In December 2014 Denmark filed a claim with the United Nations to expand the boundaries of its continental shelf in the Arctic, and Russia is going to present its new claim in 2015. It seems impossible to elicit the meaning of the ongoing process of the Arctic continental shelf delimitation without specifying its legal and geopolitical aspects. This article is intended to systematize the international legal mechanism of the continental shelf delimitation and to highlight the actual positions of the claimant states as well as the prospects of the boundary delimitation in the Arctic continental shelf.

In December 2014 Denmark filed an application to the United Nations for extension of its continental shelf in the Arctic to 350 nautical miles, which caused numerous comments in official circles of various countries, politicians, experts and observers. Some of them saw in this step the desire of Denmark to implement its geopolitical ambitions, achieve some political goals, join the battle for resources in the Arctic, or provoke military confrontation in the region and a new “cold war”[1].

Some experts, on the basis of the thesis of economic hopelessness of central areas of the continental shelf in the Arctic (according to the US Geological Survey (USGS) «Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle», about 84% of the hydrocarbon resources of the continental shelf is already within the areas of national jurisdiction of the Arctic coastal states), tend to see in the actions of Denmark the logic of the “big geopolitical game”. How justified are these estimates and what actually is it all about?

The international legal regime of the Arctic shelf is governed by the 1982 United Nations Convention on the Law of the Sea. According to Article 76, the continental shelf of a coastal state “includes the seabed and subsoil of the submarine areas that extend beyond its territorial sea throughout the natural prolongation of its land territory to the outer edge of the continental margin, or to a distance of 200 nautical miles from the baselines… where the outer edge of the continental margin does not extend up to that distance”. It is important to note that the baselines – borders of inland seas – are often a subject of controversy. Due to the fact that the United States are not currently a member of the Convention, they are guided by the 1958 Convention on the Continental Shelf, according to which the continental shelf is defined as “the seabed and subsoil of the submarine areas adjacent to the coast but outside the area of the territorial sea, to a depth of 200 meters or, beyond that limit, to where the depth of the superjacent waters admits of the exploitation of the natural resources of the said areas”[2].

Figure 1. Scheme of the international legal status of the continental margin and its superjacent waters in accordance with the 1982 United Nations Convention on the Law of the Sea.

The illustration is made based on the US Navy materials: The Commander’s Handbook on the Law of Naval Operations. Digital resource. URL: https://www.usnwc.edu/getattachment/a9b8e92d-2c8d-4779-9925-0defea93325c/.

Five countries have a continental shelf in the Arctic: Russia, Canada, USA, Denmark (Greenland) and Norway. Activity on the Arctic shelf, over which sovereignty has not been recognized by any of the states, is regulated by the International Seabed Authority located in Kingston, Jamaica^[3].

In accordance with Article 4 of Annex II of the 1982 United Nations Convention on the Law of the Sea, a coastal State intending to establish the outer limits of its continental shelf beyond 200 nautical miles must submit an application (presentation) to the UN Commission on the Limits of the Continental Shelf (CLCS) within 10 years after the ratification of the Convention. Therefore, the application made by Denmark for extension of its Arctic shelf is in full compliance with the provisions of the Convention. This application was expected, and it is not dramatic and cannot give evidence about any “secret geopolitical intentions” of the Kingdom of Denmark. Russia, claiming expansion of its Arctic shelf up to 350 nautical miles, also exercises its rights granted by the 1982 Convention.

When applying for extension of a continental shelf applicant countries have the right to go by various reasons, including political arguments, but their consideration by the UN Commission on the Limits of the Continental Shelf must completely rule out political motives. The Commission’s decisions must be based on objective and independent scientific assessment of the structure of the seabed.

The United Nations Commission on the Limits of the Continental Shelf is a purely technical body composed of 21 experts in the field of marine geology, geophysics and hydrography who serve in their personal capacities (Article 2.1 of Annex II of the Convention). Members of the Commission shall be elected for a term of 5 years, and can be re-elected at the meetings of States Parties of the 1982 Convention, which shall be convened by the United Nations Secretary General, as necessary, in accordance with Paragraph 2 (e) of Article 319 of the 1982 Convention.

The main requirement for the composition of the Commission is to ensure equitable geographical representation: at least three members shall be elected from each geographical region. Quorum for a meeting is 2/3 of the total number of participants in the 1982 Convention. 2/3 votes of the states that are present and participate in the voting process is needed for the election of members of the Commission. It is important to note that, as the first Chairman Yu. B. Kazmin pointed out, the Commission remains an independent body, officially non-accountable to the Meeting[4]. The fourth and the latest Commission waselectedatthe 22^nd Meetingin 2012. ThisCommission hastheauthorityuntilJune 15, 2017.

Inaccordance with Article 76of the 1982 ConventionandArticles3and 6of Annex IIthereto, the Commission shall perform the followingfunctions:

1) to consider the data and other material submitted by coastal States concerning the outer limits of the continental shelf in areas where those limits extend beyond 200 nautical miles;

2) to provide scientific and technical advice, if requested by the coastal State concerned during the preparation of the data referred to in subparagraph (1);

3) to provide recommendations to the coastal States on the demarcation of the outer limits of their continental shelf.

At the same time, we should note that the Commission’s recommendations are not a final and binding decision. First, according to Article 8 of Annex II of the 1982 Convention, “in the case of disagreement by the coastal State with the recommendations of the Commission, the coastal State shall, within a reasonable time, make a revised or new submission to the Commission”[5]. Second, already here we shall draw attention to the fact that international negotiations obligatorily have the decision function in the process of delimitation of the shelf.

The key criterion in determining the outer limit of the continental margin of the coastal state beyond the 200-mile zone is natural prolongation of the continental shelf. The application submitted to the Commission should contain relevant scientific evidence. Bathymetry (i.e. maps of the seabed with depth marks) and geological criteria are used to determine whether the underwater structures comply with the specified criterion.

The bathymetric criterion (i.e. associated with the assessment of the depth of the sea) involves determining the position of the foot of the continental slope (see Fig. 1) by the maximum change in the gradient, taking into account the 2,500 meter isobath (i.e. an imaginary line connecting all points along the coast where the depth is equal to 2500 meters). The assessment process for the compliance with the geological criteria is even more complex. These criteria include information on the structure and thickness of the sedimentary cover (deposits covering the shelf), the nature of the crust on the continental shelf and geological and geophysical evidence of the location of the continental foot. Sedimentary layers within the outer edge of the continental margin should be 1% (or more) of the shortest distance from the foot of the continental slope. If the data is not available on the sedimentary cover, the limit of the shelf can be marked along a line separated from the foot of the slope by no more than 60 miles.

The restrictive edge of the outer limit of the shelf is a line of 350 miles from the coast of the mainland or islands, and 100 miles from the isobath of 2500 m. However, these restrictions do not apply to submarine elevations that are natural components of the continental margin. These crustal blocks in the Arctic, with the nature of a mainland and almost inseparable from the continents, go deep into the ocean (i.e. the Mendeleev Elevation) or cross it from Eurasia to the Greenland-Ellesmerian Depression (the Lomonosov Ridge), separating the Arctic Ocean into two different structures – Eurasian (in which, for example, Svalbard and Franz Josef Land are located) and Amerasian (the Canadian Arctic Archipelagoes and Wrangel Island are located here). It is these circumstances that cause the mutual territorial “overlapping” of a number of applications.

Some experts – especially non-Arctic states – see some provocations in the applications for extension of the Arctic continental shelf by Arctic coastal states. For example, the analysts of the British newspaper “Financial Times” explain the desire of the Arctic coastal countries to justify their right to expand the boundaries of the continental shelf in the Arctic by the logic of the “geopolitical game”. The main prize of this game would be the North Pole, the control of which, supposedly, is a symbol of the “geopolitical victory” and leadership in the Arctic region and control over it^[6]. A number of researchers even argue that the areas claimed by Denmark, Canada and Russia, are economically future-less, as well pointing at the thickness and consistency of the ice cover over the central part of the shelf, the “minor” share of hydrocarbon resources in the Arctic, concentrated in this part of the shelf .

Meanwhile, according to the research by the United States Geological Survey (USGS) «Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle», the Arctic contains about 22% of the world’s conventional oil and gas reserves (or about 29.9 billion tons of oil equivalent), with about 84% of the hydrocarbon resources of the continental shelf located at depths up to 500 m^[7]. According to some representatives of the Arctic coastal states, from 94 to 97% of offshore hydrocarbon resources in the Arctic is already within the exclusive economic zones of the coastal states. These data were presented, for example, by the Russian Foreign Minister Sergei Lavrov. These figures are also indicated in the Arctic strategy of Denmark for the period of 2011 – 2020[8]. The same estimates have been given by the experts of the University of the Arctic in Rovaniemi (Finland)[9].

However, we should bear in mind the very low level of exploration of the Arctic shelf, especially in high latitudes, and current prediction-like estimates of oil and gas. There is a good chance that the Arctic shelf hydrocarbon deposits outside of the 200-mile border can be much richer than expected. According to the Russian Ministry of Natural Resources and Environment, potential hydrocarbon reserves of the central areas of the continental shelf in the Arctic are about 5 billion tons of oil equivalent, whereas the Minister S.E. Donskoy considers these estimates to be minimal[10].

If we consider that the forecast figure in exports of fuel and energy resources of the Russian Federation in 2020, according to the Energy Strategy of Russia for the period up to 2030, should reach 0.8 billion tons of oil equivalent[11], then fossil fuel resources of the central parts of the Arctic shelf may be comparable with the volume of five years of the Russian oil and gas exports at the current level. Speaking about the resource potential of the central areas of the continental shelf, it is important to stress the probability of detection of mineral resources in the central part of the Arctic shelf.

In addition, the sovereignty over the shelf gives a country the right to monitor any activity on it, including, for example, the construction of pipelines. It also assumes responsibility for the country’s environmental protection in the territory. Uncontrolled economic activity outside the areas of national jurisdiction in the area of the “common heritage of mankind” may pose a threat to the environment at the regional and global scale. Therefore, expansion of monitoring of the human activities in the Arctic shelf by the Arctic coastal States, as well as responsibility of those countries for the consequences of such actions can significantly contribute to sustainable development. Under the current circumstances of the non-alignment of the United States to the 1982 United Nations Convention on the Law of the Sea, the zone of the “common heritage of mankind” in the Arctic is not feasible^[12]. However, this leaves the question of the legal status of a number of sections of the shelf unresolved, and therefore it defines only a transient, temporary state of affairs.

Given these considerations, identification of the outer limits of the jurisdiction of the coastal states of the Arctic continental shelf is a priority task of the Russian foreign policy, as defined in the Foreign Policy Concept of the Russian Federation on February 12, 2013[13].

Let’s consider the claims of the Arctic coastal countries for the continental shelf in the Arctic:

Russia ratified the 1982 Convention on the Law of the Sea by the Federal Law #30-FZ dated February 26, 1998. Russia filed its first application in 2001. However, the Commission considered the data provided insufficient and decided that for unambiguous classification of each of the deep-water bottom uplifts in the Amerasian sub-basin (see Fig. 2), Russia should submit experiment-backed evidence of their continental nature and their structural belonging to the continental margin of the north-eastern Eurasia, as well as develop a consistent model of the evolution of the Arctic, which explains the geological nature of these bottom uplifts[14].

In the absence of these data, the outer limit of the continental shelf in the Amerasian sub-basin cannot be farther than 350 nautical miles from the baselines, i.e. the area, which Russia can claim in the region, will not exceed 400000 km². At the same time, the use of the second criterion of the limitation of the legal shelf (100 nautical miles from the isobath of 2500 m), which applies only to submarine elevations that are natural components of the continental margin, will allow to extend the jurisdiction of the Russian Federation in the Amerasian subbasin much farther. In this case,the acquired areaof theextended continental shelfof Russia will be1.2 millionsquare km^[15]. To date, according to the Ministry of Natural Resources and Environment of the Russian Federation, a new version of the application to be submitted, according to the plan, in 2015, is at the final stage of the preparation^[16].

1. The maximumUS claimsin the Arctic Ocean are the Chukchi Cap and the seabed areas adjacent to it to the north andeast, not reachingthe North Pole^[17]. In the US a Specialinteragencycoordinating bodyhas been created to substantiate the outer limit ofthe continental shelf- The US Extended Continental Shelf Task Force.More than a dozenAmericanministries,services and agencies take part in its work^[18].

Denmark ratified the 1982 Convention on the Law of the Sea on November 16, 2004. The claims by Denmark apply to a part of the Lomonosov Ridge, which lies to the right of an imaginary line of the equidistance with Canada and further to the north up to the North Pole, and further, to the Russian side of the Arctic, which thus overlaps with the claims of the Russian application of 2001. Denmark submitted its application for extension of its shelf in December 2014. It also claims for the western part of the Western Nansen Basin and in the place of the East Greenland Ridge^[19]. It is important to note that in the field of shelf delimitation Denmark has close research collaboration with Canada. In 2005, these two states announced plans to jointly explore water areas of the Arctic Ocean adjacent to their territories and process the received data, which resulted in the signing of a memorandum on cooperation in Ottawa. Denmark has scientific cooperation with all the Arctic coastal states, including Russia.

Canada ratified the 1982 Convention on the Law of the Sea on November 7, 2003. So far, the country has not applied for extension of its continental shelf. In the “preliminary information”, delivered by Canada to the United Nations on December 6, 2013, only some vague scope of potential Canadian claims is specified: the continental margin of the continental shelf in the Canadian basin, Amundsen basin, on the Lomonosov Ridge and the Alpha Ridge. It is specified that on the Alpha and Lomonosov Ridges Canadian claims concern areas that are located farther than 350 nautical miles from the baselines. It is expected that Canada may acquire approximately 1.5 million km² of the continental shelf beyond 200 nautical miles from the baselines. In the “preliminary information” it is indicated that Canada is going to submit a partial application, the timeline is indicated vaguely[20].

Norway ratified the 1982 Convention on the Law of the Sea on June 24, 1996. It submitted its application in November 2006, claiming for the shelf of the Western part of the Nansen Basin – the same site, which is also claimed by Denmark in its application in 2014[21].

Thus, underwater elevations, which are natural components of the continental margin, belong to the shelf that is claimed in applications of several countries at the same time. The largest of these elevations is the Lomonosov Ridge (in the scientific community there is almost no dispute that the Lomonosov Ridge and other disputed areas of the shelf have a continental origin; scientists’ opinions differ on where exactly these elevations join the mainland^[22]). There is a chance that the United Nations Commission on the Law of the Sea recognizes the controversial underwater elevations as a natural component of several continental margins, and, therefore, the right to sovereignty over them by two or three Arctic coastal states at the same time. However, even in this scenario, there is no potential for conflict.

Figure 2. Location of the maingeological structuresandsections of the bottom of theArctic Ocean^[23]..

