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TITLE:  FINLAND ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                             FINLAND

                     Key Economic Indicators
       (Billions of finnmarks (FIM) unless otherwise noted)


                                  1991      1992      1993 /1
Income, Production,
 and Employment

Real GDP (1990 prices)            416.2     401.3     393.3  
Real GDP growth (pct.)             -7.0      -3.6      -2.0 
GDP (at current prices)           427.0     414.2     413.6  
By Sector:
 Agriculture                       13.09     10.49     10.2  
 Other Primary Production          12.71     12.07     12.3
 Energy and Water                  11.06     11.17     11.3  
 Manufacturing                     89.67     92.85    102.8  
 Construction                      36.96     26.01     18.0  
 Rents /2                          33.13     36.93     38.0  
 Financial Services                17.18     14.12     14.0  
 Other Services                   122.40    120.15    117.0  
 Government, Health                                          
  and Education                    90.78     90.85     89.0  
 Net Exports of                                              
  Goods and Services               -3.13      5.87     25.9 
Real Per Capita GDP ('90 prices)   95,430    91,081    88,800  
Labor Force (000s)                  2,533     2,502     2,483 
Unemployment Rate (pct.)            7.6      13.1      18.0  

Money and Prices

Money Supply (M2)
 (Annual Percentage Growth)         3.3      -0.4      -1.1   
Base Interest Rate (pct.)           8.5       9.5       6.0 /3
Personal Saving Rate (pct.)         8.2       9.6       8.5 
Retail Inflation (pct.)            -4.2      -7.3      -2.5 
Wholesale Inflation (pct.)        -15.7      -9.9      -3.0 
Consumer Price Index (1990=100)   104.3     107.4     110.0 
Exchange Rate ($1.00/FIM)           4.05      4.48      5.7 

Balance of Payments and Trade 

Total Exports FOB                  92.8     107.5     131.2   
 Exports to U.S.                    5.7       6.4       8.7   
Total Imports CIF                  87.7      95.0     101.8   
 Imports from U.S.                  6.0       5.8       7.6   
Aid from U.S.                       0         0         0  
Aid from Other Countries            0         0         0  
External Public Debt 
 (central government)              52.8     113.8     160.0 
Foreign Debt Service Payments      18.7      24.9      31.0   
 of which by Central Government     2.4       4.1      10.4   
Gold and Foreign Exchange
 Reserves (year end)               33.7      29.5      32.0   
Trade Balance                       5.1      12.5      30.0   
 Balance with U.S.                  0.4       0.6       1.1   



Notes:

1/ Ministry of Finance estimates and extrapolation from
nine-month data.
2/ Letting and operating of dwellings, use of owner-occupied
dwellings.
3/ Since July 15, 1993.



1.  General Policy Framework

    The Finnish economy is completing its third year of a
recession during which GDP has declined by a cumulative 13
percent.  An economic recovery has yet to get underway,
although sharply increased exports and much lower interest
rates are expected to help spur a turnaround in 1994.  The
recession has resulted in a significant shake-out of the
Finnish economy, including corporate downsizing, increased
competition, and cutbacks in government services.  Also
spurring structural change is prospective implementation of the
European Economic Area (EEA) agreement between the European
Union (EU) and the European Free Trade Association (EFTA) at
the beginning of 1994 and possible membership in the EU in the
years following.

    An unemployment rate in the high teens and a sharp slowdown
in consumer demand and business investment have resulted in
declining government revenues and increases in counter-cyclical
spending, producing large budget deficits.  Also contributing
is government assistance to the banking sector, particularly to
the savings bank system.  In 1993, the deficit will be about a
third of total spending, the same level as 1992.  The deficit
is financed by foreign and domestic borrowing through the
issuance of bonds; the balance has been roughly evenly divided
between the two.  The large deficits have brought about rapid
increases in overall debt levels.  Finnish government debt will
increase from 35 percent of GDP at the end of 1992 to an
estimated 64 percent at the end of 1994 and debt service will
account for some 11 percent of government expenditures.  Cuts
in government social programs and aid to municipalities are
helping to keep the debt from rising still faster.  Also
contributing are higher income tax rates and increases in
indirect taxation.  Finland's tax ratio will rise to an
estimated 48 percent in 1994, a record.

