ESTONIAN FOREIGN TRADE IN 1996[1]

In 1996, 24.6 billion kroons worth of merchandise was exported from Estonia while 38.4 billion kroons worth of merchandise was imported. Thus, Estonia's trade deficit was 13.8 billion kroons (see Table 1). Last year, exports increased by 16.9%, imports by 31.8% and the trade deficit by 71%. In 1995, the trade deficit had amounted to 38% of the exports, in 1996 it was 56%.

Both imports and exports increased considerably in the fourth quarter: exports increased by 28% against the third quarter and import was up by 36%; trade deficit increased by 50%. This was not just due to greater trade activity only, which is characteristic for the last quarter of the year (see Figure 1) but also due to the changes in the customs regulations that took effect on 1 October 1996[2]. Under the new regulations, merchandise that pass Estonia as transit but are at first put into customs warehouses, have to be recorded as imports. When those merchandise leave Estonia they are recorded as re-export. Transit merchandise stored in customs warehouses before 1 October had to be recorded before 1 January 1997. Thus, changes in transit merchandise regulations considerably increased both exports and imports in the fourth quarter. Transit merchandise that stay in Estonia for a short period (up to 15 days) are not reflected in the foreign trade statistics.

THE STRUCTURE OF EXPORTS

In 1996, exports increased in all ten groups of merchandise analyzed (see Table 2).

In total exports there have recently emerged five groups of merchandise the share of which has stood between 11 and 17%: clothing, footwear and headgear, foodstuffs, machinery and equipment, timber and paper and products of chemical industry. These groups changed their positions only.

The export of clothing, footwear and headgear increased by 25% in 1996 and this secured it the leading position among the groups of merchandise exported. At that, 52% of clothing exported was products made in Estonia, while 42% was products processed in Estonia (in 1995, these figures had been 51 and 46%, respectively). Clothing, footwear and headgear was mainly exported to the countries Estonia has been processing them in earlier years - Finland, Sweden and Germany. Estonian-made clothing, footwear and headgear were besides the above-named countries also sold to the USA, Great Britain, Russia, Lithuania and Latvia.

The second most important export article was foodstuffs, and over 71% of it was of Estonian origin, while 18% was re-export from customs warehouses (the respective figures for 1995 had been 82 and 11%). 38% of the foodstuffs were exported to Russia, exports was big also to the Ukraine and the Netherlands.

Of exported machinery and equipment, only 29% was of Estonian origin. Processing accounted for 60% of the exports and 10% was re-export from customs warehouses (the respective figures for 1995 were 32, 64 and 3%). Machinery and equipment was mainly processed for Finland and Sweden. Besides Finland, Estonian-made machinery was also exported to Russia, Latvia and Lithuania.

Of timber and paper export, 88% was of Estonian origin and 10% was re-export (in 1995 the respective figures had been 90 and 6%). Major export partners were Sweden, Finland and Great Britain.

72% of chemical industry products export was of Estonian origin and 21% was re-export (the respective figures for 1995 were 85 and 7%). Major buyers were Latvia, Russia and Lithuania.

While analyzing the export of merchandise it is important to take a look at the changes in the share of different customs procedures as well. This first and foremost applies to the processing and re-exporting. As we can see from Table 3, last year the share of merchandise re-exported from customs warehouses increased by 76% in absolute terms as compared to 1995, and this increased the total share of re-export by 4.8 percentage points. This increase can mainly be attributed to the above-mentioned changes in the customs regulations. Correspondingly, the share of the so-called pure export and processing of merchandise decreased, although the absolute volume of both increased by 10-11%.

Of processed goods exported, clothing, footwear and headgear and machinery and equipment together accounted for 78%. The re-export from customs warehouses was mainly made up of foodstuffs (cocoa, confectionery), passenger cars, fertilizers and fuel. The re-export from customs warehouses increased mainly in the fourth quarter, due to changes in customs regulations, and the increase against the third quarter was nearly 94%.