Information note: The Lomonosov Ridge was discovered by Soviet scientists in 1948. It stretches over 1500 – 1700 km and connects the Eurasian continent in the area of the New Siberian Islands (Russia) with the North American continent in the area of Ellesmere Island (Canada) and Greenland (Denmark), effectively dividing the Arctic Ocean into 2 parts – the Pacific and Atlantic (see Fig. 2). In the Pacific part there is the Mendeleev Ridge (Ellesmere – Wrangel Islands). In the central part of the ridge there was found a break. Another name for the ridge is “Alpha”. Also in the Pacific part there is the Chukchi Cap. In the Atlantic part there is the Gakkel Ridge, which is an extension of the Mid-Atlantic Ridge. The Lomonosov Ridge and the Gakkel Ridge form two basins in the Atlantic part: the Amundsen basin and the Nansen basin.

From the above it follows that the so-called “control” over the North Pole by an Arctic country with the shelf in the Arctic Ocean may be solely the result of consideration of applications of the countries concerned by the Commission on the Limits of the Continental Shelf based on scientific evidence that these countries will collect and present in support of their applications. And the “prize” will be “awarded” to the country that will perform this task in the most compelling and scientific way – unless otherwise stipulated in mutual agreements by scientifically recognized claimant countries.

With regard to the thesis of the “militarization” of the Arctic region, the reason for making such estimates is attributed to the overlapping of applications, that is, due to the intersection of shelf territories claimed by coastal Arctic states (see Fig. 3). If the Commission on the Limits of the Continental Shelf recognizes that such claims are justified, these countries will have to hold diplomatic negotiations on the delimitation of the shelf on the basis of existing norms of the international maritime law. It is impossible to militarily impose a particular solution to the problem. This is the only possible approach and the only possible vision of the claimant states for resolving disputes, which is reflected in the Ilulissat Declaration of May 28, 2008^[24].

It is important to note that in the 2013 Kiruna Declaration of the Arctic Council all the Arctic countries (including the US) have committed themselves to act in accordance with the international law, including the law of the sea^[25]. It is significant that it was the potential for the use of international legal mechanisms of delimitation of the disputed territories of the Arctic shelf that the Russian Foreign Ministry stressed in its official commentary published in connection with the Danish application for the continental shelf in 2014^[26].

Figure 3. Scheme of the Arctic shelf: 200-mile zone and the territorial claims of countries, including the application of Denmark in 2014.

Source: Denmark challenges Russia and Canada over the North Pole // BBC News Europe. Digital resource. URL:  http://www.bbc.com/news/world-europe-30481309

2,000 km

1,000 miles

Alaska (USA), Russia, Norway, Greenland (Denmark), Canada

The North Pole, the Lomonosov Ridge

Applications/claims:

Danish application: 2014.

Russia

Canada

USA

200-miles line

It should be noted that there are two main principles of possible delimitation of maritime areas and the Arctic shelf between states. According to the “median line method”, delimitation is done based on the principle of the equidistance of the boundary line from the shoreline (or base points of the coastline) of the neighboring states. According to another method – “sectoral” – the pole is seen as a point from which straight lines are drawn along longitudes. The specific method of drawing dividing lines between the neighboring countries is not specified by the Convention on the Law of the Sea, except for referring to the principle of mutual consent and justice^[27].

Currently, the Russian Federation already has positive experience in the field of contractual delimitation of the continental shelf in the Arctic (namely in the eastern part of the Western Nansen Basin). On 15 September 2010, Russia signed an agreement with Norway “On Maritime Delimitation and Cooperation in the Barents Sea and the Arctic Ocean”.

Summarizing the above, it should be emphasized that allegations of futility, politicization and high conflict potential of the international process of delimitation of the continental shelf in the Arctic are incorrect and unfounded. On the contrary, we should talk about the strategic importance of this issue for all Arctic coastal countries, as well as about the effective mechanism for its solution embedded in the international law which is based on objective and impartial scientific assessment of the seabed, as well as openness of the Arctic coastal countries for a dialogue, their willingness to cooperate and find mutually beneficial solutions. The Minister of Foreign Affairs of Denmark (Martin Lidegaard) in connection with the Danish application to the United Nations Commission on the Limits of the Continental Shelf, said: “This is not an act of aggression. This is an attempt to fairly and accurately provide data of the geological expertise. We hope for constructive cooperation with experts from the United Nations and the subsequent bilateral negotiations with neighboring countries”[28].

The delimitation of the continental shelf in the Arctic is quite complicated and can take a long time. However, objectively and fairly established boundaries may for centuries provide the basis for efficient studying and development of the region, as well as for strengthening of the close partnership among the Arctic coastal states.

Bibliography

1. “A new cold war: Denmark gets aggressive, stakes huge claim in Race for the Arctic” // National Post. Digital resource. URL: http://news.nationalpost.com/2014/12/15/a-new-cold-war-denmark-gets-aggressive-stakes-huge-claim-in-race-for-the-arctic/; “Denmark challenges Russia with the Arctic claim” // PRIO Blogs. Digital resource. URL: http://blogs.prio.org/ArcticPolitics/2014/12/denmark-challenges-russia-with-the-arctic-claim/; “Canada sparks Cold War over Arctic” // The Chronicle Gerald. Digital resource. URL: [http://thechronicleherald.ca/opinion/1175277-canada-sparks-cold-war-over-arctic].
2. “Denmark lays formal claim to North Pole” // Financial Times. URL: [http://www.ft.com/intl/cms/s/0/b7e66b1c-8442-11e4-8cc5-00144feabdc0.html#axzz3QCY2ciY1]. (Accessed 15.01.2015).
3. «The Russian application for the Arctic shelf will be ready by the end of the year». // Rossiyskaya gazeta. URL: http://www.rg.ru/2014/06/30/reg-szfo/arktika.html. (Accessed 19.12.2014).
4. «The Ministry of Natural Resources and Environment of the Russian Federation will submit an application to the United Nations for expansion of the limits of the Arctic shelf in spring 2015» // ITAR-TASS. Digital resource. URL: [http://itar-tass.com/politika/1540165]. (Accessed 15.01.2015).
5. Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle. Digital resource. URL: [http://pubs.usgs.gov/fs/2008/3049/fs2008-3049.pdf].
6. Doc. SPLOS/73. 14 June 2001. P.10. Para. 61.
7. Kongeriget Danmarks Strategi for Arktis 2011–2020. // Danish Embassy in Canada, official website. [Digital resource]. URL:[http://canada.um.dk/da/~/media/Canada/Documents/Other/Arktis_Rapport_DA.pdf] Page 24. (Accessed 15.12.2014).
8. Regeringen og Grønlands selvstyre indgiver i dag krav på kontinentalsoklen nord for Grønland. The Danish Ministry of Foreign Affairs, official website. Digital resource. URL: [http://um.dk/da/udenrigspolitik/udenrigspolitiske-nyheder/newsdisplaypage/?newsid=7d92317d-823e-4412-8bd4-5cbcadccb45e]. (Accessed 15.01.2015).
9. The Extended Continental Shelf Project. URL: http://continentalshelf.gov/about.html. (Accessed 19.12.2014).
10. TheIlulissatDeclaration. Digital resource. URL: [http://www.oceanlaw.org/downloads/arctic/Ilulissat_Declaration.pdf]. (Accessed 15.01.2015).
11. VoronkovL.S. TheArcticfor 8. Evolution of the role of the NATO in the Arctic. // Russia in global politics. Digital resource. URL: [http://globalaffairs.ru/number/Arktika-na-vosmerykh-16045]. (Accessed 15.01.2015).
12. Vylegzhanin A.N. Non-participation in the Convention on the Law of the Sea gives advantages to the USA. // RIA Novosti. Digital resource. URL: [http://ria.ru/arctic_news/20120719/704132667-print.html]. (Accessed 15.01.2015).
13. Gubanov A.I. Delimitation of the Arctic continental shelf: international law problems and perspectives. Monograph. – M.: IKD “Zerzalo-M”, 2015.
14. Gudev P.A. Challenges and threats to oil and gas production in the Arctic. // Ecologichesky vestnik Rossii, # 2 (15).
15. EvdokimovYu. Hot Arctic //Battle on the Ice: the Arctic shelf in the world politics and economics of the 21^st century / Eds: V. Andrianov, N. Vasiliev, B.M. Golkin, 2009.
16. Canada claimed for the Lomonosov Ridge. Article. Digital resource. URL: [http://pro-arctic.ru/06/12/2013/press/6010]. (Accessed 15.12.2014).
17. The commentary by the Information and Press Department of the MFA on the Danish application for the Arctic continental shelf. MFA of the Russian Federation, official website. Digital resource. URL: [http://www.mid.ru/brp_4.nsf/newsline/C4533848E85A09A0C3257DB00053569C]. (Accessed 15.01.2015).
18. 1958 Convention on the Continental Shelf. Digital resource. URL: [http://www.conventions.ru/view_base.php?id=34]. (Accessed 19.12.2014).
19. The Foreign Policy Concept of the Russian Federation. Approved by the President of the Russian Federation V.V. Putin on February 12, 2013. Subparagraphs 31, 38, 73. The official website of the President of the Russian Federation. URL: [http://news.kremlin.ru/media/events/files/41d447a0ce9f5a96bdc3.pdf]. Accessed [15.12.2014].
20. Konyshev, V.N., A.A. Sergunin. The Arctic in the international politics: cooperation or competition? TheRussianInstituteforStrategicStudies, 2011. URL: [http://www.hse.ru/data/2011/11/01/1269302651/%D0%90%D0%A0%D0%9A%D0%A2%D0%98%D0%9A%D0%90_%D0%A0%D0%98%D0%A1%D0%98.pdf]. (Accessed 19.12.2014).
21. TheenergystrategyofRussiatill 2030. The Ministry of Energy of the Russian Federation, official website. Digital resource. URL: [http://www.minenergo.gov.ru/activity/energostrategy/]. (Accessed 15.01.2015).

[1]“A new cold war: Denmark gets aggressive, stakes huge claim in Race for the Arctic” // National Post. Электронныйресурс. URL: http://news.nationalpost.com/2014/12/15/a-new-cold-war-denmark-gets-aggressive-stakes-huge-claim-in-race-for-the-arctic/; “Denmark challenges Russia with the Arctic claim” // PRIO Blogs. Digital resource. URL: http://blogs.prio.org/ArcticPolitics/2014/12/denmark-challenges-russia-with-the-arctic-claim/; “Canada sparks Cold War over Arctic” // The Chronicle Gerald. Digital resource. URL: [http://thechronicleherald.ca/opinion/1175277-canada-sparks-cold-war-over-arctic].

[2]1958 Convention on the Continental Shelf. Digital resource. URL: [http://www.conventions.ru/view_base.php?id=34]. (Accessed 19.12.2014).

[3] Konyshev, V.N., A.A. Sergunin. The Arctic in the international politics: cooperation or competition? The Russian Institute for Strategic Studies. Moscow, 2011. URL: [http://www.hse.ru/data/2011/11/01/1269302651/%D0%90%D0%A0%D0%9A%D0%A2%D0%98%D0%9A%D0%90_%D0%A0%D0%98%D0%A1%D0%98.pdf]. (Accessed 19.12.2014). P. 42.

[4]Doc. SPLOS/73. 14 June 2001. P.10. Para. 61.

[5] Gudev P.A. Challenges and threats to oil and gas production in the Arctic. // Ecologichesky vestnik Rossii, #2 (15). Pp. 34-35.

[6] “Denmark lays formal claim to North Pole” // Financial Times. URL: [http://www.ft.com/intl/cms/s/0/b7e66b1c-8442-11e4-8cc5-00144feabdc0.html#axzz3QCY2ciY1]. (Accessed 15.01.2015).

[7]Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle. Digital resource. URL: [http://pubs.usgs.gov/fs/2008/3049/fs2008-3049.pdf].

^[8] Kongeriget Danmarks Strategi for Arktis 2011–2020. // Danish Embassy in Canada, official website. [Digital resource]. URL:[http://canada.um.dk/da/~/media/Canada/Documents/Other/Arktis_Rapport_DA.pdf] P. 24. (Accessed 15.12.2014).

[9] Canada claimed for the Lomonosov Ridge. Article. Digital resource. URL: [http://pro-arctic.ru/06/12/2013/press/6010]. (Accessed: 15.12.2014).

[10]“The Ministry of Natural Resources and Environment: the Russian Federation will submit an application to the United Nations for expansion of the limits of the Arctic shelf in spring 2015” // ITAR-TASS. Digital resource. URL: [http://itar-tass.com/politika/1540165]. (Accessed 15.01.2015).

[11]The energy strategy of Russia till 2030. The Ministry of Energy of the Russian Federation, official website. Digital resource. URL: [http://www.minenergo.gov.ru/activity/energostrategy/]. (Accessed 15.01.2015).

[12] Vylegzhanin A.N. Non-participation in the Convention on the Law of the Sea gives advantages to the USA. // RIA Novosti. Digital resource. URL: [http://ria.ru/arctic_news/20120719/704132667-print.html]. (Accessed: 15.01.2015).

[13] The Foreign Policy Concept of the Russian Federation. Approved by the President of the Russian Federation V.V. Putin on February 12, 2013. Subparagraphs 31, 38, 73. The official website of the President of the Russian Federation. URL: [http://news.kremlin.ru/media/events/files/41d447a0ce9f5a96bdc3.pdf]. Accessed: [15.12.2014].

[14] Konyshev, V.N., A.A. Sergunin. The Arctic in the international politics: cooperation or competition? The Russian Institute for Strategic Studies. Moscow, 2011. URL: http://www.hse.ru/data/2011/11/01/1269302651/%D0%90%D0%A0%D0%9A%D0%A2%D0%98%D0%9A%D0%90_%D0%A0%D0%98%D0%A1%D0%98.pdf. (Accessed: 19.12.2014). P. 44.

[15]Same. Pp. 44-45.

[16] «The Russian application for the Arctic shelf will be ready by the end of the year». // Rossiyskaya gazeta. URL: http://www.rg.ru/2014/06/30/reg-szfo/arktika.html. (Accessed: 19.12.2014). P. 44.

[17] Gubanov A.I. Delimitation of the Arctic continental shelf: international law problems and perspectives. Monograph. – M.: IKD “Zerzalo-M”, 2015. P 244.

[18]The Extended Continental Shelf Project. Information from the website: www.continentalshelf.gov URL: http://continentalshelf.gov/about.html. (Accessed: 19.12.2014).

[19] Gubanov A.I. Delimitation of the Arctic continental shelf: international law problems and perspectives. Monograph. – M.: IKD “Zerzalo-M”, 2015. PP. 244-247.

[20]Same. PP. 247-248.

[21]Same, PP. 248 – 249.

[22] Evdokimov Yu. Hot Arctic //Battle on the Ice: the Arctic shelf in the world politics and economics of the 21^st century / Eds: V. Andrianov, N. Vasiliev, B.M. Golkin, 2009. P. 37.

