Government’s analysis, assessment and research activities
Study: Finland has benefitted from free trade agreements but less than EU on average
A recent study shows that free trade agreements have had positive impacts within the EU, but their direct impact on Finland has remained below the EU average. There has been a significant increase in Finnish exports to many countries covered by the free trade agreements, but in most cases this is mainly due to the growth of trade in general as a result of globalisation. However, in certain sectors, such as the forest industry and machinery and equipment manufacturing, free trade agreements have had a key role. In Finland their impacts are felt especially through the different value chains.
The study conducted at the Research Institute of the Finnish Economy ETLA, published on 16 December 2019, assesses the growth of foreign trade created by the free trade agreements the EU is a party to, and examines the impacts of the agreements on GDP, value added, employment, and direct investments in Finland and in its main trading partner countries. The key focus of the study ‘The economic impact of EU free trade agreements for Finland and the EU’ by Katariina Nilsson Hakkala, Tero Kuusi, Ville Kaitila, Markku Lehmus and Maria Wang was on assessing the economic impacts of free trade agreements concluded after Finland joined the EU.
Based on the study, free trade agreements have had positive impacts within the EU, but their direct impact on Finland has remained below the EU average. There has been a marked growth in Finnish exports to many countries that have concluded free trade agreements with the EU since 1996 but, according to the researchers, the growth is mainly explained by the growth of trade in general due to globalisation rather than the free trade agreements.
The indirect impact of free trade agreements on Finland through the different value chains of production has been greater. The impact on value added of the free trade agreements concerning goods trade that came into effect in Finland after 2004 represents about 1.6% of the total value added of exports. In addition, the agreements have a positive impact on direct investments, service trade, productivity and GDP.
The free trade agreements of the EU have had significant positive impacts on certain individual sectors in Finland. The benefits have been the greatest in the forest industry and its subcontracting chains, machinery and equipment manufacturing, and various kinds of business services that support goods trade.
Marked growth of foreign trade at the EU level
Free trade agreements that have come into effect at the EU level since 1988 have contributed to a marked growth in foreign trade. A free trade agreement that is as comprehensive as possible has increased EU exports to the partner countries by about 34% and imports by about 14%. The greater impact for the EU compared to Finland is partly due to the fact that some of the highly significant agreements were concluded before Finland became a member.
The researchers stress the need for new extensive trade agreements and to secure the conditions for the World Trade Organization WTO to do its part.
“The outcome supports the use of free trade agreements as an economic policy tool. However, even quite extensive agreements cannot achieve the same kind of transparency, predictability and dispute settlement mechanisms as those brought to world trade by WTO. This is why the EU should not only aim for new and extensive free trade agreements but also support the continuing reforms of the WTO and secure its ability to function as it should, also in the future”, says Katariina Nilsson Hakkala, Chief Research Scientist at ETLA.
The study was carried out as part of the implementation of the Government's 2019 plan for analysis, assessment and research.
Katariina Nilsson Hakkala, Head of the Project, Chief Research Scientist, ETLA, tel. +358 40 304 5563 (WhatsApp) or +63 917 875 2511 (available at 8.00-13.00), katariina.nilsson.hakkala(at)etla.fi and Tero Kuusi, Chief Research Scientist, ETLA, tel. +358 41 444 8144, tero.kuusi(at)etla.fi