Now, by eliminating the processed and re-exported merchandise from total exports we can get the total volume of the export of Estonian-made merchandise, which besides the so-called pure export includes also the export of Estonian-made merchandise from customs warehouses and provisioning of sea and air vessels of non-residents, as well as merchandise delivered to sales outlets outside the customs border at sea and airports (see Table 4).

As we can see, the growth rate of the export of Estonian-made merchandise in the majority of groups was slower than the growth rate of total exports in 1996. The share of groups of merchandise is different too. In the export of Estonian-made merchandise the leading position belonged to foodstuffs, followed by timber and paper, clothing, footwear and headgear, products of chemical industry and furniture and sports equipment. In case of the latter group, exports increased by 37% as compared to 1995. Furniture was sold to Germany, Denmark, Finland and Sweden. Export decreased only in case of metals and metal products.

Taking into account that the export of Estonian-made merchandise increased by 11.5% in 1996 and that the export price index increased by 11.2%, we can see that the export of Estonian-made merchandise remained on the level of 1995 despite the increase of the total volume of exports.

THE STRUCTURE OF IMPORTS

In total imports, too, the five major groups of merchandise in 1996 were the same as in the previous year, and there was no change in their order (see Table 5). In case of the majority of groups of merchandise imports increased over 20%, and the import of metals, food and chemical products increased even over 40%. The only exception was mineral products.

In the group of machinery and equipment, import for free circulation accounted for 68% of the total, 22% was meant for processing and 9% was stored into customs warehouses (in 1995 the respective figures had been 70, 26 and 3%). 52% of machinery was imported from Finland, from where mainly various parts for processing were imported, as well as mobile phones, computers and household appliances.

Of the imported foodstuffs, 70% was meant for free circulation and 28% for customs warehouses (the respective figures in 1995 were 79 and 18%). Most of the imports came from Finland, the Netherlands and Germany.

82% of the imported chemical products was meant for free circulation and 16% for customs warehouses (90 and 6% in 1995, respectively). The bulk of imports came from Finland (28% of the total volume), followed by Russia and Germany.

In the import of clothing, footwear and headgear a big share (40%) was taken up by merchandise meant for processing. The share of the so-called pure import was 53%. In 1995 the respective figures had been 43 and 53%. The share of processed merchandise decreased mainly on the account of customs warehousing although the total volume of processing increased. Major import partners in this group of merchandise were Finland and Sweden for whom clothing is being processed in Estonia. The third major partner was Latvia.

46% of imported mineral products was stored in customs warehouses and 53% went into free circulation (the respective figures for 1995 were 30 and 66%). The share of Russian imports was 60% in this group of merchandise and the share of Finland - 29%. From Russia, as pure import Estonia bought fuel and natural gas, the fuel imported from Finland was stored in customs warehouses.

In case of imports, different customs procedures played an important role, too. 70% of total imports was meant for free circulation and this category increased by 25% as compared to 1995 (see Table 6). Imports into customs warehouses increased by 114% in 1996. The import of merchandise meant for processing in Estonia increased by a modest 8% over the past year.

In the imports meant for free circulation the most important groups of merchandise were machinery and equipment (21% of the total), chemical products and foodstuffs (16% both) and clothing and metals (9% both).

The imports stored in customs warehouses can be divided into mineral products (26%, mostly fuel), foodstuffs (25%, mostly cigarettes, cocoa, confectionery, alcohol), chemical products (13%, fertilizers), machinery and equipment (12%, TV sets and other household appliances).

In the category of imports meant for processing, 78% was made up of machinery and equipment and clothing, footwear and headgear.

EXPORT PARTNERS

Analyzing the year 1996, it turned out that besides the 15 traditional trade partners Estonia also traded lively with France, Switzerland and Poland, and thus these three countries have been included in the current analysis.