[23] Gubanov A.I. Delimitation of the Arctic continental shelf: international law problems and perspectives. Monograph. – M.: IKD “Zerzalo-M”, 2015. P. 308.

[24]The Ilulissat Declaration. Digital resource. URL: [http://www.oceanlaw.org/downloads/arctic/Ilulissat_Declaration.pdf]. (Accessed: 15.01.2015).

[25] Voronkov L.S. The Arctic for 8. Evolution of the role of the NATO in the Arctic. // Russia in global politics. Digital resource. URL: [http://globalaffairs.ru/number/Arktika-na-vosmerykh-16045]. (Accessed: 15.01.2015).

[26] The commentary by the Information and Press Department of the MFA on the Danish application for the Arctic continental shelf. MFA of the Russian Federation, official website. Digital resource. URL: [http://www.mid.ru/brp_4.nsf/newsline/C4533848E85A09A0C3257DB00053569C]. (Accessed: 15.01.2015).

[27] Konyshev, V.N., A.A. Sergunin. The Arctic in the international politics: cooperation or competition? The Russian Institute for Strategic Studies. Moscow, 2011. URL: [http://www.hse.ru/data/2011/11/01/1269302651/%D0%90%D0%A0%D0%9A%D0%A2%D0%98%D0%9A%D0%90_%D0%A0%D0%98%D0%A1%D0%98.pdf]. (Accessed: 19.12.2014). P. 43.

[28] Regeringen og Grønlands selvstyre indgiver i dag krav på kontinentalsoklen nord for Grønland. The Danish Ministry of Foreign Affairs, official website. Digital resource. URL: [http://um.dk/da/udenrigspolitik/udenrigspolitiske-nyheder/newsdisplaypage/?newsid=7d92317d-823e-4412-8bd4-5cbcadccb45e]. (Accessed: 15.01.2015).

General demographic trends that are causing concern in many countries around the world, i.e. decreasing population and increasing emigration flows, can be also observed in the Baltik Sea region (BSR). Estonia, Latvia, Lithuania and Russia are a prime example of countries where recent emigration has drawn the attention of policy makers looking to mitigate potential negative impacts of the departure of the young and skilled emigrants as well as to support economic development. For example, over the period of 1992-2010, more than 3.6 million people left Russia. Further, according to the Statistics Lithuania, 0.7 million people have left the country during 1990-2011. This article focuses on migration processes and labour market integration in the BSR covering Estonia, Latvia, Lithuania and Russia and their connections to Finland.

Finland has been the main destination for Estonian migrants. The migration flows from Estonia to Finland have increased in size, 600% during 1991-2012. The most remarkable flows of immigration were from Russia to Finland in the 1990’s, when Ingrian Finns received returnee status. In spite of the geographically close location, Finland has not been the most important destination for Latvians and Lithuanians.

The age structure of the immigrants is favourable from the labour market perspective being younger than that of the Finns. What is problematic is that immigrants have many times higher unemployment rate compared to the native population. There are, however, differences according to citizenship in the labour market participation. Immigrants are sometimes ready to take a job not matching to their education, i.e. facing brain waste, over-qualified or overeducation. It is important to empower immigrants with language education. Complementary training is required but it has to be organised in close cooperation with both public and private sector actors.

If the differences in standard of living between Finland and the BSR will decrease, the immigration pressure will decrease. Return migration to the origin country is one important pull effect and option for the BSR immigrants while so-called soft values get more meaning in migration decisions, i.e. roots to origin country. The recommendation is that there should be organised more language education for immigrants, and also specialised courses according to the language skill levels. There should be more easy-connections to the working life and one good practice is to have training and mentoring in different branches of economical life. It is very important to recognise human and cultural capital which all immigrants bring into the destination country.

1. Introduction

Population ageing is the reason for the diminishing supply of labour in developed countries. For example in Finland, there is a remarkable change in population structure when the baby-boom generation after the World War II retires during the current decade. The share of elderly is growing in the dependency ratio. The dependency ratio is an age-population ratio of those typically not in the labour force and those typically in the labour force. Finland is not the only country to struggle with this development trend since quite generally it is said that Europe is ageing and for example Germany, well-known as an attractive country for immigrants, needs more immigrants for its labour markets (Elliott and Kollewe 2011). It is also said that there is a competition of skilled labour between different countries. With current demographic trends many countries will come to rely increasingly on the immigration of foreign labour. Discussions focus mainly on need for skilled workers; however, the future demand for labour will most likely relate to all skill categories (Heikkilä and Pikkarainen 2008; see El-Cherkeh 2009).

This article focuses on migration processes and labour market integration in the BSR (Estonia, Latvia, Lithuania and Russia) and more closely their connections to Finland. First, an overview of the BSR’s population change and migration on the European level is given. This is showing how diverse regions there are when looking population processes. Secondly, a more detailed analysis of the main international migration flows in the BSR is made. Analysis gives the view where people from the BSR are emigrating and from where people are immigrating to the BSR. After that we look at the BSR countries’ immigration to Finland and also emigration from Finland to the BSR. Immigrants’ integration in the labour market is discussed with an emphasis on Finland. After these analyses, the challenges to future developments are discussed in a wider perspective.

The data consist of published data from Statistics Finland and the BSR official statistics. Also special maps of Nordregio (www.nordregio.se) have been used as graphics.

Figure 1. Population change in the EU Source: Nordregio, Roto 2011.

2. The Baltic Sea region in the European demographic context

According to the EU statistics over 100 million people live in the Baltic Sea region. They constitute some 23% of the EU’s population (Iglebaek 2009).

The BSR is in different position in population change compared, on the European level, for example to Central and Southern Europe: the BSR is facing population decrease, not only in the beginning of the 2000’s but also in the future up to 2020. Figure 1 combines population changes in 2000-2008 and 2008-2020 showing more closely those regions with the decrease in population in both periods. These are mainly found in Central East European countries, including Estonia, Latvia and Lithuania, and as well as regions in central Germany. There are also classified those regions which indicate an increase of population both in 2000-2008 and also up to 2020. These are mostly areas in the core of Europe as well as areas close to metropolitan areas. There are separately found areas that have experienced an increase of population in the first period but are expected to lose population up to 2020 and separately regions on the contrary which might expect an increase (Nordregio, Roto 2011).

Figure 2. Net migration in Europe 2000-2008 (annual average net migration per 1000 inhabitants, in the EU NUTS3 regions)  Source: Nordregio, Roto 2011.

Indeed the entire BSR shows a slight decline in total population, but on closer inspection it can be seen that continuing overall urban growth goes hand in hand with rural decline, although with contrasting tendencies between the various countries involved. The majority of small and medium-sized cities and towns, and specifically those that are to be found in relatively peripheral situations, are, however, increasingly hampered by population decrease. The key drivers of population change remain in place: strong migration surpluses in the Western part of the BSR and extensive natural losses in the Eastern BSR, with, however, distinctive national and regional variations pertaining (Neubauer and Schmitt 2009). According to Roll (2009), the peripheral border regions are usually located on the EU’s fringes, bordering economically less developed countries. She uses the concept “double peripheries” within a greater European context – distant not only from the dynamic centres of “Core Europe” – but also from prosperous national centres as well. Further she is stating that as new EU Member States have to compete economically with the “old” Member States, this is done at the expense of underdeveloped peripheral, and especially rural areas in the “new states”, entering into the EU in the 2000’s, which do not have for example the skilled personnel and infrastructure that the highly developed centres, usually national capitals, have.

The main reasons for population change are natural population development and migration. In the EU two thirds of the regions had a migration surplus and 40% a natural population increase in the period 2000-2008. In approximately 30% of European regions both of these components were positive. Almost 80% of the regions with positive in-migration also had a total population increase. In 200 EU regions the total population was decreasing even though net migration was positive. These regions are mainly located in Eastern Germany, Greece and Portugal, i.e. in regions with very low birth rates. At a general level a spatial polarisation is visible in relation to net migration, both between Eastern and Western Europe and between the metropolitan and the more rural and peripheral regions. In-migration was highest in some Spanish coastal regions and around Madrid, in 8 of these regions annual in-migration was over 3%. The highest out-migration regions were in Eastern Germany. In Figure 2 it can be seen that the BSR has had remarkable regional differences in net migration with vast regions of negative net migration and some regions, mostly urban areas, getting migration gain in 2000-2008 (Nordregio, Roto 2011).

3. International migration in the Baltic Sea region

The international migrant stock in the world was approximately 232 million people in 2013. This means that the percentage of international migrants among the world population was 3.1 in 2013. There were 195 million international migrants in 2005, which shows that the migration flows are increasing on the global level. In the total volume of the world’s immigration Russia takes the second place after the USA (Heikkilä 2010; Beloborodov 2011; OECD 2013a). The principle of free movement is one of the core principles of the European Union. Migration and  labour mobility is viewed as an important way of matching labour demand and supply, and thus increasing employment and competitiveness. While the flows, for example of Nordic-Baltic migration, might be small compared to the rest of the movements within Europe, they have an important role to play in the development of the region and relationships between countries. Next international migration in Estonia, Latvia, Lithuania and Russia is analysed. The last three countries entered the EU in May 2004. The migration streams between Estonia, Latvia and Lithuania are very small in numbers: for example emigration from Lithuania to Latvia was only 202 persons and emigration from Estonia to Latvia only 52 persons and to Lithuania 33 persons in 2012.

3.1. Russia

The Russian population has been steadily declining for almost two decades now. When the Soviet Union collapsed in 1991, the population of Russia was recorded at 148.5 million. The 2010 census, the results of which were released in late 2011 and early 2012, reports that the official population of Russia was 142.9 million. In 2009 Russia Recorded population growth for the first time in 15 years, with a growth rate of 23,300. Key reasons for the slow current population growth are improving health care, changing fertility patterns among younger women, and nowadays Russia pays child benefits according to the number of children, falling emigration and steady influx of immigrants from the ex-USSR countries. In the 1990’s-2000’s, migrants into Russia were mostly Russian expatriates and their descendants. For example in 2005, 95% of the documented migrants came from the other Commonwealth of Independent States (CIS). They were mainly Russians or Russian speakers  repatriating from Kazakhstan (29%), Ukraine (17%), Uzbekistan (17%), and Kyrgyzstan (9%). In recent years, most immigrants have come from Armenia, Kyrgyzstan, Tajikistan and Uzbekistan. Every year, 300,000 immigrants arrive in Russia, of which almost half are ethnic Russians. Most international migration in the Russian Federation is temporary. Temporary labour migration flows are normally at least three times higher than permanenttype flows (see Banjanovic 2007; OECD 2013b; Vishnevsky 2013; World Population Review 2014).

The census, conducted in 2010, counted 11.2 million foreign-born persons, nearly 0.8 million (or 7%) fewer than in the 2002 census. Most of the foreign-born population comes from the former Soviet Union (FSU), led by Ukraine (26%) and Kazakhstan (22%). Between 2002 and 2010, the number of migrants born in countries in Central Asia rose, while the number of those born in Ukraine and Belarus fell. Nationals from the Central Asian countries made up 42% of the foreign population, led by Uzbekistan (19%). Among nationalities from outside the FSU, China (4%) was the main origin country (OECD 2013b).

Over the period of 1992 2010, more than 3.6 million people left Russia. The largest Russian emigration stocks are found in the European Union, with Germany having the largest number, followed by Estonia and Latvia. Other countries which have remarkable Russian emigration stocks are Ukraine, Israel, and the USA. Mostly, emigrants from Russia have been qualified specialists, who reinforced the economically active population as well as the intellectual and reproductive potential of other countries. For example in the early 2000’s, 43% of Russian migrants in OECD countries aged 15 years and over had higher education. Most Russian migrants are women. In Italy they account for more than 80% of Russian citizens living there; in Spain, Germany, Norway, Australia, and France their share varies from 60% to 70%. This phenomenon can be explained by the fact that they marry foreigners more often than men do. For example in 2006, marriage accounted for 30% of female immigration from Russia to France, while the corresponding figure for men was just 3.5%. The reproductive losses caused by female emigration from Russia are indirectly estimated at 0.8 million children that will not be born in the nearest 5 years (Beloborodov 2011; Denisenko 2013).

3.2. Estonia

The Estonian population on January 1st 2013 was estimated at 1.29 million, a decline of 5.5% since 2000. About 16% of the resident population were foreigners, the vast majority of whom are longstanding internal migrants who came from other parts of the Soviet Union prior to 1991. The natural increase was negative (-1,378 persons) in 2012. The net migration was also negative, i.e. 6,629 more persons emigrated than immigrated. There were 4,244 immigrants and 10,873 emigrants, which is 4,659 persons more than a year earlier. In immigration, the main origin countries have been Finland (35%) and Russia (24%). EU-27 countries have covered over a half (55%) of the immigration flows in 2012. EU-15 countries have been origin countries among 53% of immigrants which shows that over a half of the immigrants are moving, more closely, from EU-15 to Estonia. Since Estonia’s accession to the European Union in 2004, returning Estonian citizens have accounted for a large proportion of inflows to Estonia. In 2011, this percentage was 55 of all immigrants. Most immigrants come to Estonia to join their spouses and close relatives. In 2011 majority of residence permits have been issued on the grounds of labour and family ties (OECD 2013b; Statistics Estonia 2014).

When looking at emigration from Estonia, the main destination countries have been Finland (59%) and the United Kingdom (13%) in 2012. EU-27 countries have been target countries in 90% of Estonian emigration flows. When looking specifically at EU-15 countries, their proportion was 87% of the emigration flows from Estonia. Emigration flow from Estonia to Russia has been small, 382 persons in 2012. According to the Estonian population census, in early 2012, there were 24,900 Estonians working abroad. 61% of all Estonians working abroad was working in Finland (OECD 2013b; Statistics Estonia 2014).

3.3. Latvia

At the beginning of 2013, Latvia’s population was 2.02 million. Between the 2000 and the 2011 censuses, Latvia’s population had fallen by almost 13%. 63% of this decline was due to net migration, which has been negative throughout the past decade. Latvia’s population has faced also a remarkable natural population loss in 2013 (-8,475).

The international long-term immigration flow was 13,303 persons in 2012. Over a half (55%) of the immigrants to Latvia have moved from the EU-28 countries. More specifically EU-15 has been the origin area for 47% of the immigrants to Latvia in 2012 (Central Statistical Bureau of Latvia 2014; OECD 2013b).

The international long-term emigration flow numbered 25,163 persons in 2012. Almost 82% of the emigration was targeted towards the EU-28 countries, and 80% was towards EU-15 countries. After joining the European Union in 2004, Latvia has experienced a considerable wave of labour migration to more prosperous countries, especially to the United Kingdom and Ireland. It has been estimated that approximately 200,000 Latvians have emigrated in search for work after joining the EU. Unemployment climbed from 5% to more than 20%, and remains about 14% in 2012. Migration has also picked up to Germany. In 2010, the second largest emigration flow from Latvia was towards Russia while the United Kingdom was number one and Ireland the third destination country (Latvijas statistika 2014). Recent emigrants have been disproportionately young – 70% between the ages of 18 and 34 – and more educated than those who have remained (OECD 2013b; Central Statistical Bureau of Latvia 2014).

