FINLAND subsidization of production. An important exception is agriculture, where the government provides a network of production and export subsidies and protects against imports with variable levies. Finland's level of agricultural protection is among the world's highest. Government debt is rapidly increasing due to recession-induced decreases in revenue and increases in social spending. Total government debt in September 1991 was about 40 billion finnmarks from domestic borrowing, mostly through publicly-sold bonds, and about 30 billion finnmarks from foreign sources, almost exclusively through bonds. Most Finnish companies are affected by restrictions which limit foreign ownership to 20 percent or with special permission, 40 percent. However, exceptions to these restrictions are routinely granted. The current law is being amended so that permission for foreign investment would only be required for acquisition of firms with a staff over 200 people and annual turnover exceeding 500 million finnmarks. In the service sector, various forms of insurance, including automobile collision, pensions, and life insurance, can only be obtained through Finnish companies. These provisions are expected to be changed in accord with the EEA agreement. Finland undertook an extensive program of financial deregulation in the 1980's, including deregulation of domestic financial markets and relaxation of capital controls. Interest rate policy is the primary tool to support Finland's fixed exchange rate; Finland has maintained a positive interest differential with EC countries to attract capital. The Bank of Finland has raised commercial bank reserve requirements and undertakes open market operations to support higher rates. Prior to the November 1991 finnmark devaluation, interest rates climbed to extremely high levels and have remained in double digits in spite of a low inflation rate. While the end of the Fenno-Soviet clearing (barter) system at the beginning of 1991 undoubtedly dealt a severe blow to Finland's economy, it is by no means the only or even the principal cause of the current recession. It has, however deepened the recession by a percentage point or two. The products sold to the Soviet Union by the Finnish side were generally uncompetitive and have not found buyers in Western markets. 2. Exchange Rate Policies In June 1991, the finnmark was pegged to the European Currency Unit (ECU), which replaced a trade-weighted basket of foreign currencies which included the U.S. dollar. The finnmark was allowed to float within a three percent band of the established parity. The Bank of Finland actively intervened to support the finnmark by purchasing and selling foreign currency as necessary to keep the finnmark within its trading band and by ensuring that interest rates were set to keep foreign currency reserves at adequate levels. Continued uncertainty over economic policy and the lack of an agreement over wages, however, led to repeated FINLAND speculation against the finnmark. The government was finally forced in November 1991 to float the finnmark, as rapidly increasing interest rates could not stem the outflow of finnmarks. The finnmark was floated for about a day, and an intitial parity with the ECU was set at 14 percent below the previous value, which shortly thereafter stabilized at about 10 percent. The government intends to undertake a vigorous economic restructuring program and intervene as necessary in money markets to prevent a subsequent devaluation. The government is gradually changing its tax policies both to stimulate economic growth and investment and to bring Finland more into conformity with European norms. In October 1991, the base rate of the turnover tax was increased from 17.5 to 22 percent. However, since the basis for the calculating the tax was also changed, the effective increase in the tax was limited to 0.8 percent. The turnover tax is now calculated on the basis of the final selling price exclusive of excise taxes. It is expected that Finland will move to a value added tax in 1994. The automobile tax, currently averaging 127 percent of the purchase price, is expected to be lowered in stages to European norms within five years. As part of the incomes policy talks underway in November 1991, it has been proposed that various business taxes also be lowered and that pension fund payments, now the exclusive responsibility of employers, be shared with employees. In October 1991, the government submitted to Parliament a bill that would amend Finland's three-year old competition law by making it more difficult for companies to collude on prices and market shares. The maximum penalty for violations would be increased to FIM 4 million ($1 million) or 10 percent of a company's turnover. Further changes to competition law are expected as Finland moves closer to EC norms, including more aggressive anti-trust legislation. 4. Debt Management Policies As Finland's recession has deepened, it has taken on more foreign debt. Its excellent record in repaying debt has preserved a high credit rating. Leading banks, however, have seen their credit ratings drop in response to unfavorable loan portfolios and financial difficulties stemming from a weak economy. Finland generally takes a generous attitude toward third-world debt. It is an active participant in the Paris Club and in the Group of 24 countries providing assistance to East and Central Europe. 