Exports increased in 1996 into most countries and the increase was substantial. A decline was recorded only in case of exports to Finland, the Netherlands, Belarus and Norway. The increase was the most rapid in case of Switzerland (see Table 7).

The top five export partners have been unchanged for three consecutive years: Finland, Russia, Sweden, Latvia and Germany. Exports to Finland and Sweden were dominated by processed merchandise: 52% of total exports to Finland and 47% of total exports to Sweden was merchandise processed in Estonia.In case of Estonian-made merchandise, the top five partners were the same, only their order was different, with Russia changing places with Finland and Sweden with Latvia.

As we already mentioned, re-export from customs warehouses increased by 76% in 1996. The bulk of merchandise from customs warehouses was taken to Russia, the Ukraine, Lithuania and Latvia, that is, to the former Soviet republics.

IMPORT PARTNERS

Imports increased from all major partner countries, with the exception of Belarus, and in most cases the growth rate was very rapid (see Table 8). Imports increased the most from the Ukraine, Great Britain and the three countries included in the analysis for the first time - Poland, Switzerland and France - making the latter countries into Estonia's major import partners.

The most important import partner was Finland. The next three countries were Russia, Germany and Sweden whose merchandise total was smallerthan that of Finland. The bulk of merchandise meant for processing in Estonia came from Finland and Sweden; most of the merchandise stored in customs warehouses came from Finland and Russia.

TRADE BALANCE

Table 9 gives the balance of Estonia's foreign trade in 1996 by groups of merchandise and Table 10 by trade partners.

Like in 1995, last year, too, Estonia had a positive trade balance for only two groups of merchandise - timber and paper and furniture and sports equipment. In case of the majority of groups of merchandise the deficit increased considerably. The balance of the processed merchandise had a 207 million kroons surplus.

Estonia had a trade surplus with six of its major trade partners, four of these being the former Soviet republics. In 1996 the trade surplus increased with Latvia, the Ukraine and Lithuania, while the surplus with Belarus, Norway and the USA decreased. The 1995 trade surplus with Poland and Great Britain turned into a deficit in 1996; with the rest of the trade partners the deficit increased. Estonia's biggest trade deficit was with Finland.

ESTONIA'S FOREIGN TRADE WITH THE MAJOR TRADE PARTNERS [3]

1. Finland

Estonia's exports to Finland decreased by 0.4% in 1996 while imports from Finland increased by 23.7%. This led to the 40% increase of the trade deficit (see Table 11).

The total exports was dominated by clothing, footwear and headgear and machinery and equipment. The export of clothing increased considerably while the export of machinery and equipment remained on the level of 1995. The export of timber decreased by more than 25%. The export of processed merchandise to Finland accounted for 52% of total exports there. The bulk of merchandise processed in Estonia was made up of machinery and clothing. The so-called pure export, which accounted for 43% of total exports, was dominated by timber. The share of customs warehousing was only 3% in the exports to Finland.

In total imports an increase was recorded in all groups of merchandise. Import was the biggest for machinery and equipment and clothing and chemical products. Import for free circulation accounted for 68% of total imports (machinery, chemical products, metals); the share of processing was 20% (machinery, clothing); the share of customs warehousing was 12% (fuel, passenger cars, foodstuffs (coffee, cigarettes, margarine)). A quarter of the merchandise stored in customs warehouses came from Finland.

Comparing the export and import of merchandise for processing, we can see that last year imports from Finland outstripped the export of processed merchandise by 500 million kroons. The reason for this discrepancy is that part of the processed merchandise was taken to third countries (Sweden, Denmark, Germany).

2. Russia

In trade with Russia the growth rate of exports and imports was nearly equal in 1996, and thus the trade deficit too remained on the same level as in 1995 (see Table 12).