3.4. Lithuania

Lithuania’s population was 2.97 million in 2013. The country has faced a remarkable natural population loss in 2013 (-10,698). Lithuania is a country of emigration and one of the few EU “sending countries”. According to the Statistics Lithuania, over 700,000 people have left the country during 1990-2011. In 2013, the number of immigrants to Lithuania was 23,643 persons but number of emigrants from Lithuania to foreign countries was much higher, 40,391 persons. This means a remarkable population loss in international migration (-16,748 persons) in 2013. Return migration has accounted for nearly 90% of all entries in 2011, mainly from the United Kingdom (41%), Ireland (12%), Norway (8%), Spain (5%), and Germany (5%). Labour emigration to those countries was substantial during their economic boom, and return has occurred with decreased labour demand (OECD 2013a, 2013b; Statistics Lithuania 2014).

The main destination countries in 2011 remained the United Kingdom and Ireland although they drew a smaller share than before the crisis, while Scandinavian countries grew in importance. Prior to the accession to the EU it was the Russian Federation, the Commonwealth of Independent States, and the USA that attracted highest numbers of migrants from Lithuania (International Organization for Migration Mission in Lithuania 2011). Lithuanian emigration predominantly consists of young, single and educated individuals. The 2010 data show that 55% of the emigrants were 20 to 35 years old, 50% had special upper secondary education and 25% completed higher and professional education. Family emigration is also on the rise. Until recently, migrant parents preferred to leave their children with extended family members, a so-called split family phenomenon, or disintegration of families and households (Schmitt et al. 2008), while they were abroad but this trend is changing and now more parents take their children along with them as they leave (International Organization for Migration Mission in Lithuania 2011; OECD 2013b).

4. Immigration to Finland

Immigrants or foreign citizens in Finland numbered 195,511 persons in 2012, representing 3.6% of the total population. Totally, there were 285,471 persons living in Finland who were born abroad in 2012. This represents 5.3% of total population. The largest groups of those born abroad were persons born in Russia or former USSR (62,359; not including Estonia etc.), born in Estonia (34,984), born in Sweden (31,601), and born in Somalia (9,079) in 2012 (Statistics Finland 2014).

Next international migration flows from Estonia, Latvia, Lithuania and Russia to Finland and vice versa is analysed (Figures 3 and 4). The most noticeable waves of immigration were from Russia to Finland in the 1990’s, when Ingrian Finns received returnee-status. Persons who have Finnish ancestry or otherwise a close connection with Finland can obtain a residence permit in Finland on certain conditions. No other reason, such as employment or study, is required to obtain the permit. Receiving the residence permit depends on the strength and closeness of Finnish ancestry. If ancestry dates back several generations, a residence permit cannot be obtained on this basis (The Finnish Immigration Services 2014). The immigration flow from Russia to Finland was highest in 1991, reaching 5,515 persons. The migration flow has diminished in the long run: there were 3,096 persons moving from Russia to Finland in 2012. Very few people moved from Finland to Russia (333 persons) in 2012. Of this flow, almost 75% were citizens of European countries excluding EU-countries, i.e. this means that many of emigrants might have been return migrants to Russia. 83 persons of emigration flow to Russia were citizens of Finland in 2012.

Estonia has been the most important BSR country from where there has been immigration to Finland during 1991-2012. The immigration flows from Estonia have been increasing: in 1991 1,073 immigrants and in 2012 already 6,422 immigrants. This growth was 600%. Since 1991, a total of around 43,000 individuals have emigrated from Estonia to Finland; and about 8,000 individuals, or 19%, have returned to Estonia. Many Estonians also live and work in Finland on a temporary basis since it is easy and relatively cheap to commute between the countries (Anniste and Tammaru 2014).

Finland has not been the most important destination for Latvians and Lithuanians, in spite of the geographically close location, as can be seen from the size of the immigration flows from these two countries. The largest flows have been in 2012 when Finland received 208 migrants from Latvia and 172 migrants from Lithuania. Emigration from Finland to the BSR has been highest to Estonia but very much smaller in size compared to immigration figures. In 2012, Finland had very positive migration balance with Estonia (Figure 4), gaining almost 5,500 persons, and with Russia (+2,763 persons). In general, motives for moving to Finland have been very much connected to family relations (60-65%) and there are nowadays over 3,700 multicultural marriages in a year in which one of the spouses is a Finnish person and the partner a foreign citizen. According to the Ministry of Labour, work related motives have represented only 5-10% of all motives during the 1990’s and the 2000’s. Other reasons have been for example seeking asylum and return migration (Kyhä 2007, 29). The basis of first residence permits that the Finnish Immigration Service issued to immigrants coming from outside the EU, the European Economic Area, EEA and Switzerland was most common family ties (34%), study (32%) and employment (29%) in 2012 (Ministry of the Interior 2013).

Figure 3. International migration between Finland and the Baltic States and Russia in 1991–2012

Source: Statistics Finland 2014.

Figure 4. International migration between Estonia, Latvia, Lithuania and Russia and Finland in 2012

Source: Statistics Finland 2014.’

5. Immigrants on the Finnish labour markets

Immigrants’ age structure is favourable from the labour market perspective: there are more 20-44-year-old among Finland’s foreign-born people in relation to the share amongst those who were born in Finland (Figure 5). The percentage of people older than that and especially of pensioners is noticeable lower among the foreign-born population compared to those born in Finland. Russia in this case resembles Finland, since there are more elderly people in its population structure than in other BSR countries. As much as two thirds of those born in Lithuania and Latvia were in the age group 20-44.

The position in the labour market is a central indicator of the social status of immigrants and ethnic groups and employment constitute the foundation for successful integration for immigrants. Both in Finland and in other industrialised countries, it is more difficult for immigrants to find work than for the native population and the result is that the former often have many times higher unemployment rates than the latter (Heikkilä 2005). On the EU level, the unemployment rate is generally higher for foreign citizens thanfor nationals. In 2012, the EU unemployment rate for foreign citizens with a citizenship from another EU country was 12.5% whereas for foreign citizens with a citizenship from outside the EU the rate was almost twice as high, 21.3% (Teichgraber 2013).

The employment rate for immigrants has improved with the economic cycles in Finland. For example, during the deep economic downturn in 1994 the unemployment rate for foreigners was 53% and for the total population 17% in Finland, i.e. a three times higher rate for the former. The unemployment rates of labour force in 2011 were for foreign citizens 22% and for Finnish citizens 9%. There are huge differences in unemployment rates by citizenship in Finland: the unemployment rate for Estonians has been 11%, for Lithuanians and Latvians both 13%, for Russians 33% and for Somalis even 66% in 2011. One explanation for the better integration of Estonians is that the Estonian and Finnish languages are very similar (see Anniste and Tammaru 2014).

In general, immigrants tend to be concentrated in certain branches of activity and immigrant employment sectors show some gender differences in the 2000’s. Trade has been the most important sector to employ both immigrant men and women. Finance, insurance, real estate and business activities -sector has especially employed men. For women, education and research have been important, and also employment in health and social work. For example, nowadays there are around 300 Estonian medical doctors working in Finland. Although there are more and more Estonians in different economical sectors, the construction sector is employing the greatest share of Estonians (Tuohinen 2014). Transport and communication and construction sectors have, thus, been important for immigrant men in general. Industry has employed many men, and manufacture of electrical machinery has been especially important. It is clearly seen that the proportion of the employed has grown with better education among both males and females (Heikkilä and Pikkarainen 2008).

Figure 5. Age structures of population living in Finland by country of birth: born in Finland, all foreign countries,

Estonia, Latvia, Lithuania and Russia and the former USSR (excluding the Baltic States) in 2012

Source: Statistics Finland 2014.

When looking at entrepreneurship, 11% of the employed Finns have been entrepreneurs in 2011 but among Turks it is far more common: 38% of the employed Turks have been entrepreneurs. When looking at the BSR countries in 2011, 7% of the employed Estonians were entrepreneurs, totally in numbers 1,330 entrepreneurs. The numbers of Russian entrepreneurs (929), Latvian entrepreneurs (44) and Lithuanian entrepreneurs (21) are much smaller compared to Estonians in 2011 (Statistics Finland 2014).

6. Future aspects

General demographic trends that are causing concern in many countries around the world – decreasing population and increasing emigration flows – can be also observed in the BSR. Estonia, Latvia, Lithuania and Russia are a prime example of countries where recent emigration has drawn the attention of policy makers looking to mitigate potential negative impacts of the departure of the young and skilled emigrants as well as to support economic development. The latter two countries in particular saw outflows’ rise after accession to the European Union. For example in Lithuania emigration accounted for approximately 90%of total population decline. These outflows exacerbate a demographic situation in which the Baltic States face a rapidly ageing population and receive few immigrants themselves (OECD 2013a). The shrinking labour force and the safeguarding of public infrastructures, combined with the retention of an acceptable level of public service provision “greying societies” will remain among the most persistent challenges up to the year 2030 and most likely even beyond (Neubauer and Schmitt 2009; OECD 2013a). Also for example, Russia’s population shrinks by 700,000 people each year due to high mortality and low birth rates. Migration could help compensate Russia’s population decline and labour shortage. When looking future scenarios, migration alone cannot make up for the population loss. Russia is trying to attract qualifiend workers and compatriots (Banjanovic 2007).

It is more difficult for immigrants to find work than for the native population and the result is that the former often have many times higher unemployment rates than the latter. It is generally acknowledged that it is difficult for employers to evaluate a person’s qualifications when accredited certification is available. This is because the content of education and degrees differ to such an extent between countries (Kahila et al. 2013). Immigrants are in many cases ready to take a job not corresponding to their education, i.e. facing brain waste and overeducation, just to get the first step to labour markets and through it to integrate into the society. These types of jobs are so-called incoming jobs which include for example jobs in cleaning and restaurant work -sectors. According to Anniste and Tammaru (2014), found their survey data from 2009, around a third of the migrants from Estonia stated that upon arrival in Finland they had to accept a job that was beneath their qualifications.

In Kyhä’s (2011) dissertation, a positive finding was that if higher educated immigrants succeeded in finding employment in Finland, the work was usually completely or partially relevant to their degrees. Further, higher educated immigrants’ career starts in Finland can be categorised into three groups, each of which is further divided into two subgroups so that there are altogether six different types of career starts: 1) stable career and 2) stabilising career corresponding to education, 3) mixed career and 4) declining career partially corresponding to education, as well as 5) entry career, not corresponding to education, and 6) unemployment.

Education is a very important tool and it empowers immigrants. Language education and language learning through for example so-called non-stop language education and through hobbies like sports, sewing groups, preparing food groups etc. are some of those tools. Further education to get qualifications updated for host country standards is important. According to Kahila et al. (2013), complementary training is required in many circumstances but it has to be organized in close co-operation with both public and private sector actors.

Most of the immigrants in the BSR and Finland come from other EU countries: for example over half (52%) of the immigrants moving to Finland were from EU countries in 2012. The competition with other European countries for well-educated migrants and migrants for different types of jobs is severe. If the differences in standard of living between for example Finland and the neighbouring countries will decrease, the immigration pressure will decrease. Temporary migration, circulation and short term employment is expected to increase (see Commission of the European Communities 2006; Heikkilä 2007; Kahila et al. 2013).

The BSR and Finland will need work-based immigrants to compensate for the labour deficit due to the baby-boom generation having left the workforce during this decade. These countries thus need immigrants for a variety of sectors, and compete for them with other ageing societies. According to Kahila et al. (2013), the Central Baltic region faces a labour shortage for example in the health care sector particularly medical doctors, nurses with different specialisations and assistant nurses as well as in the social services. For example Finland has immigrant labour reserves, i.e. unemployed and those outside the labour force, living already in the country which is potential labour force. These numbers alone are, however, too small for compensating the labour deficit in the near future (see Työministeriö 2007).

According to Schmitt et al. (2008), one of the policy implications at the macro-scale is that international companies will analyse where they have access tohighly qualified labour force before they consider setting up new facilities. At the national and regional level (micro-scale) the reality of a shrinking labour force demands that new strategies on how to attract qualified migrants from other countries to compensate for this will be put in place.

There has always been a demand for certain qualification professionals in different industries, especially when business cycles are going up. For this reason, the main task of so-called Central Baltic Job Ferry (www.cbjobferry.eu) has been to promote the mobility of professional and well educated people to ensure that there are enough qualified specialists in those regions and industries which are the most important for the future development of the whole Central Baltic region. This joint project of Finland, Sweden, Latvia and Estonia was completed in summer 2013.

Targeted return policies providing information to emigrants about changing economic and social conditions in the origin country, and allowing employers to reach out to diaspora, may help to promote some returns. There is need to provide general information about the labour market situation in the home country. The average emigrant is young, but there is a wide heterogeneity, and students, professionals and circular migrants all have different needs. For those who return, initiatives for labour market reintegration need to reflect these needs. Diaspora ponds can attract also lower cost capital from emigrants and give them a means to contribute to economic development when they no longer have family to which send remittances (OECD 2013a).

The main elements for example for affecting Estonians to return back to home country are: pay which would guarantee a good standard of living, challenge, work environment, a job with an international dimension, closeness of family and friends, etc. (OECD 2013a). Return migration back to Estonia is widespread. According to the European Social Survey in 2008, eight percent of the adult population of Estonia has worked for at least six months abroad, which is one of the highest rates in Europe (Pungas et al. 2012).

When looking at Estonian immigrants in Finland, the evidence for lifetime strategy explanation stems from the fact that income-migrants have substantially stronger plans to return. These migrants are mostly attracted by the prospects of better earnings and they express elevated intentions to return. Their low attachment to Finland may be enhanced by the possibility of easy commuting between the two countries, as frequent visits help to maintain contacts with relatives and friends living in Estonia (Pungaset al. 2012). The elements, which are affecting to the process of rooting oneself in the new homeland, as Estonians to Finland, are structural integration variables, i.e. Finnish citizenship and homeownership (Anniste and Tammaru 2014).

References

Anniste K. and Tammaru T. (2014)

Ethnic differences in integration levels and return migration intentions: A study of Estonian migrants in

in Finland, Demographic Research 30:13, 377-412.

Banjanovic A. (2007)

Russia’s new immigration policy will boost the population, Euromonitor International,

http://blog.euromonitor.com/2007/06/russias-new-immigration-policy-will-boost-the-population.html

Beloborodov I. (2011)

Demographic situation in Russia in 1992–2010, Demographia.ru,

http://demographia.ru/articles_N/index.html?idR=71&idArt=1928

Central Statitical Bureau of Latvia (2014)

http://www.csb.gov.lv/en

Commission of the European Communities (2006)

Enlargement, Two Years After – An Economic Success, Communication from the Commission to the Council

and the European Parliament, Brussels.

