ESTONIA'S FOREIGN TRADE IN THE FIRST QUARTER OF 1997[1]

In the first quarter of 1997 Estonia exported 8.2 billion kroons worth of merchandise and imported 12 billion kroons worth of merchandise. As compared to the fourth quarter of 1996, exports increased by 9.4% and imports decreased by 3.6%. Due to the increase in exports, Estonia's foreign trade deficit decreased by 1.2 billion kroons (see Table 1 and Figure 1). As compared to the first quarter of 1996, both exports and imports increased, by 55 and 53%, respectively. Such a quick increase can first and foremost be attributed to the changes in the customs regulations that took effect from 1 October 1996.

STRUCTURE OF EXPORTS BY CUSTOMS PROCEDURES AND GROUPS OF MERCHANDISE

Changes in the methodology of registering merchandise had a considerable impact on the structure of exports by customs procedures (see Table 2). As compared to the first quarter of 1996, the so-called pure export has increased slower than total exports and thus its share has decreased by 15% over the year. In the first quarter of 1997, pure export accounted for less than half of the total volume of exports. At the same time, re-export from customs warehouses has increased 3.3 times over the year and its share in total exports has increased to 26%. The re-export of merchandise processed in Estonia has increased by more than 40%. These figures indicate that Estonia is first and foremost a provider of processing services and a country of transit trade.

In total exports, the most important groups of merchandise were machinery and equipment, clothing, footwear and headgear, foodstuffs, products of chemical industry and timber (see Table 3).

The export of machinery and equipment had increased by nearly 80% as compared to the first quarter of 1996, mainly due to the re-export from customs warehouses or after processing. Pure export accounted for only 19% of the total export of machinery and equipment while the re-export of processed merchandise made up 56% and re-export from customs warehouses accounted for 24%. Various components of machinery and equipment were exported to Finland and Sweden, both as pure export and after processing; from customs warehouses TV-sets were exported to Lithuania and Russia; to Russia also Estonian-made equipment for the thermal processing of materials was exported.

Clothing, footwear and headgear, which a year ago had been at the top of the exports list, has dropped to the second place. 44% of exported clothing was pure export while 46% was re-export after processing. Clothing was mostly exported to Finland, Sweden and Germany.

The export of foodstuffs has increased by 40% over the past 12 months, and half of it was pure export and half was re-export from customs warehouses. From Estonian-made foodstuffs, butter, various dairy products and fish preserves were exported to Russia, milk powder to the Netherlands, butter and mineral water to Latvia, frozen fish to the Ukraine. From customs warehouses foodstuffs were mainly re-exported to Russia (cocoa, poultry, butter, sausages, cigarettes) and the Ukraine (cocoa, fish, confectionery).

The export of chemical products increased 2.4 times in a year and was made up of 42% of pure export (ammonia, pharmaceutical and paints to Latvia and pharmaceutical to Lithuania) and 52% of re-export from customs warehouses (fertilizers to Switzerland, heterocyclic compounds to Korea).

The export of timber increased by 55% as compared to the first quarter of 1996. In case of this group of merchandise the new customs regulations had no impact, since 92% of timber was pure export. The increase in the timber export can probably be attributed to better weather conditions as compared to the winter of 1996. The bulk of the timber export was destined for Sweden, Great Britain, Finland and Germany. 55% of the timber was unprocessed or little processed (sawn timber).

The export of mineral products increased two times. Both pure export (electricity to Russia and Latvia) as well as re-export from customs warehouses (fuel to Finland, Latvia and Russia) accounted for 44% of the total export of mineral products.

From the above we can conclude that the volume of total exports and its structure are greatly affected by the export of processed merchandise and re-export from customs warehouses. If we eliminate re-export from total exports and look only at merchandise produced in Estonia, we get the total export volume of merchandise of local origin which in addition to pure export also includes Estonian-made merchandise stored at customs warehouses and provisions for sea and air transport vehicles (see Table 4). As we can see from the table, the export of merchandise produced in Estonia has increased by over 25% as compared to the first quarter of 1996. Adjusting it with the increase in the export price index, which was approximately 6.5% during that period, we get the real increase in exports to be 18.8%.