Estonia's exports to Russia increased in case of the majority of groups of merchandise. In the structure of exports the leading position still belonged to foodstuffs, followed by transport vehicles, chemical products and mineral products (electricity; fuel from customs warehouses). The increase was the biggest in case of clothing, footwear and headgear last year. The so-called pure export accounted for 64% of total exports and re-export from customs warehouses accounted for 24%. The bulk of the latter category was made up of foodstuffs and transport vehicles.

Total imports was dominated by mineral products (fuel, natural gas), chemical products (fertilizers) and metals. The import of chemical products from Russia doubled over the past year. Import for free circulation accounted for 66% of total imports and customs warehousing made up 30%. Customs warehousing was mainly used in case of mineral products (fuel) and chemical products (fertilizers); nearly half of imported chemical products was stored into customs warehouses.

3. Sweden

Exports to and imports from Sweden increased at an equal rate in 1996; trade deficit increased, too (see Table 13).

Total exports to Sweden increased in all groups of merchandise, with the exception of metals. Machinery, clothing, footwear and headgear and timber put together accounted for 75% of the total exports. The total exports fell more or less equally into the so-called pure export and processing (49 and 47%, respectively). Estonia mainly processed machinery and clothing for Sweden, while pure export was dominated by timber (46%) and Estonian-made clothing (19%).

Total imports increased for all groups of merchandise. The biggest groups were still machinery and clothing, which were processed in Estonia. But machinery dominated also in the import of merchandise for free circulation which accounted for 64% of total imports. The second place was taken up by chemical products, then came transport vehicles and clothing. Merchandise for processing made up 28% of total imports and they had a 427 million kroon surplus last year.

4. Germany

Exports to Germany increased by 13% in 1996, while imports from Germany was up by 39%. This increased the trade deficit with Germany by 82% (see Table 14).

In total exports, the leading place belonged to clothing, furniture (including prefabricated buildings) and timber. The share of the so-called pure export was 70% and the share of processing,17% (clothing and machinery); re-export from customs warehouses accounted for 12% of total exports. Customs warehousing was mainly used in case of passenger cars.

Total imports increased for all groups of merchandise, with the biggest increase recorded in the import of transport vehicles. In terms of volume, however, the biggest groups were chemical products and foodstuffs. The share of the so-called pure import was 84%, customs warehousing accounted for 10% and processing for 6% of total imports.

5. Latvia

Trade with Latvia increased considerably in 1996: exports was up by 30% and imports by nearly 50%. Despite the fact that the increase of imports was higher than that of exports, the trade surplus also increased slightly (see Table 15). As before, Estonia's trade surplus was the biggest with Latvia.

Total exports increased for all groups of merchandise, with the exception of timber. Export volumes were the largest in case of chemical products and foodstuffs as well as mineral products. The so-called pure export accounted for 80% of total exports and re-export from customs warehouses accounted for 15% (mainly fuel and foodstuffs).

Total imports, too, increased for nearly all groups of merchandise. Import was dominated by clothing, footwear and headgear, foodstuffs and products of chemical industry. Import for free circulation accounted for 82% of total imports and customs warehousing made up 10%.

6. Lithuania

Trade with Lithuania developed rapidly - both exports and imports increased by nearly 50% in 1996 (see Table 16). Trade surplus with Lithuania was the third-largest after Latvia and the Ukraine.

Total exports was dominated by chemical products, foodstuffs and machinery. The export of the latter increased over two times in 1996. The share of the so-called pure export in total exports was 71%, while re-export from customs warehouses accounted for 23% of the total exports. Mainly machinery, products of chemical industry and transport vehicles were sent to Lithuania from customs warehouses.

In total imports, the buying of machinery and equipment from Lithuania increased by 247% over the past year and the share of this group of merchandise in total imports increased by 13 percentage points. Machinery (TV sets, refrigerators) were bought from Lithuania for free circulation as well as for storage in customs warehouses. The import of foodstuffs, which became the most important group of imports, more than doubled (mainly milk and cream powder, beef and chocolate products). Part of the foodstuffs was also stored in customs warehouses. Customs warehousing accounted for 18% of total imports, while merchandise for free circulation accounted for 80% of the total.