Denisenko M. (2013)

Historical and Current Trends in Emigration From Russia, Russian International Affairs Council, RIAC,

http://russiancouncil.ru/en/inner/?id_4=2292#top

El-Cherkeh T. (2009)

International labour migration in the EU: likely social and economic implications, In International Handbook

of Urban Policy, Volume 2, Issues in the Developed World, Ed. by H. S. Geyer, Edward Elgar Publishing

Limited, 245-258.

Elliott L. and Kollewe J. (2011)

Germany faces up to problem of ageing workforce, The Guardian 17.3.2011.

Heikkilä E. (2005)

Mobile vulnerabilities: perspectives on the vulnerabilities of immigrants in the Finnish labour market,

Population, Space and Place, Special Issue: Population and Vulnerability: Making Sense of Vulnerability 11: 6,

John Wiley & Sons, Ltd, 485-497.

Heikkilä E. (2007)

Vain väliaikaista vetoapua – Uudet jäsenmaat eivät pelasta EU:ta työvoimapulalta, Ulkopolitiikka 2/2007, 12-17.

Heikkilä E. (2010)

Globaalit muuttoliikkeet ja Suomi, In Kunnat kansainvälisen maahanmuuttopolitiikan toteuttajina, Ed. by

E. Horttanainen and A. Wikman-Immonen, Kuntaliitto, 67-78.

Heikkilä E. and Pikkarainen M. (2008)

Väestön ja työvoiman kansainvälistyminen nyt ja tulevaisuudessa, Siirtolaisuusinstituutti, Siirtolaisuustutkimuksia

A 30. 219,

http://www.migrationinstitute.fi/pdf/Siirtolaisuustutkimuksia_A30_ESR.pdf

Summary in English: Internationalization of Population and Labour Force from the Present to the Future,

http://www.migrationinstitute.fi/pdf/A30_summary.pdf

Iglebaek O. (2009)

A new Baltic Sea Region Strategy, Journal of Nordregio, the Baltic Sea Region Strategy, No. 1 March, Volume 9, 3.

International Organization for Migration Mission in Lithuania (2011)

Migration profile: Lithuania, http://www.iom.lt/documents/Migration_profile_EN.pdf

Kahila P., Roto J., Perjo L. and Lange Scherbenske S. (2013)

Cross-border labour mobility in the Central Baltic region, Nordic Centre for Spatial Development, Nordregio

Report 2013: 2.

Kyhä H. (2007)

Miksi lääkäri ei kelpaa lääkäriksi? Korkeakoulutetut maahanmuuttajat Suomen työmarkkinoilla, Lisensiaatin

tutkimus, Kasvatustieteiden laitos, Turun yliopisto.

Latvijas statistika (2014)

On current trends of population migration in 2010,

http://www.csb.gov.lv/en/print/notikumi/current-trends-population-migration-2010-31947.html

Ministry of the Interior (2013)

Annual Report on Immigration 2012, Helsinki.

Neubauer J. and Schmitt P. (2009)

Alarming urban disparities in the BSR, Journal of Nordregio, the Baltic Sea Region Strategy, No. 1 March,

Volume 9, 6-8.

Nordregio, Nordic Centre for Spatial Development, Roto, Johanna (2011)

www.nordregio.se

OECD (2013a)

Coping with Emigration in Baltic and East European Countries, the Organisation for Economic Co-operation

and Development,

http://dx.doi.org/ 10.1787/9789264204928-en

OECD (2013b)

International migration outlook 2013, Organisation for Economic Co-operation and Development.

Pungas E., Toomet O., Tammaru T. and Anniste K. (2012)

Are Better Educated Migrants Returning?: Evidence from Multi-Dimensional Education Data, Norface

Migration, Discussion Paper No. 2012-18, 32.

Roll G. (2009).

Eastern BSR-peripheries at a standstill, Journal of Nordregio, the Baltic Sea Region Strategy, No. 1 March,

Volume 9, 26-27.

Schmitt P. and Dubois A. in close collaboration with Roto J., Sterling J. and Schürmann C. (2008)

Exploring the Baltic Sea Region – On territorial capital and spatial integration, Nordic Centre for Spatial

Development, Nordregio Report 2008: 3.

Statistics Estonia (2014)

www.stat.ee

Statistics Finland (2014)

www.stat.fi

Statistics Lithuania (2014)

http://www.stat.gov.lt/en/

Teichgraber M. (2013)

European Union Labour force survey – annual results 2012, Eurostat, Statistics in focus 14/2013.

The Finnish Immigration Services (2014)

Returnees, http://www.migri.fi/remigration

Tuohinen P. (2014)

Suomeen muuttaa yhä enemmän korkeasti koulutettuja virolaisia, Helsingin Sanomat 1.2.2014.

Työministeriö (2007)

Työvoima 2025, Täystyöllisyys, korkea tuottavuus ja hyvät työpaikat hyvinvoinnin perustana työikäisen

väestön vähentyessä, Työpoliittinen tutkimus 325, Työministeriö, Helsinki, 464.

Vishnevsky A. (2013)

The New Role of Migration in Russia’s Demographic Development. Russia International Affairs Council, RIAC,

http://russiancouncil.ru/en/inner/?id_4=1759#top

World Population Review (2014)

Russia Population 2014,

http://worldpopulationreview.com/countries/russia-population/

The article discusses changes in the industry of the Kaliningrad region of the Russian Federation since the beginning of the 1990s that occurred under the influence of the FEZ/SEZ. Its implementation, in turn, was primarily due to the changed geopolitical and geo-economic situation in the region. The main result of these changes was the restructuring of the regional industry, which caused import-substituting industries to play a major role (including those that previously either did not exist or were poorly developed). On April 1, 2016, customs concessions of the SEZ will no longer be valid (while tax breaks will be preserved until 2031). This fact together with Russia’s accession to the WTO makes the continued existence of the SEZ mainly in the mode of import substitution difficult, if not impossible. In this regard, this paper discusses the prospects for further development of the industry of the Kaliningrad region under the changed and changing conditions.

Key words: Kaliningrad region, industry, manufacturing, free/special economic zone (FEZ/SEZ).

By the end of the 1980s the level of the industrial development of the Kaliningrad region was slightly below the national average (in 1989 the region accounted for 0.6% of the population of the RSFSR, but its share in the total Russian industrial output was lower – 0.55%) [1, P. 121].

In the structure of industry three sectors played the key role – mechanical engineering, fishing and pulp and paper industry (Table 1).

Table 1

Industrial structure in the Kaliningrad region in 1989, % of the total

Source: [1, P. 119].

The share of the Kaliningrad region accounted for 10% of the food fish production in Russia, 11% of the cellulose production and 3% of the paper production (1992) [1, P. 121]. In mechanical engineering, the main role was played by companies related to the fishing industry (production of instruments, equipment, construction of small fishing vessels, ship repair), military shipbuilding, electronics and electrical engineering, railway coach manufacturing.

Industry in the region had a high degree of participation in the national division of labour and at the same time was heavily dependent on external supplies of raw materials, fuel and energy and the stability of the industrial relations.

In addition to the general problems of the Russian industry in transition, two interrelated factors substantially affected the further development of the Kaliningrad industry:

The conversion of the Kaliningrad region into an exclave of the sovereign Russia, separated from it by territories of foreign countries (not the union republics, as before);

The creation of the free economic zone (FEZ) in 1991 and of the special economic zone (SEZ) in 1996. The zones were largely seen as mechanisms of compensation for the isolated geographical location of the region.

The collapse of the Soviet Union and the transformation of the region into an exclave of Russia led to the complex and costly transport links with the main part of the Russian Federation, disintegration of production chains, which included Kaliningrad enterprises (especially mechanical engineering) within the division of labour in the Soviet Union, breaking of the economic ties with Lithuania, Latvia and Belarus, that were established during the Soviet period, complicating conditions of the pulp and paper industry, located 1500 kilometres away from sources of raw materials in the North of Russia. The former branch structure of the region’s economy because of its spatial isolation from the main territory ceased to comply with the changed economic conditions to a greater extent than in other regions of Russia.

The fish production sector, which formed the basis for the Kaliningrad region industry, was additionally negatively affected by the termination of state subsidies and the rise in the cost of fuel (which previously formed more than half of the cost of production). This led to the decrease of ocean fishing, sale of vessels and a sharp decline in production volumes.

The FEZ/SEZ regime impacted the industry in the Kaliningrad region in 1992-1998 in two ways.

On the one hand, following the adoption in 1996 of the law on special economic zones in the region, there began to appear new import-substituting enterprises (for example, in May 1997, was commissioned the first phase of the “Avtotor” company’s factory to assemble Korean cars KIA). On the other hand, duty-free imports further contributed to the decline in industrial production (primarily in the food industry and in the production of consumer goods), that did not withstand foreign competition.

Ultimately, the decline in industrial production in the Kaliningrad region in 1992-1998 proved to be more profound than in the whole of Russia. Industrial production in 1998 decreased by 6 times compared to 1990 (Fig. 1).

Figure 1. Dynamics of the industrial production, % of 1990.

Percent, Russian Federation, Kaliningrad region

Compiled based on: [2, p. 396; P. 396; 3].

The region’s economy was deindustrialized. The available production capacities were taken out of the production and skilled workers would change professions or became unemployed. The greatest damage was incurred by the industry sectors mainly in the domestic (regional and nationwide) market (machinery, local food processing, building materials industry, consumer goods industry). The good bargain compared to them had those sectors that benefited from a sharp increase in domestic prices of their products (electricity, fuel industry), increased export of products (pulp and paper industry and to some extent the fishing industry) due to the regime of the FEZ/SEZ and the general liberalization of foreign trade or used a combination of both factors (oil industry). In these industries, the decline in production was less than the industry average.

As a result, in current prices, the share of the fuel and energy sector in the industrial structure of the Kaliningrad region has increased considerably due to rising prices for fuel and electricity (from 3.5% in 1990 to 30.6% in 1998) with a sharp drop in the share of industries of the “upper floors” (the final stages of manufacturing) – particularly machinery, consumer goods industry and building materials industry (Table 2).

Table 2

Changes in the structure of the industrial production of the Kaliningrad region, 1990-1998, % of the total industrial production

Compiled based on: [4, P. 15].

Since 1999, the economy of the Kaliningrad region, as well as throughout Russia, gradually began to emerge from the crisis. Production growth was particularly strong in industry, where since 2000 it has been significantly higher than the average Russian indicators (Table 3).

Table 3

Dynamics of indices of the industrial production in the Kaliningrad region and the Russian Federation as a whole, 2000-2007, (% of previous year)

Compiled based on: [3, 5].

In 2007, the volume of the industrial production in the Kaliningrad region exceeded the level of 2000 by nearly 3.6 times (on average in Russia by almost 1.5 times) (current prices) (based on [3]). In 2000-2012 the share of the Kaliningrad region of the industrial production of the Russian Federation increased from 0.3% to 0.96%, which was 1.75 times higher than in the late 1980s [1, 6, 7].

The following factors contributed to the rapid industrial growth:

• The development of import substitution industries due to the regime of the free customs zone[1]and tax benefits[2];

• The devaluation of the Ruble in 1999-2000;

• Increased demand on the Russian domestic market, associated with the growth of incomes of the enterprises and the public;

• Increased attention to the area of the Federal Center, which was one of the most important factors in attracting investment to the region from other regions of Russia (mainly from Moscow and Saint Petersburg);

• Proximity to foreign sources of raw materials, components and semi-finished products.

A characteristic feature of the industrial growth, as noted above, was import substituting. This was reflected in production of goods using foreign raw materials, semi-finished products and components for the national market. This is evidenced by the increase in the export of goods produced in the SEZ in the Kaliningrad region to the rest of Russia from 0.42 billion Dollars in 2000 to 6.5 billion Dollars in 2008 [9].

At the same time the largest share in the total export of production into other regions of Russia accounted for cars, canned meat, TV-sets, canned fish, self-propelled vehicles and cranes, frozen fish, carpets and floor coverings [10, P. 21].

The SEZ regime contributed to the emergence of new industries in the region operating on the national market. There appeared whole new industries that did not previously exist (e.g., car manufacturing, production of TV-sets and other consumer electronics, etc.). Sectors that had previously been represented relatively weakly, significantly increased (furniture and meat-packing industry). For a number of new industrial products the Kaliningrad region became recognizable and even evolved into one of the leaders in the Russian Federation. At the same time, it continued to occupy a prominent place for the production of some of the traditional industrial products (food fish production (including canned fish), fish and seafood, pulp and paper, vodka and beverage products, and others).

Before the crisis in 2009 about 75% of all Russian TV-sets were produced in the Kaliningrad region [11]. Other types of home appliances included vacuum cleaners (84% of Russia’s total volume in 2006 [12 P. 14]), microwave ovens, DVD-players, etc. The main plant for the production of TV-sets – the Kaliningrad “Telebalt” LLC – at that time was the largest engineering company in the region in terms of the volume of production. The largest manufacturer of vacuum cleaners was “Radioimport-R” LLC (Kaliningrad). In 2003 in Chernyakhovsk the Moscow holding “Polar” opened the plant “Televolna” LLC with the annual total capacity up to 2.5 million units of equipment (TV-sets, washing machines, vacuum cleaners, microwave ovens).

JSC “Avtotor” (Kaliningrad), founded in 1997, that collected Korean cars KIA, in 1999 additionally began to assemble German cars BMW, and in 2004 – American cars by General Motors. In 2008, the company brought the car production to 108.5 thousand cars, thus becoming the largest manufacturer of foreign cars in Russia [13].

In Gusev in 2007 the Russian corporation General Satellite (now – GS Group) for the first time in our country hosted in leased premises domestic production of receivers for receiving satellite and terrestrial television. Later Gusev was chosen by the company for the creation of an innovation cluster “Technopolis Gusev” (from August 2012 – “Technopolis GS»).

About a hundred of small and medium-sized enterprises for the production of furniture were created in the region. They would supply their production to more than 40 cities of Russia, as well as for export to the CIS, the European Union (Germany, France, UK, Belgium, Denmark, Austria), Israel and the US. They accounted for about 6% of the sales of furniture in Russia [14].

There were about 160 meat processing plants (mainly operating on imported raw materials). For the production of canned meat the Kaliningrad region ranked first in Russia (22.6% of all Russian canned meat in 2006) [15].

However, import-substituting industries, working on imported raw materials and components, were heavily dependent on the stability of supplies from abroad, and on the volume of demand on the national market, which is the main focus of their production.

Despite a significant decline compared to the beginning of the 1990s, the fishing industry maintained its national significance.

