ESTONIA'S FOREIGN TRADE IN 1997[1]

CHANGES MADE IN THE FOREIGN TRADE BALANCE

The international customs statistics uses two methods, the general trade system or the special trade system. The main difference between these two methods is that in the first case import into customs warehouses and re-export from there is taken into account, while in the second case it is not. The countries are free to decide which of the two methods to use.

The Estonian customs statistics is based on the general trade system. Changes in keeping record of the merchandise kept in customs warehouses that were imposed from 1 October 1996, created a situation when the share of merchandise stored into customs warehouses increased sharply in both exports and imports. The transactions carried out in the customs warehouses are mainly transactions between non-residents (with the exception of import from customs warehouses to local circulation) and are related to the Estonian economic space only through the storage and transport services.

Since Eesti Pank collects and processes the foreign trade data for the purposes of drawing up the country's balance of payments and the balance of payments reflects transactions between residents and non-residents only, the system of special trade serves our needs better.

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In 1997, special export and special import[2] amounted to 28.8 billion and 46.8 billion kroons, respectively, and trade deficit was 18.0 billion kroons (see Table 1 and Figure 1). As compared to 1996, special export in current prices increased by 35.6%, special import by 35.1% and the foreign trade deficit by 34.2%. The foreign trade deficit decreased slightly against special export in 1997, amounting to 62.5% (63.2% in 1996).

General export amounted to 39.3 billion kroons in 1997 and general import was 59.4 billion kroons[3] while trade deficit amounted to 20.1 billion kroons. As compared to 1996, general export increased by 57.4% and general import by 54.2%. The high growth rate of general export and import can be attributed to the changes in the customs regulations under which the merchandise stored into customs warehouses for long periods (up to one year) has to be recorded from 1 October 1996[4].

Re-export from customs warehouses increased 2.8 times in 1997. The most important groups of merchandise in re-export were foodstuffs (which increased 4.1 times), transport vehicles and chemical products. Russia accounted for 42% of the re-export from customs warehouses and the share of Latvia was 10%.

Import into customs warehouses increased 1.8 times in 1997. Mineral products, foodstuffs, chemical products, machinery and equipment were stored into customs warehouses, with the bulk of the merchandise coming from Russia and Finland.

STRUCTURE OF SPECIAL EXPORT AND IMPORT BY CUSTOMS PROCEDURES

In 1997, the structure of special export and special import by customs procedures underwent certain changes. The share of direct export decreased as compared to the two previous years and accounted for two thirds of the special export. Direct export was mainly made up of timber, clothing, footwear and headgear, foodstuffs and chemical products which together accounted for 60% of special export. The export of processed merchandise increased considerably in 1997, bringing its share in special export to 27.1% (see Table 2).

The share of imported merchandise meant for free circulation decreased to 74.5% of special import in 1997. At the same time the volume and share of merchandise imported to Estonia for processing as well as that of merchandise imported to the local market from customs warehouses increased markedly. Machinery and equipment, chemical products, foodstuffs and transport vehicles were imported into Estonia for free circulation, while machinery and equipment and clothing, footwear and headgear was traditionally imported for the purposes of processing.

STRUCTURE OF SPECIAL EXPORT AND IMPORT BY GROUPS OF MERCHANDISE

Special export increased across all groups of merchandise. The growth was the biggest in case of machinery and equipment, timber, metals and metal products.

In the past three years, the share of each of the four major groups of merchandise exported (machinery and equipment; clothing, footwear and headgear; timber and paper; foodstuffs) has remained stable at around 11-20%. The only changes have concerned the ranking of the groups (see Table 3).

In 1997, the special export of machinery and equipment increased the most - by 89% - accounting for one fifth of the entire special export. Machinery and equipment processed in Estonia accounted for 71% and direct export for 27% of the total export of machinery and equipment. The bulk of processed machinery was destined for Finland and Sweden (mostly mobile phones and their parts, various components and accessories). Direct export was made up of machinery and industrial and laboratory equipment for the thermal processing of materials (to Russia), parts of mobile communication systems (to Sweden, Finland and the USA), parts of computers and other office equipment, joints and accessories (to Latvia and Sweden), and parts of lifting and loading equipment (to Finland).

The special export of clothing, footwear and headgear increased by a quarter, with direct export accounting for 52% of the special export of this group and the export of processed merchandise accounting for 46%. The bulk of processed merchandise was taken to Finland and Sweden, while Estonian-made merchandise was, in addition to these two countries, also exported to the USA and Germany.

The third group of merchandise in terms of volume in special export was timber of which 93% was direct export, mostly to Sweden, Finland, Great Britain and Germany.