7. The Netherlands

Exports to the Netherlands decreased by 26% in 1996 while imports from that country increased by 39%. This led to a nearly 20-fold increase of the trade deficit with the Netherlands (see Table 17).

The decline of exports was mostly due to less foodstuffs (milk and cream powder) being sold to the Netherlands. The export of foodstuffs dropped by 28% last year but foodstuffs accounted for a half of Estonia's exports to the Netherlands. The export of timber increased 44%. The so-called pure export accounted for 88% of total exports to the Netherlands.

Imports, too, was dominated by foodstuffs (butter and other milk fats, juices, etc.) the import of which increased by 27% over the past year. At that, 20% of foodstuffs was stored into customs warehouses. The import of machinery and equipment (mainly computers) increased by 70%. The share of the so-called pure import was 82%, while import into customs warehouses accounted for 15% of the total (mainly foodstuffs).

8. Denmark

In trade with Denmark, imports increased more rapidly in 1996 than exports, and this led to the increase of the trade deficit with Denmark (see Table 18).

In exports the leading position was taken up by furniture. The share of mineral products decreased considerably due to the big increase in the share of metals and metal products. The export of foodstuffs, which had been on the third place in 1995, decreased by 38%. In total exports, the so-called pure export accounted for 67% and processing for 29% of the total. Two thirds of the processed merchandise was metals and 15% was clothing, footwear and headgear.

The total imports from Denmark was dominated by foodstuffs and machinery. 68% of the total imports was meant for free circulation,14% was processing and 17% customs warehousing (mainly foodstuffs).

9. The Ukraine

Trade with the Ukraine has developed favourably for Estonia and although in 1996 imports from the Ukraine increased more than exports to the Ukraine, the bigger volume of exports made the trade surplus increase by one third (see Table 19).

Total exports was dominated by foodstuffs and their export to the Ukraine increased by 60% last year. The export of chemical products increased two times. The most common foodstuffs exported to the Ukraine were fish preserves and butter, the most common chemical products were paints and varnish. The so-called pure export accounted for 65% of total exports, while re-export from customs warehouses made up 32%. Practically all groups of merchandise were re-exported to the Ukraine.

In total imports, the leading position also belonged to foodstuffs (grain), followed by metals and chemical products. 80% of total imports was meant for free circulation and 19% for customs warehousing (clothing, foodstuffs, metal products).

10. Great Britain

Imports from Great Britain increased by 93% in 1996, while exports went up only by 14%, and as a result the trade surplus of 1995 was replaced by a deficit (see Table 20).

Exports to Great Britain was mainly made up of timber, clothing, footwear and headgear and products of chemical industry. The majority of the exports was the so-called pure export.

Estonia imported foodstuffs, chemical products and machinery from Great Britain. 75% of the foodstuffs (confectionery, alcohol) was stored into customs warehouses for re-exporting. Thus, customs warehousing accounted for one third of the total imports while 62% of total imports was meant for free circulation.

11. Italy

In 1996, imports from Italy increased more rapidly than exports to that country and therefore trade deficit with Italy grew by 50% (see Table 21).

In total exports, nearly two thirds was made up of clothing, footwear and headgear, of which 40% had been processed in Estonia. The so-called pure export accounted for 64% of total exports and processing made up 30%.

In total imports, more than half was machinery and clothing. 80% of imports was meant for free circulation, the rest was customs warehousing and processing.

12. The USA

Although imports from the USA increased more than exports to that country in 1996, trade had a surplus (see Table 22).

Exports was dominated by clothing and chemical products, while imports was mostly made up of foodstuffs and machinery. The so-called pure export and import accounted for more than 80% of total exports and imports.