At the same time, the pulp and paper industry found itself in a difficult situation. Due to the remoteness of the raw material base (North-West of Russia), it could thrive only based on export. However, the demand for pulp in the world market is very volatile and could not guarantee stable operation. In addition, the companies used environmentally hazardous obsolete technologies for chlorine bleaching of pulp and had no effective treatment facilities contrary to Russia’s obligations on protection of the marine environment of the Baltic Sea in the framework of the Helsinki Convention. As a result, in 2004, the former pulp-and-paper combine TsBK-1 was stopped in Kaliningrad (JSC “Darita”), in 2007 – the former pulp-and-paper plant TsBZ-2 (Closed joint stock corporation “Cepruss”) in Kaliningrad.

Increased production of certain types of industrial products was also caused by exports. For example, JSC “Baltic Shipyard “Yantar”” (Kaliningrad), that previously had been building almost exclusively warships, set up production of civilian ships for customers from Germany, the Netherlands, Norway. JSC “Baltkran” (Kaliningrad) exported cranes into Finland, Denmark, Norway, Germany, the Netherlands, France, Spain, Italy, China, Japan and other countries. Sewing enterprises of Kaliningrad and Sovetsk were working on give-and-take raw materials. The Kaliningrad ZAO “Cepruss” exported pulp. However, the export potential of the Kaliningrad industry has not been used to the full.

In the oil industry in July 2004, “LUKOIL-Kaliningradmorneft” LLC started oil production at Kravtsovskoye field (D-6), located on the Baltic Sea shelf. Field commissioning allowed to increase oil production in the Kaliningrad region in 2004-2007 by 1.76 times (from 0.83 to 1.45 million tonnes) [16, P. 77].

The higher-than-anticipated growth of production of the goods with advanced processing contributed to positive changes in the industrial structure. For example, the share of mechanical engineering in the structure of industrial production (at current prices) increased during 1999-2004 by more than 2.3 times, and it once again ranked first among industries [17, P. 2; 18, P. 131].

The transition from the SEZ in 1996 to the SEZ in 2006 almost coincided with another radical change in the geopolitical and geo-economic situation of the Kaliningrad region – extension of the European Union on 1 May 2004. Following the accession of Poland and Lithuania, the region became a kind of the Russian “island” within this integration group. The EU enlargement worsened conditions for the supply of the Kaliningrad production into other regions of Russia and thereby complicated the import-substituting economy of the exclave. After the accession of Lithuania to the EU on 1 May 2004 the cargo transit got more expensive by 1.3-1.5 times due to the phytosanitary and veterinary control, as well as due to other paid services, imposed by the Lithuanian side [19, P. 26]. The special agreement with the European Commission (EU Commission) and Lithuania, that was suggested by Russia, which would guarantee the stability of the regime and the conditions of transit and eliminate any possibility of their deterioration in the long term, has never been achieved.

In 2008-2009 the Kaliningrad region, like the rest of Russia, felt the effects of the global economic crisis.

The economic recession in the Kaliningrad region turned out to be more profound than the Russian average. In the industry and the manufacturing sector the recession was somewhat smaller (Table 4).

Table 4

The dynamics of the industry production in the Kaliningrad region and the Russian Federation as a whole, 2008-2009 (% to the previous year)

Compiled based on: [3, 5].

First of all, the crisis has led to a sharp decline in new import-substituting industries, which are the engine of the economic growth.

In 2009, the production of TV-sets declined by more than 70%; of microwave ovens by 80%, digital laser players – more than 80%, vacuum cleaners – more than 85%. The number of employed in the TV cluster of the Kaliningrad region by the end of the first quarter of 2009 decreased from 12 to 2.5 thousand people [11]. “Avtotor” in 2009 although remained the largest producer of foreign cars in Russia, but the production of cars in 2007-2009 decreased from 106.7 to 60.3 thousand cars [20]. Production in the furniture industry in the region by the summer of 2009 had decreased by about half compared to the previous year; about 8% of jobs were cut [14].

The curtailment of the pulp and paper industry continued. In May 2009 the “Neman Pulp and Paper Mill” LLC was declared bankrupt.

At the same time, commissioning of new enterprises in the period of 2008-2009 continued. For example, in 2008 in Chernyakhovsk the “Arvi NPK” LLC, which is part of the Lithuanian group of companies ARVI, launched the only plant in Russia, engaged in production of complex mineral fertilizers using the unique American technology of steam granulation; a high-tech fish-canning complex “Roskon” LLC was opened in Pionersky. In 2009, the Russian Corporation “General Satellite” (now – “GS Group”) launched the project “Area of scientific and technological development – Technopolis Gusev” and opened two plants – JSC NPO “TsTS” (production of digital set-top boxes for the reception of terrestrial and satellite television) and “Prankor” LLC (production of cases of TV set-top boxes and satellite dishes). In the same year, the corporation “Soyuz” has commissioned a plant for processing of edible oil in Kaliningrad and “Hipp” LLC, owned by the German company Hipp Gmbh&Co, opened a production facility for the production of baby food in Mamonovo.

The economic growth in the Kaliningrad region, as well as throughout Russia, resumed in 2010. However, already in 2012, the growth rate slowed down and this slowdown continued in 2013. In the industry in 2013 there was even a small decline in production compared to the previous year (Table 5).

Table 5

The dynamics of the industry production in the Kaliningrad region and the Russian Federation as a whole, 2010-2013 (% to the previous year)

Compiled based on: [3, 5].

Manufacturing remained the economic growth driver in the post-crisis period. Production of transport vehicles (automotive and shipbuilding industries) (production growth by almost 5 times) had the largest growth rate. Its share in the structure of the volume of shipped goods of own production, work and services by own means for the manufacturing industry for 2009-2013 increased from 30.4 to 57.1%. Due to the commissioning of the plant for the production of mineral fertilizers and the facility for production of polyethyleneterephthalate (PET), the volume of shipped goods of chemical production in the period of 2009-2012 increased by nearly 7 times. Its share in shipments of manufacturing industries for the period of 2009-2013 increased from 0.8 to 2.5% [21, P.89-90; 22 P, 19].

The resumption of the economic growth was based both on the post-crisis recovery of production at existing facilities, and the commissioning of new enterprises encouraged by the preferential conditions envisaged under the SEZ. For example, the following facilities were put into operation in industry in 2010-2014:

• “House-Building Plant “White key”” LLC (Gusev) – production of cottages of individual planning (2010);
• “The Fifth Element” LLC (Belkin, Krasnoznamensky District) – production of ceramic bricks and blocks (2010);
• “Group of companies “Atlantis””(near Ladushkin) – processing of fish and seafood (2010);
• “AMEKO-Kaliningrad” LLC (Mamonovo) – production of baby food (2010);
• “Food products” LLC (Gusev) – production of canned meat (2010);
• “Alko-Nafta” CJSC (Pregolsky) – the largest plant for the production of polyethyleneterephthalate (PET) in Russia and Eastern Europe with a nominal capacity of 220 thousand tonnes per year (2011);
• “The first cardboard factory” (Gusev) – production of corrugated packaging (2011);
• “National Product” LLC (Pravdinsk) – production of prepared and preserved products of meat and poultry meat, meat by-products and blood of animals (2011);
• “GS Nanotech” (Gusev) – production of complex hybrid microcircuits using the technology “System in Package” and “Flip Chip” and modern crystals from the advanced chips from the world’s leading producers (2012);
• Company “Avtotor” (Alexander Kosmodemyansky) – the complete production cycle of KIA Sorento cars (2013);
• “Siberian Delicacy Kaliningrad” LLC (Kotelnikovo, Zelenograd district) – production of meat products, including semi-finished products and sausage products (2013);
• “Kaliningrad delicacy” LLC (Kaliningrad) – production of meat and sausage products (2013);
• “BaltAgroKorm” LLC (Dobrovolsk, Krasnoznamensky District) – production of compound animal feed (2013);
• “Wallpaper factory “Prima Italiana”” LLC (Kamenka, Zelenograd district) – production of wallpaper (2013);
• “Infamed-K” LLC (Bagrationovsk) – production of the antiseptic “Miramistin” and eye drops “Okomistin” on its base (2014);
• “Technoservice” LLC (to the west of the village of Novoye Lugovoe, Guryev urban district) – production of gas silicate blocks (2014).

“Avtotor” in 2012 increased its car production up to 265 thousand cars [23]. In October 2013 the company started the construction of full-profile cluster of automobile industries. It is planned to build 5 automobile plants of the full cycle with the capacity not less than 250 thousand cars per year (up to 20% will be used for export) and 16 plants for the production of automotive components, which will be used not only for own production, but also for other Russian and foreign markets [24, 25].

As of 1 January 2014, the register of the SEZ residents in the Kaliningrad region included 89 organizations. The volume of their stated investments was 73.6 billion Rubles. The average number of employees of resident enterprises at the stage of entering the full capacity production is estimated to amount to more than 15 thousand people [26].

At the same time, curtailment of the pulp and paper industry continued. In 2010, the “Soviet pulp-and-paper plant” JSC was declared bankrupt. Back in 2008 it had suffered from a serious fire and ceased pulp production. By 2014, the firm had almost ceased to exist [27]. The Neman pulp-and-paper combine periodically stops its operation, having ceased its production in some seasons in the period of 2012-2014.

The basis for the industries in the Kaliningrad region is currently manufacturing, which accounts for 22.2% of gross value added generated by all types of economic activities, and 11.3% of the value of fixed assets. In 2013, in the manufacturing sector there were employed 65 thousand people (20.6% of all employed in the economy of the Kaliningrad region) [21, P. 20, 36].

Most industrial enterprises are small. Only the “Avtotor” CJSC and the “Baltic Shipyard “Amber”” JSC have more than 3,000 employees. “Vichunai-Rus” LLC, “Milk” JSC, “Kaliningrad containerboard mill” JSC and “Food products” LLC have from 1000 to 1500 employees [28].

The manufacturing sector is dominated by food production and production of transport vehicles and equipment. They account for more than 3/4 of the volume of shipped goods of own production, work and services by own means for the manufacturing industry, 57.5% of the value of fixed assets of large and medium-sized enterprises and organizations of manufacturing industries and more than 45% of the average number of employees in factories and organizations in the manufacturing sector (Table 6).

Table 6

Structure of the manufacturing sector of the Kaliningrad region in 2013, % of the total

Compiled based on: [22, P. 20, 28, 30].

The industry in the Kaliningrad region remains mainly import-substituting, based on the use of the SEZ benefits (primarily customs benefits) and continues to work for the national market. The majority of import-substituting industries are characterized by a very low share of value added. In 2010, the share of value added in the production of automotive products accounted for only 5.8%, the production of electronic industry – 14.8%, food industry in its part designated for export outside of the region – 13-15% [29]. Innovation of the import-substituting enterprises, as well as Kaliningrad’s economy as a whole, is low. In 2013, the proportion of organizations engaged in technological innovation in the total number of organizations in the Kaliningrad region amounted to only 3.8%, which is almost 2.5 times lower than even extremely low national average (8.9%) [30].

A characteristic feature of the import-substituting industry, established under the SEZ, is its “fragility”, dependence on the world situation and the state of the national market. In addition, the enclave economy to a greater extent than in other regions of Russia depends on the relations between Russia and the EU, which has been illustrated by the sanctions and counter-sanctions in connection with the events in Ukraine. Medium- and long-term prospects of most kinds of the industrial economic activity in the WTO and termination of the transitional regime regarding the SEZ in 2016 are considered to be negative (with the exception of mining and generation, transmission and distribution of electricity, gas and water) [31].

The changing geopolitical and economic conditions also require new strategies of the development of the Kaliningrad industry. Previous import-substituting industries based on duty-free import of raw materials and components will lose their benefits on April 1, 2016. However, companies will receive financial support in accordance with the Order of the Government of the Russian Federation #1275 dated November 29, 2014 [32], but it will only soften the consequences of the abolition of customs privileges, but will not get them back together with related economic mechanisms. It seems that in this new situation the Kaliningrad industry should move towards increasing the share of products with high added value, improve the quality and competitiveness of products, and introduce innovative products and new technologies. At the same time, small and medium-sized enterprises could act as subcontractors of leading industrial companies in the region, at least partially replacing foreign supplies. The transition to the innovative development of the industry in the region will require greater integration of science (in particular, the science and technology park “Factory” [33], established in the Immanuel Kant Baltic Federal University) and production, creation of new industrial parks and development of mechanisms for technology transfer both within the region and from other regions of Russia and from abroad.

It is necessary to encourage exports of industrial products, even more so that in connection with the fall of the Russian Ruble the Russian production including the Kaliningrad production has become more competitive in foreign markets in terms of price. For this purpose, in particular, it is necessary to bring production in compliance with international standards and provide certification for compliance with these standards.

The Kaliningrad region could become one of the Russian pilot regions of the so-called “third industrial revolution”, involving the introduction of advanced technologies, such as additive technologies, or technologies layered synthesis. For this purpose it is necessary to consider establishment of the Center for technological competence of additive technologies on the basis of one of the Kaliningrad enterprises with participation of Kaliningrad (and from other regions) universities and research centers.

Some steps in these directions have already been made. The Concept of Industrial Policy of the Kaliningrad region was approved on August 27, 2014 [7]. The following economic activities were identified as top-priority:

1. Production of food products, beverages and tobacco;
2. Chemical production (including pharmaceutical production);
3. Production of other non-metallic mineral products (construction materials, composite materials and products thereof);
4. Production of electrical, electronic and optical equipment (including production of TV devices and other consumer electronics);
5. Production of transport vehicles and equipment (automobile construction, shipbuilding and ship repair);
6. Other production (production of furniture, jewelry, items made of amber or with the content of amber).

The following main instruments of industrial policy are envisaged in the Concept of Industrial Policy:

1.         Programs for development of priority industrial clusters, industrial production chains;

2.         Formation of industrial zones and industrial parks in the Kaliningrad region;

3.         Support of priority investment projects;

4.         Reimbursement for exhibition and promotional activities;

5.         Subsidies for a part of the interest rates on loans, including those involved in infrastructure projects;

6.         Subsidies for certification and registration of trademarks;

7.         Subsidies for connection to the electric power system and energy supply devices;

8.         Subsidies for equipment leasing;

9.         Subsidies for training of production personnel;

10.       Subsidies for production (sale) of goods, work and services for the creation and development of the infrastructure of industrial and research parks;

11.       Organization of the exhibition and presentation activities to promote industrial products;

12.       Creation of trade missions in the Russian Federation and abroad;

13.       Creation of business incubators and research parks;

14.       Training of specialists;

15.       Implementation of the migration policy;

16.       Involvement of non-governmental organizations (associations) of industrialists and entrepreneurs of the Kaliningrad region in the implementation of industrial policy.