The increase of the special export of foodstuffs was the smallest among the ten groups of merchandise analysed, amounting to 4%. Direct export accounted for 70% of the special export. Approximately one third of the foodstuffs was exported to Russia, followed by the Netherlands, Latvia and the Ukraine. Exporting Estonian food products to Russia these were often first stored into customs warehouses. Since the owners of the merchandise change in the customs warehouse, the exporter thus avoids the double duties imposed by Russia on Estonian goods.

The special export of chemical products increased by 14.1%. Direct export accounted for 86% of the special export in this group. The main export partners were Latvia, Lithuania and Russia. To Latvia, various chemical products, medicines and plastic products were sold, to Lithuania and Russia, paints, varnishes, sealants and medicines.

The special export of metals and metal products increased by 50% in 1997. The main export articles in this group were various metal structures that were sent to Denmark, Finland, Latvia and Germany, and scrap metal that was sold to Germany and Great Britain.

The special export of furniture increased by more than a quarter. The bulk of furniture export was to Germany, Finland and Sweden.

The special export of mineral products increased by 10.1%. Electricity was sold to Russia and Latvia, cement to Germany and Lithuania.

The special export of transport vehicles increased by 21.1%, with Russia accounting for 53% of the deliveries (mainly car seat-belts).

Special import increased too in all groups of merchandise (see Table 4). The five major groups of imports were machinery and equipment, foodstuffs, chemical products, clothing, footwear and headgear, and transport vehicles. The structure of special import did not change considerably. Only transport vehicles, the import of which doubled, moved from the seventh place to the fifth.

The special import of machinery and equipment increased by more than 50%. Import for free circulation accounted for two thirds of the special import and import for processing for 30%. From Finland, the share of which amounted to 46%, Estonia imported computers, mobile communication equipment, cables and telephone communication equipment for free circulation. Mobile phones and printing equipment was imported from Sweden. Electronics components and blocks were imported for processing from Finland and Sweden.

The special import of foodstuffs increased by 20%, with import for free circulation accounting for 77% of the special import. From Finland, coffee, margarine, alcohol, beer and pork was imported, from the Netherlands pet food and butter, from Denmark sugar, coffee and chicken products, from Germany flour and chocolates. The import of foodstuffs for free circulation from customs warehouses accounted for one fourth of the special import.

86% of the special import of chemical products was meant for free circulation. The most important import merchandise were paints and varnishes from Finland and Sweden, plastic products from Germany, Finland and Belgium, medicines from Germany, Belgium and Italy.

The special import of clothing, footwear and headgear increased by 20%, with import for free circulation accounting for 55% of the special import. Clothes were imported from Finland, Germany and Sweden, footwear from Italy, Finland and Germany, textiles from Sweden, Russia and Finland. Various clothing were also imported from Finland and Sweden for processing in Estonia.

The special import of transport vehicles doubled in 1997. Import for free circulation accounted for 82% of the special import. The bulk of the transport vehicles were passenger and commercial cars from Finland, Germany, Russia and Belgium. From Sweden, tractors were imported to Estonia.

The special import of metals and metal products increased by 36.7% in 1997 and the share of imports for free circulation was 79%. Various metal products were imported from Finland, Russia, Sweden and Germany.

The special import of mineral products increased the least - by only 18.5%. Import for the domestic market accounted for 58%. Mineral products (fuels, natural gas, bitumen) for free circulation were mostly imported from Russia, petrol was also imported from Finland and Sweden.

Regardless of the continuing increase in the special import of timber the share of this group of merchandise has somewhat decreased in total special import over the past two years. 89% of the timber import was meant for free circulation. From Finland, packages, paper, cardboard and wooden construction units were imported, from Russia plywood was bought.

Furniture for the domestic market was imported from Finland, Germany, Italy and Sweden.

The foreign trade balance was positive only in the case of timber and furniture, the trade balance of all other groups of merchandise was negative (see Table 5).

SPECIAL EXPORT AND IMPORT BY COUNTRIES

In 1997, Estonia's special export increased to all major partner countries, with the exception of Russia, and in most cases the growth rate was extremely rapid. The increase in the special export was the quickest to Sweden (see Table 6). Estonia's six major export partners were the same as in 1996, although their ranking changed - Russia fell to the third position and, thanks to the rapid growth in deliveries, Sweden rose to the second place after Finland. Direct export was mainly destined for Finland, Latvia, Sweden, Russia and Germany, processed merchandise were sent mainly to Finland and Sweden.

