While in the first half of 1994 trade deficit amounted to 41% of the trade balance between Estonia and Italy then in the first half of this year the deficit had grown to 60%: the import increased at a much more rapid rate than the export (see Table 22 ).

The upshooting of exports came mostly from timber, which accounted for slightly over 50% of total exports to Italy.

In imports, the share of foodstuffs, metals and metal products decreased while the share of chemical products, machinery and equipment and clothing, footwear and headgear increased. Chemical products, machinery and equipment had the biggest deficit of all.

13. Belgium

Trade with Belgium developed at a slower than average rate (see Table 23), and Estonia's trade deficit with this country increased.

While in the first half of 1994 the export of foodstuffs accounted for 10% of total exports than a year later it was nearly non-existent. The most important group of goods in exports was chemical products; the export of metals and mineral products also increased considerably.

The import of a number of goods from Belgium decreased. The increase of the import and the trade deficit mostly resulted from trade in goods such as clothing, footwear and headgear, foodstuffs, machinery and equipment.

14. Belarus

Trade with Belarus was favourable over the period under study since exports increased considerably more than imports (see Table 24). While in the first half of 1994 the trade surplus amounted to 24% of the turnover then this year it reached 44%.

Belarus is the only major trade partner besides Great Britain to which Estonia managed to export more foodstuffs this year than in the first half of 1994, in both absolute and relative terms. Therefore, the surplus of the foodstuffs balance increased considerably. Another major change was the near trebling of the export of mineral products.

In imports, the share of metals, transport vehicles, machinery and equipment diminished in both absolute and relative terms, while the share of mineral products, foodstuffs, and other minor groups of goods increased.

15. Norway

It was Norway with whom Estonia's trade relations developed the most rapidly over the first half of 1995: exports doubled and imports increased 2.3 times (see Table 25). Although the trade surplus increased in absolute terms it actually decreased in relative terms.

Estonia mostly exported timber and clothing, footwear and headgear to Norway, with timber export accounting for 53.7% of total exports.

The import was dominated by clothing, footwear and headgear, foodstuffs and products of chemical industry.

The trade surplus resulted mostly from the export of timber and timber products.

Reet Kirt