As a rule, the export of Estonian-made merchandise has increased slower than total exports. This can be explained by the quicker rate of increase of re-export. The bulk of the export of the Estonian-made merchandise was made up of timber, the export volume of which has gone up by 74% over the past year. The export of foodstuffs, the next biggest group, decreased slightly. Next in terms of volume were clothing, chemical products, furniture and mineral products.

The merchandise sent to Estonia for processing was dominated by machinery and clothing which accounted for 82% of the re-export of the processed merchandise. Re-export from customs warehouses mainly covered foodstuffs, chemical products, machinery and mineral products.

STRUCTURE OF IMPORTS BY CUSTOMS PROCEDURES AND GROUPS OF MERCHANDISE

The structure of imports by customs procedures has also changed considerably as compared to the first quarter of 1996 (see Table 5). Although the volume of merchandise imported for free circulation increased by 20%, its share in the total imports decreased by 15 percentage points. The so-called pure import was dominated by machinery and equipment, products of chemical industry and foodstuffs. Imports into customs warehouses increased 3.7 times and boosted the share of this category in the total imports to 29%. Mainly foodstuffs, mineral products, chemical products, machinery and transport vehicles were imported into customs warehouses.

The leading place in total imports belonged to machinery and equipment (see Table 6) of which 57% was meant for free circulation (telephones, fax machines, various electronic switches from Finland; computers from Germany), 24% for processing (over 80% from Finland and the rest from Sweden) and 19% for storage into customs warehouses (approximately 60% of it was TV-sets from Korea).

The growth rate of foodstuffs import was among the quickest. It was made up fifty-fifty from pure import and imports into customs warehouses. The bulk of merchandise for free circulation was made up of coffee, alcohol, sugar and margarine from Finland, butter and cut flowers from the Netherlands (all plants are included under the category of vegetable products) and cooking oil and wheat flour from Germany. Cocoa from Cote d'Ivoire, wheat, poultry and sausages from the USA, butter from the Netherlands and beef from Denmark was stored into customs warehouses.

In case of chemical products, pure import accounted for 64% (paints, varnishes and plastic packages from Finland, pharmaceutical and plastic products from Germany, explosives from Russia) and imports into customs warehouses for 35% of the total. Of the latter category 82% were fertilizers imported from Russia.

46% of imported mineral products was meant for free circulation (of which 87% were natural gas, fuel and bitumen from Russia) and 53% for customs warehouses (fuel from Finland and Russia).

Half of the clothing, footwear and headgear import was meant for free circulation (from Finland, Latvia and Germany), 38% for processing (from Finland and Sweden) and 11% for customs warehousing (from Lithuania, Latvia, Russia and the Ukraine).

The import of transport vehicles increased two times over the past year. Import for free circulation accounted for 58% of the total import of transport vehicles and consisted mainly of passenger cars and trucks from Finland, Sweden and Germany, and tractors from Sweden. Passenger cars from Panama (Brazilian-made Subaru cars), Finland and Germany ended up in customs warehouses. In March, nearly 110 million kroons worth of Russian-made passenger cars were stored into customs warehouses - there was no market for them in Western Europe and high customs tariffs made sending them back to Russia problematic.

Estonia had a positive foreign trade balance for such groups of merchandise as timber, furniture and clothing, footwear and headgear (see Table 7). In case of the first two groups, the surplus increased over the year while in case of clothing the surplus decreased. Trade deficit was the largest in case of machinery and equipment.

EXPORTS AND IMPORTS BY COUNTRIES

The analysis below is based on the 15 countries, Estonia had the largest trade turnover with in the first quarter of 1997.

Estonia's exports increased into all major trade partners (see Table 8). Finland, Russia, Sweden and Latvia together accounted for over half of Estonia's exports. Exports to Lithuania increased over two times during the year making Lithuania the fifth-largest export partner instead of Germany which fell to the sixth place. From customs warehouses merchandise was re-exported mainly to Russia, Switzerland, Lithuania, the Ukraine and Latvia. Processed merchandise was exported to Finland, Sweden and Germany. Pure export was dominated by Russia, Latvia, Finland, Sweden, Germany, Lithuania and Great Britain.