The special import of merchandise decreased only from the Ukraine in 1997. The increase was the quickest for imports from Sweden (57%). Import increased rapidly (by over 45%) also from Germany, the Netherlands, Great Britain, Latvia and Denmark (see Table 7). Although Estonia's six major import partners remained the same as in 1996, their ranking changed. As imports from Russia remained on the same level as in 1996, Russia fell from the second place to the fourth, while Sweden rose from the fourth place to the second. Merchandise for free circulation mainly came from Finland, Germany, Russia, Sweden and the Netherlands. Merchandise for processing was mainly imported from Finland and Sweden.

Estonia's trade surplus in terms of special export and import increased with Latvia, the Ukraine, Lithuania and Great Britain (see Table 8). Trade deficit with Sweden turned into a surplus. Trade deficit with the other countries increased. Estonia's biggest deficit was in trade with Finland, amounting to 9.95 billion kroons.

ESTONIA'S TEN MAJOR TRADE PARTNERS[5]

1. Finland

Estonia's special export to Finland increased quicker than special import from Finland but, due to the larger volume of import, trade deficit increased by a quarter or 2 billion kroons in 1997 (see Table 9).

Special export was dominated by machinery and equipment and clothing, footwear and headgear which accounted for nearly two thirds of the export to Finland. The special export of machinery and equipment increased by 47%. Other major export articles were timber and furniture. More than half of the special export was made up of merchandise processed in Estonia. Estonia mainly processed machinery and equipment, clothing, footwear and headgear which made up 80 and 67% of the special export of the respective group of merchandise. Direct export made up 46% of the special export and was dominated by timber.

Special import increased in all groups of merchandise. The leading place belonged to machinery and equipment, followed by clothing, footwear and headgear, chemical products, transport vehicles, metals and metal products. The import of transport vehicles increased the most. Three fourths of special import was meant for free circulation (machinery and equipment, chemical products, transport vehicles and metals) and nearly 25% was meant for processing (machinery and equipment, clothing, footwear and headgear).

When comparing the import and export of processed goods it turned out that in 1997 Finland sent 900 million kroons worth of merchandise more to Estonia than it received after processing. This can be explained by the fact that part of the merchandise was exported to other countries (Sweden, Germany, Denmark) after processing.

2. Sweden

Special export to Sweden increased particularly rapidly in 1997 (by 87%) and import was up by 57% (see Table 10). The 1996 negative trade balance turned into a 557 million kroon surplus due to the rapid increase in exports.

The rapid increase in special export was caused by the 1.2 time increase in the re-export of processed merchandise. At the same time, direct export increased by 54%. Export increased in case of most groups of merchandise, although the special export of foodstuffs, metals and mineral products decreased. The major three export groups were machinery and equipment, timber, and clothing, footwear and headgear which accounted for 82% of the entire special export to Sweden. Sweden is Estonia's second-largest partner in the processing of merchandise. Thus, merchandise processed in Estonia accounted for 57% of special export to Sweden. Processed merchandise was mainly comprised of machinery and clothing while direct export was dominated by timber and Estonian-made clothing, footwear and headgear.

Special import increased in all groups of merchandise with the exception of mineral products. Import for free circulation, which accounted for 62% of the total, was dominated by machinery and equipment, transport vehicles and chemical products. Processed merchandise made up 37% of special import and consisted mostly of machinery and equipment and clothing, footwear and headgear.

3. Germany

Special export to Germany increased by 35.7% in 1997 and special import was up by 46.7%. This led to the 883 million kroon or 58% increase in the trade deficit (see Table 11).

Export increased in all groups of merchandise. The bulk of special export was made up of furniture, clothing, footwear and headgear and timber. The share of direct export was 77% while the share of processed merchandise amounted to 19% (clothing, footwear and headgear, machinery).

The import of all major groups of merchandise increased as well. The increase was the biggest for the import of transport vehicles which moved this group to the top of the list with a 25% share of the entire special import. Next came machinery and equipment, chemical products and foodstuffs. Import for free circulation accounted for 94% of the entire special import.

4. Russia

Special export to Russia decreased by 5.7% in 1997 and special import remained on the 1996 level, causing the trade deficit to swell by 36%, to 687 million kroons (see Table 12). Russia fell from the second to the fourth place among Estonia's major foreign trade partners.

The decline in special export can be attributed to the significant decrease in the export of foodstuffs, clothing, footwear and headgear and chemical products. Regardless of the fact that the export of foodstuffs decreased by one fifth, foodstuffs were still the main export article to Russia and accounted for a third of the entire special export. Next came transport vehicles, mineral products and chemical products. Direct export accounted for 73% and re-export of merchandise from customs warehouses made up 22% of the entire special export. From customs warehouses foodstuffs were exported that had been stored there in order to avoid Russia's double customs duties.