    Despite the high level of foreign debt servicing, Finland
is experiencing a sharp improvement in its balance of payments;
the current account should move into strong surplus in 1994
after years of deficits.  The main contributing factor is a
sharp increase in export sales, spurred on by a depreciated
finnmark and declining real wages.  Finnish international
competitiveness has increased by about 40 percent as compared
to its long-term average in the past several years.  Inflation
has stayed at a low level as wholesalers and retailers remain
reluctant to pass along increased import prices in the face of
collapsing domestic demand.  The money supply remains
constrained as well; domestic credit is tight as banks seek to
regain profitability.  They remain conservative in their
lending practices, particularly to new businesses.

    Finnish economic policy is based to a large extent on the
prospect of further integration with Western Europe.  The
requirements of the EEA, for example, have resulted in new
competition legislation that is helping to reduce the
cartel-like nature of many Finnish industries.  Legislation
which took effect at the beginning of 1993 liberalizing foreign
investment restrictions has helped spur a sharp increase in
foreign portfolio investment and hence has contributed to the
internationalization of large Finnish companies.  The rise in
stock market activity is also due to lower domestic interest
rates and a tax law, also new in 1993, which sets a uniform
rate of 25 percent on capital income taxation.  Foreign direct
investment has been slower to materialize, although Finland is
hoping to capitalize on its location and expertise to serve as
a "gateway" for foreign investors in the former Soviet Union.

    Prospective EU membership and budgetary constraints have
brought about some reform in Finland's highly protected
agricultural sector, although in the membership negotiations
Finland is trying to establish special support mechanisms which
provide levels of support higher than the EU average. 
Membership negotiations may be completed as soon as early 1994,
after which Finland would hold a national advisory referendum. 


2.  Exchange Rate Policy

    The finnmark has been floating since the government and
central bank broke its fixed link with the European Currency
Unit (ECU) in September 1992 in the midst of a currency
crisis.  Shortly after the float was inititiated, the
parliament passed new legislation allowing the float to
continue indefinitely.  It is unlikely that the government will
attempt to establish a new currency linkage before Finland
joins the European Union, which may occur as early as 1995.

    The finnmark has declined by about 50 percent in relation
to the dollar and over 20 percent in relation to the ECU since
the float was initiated.  This has strongly boosted Finland's
international competitiveness and has dampened demand for
imports from all sources, including the United States. 
Conversely, exports have boomed.  The government has not
regularly intervened in financial markets to influence the
value of the finnmark.  The government has encouraged lower
interest rates to boost domestic demand, and these have acted
to keep the currency's value at a fairly low level.  Many
analysts expect that in the medium term, the finnmark's value
will increase somewhat, easing Finland's external debt burden
in finnmark terms and dampening inflationary pressures.


3.  Structural Policies

    Finland plans to replace its turnover tax with a value
added tax in June 1994.  While the change is expected to have
little effect on overall revenues, several areas not now taxed
or taxed at a lower rate, including many corporate and consumer
services and construction, will be subject to the new VAT in
conformity with EU practice.  The government has tentatively
decided to keep the basic VAT rate at the same rate as the
current turnover tax, which is 22 percent.  Some goods and 
services, including transportation services, accommodations,
films, pharmaceuticals and books, will be taxed at a 12 percent
rate and other services, including health care, education,
insurance, and rentals will not be subject to the VAT. 
Agricultural and forestry products will continue to be subject
to different forms of taxation outside the VAT.  At the
beginning of 1993, a uniform rate of 25 percent taxation on
capital income took effect, including dividends, capital gains,
rental income, insurance, savings, forestry income, and
corporate profits.  The sole exception was bank interest, where
the tax rate will be increased from 20 to 25 percent at the
beginning of 1994.

    The change in capital taxation, along with a sharp decline
in interest rates and liberalization of foreign investment
legislation, have resulted in a strong revival of the Finnish
stock market and greater corporate use of equity rather than
debt financing.  These developments have also substantially
increased the foreign ownership share of many of Finland's
leading companies, and may become the vehicle for the
privatization or partial privatization of state-owned or
dominated companies.  The government has moved slowly on
privatization, but has recently announced plans to reduce the
government's stake in five state-dominated companies. 
Currently, four of Finland's 10 largest companies are majority
state-owned, and the government is heavily involved in several
key industrial sectors, including energy, forestry products,
mining and chemicals.