Bibliography

1. Fedotov G.M., Zverev Yu.M. Kaliningrad alternatives. Social and economic development of the Kaliningrad region in the new geopolitical situation: Monograph. / Kaliningrad University – Kaliningrad, 1995.
2. Regions of Russia. Socio-economic indicators. 2002: Stat. / Russian State Statistics Committee of the Russian Federation. – M., 2002.
3. Industry production index by the territorial entity of the Russian Federation (updated 05.09.2014) // Rosstat. URL:

www.gks.ru/free_doc/new_site/business/prom/ind_prom_sub.xls (Accessed: 17.03.2015).

4. Gareev T.R., Zhdanov V.P., Zverev Yu.M., Fedorov G.M., Zikel M.A. Establishment of the new economy of the Kaliningrad region. – Kaliningrad: Publishing house of the Kaliningrad State Univeristy, 2005.
5. Industrialindexfor “manufacturing” by the territorial entity of the Russian Federation (updated 05.09.2014) // Rosstat. URL: www.gks.ru/free_doc/new_site/business/prom/ind_obr.xls (Accessed: 17.03.2015).
6. Social and economic situation of the Kaliningrad region // Federal target programmes of Russia. URL: http://www.programs-gov.ru/37_1.php (Accessed: 17.03.2015).
7. Order of the Government of the Kaliningrad region dated 27 August 2014 #567 “On the Concept of Industrial Policy of the Kaliningrad region” // Consultant Plus. URLhttp://www.consultant.ru/document/regbase_doc_RLAW044_60132/ (Accessed: 17.03.2015).
8. The total volume of investments of 47 residents of the FEZ in the Kaliningrad region is about 26 billion Rubles // News agency “RosBusinessConsulting”. 01.11.2007. URL: http://top.rbc.ru/spb_freenews/01/11/2007/764856.shtml (Accessed: 17.03.2015).
9. Dmitry Chemakin: Prospects of the development of the Kaliningrad region (report at the forum with the same name) // Rugrad.eu. 5 June 2011. URL: http://rugrad.eu/article/430503/ (Accessed: 17.03.2015).
10. ZverevYu.M. Industry of the Kaliningrad region. // Geography in the school of the 21^st century. 2006. # 5. P. 20-25.
11. Denisenkov A. Cluster at the edge of the market // Expert. # 9 (648). 9 March 2009. URL: http://expert.ru/expert/2009/09/klaster_na_krayu_rynka/ (Accessed: 17.03.2015).
12. Report on the results of financing of the Special Economic Zone in the Kaliningrad region in 2006. Kaliningrad: Government of the Kaliningrad region, Administration of the Special Economic Zone in the Kaliningrad region, 2007.
13. “Avtotor” will increase car production by 2.3 times // Motor. 28 May 2010. URL: http://motor.ru/news/2010/05/28/avtotor/ (Accessed: 17.03.2015).
14. Dead furniture season // НовыйКалининград.Ru. 30 September 2009. URL: http://www.newkaliningrad.ru/articles/our/business/946691.html (Accessed: 17.03.2015).
15. Russian market of the canned meat: the current state and development prospects still 2012. // Institute of Agricultural Marketing. 23.11.2007. URL: http://www.iamgroup.ru/news/full.php?nid=5&binn_rubrik_pl_news=76 (Accessed: 17.03.2015).
16. Kaliningradregion 2009. Statistical review. – Kaliningrad: The regional office of the Federal State Statistics Service in the Kaliningrad region, 2009.
17. Social and economic development of the Kaliningrad region in 1994-2001 (statistics passport). – Kaliningrad: Administration of the Kaliningrad region, Committee of the economic development and trade, 2002.
18. Kaliningradregioninfigures 2005. Statistical review. – Kaliningrad: The regional office of the Federal State Statistics Service in the Kaliningrad region, 2005.
19. Zhukova N. The farther into the EU… // Profile. # 41. 8 November 2004.
20. “Avtotor” will increase car production by 2.3 times // Motor. 28 May 2010. URL: http://motor.ru/news/2010/05/28/avtotor/ (Accessed: 17.03. 2015).
21. Kaliningradregioninfigures 2014. Statistical review. – Kaliningrad: The regional office of the Federal State Statistics Service in the Kaliningrad region, 2014.
22. Industry of the Kaliningrad region. Statisticalreview. The regional office of the Federal State Statistics Service in the Kaliningrad region, 2013.
23. “Avtotor” will decrease car production in 2014 // Vesti. Economy. 21.10.2013. URL: http://www.vestifinance.ru/articles/34369 (Accessed: 17.03.2015).
24. “Avtotor” together with BMW started the formation of the car cluster in Kaliningrad // Avtostat. 21.10.13. URL: http://www.autostat.ru/news/view/14752/ (Accessed: 17.03.2015).
25. “Avtotor Holding” LLC became a nominee of the “Development prize” in the North-Western Federal District // Expert online. 25 April 2014. URL: http://expert.ru/2014/04/25/nominantom-premii-razvitiya-po-severo-zapadnomu-federalnomu-okrugu-stal-proekt-ooo-avtotor-holding/ (Accessed: 17.03.2015).
26. Investments // Government of the Kaliningrad region. URL: https://gov39.ru/ekonomy/investicii.php (Accessed: 17.03.2015).
27. Seregin Maxim. The Soviet pulp-and-paper plant died, forget about it. // Russian West. 04.04.2014. URL: http://ruwest.ru/blog/?page=post&blog=max&post_id=349 (Accessed: 17.03.2015).
28. Data of the regional office of the Federal State Statistics Service in the Kaliningrad region.
29. Project of the state-run programme of the Russian Federation “Social and economic development of the Kaliningrad region”. P. 19 // Information agency «BigElectricPowerNews» URL:

http://www.bigpowernews.ru/photos/0/0_4fLrlvQkJiY14LUBoEKxcXv61Xk3neBM.doc (Accessed: 17.03.2015).

1. Federal State Statistics Service. Central statistic database. URL: http://www.gks.ru/dbscripts/cbsd/dbinet.cgi?pl=9420108 (Accessed 17.03.2015).
2. Zhdanov V.P., Krasnyansky I.Yu., Paletskaya T.M. Assessment of the development of the types of economic activities in the Kaliningrad region in the WTO and termination of the transition period regarding the FEZ in 2016: Analytical reviews of the Russian Institute of Strategic Research. – M.: RISR, 2013. – #1(36). P. 13-36.
3. Order of the Government of the Russian Federation dated November 29, 2014, #1275 “On provision of other interbudget transfers from the federal budget to the budget of the Kaliningrad region to ensure support of juridical entities operating in the Kaliningrad region, and residents of the Special Economic Zone in the Kaliningrad region” // Rossijskaya gazeta. 3 December 2014. URL: http://www.rg.ru/2014/12/03/oez-site-dok.html (Accessed: 17.03.2015).
4. Science and technology park “Factory” // Immanuel Kant Baltic Federal University. URL: http://www.kantiana.ru/innopark/(Accessed: 17.03.2015).

Yury Mikhailovich Zverev  – Candidate of Geographical Sciences, Associate Professor, Head of the Department of Geography, Nature and Spatial Development, Immanuel Kant Baltic Federal University, Kaliningrad.

[1] Enshrined in the Federal Law FZ-13 “On the Special Economic Zone in the Kaliningrad Region” (1996) and extended by ten years till April 1, 2016, by the new Federal Law FZ-16 “On the Special Economic Zone in the Kaliningrad region and on amendments to some legislative acts of the Russian Federation”(2006).

[2] Set for the SEZ residents who started the implementation of investment projects with total capital investment of at least 150 million Rubles within a period not exceeding three years (since 2006 under the Federal Law FZ-16). Tax incentives contributed to the appearance of major investors in the region. At the beginning of November 2007, there were 47 residents of the SEZ with the declared sum investment of nearly 26 billion Rubles [8]. These are large industrial, construction and transport companies. The largest implemented investment project at that time was carried out by “Sodrujestvo Soya” CJSC near Svetly. It was the commissioning of one of Russia’s largest oil-extraction plants (processing of imported soybeans), combined with the marine terminal (2007).

The natural development of an economic model for the Baltic countries is an integrated process that is determined by political rather that economic reality. A quarter of a century after these countries gained economic independence (which existed long before August 1991), we can put Baltic economic developments into perspective.

Russian and foreign analysts always hit a wall when trying to view the economic development of Estonia, Latvia and Lithuania from both neo-Keynesian and neoclassical standpoints. Why? Because after 1991, the economy of the Baltics was harshly dictated by political reasons. The basis for the Baltic economic model were separatism and nationalism rather than balance and efficiency.[1]In reality. this European-looking model is not what it seems.

Prior to Perestroyka, the economic situation of the Baltic nations within the Soviet Union used to be as follows: in 1986, the fixed asset value was 5875 rubles for every Soviet citizen. This figure had noticeable disproportion throughout the country: on one hand, it made 8007 rubles in Estonia, 6923 rubles in Latvia, 6111 rubles in Lithuania; on the other hand, there was as low as 5500 rubles per citizen in Belorussia, 4500 rubles in Moldavia, 3823 rubles in Azerbaijan and 2291 rubles in Tajikistan.

The republics found themselves to be divided by a growing salary gap. In 1940, workers and employees’ salaries in different republics saw a maximum dispersion of 10 rubles. Then it reached 21 rubles in 1960, 33 rubles in 1970, and as high as 78 rubles in 1988. The contrasts looked even more striking in agriculture, with the difference between the top and bottom kolkhoz members’ salaries making 74 rubles in 1970 and 159  rubles in 1989.[2]It is worth noting that the Lithuanian, Latvian and Estonian Soviet Republics were holding the lead.

“Production reconstruction and enhancement process in the Baltic countries showed a faster rate than elsewhere in the Soviet Union, mainly due to the fact the Latvia and Estonia were reserves of qualified workforce for the whole Soviet state.  Moreover, infrastructure in the Baltic region was almost intact during the war».[3]

The share of Baltic population with over 300 rubles of total income was the biggest in 1990. The national average for the whole USSR equaled 8.8 percent while reaching 19.8 percent in Estonia, 14.5 percent in Latvia and 13.8 percent in Lithuania. The poverty rate in these republics was also among the lowest, people with 75-ruble income making 1 percent of the whole Estonian and Latvian population and 1.2 percent of Lithuanians, whereas it was republics with the highest poverty headcount that developed into the severest autocracies in post-Soviet era.[4]

Since this region was the most efficient from the investment point of view, Moscow sought to allocate new industrial facilities here.  Compared to other regions, it took less time to master production in the Baltics.

The share of new fixed assets in the Baltic republics was higher that the USSR average, with more up-to-date and less obsolete facilities and technology. Agriculture showed a similar picture: kolkhozes and sovkhozes were distributed fertilizers, machinery, forage, imported elite breeding cattle, etc. on more favorable terms.

In the early 1990s, Vilnius, Riga and Tallinn provided much similar models of economic development in the form of regional cost-accounting plans. The Baltic nations, yet Soviet at the time, viewed the future reforms  based on their nostalgic, and sometimes inadequate, ideas and memories of what the so-called ‘first republics’ used to be. The mythology of their past played a key role in their denial of the present life within the USSR. It was as early as 1991 when we used to point out the importance of the Soviet heritage in the later economic development of the countries.[5] Later this idea was multiply referred to and developed in a number of academic papers.[6]L. Grigoriev and his fellow contributors believe that ‘the Baltic countries boasted the best starting conditions (compared to other post-Soviet states) for building a market economy, with huge innovational potential was accumulated there. The region was more like a laboratory where improved Soviet economic models were tested. The Baltic republics always enjoyed a privileged status among others, as seen from the investment figures of 1970–1980: the investment volume per capita was the highest.‘

The leaders of the Baltic ‘people’s fronts’ were not experts in market laws and could not estimate the real value of the national resources since they all were previously living in a centralized state-controlled planned economy, where one single center was busy allocating funds as well as distributing the product.

After having seized power, the newly formed elite had to deal with the opposition which was all concentrated around key Soviet industrial facilities. Such factories and plants as Latvian VEF, RAF, Alfa or Estonian Dvigatel, Eesti Kabel, Kreenholm comprised the core and the basis of the opposition. Disrupting these would put an end to opposition. Low competitiveness of these firms was another pretext for de-industrialization. This process would also result in weaker trade union movement and potentially less social packages. However, Estonian and Latvian reformers (and their congenial Russian counterparts) acted in a different way, saying that “the destruction of what is unsustainable is not an argument against, but in support of the transformation”.[7]

Despite these facts, the biggest companies in the Baltics states were still those of the Soviet heritage as late as in 1997.

Table 1.  The Biggest Latvian Industrial Companies (according to the number of employed)[8]

Table 2. The Biggest Lithuanian Industrial Companies (according to the number of employed).

Table 3. The Biggest Estonain Industrial Companies (according to the number of employed).

The privatization of the Soviet heritage was greatly positive for the Baltic economies, encouraging progressive growth all through the most troublesome period of early 1990s.

At that very time, financial and monetary reforms took place in Estonia, Latvia and Lithuania. A strong and stable national currency safeguards a nation’s independence and economic stability. In the Baltic nations, deficit-free budget has become the strategic goal one was desperately trying to achieve. This cost the countries a lot, with serious budget limitations introduced especially affecting the social sphere. Borrowing was not even taken to account as a possible solution, until in recent years. By this time, however, the national financial systems have de jure seized to exist. One fact is worth noting in relation to this circumstances: when visiting Vilnius on Jan 14, 2015, Donald Tusk, Chairman of the European Council (Poland’s ex-Prime Minister) called euro adoption in Latvia ‘a historic moment’[9]. No one was curious then, though,  why Mr. Tusk had done his best in his country for this ‘historic moment’ to be avoided there.

The fact is that joining the European Union had a relatively narrow effect on Baltic nations, since these countries already had the right to sell 60- to 65 percent of its commodities on a duty-free basis while being associated partners of the EU. Moreover, since 2001 industrial commodity trade there has been totally duty-free.[10]

Liberalism can be called the second cornerstone of the Estonian economic policy, meaning renunciation of protectionism, free and toll-free trade with neighbors (alcohol, tobacco and some other goods excluded), and relatively low taxes (business tax rate is 26%). This kind of approach encourages saturation of inner market and comparatively low prices, as well as foreign investment and cargo flow growth, which are per capita higher than in Russia. However, this approach creates certain obstacles. Taking into account the protectionist and discriminating fee policy currently maintained by other countries, the inner market stays vulnerable as Estonian-made goods are not competitive enough. This leads to the domination of imported goods, making it harder for its own producers to develop, especially in agriculture.

The third important point is fast, successful reforms in agrarian and  municipal sphere, as well as housing and utilities.

