Changes in Foreign Trade in the First Year in the EU

Abstract

Membership in the European Union caused dramatic changes in the Finnish foreign trade. Obstacles to trade between Finland and the other member states were abolished in the beginning of 1995, and EU regulations started to be applied in the trade with the third world countries. The possibilities of domestic production are largely dependent on the competitiveness of the Finnish food economy in relation to the other member states. On the other hand, export support to agriculture is now paid by the EU, and thus national interests for restricting production were removed. Export markets grew, and they pose a new challenge to the Finnish food industry. The effects of the integration have primarily been evaluated from the viewpoint of the survival of domestic agricultural production, but the development of the foreign trade also offers a very interesting field of research. It is one of the most central factors related to the EU membership, which should result in trade creation and thus increase welfare among the trading countries. It also involves trade diversion towards the integrating countries. The trade statistics of the first year indicate that the trade between Finland and the EU has increased, especially for the part of meat. This was partly caused by the increase in the consumption as a result of the decrease of about 9 % in the retail prices. This made it easier as well as necessary to import meat to meet the demand. Denmark has been the most important importing country. Prior to the EU membership meat was exported every year. This continued in 1995, but the quantities were a lot smaller. The consumption of dairy products, like cheeses and yoghurt, grew as well. Cheese imports increased, especially from Denmark and Sweden. Yoghurt was mainly imported from Sweden. There was cooperation between the Swedish Arla and Finnish Valio already before the EU membership. Now this has changed into competition involving powerful advertising campaigns. French yoghurts are also striving to get to the Finnish markets. Imports have primarily resulted in an increase in the selection, which in turn increases the demand. The quantities of exported dairy products were about the same as earlier. Cheese exports, in particular, have established their markets both in the EU and in other countries, and the membership in the EU is not expected to cause any changes in these. Imports of bread cereals increased considerably in 1995. It is not quite clear, however, whether this is a result of the EU membership or whether it has been caused by some kind of market difficulties in Finland. No major changes have occurred in cereal production, which means that there is still overproduction of cereals in Finland. Barley was exported as earlier, but the exports of oats have remained small, considering the need. The welfare effects of the EU membership have not been studied very much yet. Preliminary estimates on the increase in the consumer welfare seem to have been realized, because the consumer prices decreased according to the forecasts. However, agricultural production has not decreased as was forecast in some models, because the support paid to farmers has exceeded the expectations. So far the losses to producers have been minimal. The welfare losses of taxpayers have increased due to the increase in the support and the membership fee of the EU.