    The volume of government subsidies provided to Finnish
industry has increased markedly as the Finnish economy has
deteriorated.  In real terms, industrial subsidies have
increased by about 80 percent since 1988 and now constitute
about 1.2 percent of GDP.  The government has announced that it
is planning to reduce subsidies in line with falling government
revenue and the requirements of the European Economic Area
agreement and possible EU membership.  The government has said
that to a large extent direct subsidies would be replaced with
more general measures to improve the business climate.


4.  Debt Management Policies

    Finland has rapidly accumulated external debt in order to
finance recession-induced budget deficits.  Net foreign public
sector debt increased from five percent of GDP at the end of
1990 to 37 percent in mid-1993.  Overall net foreign debt
increased from 27 to 57 percent of GDP during the same period. 
The government projects that the overall foreign debt burden
will sharply decrease over the next few years, declining to 30
percent of GDP by 1997.  Finnish corporations, formerly heavy
users of foreign capital, are now reducing their foreign
obligations and public sector foreign borrowing is leveling
off.  In response to the rapid increase in foreign borrowing,
Moody's lowered its rating on Finnish long-term government
bonds from its second to its fourth highest category (AA-) in
March 1993.  Finnish debt issues continue to sell easily in
international financial markets, however.

    Finland is an active participant in the Paris Club, the
Group of 24 countries providing assistance to East and Central
Europe, and in efforts to assist the former Soviet Union.  In
response to budgetary problems, Finland has reduced foreign
assistance from approximately 0.7 to 0.4 percent of GDP in the
past two years.


5.  Significant Barriers to U.S. Exports

    The agricultural sector remains the most heavily protected
area of the Finnish economy.  In the past year, Finland has
changed its basic system of protection from an import licensing
system to a system of variable levies similar to the EU.  The
net effect is essentially the same, which is to protect
domestic production from less expensive foreign imports. 
Surpluses of agricultural products are usually disposed of on
world markets through government and producer-financed export
subsidies.  The government intends to end direct government
financing of export subsidies.  They would be replaced,
however, by an agricultural marketing fund, much of whose
capital would come from the government through off-budget
expenditure.  Import licenses are no longer required for any
products, although some textile imports from Far Eastern
suppliers are covered by quotas.

    The Finnish service sector is undergoing considerable
liberalization in connection with the EEA agreement and
prospective EU membership.  Legislation implementing EU
insurance directives will take effect when the EEA takes
effect.  Finland will have exceptions in insurance covering
medical and drug malpractice and nuclear power supply. 
Restrictions placed on statutory labor pension funds, which are
administered by insurance companies, will in effect require
that companies establish an office in Finland.  It is unclear
whether such restrictions will cover workers' compensation as
well.  Auto insurance companies will not be required to
establish a representative office in Finland, but will have to
have a claims representative there.  The government will open
up long-distance telephone service within Finland to
competition at the beginning of 1994 and intends to open up
international service some time after as well, although
restrictions may be placed on foreign suppliers.  The
government requires that the Finnish Broadcasting Company
devote a "sufficient" amount of broadcasting time to domestic
production.  Under the EEA agreement, Finland will adopt the EU
broadcast directive, which has a 50 percent European
programming target for non-news and sports programming. 
Finland does not intend to impose specific quotas.

    Finland is a GATT Standards Code signatory and has largely
completed the process of harmonizing its technical standards to
EU norms.

    Finland removed most restrictions on foreign investment and
ownership through a law which took effect at the beginning of
1993.  The new law abolishes various restrictions placed on
companies with foreign ownership and eliminates distinctions
between foreign and domestic shareholders.  A large increase in
foreign portfolio investment has occurred since the law took
effect.  The new law provides for a screening mechanism for
proposed foreign acquisitions involving a third or more of the
stock of approximately 100 large companies.  The provision will
be in effect until the end of 1995, but the government has 
pledged that only in extreme circumstances would a foreign
takeover of a Finnish company be prevented.  New investments
are not affected by the monitoring procedure.  After 1995, only
proposed investments involving the manufacturing of defense
equipment will be monitored.  A requirement to obtain the
permission of local governments in order to purchase a vacation
home in Finland will also remain.  EEA implementation will
eliminate most sectoral investment restrictions.  Foreign
investors instead will have to meet the obligations required of
Finnish investors.