Imports increased too from all major partner countries (with the exception of the Ukraine, see Table 9). The leading position in both total imports and imports for free circulation belonged to Finland, followed by Russia, Sweden, Germany and the Netherlands. Imports into customs warehouses came mainly from Russia, Finland, Cote d'Ivoire and Korea.

Trade surplus increased considerably with Latvia, the Ukraine and Lithuania (see Table 10). Estonia's trade balance with Sweden and Great Britain which had been negative a year ago, turned positive while trade surplus with Denmark turned into deficit. The negative trade balance with all other partners increased considerably over the past year.

MAJOR TRADE PARTNERS[2]

1. Finland

Although exports to Finland increased quicker than imports from that country, the considerably larger volume of imports led to the 410 million kroon increase in the trade deficit (see Table 11).

Total exports was dominated by machinery and equipment and clothing, footwear and headgear, mainly because over half of the exports was merchandise processed in Estonia. The bulk of the export of Estonian-made merchandise to Finland was made up of clothing, timber and furniture; small quantities of fuel were re-exported from customs warehouses.

Total imports was mostly machinery. 64% of imported merchandise was meant for free circulation - mainly machinery, chemical and food products, metals, metal products and transport vehicles. 23% of merchandise was imported for processing (machinery and clothing) and 13% went into customs warehouses (mineral products).

2. Russia

In trade with Russia exports and imports increased at an equal rate but due to the larger volume of imports trade deficit grew by 145 million kroons (see Table 12).

Nearly half of total exports was made up of re-export from customs warehouses (foodstuffs, machinery, transport vehicles). Of Estonian-made merchandise various foodstuffs, car seatbelts and electricity was exported to Russia.

Imports from Russia was equally divided between merchandise meant for customs warehousing and for free circulation. Three fourths of total imports was made up of fertilizers and fuel.

3. Sweden

Exports to Sweden increased more than imports from that country and as a result trade deficit with Sweden turned into a surplus (see Table 13).

Exports was divided equally between the so-called pure export and re-export of processed merchandise. 56% of merchandise of Estonian origin was timber but clothing too had a big share. Re-export of processed merchandise covered machinery and equipment and clothing.

The bulk of total imports (58%) was meant for free circulation (machinery, transport vehicles, chemical products) and 33% for processing.

4. Germany

Imports from Germany increased quicker than exports to Germany and trade deficit increased (see Table 14).

The bulk of Estonian exports to Germany was the so-called pure export; the main export articles were clothing, furniture, timber and metals.

Total imports was dominated by merchandise meant for free circulation. The main import articles from Germany were transport vehicles, machinery, foodstuffs, products of chemical industry and clothing.

5. Latvia

Exports to Latvia increased by 72% as compared to the first quarter of 1996 while imports was up by 48%. As a result, trade surplus doubled (see Table 15).

In case of Latvia, too, the bulk of trade was made up of the so-called pure export and import. The most important export articles were various chemical products and foodstuffs and mineral products (electricity, fuel), and the main import articles were clothing, chemical products, foodstuffs and metals. The balance of exports and imports was positive for the majority of merchandise groups.

6. Lithuania

Trade with Lithuania developed rapidly over the past year: both exports and imports nearly doubled, while trade surplus increased 2.5 times (see Table 16).

The main reason for such a rapid increase was the change in the customs regulations. Half of the exports was of Estonian origin (chemical and food products and various manufactured goods) while the other half was re-export from customs warehouses (60% of it was machinery, and the rest was foodstuffs and mineral products).

70% of the merchandise was imported for free circulation (chemical products, foodstuffs and machinery) and the rest was stored into customs warehouses (clothing and machinery).

7. The Netherlands

Trade deficit with the Netherlands more than doubled in 12 months, due to the volume of imports increasing at a higher rate than exports (see Table 17).

Nearly 70% of the trade was the so-called pure export and import. Among the merchandise of Estonian origin mainly foodstuffs (milk powder mostly) and timber was sold to the Netherlands while mineral products were re-exported from customs warehouses. Estonia imported foodstuffs and machinery, for both free circulation and for customs warehousing.