Special import was dominated by mineral products (fuel, natural gas), chemical products (fertilizers) and metals which together accounted for three fourths of the total imports. Import for free circulation accounted for 94% of the entire special import.

5. Latvia

Trade with Latvia increased considerably in 1997, with special export up by 52% and special import, by 45%. Estonia's trade surplus with Latvia was the largest, amounting to 985 million kroons. In 1997, the trade surplus increased by 64%. The trade balance was positive for the most groups of merchandise and imports exceeded exports only in the case of clothing, footwear and headgear and timber (see Table 13).

Special export to Latvia increased in all groups of merchandise, with the exception of mineral products. The most important export articles were chemical products, foodstuffs, machinery and equipment. Direct export accounted for 92% of the entire special export.

Special import increased in all groups of merchandise, with clothing, footwear and headgear, foodstuffs, chemical products and metals dominating. Import for free circulation made up 90% of the entire special import.

6. The Netherlands

Special export to and import from the Netherlands increased rapidly and at almost the same rate, by 45 and by 47%, respectively (see Table 14). The trade deficit increased by a half and amounted to 752 million kroons.

The main export article was foodstuffs (55% of special export), followed by timber, the export of which was up by 56%.

Special import, too, was dominated by foodstuffs (42%) and their import increased by 35% in 1997. The second most important group of merchandise was machinery and equipment (mainly computers) the import of which increased by 54%.

7. Denmark

Trade with Denmark was characterised by special import increasing at a higher rate than special export, which led to the trade deficit of 153 million kroons (see Table 15).

Special export was dominated by metals and metal products the export of which increased 2.2 times due to metal structures processed in Estonia. Timber rose to the second place, with special export increasing by 84%, next came mineral products and furniture.

Special import was dominated by foodstuffs and machinery and equipment the import of which increased by more than 60%.

8. Lithuania

Trade with Lithuania developed at a slower rate than trade with Latvia: special export increased by 31% and special import was up by 29% (see Table 16). The trade surplus with Lithuania reached 525 million kroons, giving Lithuania the fourth position among Estonia's trade partners ranked according to the size of the trade surplus, after Latvia, the Ukraine and Sweden.

The bulk of the special export was made up of chemical products and foodstuffs, machinery and equipment, and metals and metal products.

Special import was dominated by chemical products whose import increased by 83% (in 1996 chemical products had ranked third), followed by foodstuffs and machinery and equipment.

9. Great Britain

Trade with Great Britain developed rapidly, with special export up by 64% and special import growing by 45%. Trade surplus with Great Britain amounted to 212 million kroons (see Table 17).

Exports to Great Britain were dominated by timber, clothing, footwear and headgear, and metals and metal products.

Imports included machinery and equipment, chemical products, clothing, footwear and headgear.

10. The Ukraine

Trade with the Ukraine was favourable for Estonia: special export increased by one fifth while special import decreased by 12.5% (see Table 18). The trade surplus increased by two thirds and amounted to 595 million kroons.

In special export, foodstuffs made up 41%, followed by chemical products the export of which increased by a half. The export of foodstuffs was dominated by fish preserves and butter, chemical products consisted mainly of paints and varnishes.

Special import was dominated by chemical products the import of which was up by 79% in 1997, next came metals and metal products. The import of foodstuffs decreased by 78% and this group of merchandise fell from the first place to the third in the list of imports.

Vallot Neumann

TERMS USED IN FOREIGN TRADE

  General trade system - merchandise is registered when it crosses the customs border.
  Special trade system - merchandise is registered when it enters domestic market ie free circulation.
  Customs procedure - a procedure applied to merchandise declared to the customs.
  The most important customs procedures in the special trade system and their codes are the following:   Special export does not include the re-export of merchandise previously imported into customs warehouses and its use for provisioning sea vessels and aircraft.
  Special import does not include customs warehousing of imported merchandise but reflects the movement of merchandise from customs warehouses into free circulation and processing.

[1] The author of the present survey Vallot Neumann is Senior Expert of Eesti Pank Statistics Department.
Imports has been given in cif prices and analysed according to the trading country. Data for 1997 is preliminary.
[2] The export and import figures in this analysis of foreign trade differ from the figures published by the State Statistical Office because we have used the special trade system in our analysis. This means that special export does not include export of merchandise previously imported into customs warehouses or their use in provisioning sea vessels and aircraft. Special import does not include customs warehousing of imported merchandise, although import of merchandise from customs warehouses for free circulation and processing has been included.
[3] The general export and import includes also the entire foreign trade that is carried out through customs warehouses.
[4] See Estonian Foreign Trade in 1996 in Eesti Pank Bulletin No 2, 1997.
[5] The countries have been ranked according to the volume of the trade turnover.