5. Significant Barriers to U.S. Exports Finland relies heavily on import licenses and variable levies to protect its agricultural sector, among the most heavily subsidized in the world. The licensing system FINLAND supports high domestic prices and ensures that supplies are used up before imports can occur. Finland often produces a substantial wheat surplus, which is disposed of on world markets through state and producer-financed subsidies. U.S. agricultural products are not treated differently than other foreign products. Imports of coal, oil, and gasoline require a license. Coal can be imported from any source, as can oil and gasoline since the end of the Fenno-Soviet clearing (barter) system in January 1991. Textile imports are subject to a licensing system if they originate outside of the Soviet Union, the EC, and EFTA. There are some restrictions for non-EC or EFTA iron and steel imports as well. Finland's service sector is still highly protected, including insurance, tourism, air transport, and to some extent telecommunications. The banking sector has liberalized significantly, however, and foreign banks can now operate in Finland and Finns may obtain loans from foreign banks. In the insurance sector, market reservations prohibit foreign companies from providing life, pension, and certain types of auto policies. The government intends to open long-distance telecommunications to competition and introduce other reforms in the telecom area. The Finnish Broadcasting Company requires that a "sufficient" amount of broadcasting time be devoted to domestic production. The EEA agreement will require Finland to adopt the EC broadcast directive, which has a 50 percent European programming target for non-news or sports programming. Finland is a signatory to the GATT Standards Code and is completing the process .of harmonizing its technical standards to EC norms. Finland is the process of liberalizing rules on foreign investment. However, significant restrictions remain, including a prohibition on owning real estate except for land surrounding foreign business operations. Foreign ownership of forest or recreation areas is not permitted. Ministry of Trade and Industry permission is required for all land acquisitions. The government is taking a more liberal attitude towards foreign takeovers of Finnish companies, although Ministry of Trade and Industry permission is required in all cases. In 1989, the government announced its willingness to consider foreign investment in all sectors except natural resource exploitation (mineral extraction and forestry). In order for a Finnish company to be considered domestic and to avoid burdensome paperwork requirements when acquiring land, some companies have clauses limiting foreign ownership. In these cases only 20 percent of a company may be sold to foreigners, and with the permission of the Ministry of Trade and Industry, 40 percent. The voting power of these shares is limited to 25 percent, however. State-owned companies have monopolies in postal and telegraph services (excluding telephones) and the production, import, and sale of alcohol. There are bans on foreigners operating in the fields of cable broadcasting, public entertainment, securities and real estate brokering, private railway service, labor hiring, and private security. There are partial restrictions on foreigners operating in the fields of auditing, legal services, and auctioning. In the FINLAND case of banking and insurance, travel agencies, accommodation and catering, aviation, coastal shipping, transportation of nuclear fuel, publishing, and medical or dental services, foreigners may only operate if they establish a limited liability company or partnership for this purpose. The Ministry of Trade and Industry has special regional investment incentive programs for regions other than southern Finland. Finland is a signatory to the GATT Government Procurement Code. In the excluded sectors, particularly defense, countertrade is actively practiced. Finland is currently seeking to purchase fighter aircraft valued at about $2.5 billion from foreign sources. One hundred percent offsets will be required. Competitive bidding is the rule in Finland. Finland has a streamlined customs procedure, reflecting the importance of foreign trade to its economy. The only significant direct export subsidies are for agricultural products (grain, meat, butter, cheese, eggs). At the end of the 1980's, a limited program of interest rate subsidies was initiated to aid sale of Finnish ships facing subsidized EC competition. This led to an agreement for consultations to prevent predatory subsidization between the EC and Finland. A system of guarantees to protect metal engineering exports, principally shipbuilding products, against inflation is no longer used but still exists on paper. Finland is a signatory to the GATT Subsidies Code. 7. Protection of U.S. Intellectual Property Finland has a good record in passing effective legislation to protect intellectual property and in enforcing those laws. Finland and the Nordic group of countries have taken a constructive position on intellectual property in the GATT Uruguay Round negotiations and other intellectual property talks in the international arena. Finnish patent and trademark laws are similar to those of other Nordic countries. Finland still denies product patent protection to pharmaceuticals, however. Legislation passed in 1987 initiated a transition period to product protection which will be fully implemented in 1997. The first product patent pharmaceuticals will probably not be available until the year 2000. Finnish intellectual property practices have had a minimal negative effect on U.S. exporters. The Finnish Constitution contains specific guarantees for the right of workers to form trade unions, assemble peacefully FINLAND and strike. 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 four federations as well as internationally. b. The 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 between employers, the four 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 antiunion 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 under sixteen may work up to six hours per day. 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, both 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. |