8. Denmark

Estonia's exports to Denmark increased much slower than imports from that country. This turned the more or less balanced trade of the first quarter of 1996 into a nearly 100 million kroon deficit in the first quarter of 1997 (see Table 18).

63% of the total exports to Denmark was made up of merchandise of the Estonian origin, mainly timber, mineral products and furniture. 33% of the merchandise was re-export after processing (machinery, clothing and furniture).

60% of merchandise was imported for free circulation and 30% was stored into customs warehouses. The main import articles were foodstuffs, machinery and equipment and products of chemical industry.

9. Great Britain

Estonia's trade with Great Britain developed favourably: exports doubled and imports increased by 41%, turning the former deficit into a surplus in the first quarter of 1997 (see Table 19).

Nearly three fourths of exports was merchandise of the Estonian origin, of which 60% was timber. The remaining 25% of exports was divided between customs warehouses and processing. Clothing and machinery dominated among processed goods while chemical and mineral products were re-exported from customs warehouses.

The division of imports was similar to exports. Machinery, chemical products and clothing was imported for free circulation and foodstuffs were stored into customs warehouses.

10. Switzerland

Switzerland is among the countries analyzed only thanks to customs warehousing. Namely, 94% of total exports to Switzerland was made up of the re-export of Russian fertilizers from customs warehouses (see Table 20).

Imports from Switzerland can be divided as follows: 57% for free circulation (chemical products, machinery and equipment, foodstuffs) and 43% for customs warehousing (nearly all of it foodstuffs).

11. Korea

Trade with Korea was connected with imports for re-export - 90% of exports and 98% of imports passed through customs warehouses. TV-sets and video appliances were bought from Korea, to be re-exported to Russia and Lithuania. Exports to Korea were made up of chemical products and clothing (see Table 21).

12. The Ukraine

Trade with the Ukraine was favourable for Estonia: exports to that country increased while the Ukraine was the only country imports from which decreased. Estonia's trade surplus with the Ukraine was the second-largest (see Table 22).

Exports was divided nearly equally between the so-called pure export and re-export from customs warehouses. Estonia exported to the Ukraine mainly foodstuffs and chemical products of the Estonian origin as well as foodstuffs and transport vehicles from customs warehouses.

80% of imports from the Ukraine was meant for free circulation, mainly chemical products, metals and foodstuffs.

13. The USA

Estonia's imports from the USA increased two times quicker than exports to the USA. Therefore, the small deficit of the year ago swelled 12 times in the first quarter of 1997 (see Table 23).

Three fourths of total exports was made up of merchandise of the Estonian origin (mainly clothing and chemical products) while the rest was re-export from customs warehouses (chemical products).

Imports into customs warehouses accounted for 68% of the total imports while 32% was meant for free circulation. Imports into customs warehouses were mainly made up of foodstuffs, while foodstuffs, machinery and chemical products were meant for free circulation.

14. Belgium

Exports to Belgium increased by 64% in the first quarter of 1997 and imports was up by 43%. However, due to the larger volume of imports the trade deficit increased slightly (see Table 24).

The bulk of total exports was made up of merchandise of the Estonian origin, mainly clothing and timber.

Imports was dominated by merchandise meant for free circulation - transport vehicles, foodstuffs (these were also stored into customs warehouses), chemical products and machinery.

15. Italy

Estonia's exports to Italy increased quicker than imports from Italy but since the volume of imports was larger, the trade deficit increased slightly (see Table 25).

Most of the exports was of Estonian origin and made up of clothing, timber and metal products.

Imports was dominated by the merchandise for free circulation, mainly clothing, machinery and equipment, products of chemical industry and furniture.

Ulvi Saks

[1] The author of the present survey, Ulvi Saks, is an expert of Eesti Pank Balance of Payments Department.
Imports has been given in c.i.f. prices and analyzed according to the trading country. The 1996 and 1997 data is provisional.
[2] The countries are ranked by the volume of trade turnover. In order to diminish seasonal influences, the first quarter of 1997 is compared to that of 1996. The growth of total exports and imports has been considerably influenced by the changes in customs procedures, took effect from 1 October 1996.