    Finland is a signatory to the GATT Government Procurement
Code and has a good record in enforcing Code requirements in
letter and spirit.  In the excluded sectors, particularly
defense, counter-trade is actively practiced.  Finland is
purchasing fighter aircraft and associated equipment valued at
$3 billion from U.S. suppliers.  One hundred percent offsets
are required as a condition of sale.  In connection with the
EEA agreement, Finland is implementing all EU
procurement-related directives, although it has pledged not to
enforce the portion of the EU Utilities Directive which would
restrict procurement outside of the EEA.

    Finland has a streamlined customs procedure, reflecting the
importance of foreign trade to its economy.


6.  Export Subsidies Policy

    The only significant Finnish direct export subsidies are
for agricultural products, including grain, meat, butter,
cheese, and eggs as well as for some processed agricultural
products.  Finland does not provide subsidies to promote
shipbuilding exports, although a mechanism exists on paper to
do so.  Finland has advocated worldwide elimination of
shipbuilding subsidies through the OECD's Working Party 6.

    Finland is a member of the GATT Subsidies Code.


7.  Protection of U.S. Intellectual Property

    Finland has a good record in passing effective laws to
protect intellectual property.  With the exception of software,
where unauthorized copying is widespread, enforcement is very
good.  Finland and the Nordic group of countries have taken a
constructive position on intellectual property in the GATT
Uruguay Round negotiations and in other international
discussions.  Finland is a member of all principal multilateral
intellectual property organizations.

    Finland's copyright legislation has recently been modified
to conform with EU practice, as required by the EEA agreement. 
The EU software directive will be implemented when the EEA
takes effect.  Finnish authorities expect that the directive
will make it easier to prosecute cases of unauthorized software
copying.  While piracy of audio and video recordings is only a
small problem in Finland, industry representatives estimate
that over 50 percent of software installed for business use has
been illegally copied.  Finland will start granting product
patent protection for pharmaceuticals at the beginning of 1995;
currently only process patent protection is available.


8.  Worker Rights

    a.   Right of Association

    The Finnish constitution contains specific guarantees for
the right of workers to form trade unions and assemble
peacefully.  The right to strike is guaranteed by law.  These
rights are honored in practice; trade unions are among the most
powerful political forces in Finland.  About 85 percent of the
work force is unionized.  Unions are free, independent,
democratic and associate in three federations as well as
internationally.

    b.   Right to Organize and Bargain Collectively

    The right to organize and bargain collectively is protected
both in law and in practice.  Collective bargaining is
generally conducted according to national guidelines agreed
among employers, the three central trade union organizations,
and the government.  Once the national guidelines are
established, contracts are negotiated at the sectoral level
between unions and employer organizations.  Workers are
effectively protected against anti-union discrimination which
is prohibited by law.

    c.   Forced or Compulsory Labor

    Forced or compulsory labor is prohibited by the
constitution and is not practiced.

    d.   Minimum Age for Employment of Children

    Sixteen is the minimum age for full-time employment (eight
hours per day).  Children that are 15 years old may work up to
six hours per day under certain restricted conditions.  Finland
has compulsory education laws.  Child labor laws are
effectively enforced.

    e.   Acceptable Conditions of Work

    Finland has no legislated minimum wage, but non-union
employers are required to meet the minimum wages established by
collective bargaining for unionized workers in each sector. 
The maximum standard legal work week is 40 hours; in practice
most contracts call for standard work weeks of 37-38 hours. 
Finland's health and safety laws are among the strictest in the
world.  They are enforced effectively by government inspectors
and actively monitored by the unions.

    f.   Rights in Sectors with U.S. Investment

    There is no difference in the application of worker rights
between sectors with U.S. investment and those without.



         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (millions of U.S. dollars)

Category                                    Amount

Petroleum                                                 D
Total Manufacturing                                      91
    Food & Kindred Products                     1
    Chemicals and Allied Products              14
    Metals, Primary & Fabricated                7
    Machinery, except Electrical                D
    Electric & Electronic Equipment             2
    Transportation Equipment                    0
    Other Manufacturing                         D
Wholesale Trade                                         141
Banking                                                   D
Finance and Insurance                                     1
Services                                                  6
Other Industries                                          D

TOTAL ALL INDUSTRIES                                    322


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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