13. Belgium

Trade with Belgium was favourable for Estonia in 1996: exports increased considerably quicker than imports. However, since the volume of imports exceeded the volume of exports by 50%, the trade balance improved but remained still negative (see Table 23).

The most important export article was clothing: the sales of clothing to Belgium nearly tripled and not on the account of processing since most of it was Estonian-made clothing. Over 90% of total exports was the so-called pure export, the share of customs warehousing and processing was insignificant.

Estonia imported foodstuffs, transport vehicles, chemical products, clothing and machinery from Belgium. Nearly 90% of total imports was meant for free circulation.

14. France

Imports from France increased over 80% in 1996 and exports to France was up by 73%. This brought France among Estonia's major trade partners (see Table 24).

Of Estonian-made products, chemical products, timber and furniture was exported to France; most of the merchandise processed in Estonia were machinery and equipment. Processing accounted for 30% of total exports to France.

Estonia imported foodstuffs (half of them was stored in customs warehouses), machinery and chemical products (for free circulation). The share of the so-called pure import was 76%, customs warehousing accounted for 23% of total imports.

15. Switzerland

Trade with Switzerland developed particularly stormily in 1996: exports increased five times and imports doubled (see Table 25).

The reason for this rapid development can be found in the change of the customs regulations because chemical products that made up the bulk of total exports were nearly 100% exported from customs warehouses. The share of Estonian-made merchandise in total exports was merely 28%.

In total imports, customs warehousing accounted for 40%; 90% of it was foodstuffs. Import for free circulation were mainly made up of machinery and chemical products.

16. Poland

Imports from Poland increased quicker last year than exports to Poland and therefore the 1995 trade surplus turned into a deficit in 1996 (see Table 26).

Estonia exported mainly timber, chemical products and foodstuffs to Poland, and imported foodstuffs, chemical products and machinery. The so-called pure export accounted for nearly 90% of total exports. Import for free circulation accounted for 82% of total imports and the share of customs warehousing was 17%. Chemical products and machinery was stored in customs warehouses.

17. Norway

Exports to Norway decreased by 6% in 1996 while imports from there increased by nearly 50%. This led to the decrease of the trade surplus with Norway (see Table 27).

The share of the most important export article of 1995, timber, decreased considerably, while the export of clothing increased, forcing these groups of merchandise to change places. 44% of exported clothing had been processed in Estonia. The share of the so-called pure export was 67% of total exports while processing accounted for 21%.

Estonia imported clothing, footwear and headgear, foodstuffs and machinery from Norway. The bulk of the clothing was sent to Estonia for processing. Import for free circulation accounted for 57% of total imports, the share of processing was 25% and the share of customs warehousing 18%. The customs warehousing mainly involved fuel, metals and foodstuffs.

18. Belarus

In trade with Belarus, both exports and imports decreased in 1996 (see Table 28). Although the trade surplus decreased slightly, Belarus still held the fourth place after Latvia, the Ukraine and Lithuania as to the size of the surplus in trade with Estonia.

Exports was dominated by foodstuffs, transport vehicles, mineral products and products of chemical industry. In case of the three first-mentioned groups of merchandise, re-export from customs warehouses played an important role, and only chemical products were of Estonian origin. Re-export from customs warehouses accounted for half of total exports to Belarus.

The most important import articles were chemical products and transport vehicles. 90% of total imports was meant for free circulation.

19. Other Countries

Data on Estonia's trade with countries that have not been analyzed above due to the small volume of trade has been provided in Table 29.

Ulvi Saks

[1] Imports has been given in c.i.f. prices and analyzed according to the trading country. The data of the State Statistical Office on imports is based on the country of origin. The 1996 data is provisional.
[2] See decrees of the minister of finance No. 64, of 22 July 1996, and No. 74, of 26 September 1996, as well as decrees of the National Customs Board No. 274, of 23 August 1996, and No. 313, of 27 September 1996. (Editor's notes).
[3] The countries are ranked by the volume of trade turnover. (Editor's note).