SPEECH BY MR. MARTTI AHTISAARI, PRESIDENT OF THE REPUBLIC OF FINLAND AT A LUNCH WITH HUNGARIAN AND FINNISH REPRESENTATIVES OF ECONOMIC LIFE; Budapest, March 10, 1995

ECONOMIC COOPERATION BETWEEN FINLAND AND HUNGARY

It is a great honour for me to visit Hungary, our kindred nation, for the first time since assuming office. I have been greatly impressed by the development which has taken place in this country in recent years and I am very pleased to be able to appear before this prestigious audience.

Europe has undergone a remarkable change. The centrally planned economies have been replaced by cooperation oriented market economies in the eastern part of our continent. At the same time, integration in the Western part of the continent has taken further steps forward, with three new members, Finland included, joining the European Union.

Hungary has been a forerunner in the development of transition, having courageously initiated change in its economic structures as early as 25 years ago. My impression is that the reforms in Hungary have been successful, especially because they have been realized in accordance with the proper requirements of this country. The results of the reforms in Hungary have also earned the appreciation of the external world.

Hungary has signed an association agreement with the European Union and has applied, as the first of the Central European countries, for membership. Thus you have already joined the other process I mentioned, which aims at the integration of Europe in the widest possible territorial context.

Finland welcomes the development of Hungary and its recent aspirations in relation to integration with joy and satisfaction. We in Finland are supporting these aspirations by participating in the work of the European Union.

I am pleased to note that bilateral relations between Hungary and Finland in the economic and trade spheres have always been very good. Despite the geographical distance and earlier differences between our economic systems, our businessmen have always found each other and gotten along well together.

Finland's trade with Hungary has amounted to around half a percent of our total foreign trade, which is by no means a minor volume. However, I am quite positive that both parties would want our trade to develop much further.

It has been very gratifying to note that in the past couple of years we have doubled our exports to the new Hungarian market, which is becoming harder and more competitive all the time. A one fourth increase in Hungarian exports to Finland is another encouraging sign of a new development - especially given that it was achieved while the Finnish economy was in recession.

In recent years, trade has shown a surplus in Finland's favour, whereas before that the situation had been quite the opposite for almost a decade. I am confident that when the economic situation in Finland improves, Hungary will have every prospect of increasing its exports to Finland and, in consequence, that balanced development of trade relations will be achieved.

The structure of trade between us is also becoming more diversified - we no longer exchange wood and paper for wine; markets have been found for other products, too. I could mention with a certain pride the high-technology products linked with telecommunications, energy, building, etc., which represent the newest branches of our exports both to Hungary and to other markets. Nor must we forget the service sector, which has entered the trade picture.

Correspondingly, the open Finnish market, where international competition is, however, hard, have offered Hungarian industries full possibilities to develop their exports and diversify their ranges.

The role of the state in present market conditions is primarily to create a framework for the real actors - i.e. companies themselves. The decision-makers must ensure that the agreements and arrangements regulating international trade and other economic activities correspond to the needs of the present time. That is the only way we can expect our companies to succeed in the numerous functions of international trade.

After acceding to membership, Finland began to follow the European Union's common commercial policy and system of agreements in relation to third countries. Accordingly, the old, and which served us well, bilateral free trade agreement concluded between us in the 1970's was replaced by the Europe Agreement between Hungary and the ECU. This agreement supersedes also the previous bilateral protocol on agriculture, which was adopted within the ETA framework a few years ago.

In my opinion, this change will not cause big problems, because customs tariffs on Finnish goods are regulated by the Europe Agreements and will be phased out by the end of this decade. Thus Finnish companies are in the same position regarding competition in Hungary as companies from the other ECU countries, but in a better position than many of our competitors from third countries. Our imports from Hungary will also, by virtue of EU membership remain tariff-free, with the exception of certain sensitive product categories.

The European Union is changing both internally and externally. The greatest challenge facing external development is the expansion of the Union towards the east. At the summit meeting in Essen last year the states of the European Union made a decision which is important for all of us; they decided to develop cooperation with the Central European countries through a specific accession strategy. This strategy is preparing the countries that have concluded association agreements for membership of the Union.

An important part in this strategy is the integration of the Central European countries into the Union's internal market. This will have a great impact on trade practices at all levels. The strategy also forms the basis for growing political discussion with EU members and associated states. All this is necessary for the future membership. We in Finland support this process, which will help stabilize the economic and political situation in the whole of Europe. We also hope that Hungary will be able as soon as possible to adjust itself to the conditions of membership.

Finland has long participated in supporting the reform process in Hungary. This has been done multilaterally through the balance-of-payments arrangements prepared by the IMF and G-24, as well as by contributing to the maintenance of the Budapest Environmental Centre, and now as a member of the EU in the framework of the Phare programme.

Bilaterally, Finland was the first Western country to grant Hungary a considerable structural adjustment loan (100 million dollars), of which only a third was used. Last year an agreement providing for a new credit line of 25 million dollars was signed. This makes it possible to finance exports of capital goods and services from Finland to Hungary. In technical cooperation, numerous programmes have been implemented in the fields of research, education, consulting and technology transfers.

The intention with these activities is to build a foundation for general economic cooperation and for more concrete trade, which will later benefit both parties.

Interest in Finnish business circles in a more permanent presence in Hungary, either through the establishment of joint ventures or in other ways, has increased. To my knowledge, there are about fifty joint ventures, with activities spanning many different investment areas with contributions of varying sizes and kinds. There are even more companies which are totally in Hungarian ownership, but which cooperate with Finnish interests.

Naturally, the main responsibility for the development of trade cooperation lies with the business world itself. The scope and direction of economic relations between our countries will be determined ultimately by the increase in knowledge, the contribution to marketing and export promotion as well as by how well companies maintain their competitiveness.

In a changing world and an integrating Europe we have to approach each other and have a better understanding of each other's cultures and ways of thinking. I am convinced that discussions in business circles, the exchange of opinions and the new methods of communication which are possibly agreed during this visit will in due course also increase transactions between our economic circles, for the benefit of us all.

On my behalf, I wish all the representatives of the business world who participate in this work every success.