The economic recession during the transformation crisis was deep in the Baltic nations: the economy fell –35% in Estonia, –49% in Lithuania and –52% in Latvia. IEstonia was the first to cope with its consequences in 2001 and reach the pre-crisis level of 1989. The result was its GDP growing 158 percent of this base. Economic progress of Latvia and Lithuania was not that impressive: 115 and 111% respectively.[11]

The comprehension of the complicated development processes and the acknowledgement of initial mistakes in reforming become (though still not frequently) the subject for discussions among the economists in the Baltic counries.[12]Before 2008, such discussions were yet not acceptable in the ‘Baltic tiger’ countries that showed 7 to 9 percent growth each year. There was not much talk of the 12 to 19 percent decrease at the time. Instead, the fact that the country survived the 2008-2009 crisis was treated as a true success story.[13]

Table 4. GDP Growth, %.

The Baltic countries’ dependency on Russian oil and gas and energy supply was a serious challenge for Latvia, Lithuania and Estonia, as well as the fact that the three were included in the Soviet-era cargo transportation system in which cargo flows from their sea ports were eastbound. The result was that the Baltic region obtained a predominant status of a  transitional, by-pass cargo hub. Russia is Latvia’s third largest trade partner, with 10 percent of its trade operations, and Estonia’s fourth biggest trade partner (with 8.4%). Speaking of Lithuania, Russia is number one partner for the country, holding 25% of all trade volume, which is three times higher than with Lithuania’s second biggest partner, Germany (8.4%).[17]However, a shrinking trade volume with Russia has also tended to cause macroeconomic decrease. Unlike in 2013, in 2014 Estonia was the third among the Baltic states as far as GDP growth is concerned. Annual GDP growth was 2.4% in Latvia, 2,9% in Lithuania and 1,8% in Estonia[18]. These figures may look optimistic in present-day Europe, but they will never allow, as people used to say in the USSR, ‘to catch up and overtake’ any other EU country – except for Greece, perhaps.

Expert say that the total exports from the Baltic countries to Russia may fall 18 to 25 percent in 2015, resulting in $780 million deficit for Lithuania, Latvia and Estonia, however, their growth is expected to lose 1.3 to 1.7 percent less that last year. In terms of money, the countries are about to lose $1.58 billion[19]. Isthissum critical? Let’s see: the estimated budget revenue in 2015 is about 7.25 billion euros for Latvia[20], same for Estonia and a little more for Lithuania. Apparently, 250 million euros for each country is big money.

To summarize the above, the economic model that was built in the Baltic countries is economically viable, at least on the mid-term horizon. IF the outer conditions are relatively stable, one can predict a 1.5 to 2.0 GDP growth. In case military and infrastructural expenditures grow, the real income growth will be close to zero. Stagnation of exports and decrease in transit will contribute to destabilization of the economies in the region.

However, the real problem lies elsewhere. The fact that real historical problems of the past are constantly emphasized helps to preserve anti-Russian sentiments on the level of the elite, that tends to capitalize, politically and even financially while encouraging and practicing Russophobic rhetoric. The window of opportunities for co-operation with Russia is constantly shrinking. The Baltic elites preferred to stay away from consistent solution-seeking process and take part in political, rather than economic, discussions. One of the reasons for this (which has never mentioned before, nor will be in the foreseeable future) is that no elite in the Baltics is free to choose its political agenda. In this context, the Baltic countries are quite similar to Belarus rather than Poland or Russia.

There is an opinion that is often heard in the economist community, that European economic development has been derailed. In the past, we knew that politics and economy interact dialectically; nowadays, economy simply becomes a tool for policy to achieve its goals. The golden age of the European economy that lasted from the 1950s till about 2007, has come to an end. European growth will no longer be 3-5 percent, and this situation will take place until the whole political and economic paradigm is changed.

The brilliant success of European integration is obvious. Europeanist ideas that resurrected after WWII have proved to be robust and viable. However, new challenges of 2008-2015 put an end to the  model of development which our European home had. This is true for the Baltic nations which are fully dependent on both European and their own model of development.

[1] Шадрин А. Экономический фактор политики сепаратизма в республиках Советской Прибалтики // КМЦ Прикладной этнографии Института этнологии и антропологии РАН Москва, 1996.

[2] Агафонов Н.Т, Литовка О.П, Исляев Р.А. Государственная стратегия регионального развития России: смена парадигмы территориальной организации общества СПб 1998 с.39

[3]Misiunas R. Taagepera R. The Baltic States: Year of dependence 1940-1980 L. 1983 р.104

[4] Гареева Н. Э.,  Шкель С. Н. Теория модернизации и социально-экономические факторы демократизации в контексте политических трансформаций на постсоветском пространстве
http://gisap.eu/ru/teoriya-modernizatsii-i-sotsialno-ekonomicheskie-faktory-demokratizatsii-v-kontekste-politicheskikh

[5] Межевич Н.М. Геополитическое положение Эстонской ССР: мифы и реальность // Политическая география и современность. Региональные и прикладные аспекты: Л.ЛГУ, 1991

[6] Самонис В. Трансформация литовской экономики: от Москвы к Вильнюсу и от плана

к рынку. Варшава: CASE, 1995; Григорьев, Л.М. Конкуренция и сотрудничество: экономические перспективы Восточной Балтики Москва 2005.

[7] Путь в Европу // Под. общ. ред. И. М. Клямкина и Л. Ф. Шевцовой. М.: Новое издательство. 2008. С. 39.

[8] Берзиньш Ингус Они дают нам работу[8] http://www.baltic-course.com/archive/rus/13/reyting.htm Дата обращения 11.03.2015

[9] Руководство ЕС приветствовало вступление Литвы в еврозону http://dw.de/p/1EKhU

15.01.2015

[10] Бройсс Ф. Макроэкономические последствия расширения ЕС для его старых и новых членов // Проблемы теории и практики управления. 2003. № 5. С. 29.

[11] Актуальные вопросы мировой экономики: 2010 – 2012. Под общей редакцией Григорьева Л.М., Иващенко А.С. Балтийский форум 2012 с.53

[12]Grigas A., Kasekamp A., Maslauskaite K., Zorgenfreija L., “The Baltic states in the EU: yesterday, today and tomorrow” // Studies & Reports No 98, Notre Europe – Jacques Delors Institute, July 2013.

[13]Dudzińska Kinga  The Baltic States’ Success Story in Combating the Economic Crisis: Consequences for Regional Cooperation within the EU and with Russia // POLICY PAPER

No. 6 (54), POLSKI INSTYTUT SPRAW MIEDZYNARODOWYCH March 2013

[14] RAA012: SISEMAJANDUSE KOGUPRODUKT JA KOGURAHVATULU (KVARTALID) // Eesti Statistika andmebaas. URL: http://pub.stat.ee/px-web.2001/dialog/varval.asp?ma=RAA012&ti=SISEMAJANDUSE+KOGUPRODUKT+JA+KOGURAHVATULU+%28KVARTALID%29&path=../database/Majandus/15Rahvamajanduse_arvepidamine/06Sisemajanduse_koguprodukt_%28SKP%29/02Pehilised_rahvamajanduse_arvepidamise_naitajad/&search=SISEMAJANDUSE+KOGUPRODUKT+JA+KOGURAHVATULU&lang=2. Дата обновления: 11.03.2013.

[15]Eurostat http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=tec00115

[16] Statistical Yearbook of Lithuania, 2012 http://web.stat.gov.lt/uploads/metrastis/1_LSM_2012.pdf

[17] Зельценберг В. Легче застрелиться: страны Балтии подсчитывают убытки от девальвации рубля http://bb.lv/rinki-i-kompanii/item/9160776-legche-zastrelitsya-strany-baltii-podschityvayut-ubytki-ot-devalvatsii-rublya  22.12.2014

[18] По росту ВВП Эстония заметно отстает от остальных стран Балтии http://rup.ee/rus/novosti/ekonomika-i-biznes/po-rostu-vvp-estoniia-zametno-otstaet-ot-ostalnykh-stran-baltii 27.03.2015

[19] Как российский кризис скажется на экономиках стран Балтии http://rup.ee/rus/novosti/mirovaia-ekonomika/kak-rossiiskii-krizis-skazhetsia-na-ekonomikakh-stran-baltii 25.03.2015

[20] Доходы госбюджета Латвии в 2015 году составят 7,25 млрд. евро http://www.baltic-course.com/rus/finansi/?doc=99880 БК, Рига, 09.12.2014.

The relations of Russia with the North European countries have a special place in European politics. The atmosphere of these relations has evolved over many centuries, when countries traded and fought with each other, concluded dynastic alliances, explored the Northern sea and shared cultural and scientific achievements with each other. These relations were deep and multifaceted. Their bloom came in the days of the Hanseatic League, among whose participants were many Russian cities ― Novgorod, Pskov, Tikhvin, Belozersk, Tot’ma, Torzhok, Tver, Velikyi Ustyug, Revel and others. However, not only trade relations determined the nature of mutual relations between Russia and the North European countries, as marriage of state also played an important role. A significant mark in Russian history was left by Empress Maria Feodorovna, born Danish Princess Marie Sophie Frederikke Dagmara, who became the wife of Emperor Alexander III and mother of the last Russian Emperor Nikolay II.

Perhaps the most serious test of the relationship took place during the Great Northern War, when Peter the Great “cut the window” into Europe in spite of Sweden and strengthened the military position of Russia on the Baltic Sea. European capitals were not happy about the strengthening of Russia on the Baltic Sea, but after a while Stockholm and Copenhagen admitted the increasing influence of Russia on world politics. A century after Poltava Victory at the beginning of the XIX century, Russia made an enormous contribution to the development of the Finnish state, including it in its membership and granting the broadest autonomy to the Grand Duchy of Finland. Finally, in the XX century, the Soviet Union made a major contribution to the liberation of Europe from fascism; Soviet troops took part in the liberation of North Norway from Nazi troops.

The present stage of this relationship was marked by the “cold war”, when during the confrontation between West and East the policy of restraint and neutrality was used by social democratic governments of Sweden and Finland, what helped to create at that difficult time a climate of trust between the countries, belonging to different military-political blocs. Despite the fact that the level of mutual trust at that time was not always very high, it was fully offset by restraint in military and strategic issues, as well as the desire to preserve regional stability.

As you know, three of five North European countries (Norway, Denmark and Iceland) were fully integrated into the North Atlantic alliance, the first two even worked out plans in case of an armed conflict with the Soviet Union, while Sweden and Finland remained neutral. At the same time Finland had a special place in the relations with the West and the Soviet Union. Its sovereignty was partially limited by a treaty with the Soviet Union in 1948, in which both countries made a commitment “not to conclude any alliance and not to participate in the coalition directed against another High Contracting Parties”[1].

The disappearance of the USSR and the victory of Western democracy inspired many people to revise previous models of interaction. In the 1990s, the Finnish model was rejected by the supporters of the Euroatlantic choice and new generation of politicians of the North European countries, representing the right-wing conservatists. At the same time due to a misunderstanding were forgotten unique achievements of this model of relationship. Meanwhile, the historical significance of the model “Finlandization” lay in the fact that with the help of it Finland, on one hand, significantly reduced the risk of being involved in a confrontation between East and West, and on the other hand ― it was able to take full advantage of the economic benefits of its geographical location and the Soviet-Finnish border. The model of “Finlandization” opened access to capacious Soviet market for the high-quality Finnish goods and helped our northern neighbour to avoid confrontation with Moscow, didn’t allow to draw The Country of Thousands of Lakes in dubious military and political maneuvers that could have escalated into an armed conflict.

Whatever it was, already at a new historical stage in the 1990s and the first half of the 2000s, the basis of these relations contained the idea of maintaining a sub-regional stability, improving the climate of trust and sustainable development. Thus the development meant not only an increase in turnover, but also the creation of democratic institutions, which would bring together the political systems of Russia and the North European countries. The indicator of progress in this direction was the emergence of subregional organizations (CBSS, BEAC), as well as the attempt to create a common space of development, expressed in the concept of “Northern Dimension”.

This stage of relations between Russia and the North European countries lead to serious contradictions, which had the ideological character. Russia agreed to adopt Western liberal democratic model for the creation and development of the Russian government institutions and local governments, but strongly disagreed with the fact that the Western liberal ideology would completely replace its national identity, abolish religious standards and force Russia to sacrifice its national interests in the nearest countries. For example, the North European countries really did not understand Russia’s reaction to the infringement of the rights of Russians in the Baltic States, believing that the imperial period of Russian history should have stayed in the past.

From its side, Russia did not understand a lot in the politics and actions of the North European countries. It was difficult to realise, for example, the reason for increased military budgets of Sweden and Finland against the significant reduction of the Russian military capacity after the collapse of the USSR and the subsequent reductions in the 1990s. It was hard to understand, why the withdrawal of the Soviet troops from the Baltic countries was not accompanied with a normalization of relations with Moscow, but instead led to a serious deterioration of relations in almost all important areas ― political, economic and humanitarian. Russia sincerely hoped that the North European countries, which took care of young democracies in the Baltic States, would be able to convince them of the need to ensure the equal rights of Russian-speaking population, especially since similar rights were provided to all national minorities living in the North European countries. Russia did not understand the need of the entry of the Baltic States into NATO, as well as the upsell of the thesis about the “Russian threat” by the leadership of the republics.

Over the past 10-15 years Russia’s relations with the countries of North Europe continued to develop on its special path, alternating the periods of recovery and recession. Significant milestone of this relationship became the restart of the program “Northern Dimension” in 2006. As a result, Russia was proclaimed the main target of this initiative, as originally proposed by the author of the idea of “Northern Dimension” – Finland. The program received a new framework document, identified new joint projects. ND had at its disposal two new partnerships ― in the field of transport and logistics (2008), as well as in the field of culture (2011).

However, two years later relations were spoiled by the events in the Caucasus, where Russia came to the defense of the interests of Abkhazia and South Ossetia, and the Scandinavian countries supported Georgia’s position. Then Swedish Foreign Minister Carl Bildt compared Russia’s actions to protect its citizens with the actions of Hitler’s annexation of the Sudetenland. After 8 years, he also condemned Russia’s annexation of the Crimea, comparing the policies of the President of Russia with the seizure of Kuwait by Saddam Hussein[2]. The fact that these statements were not a spontaneous and short-term splash of emotions, was confirmed by the events of 2008, when Poland and Sweden became the ideological inspirers of “Eastern Partnership”, the purpose of which was the gradual integration of the former Soviet Union in Western institutions. Anti-Russian orientation of the initiative was read between the lines.

In fact, the crisis in the Caucasus in 2008 and the promotion of the “Eastern Partnership” exacerbated the competition between Russia and the EU for the political dominance in the former Soviet Union, and a very active role in the EU’s eastern policy was played by two countries ― Poland and Sweden. From the point of view of Western countries, it looked as a competition between a neo-imperial project, which was supported by Russia as the center of Orthodox Slavic civilization and Western liberal project, aimed at establishing the economic, ideological and informational control over the European CIS countries, as well as the states of Transcaucasus. In this case, the coexistence of “Northern Dimension” and “Eastern Partnership” did not mean a fundamental difference of opinions between Finland and Sweden.

Preserving a common approach and a common strategy towards Russia, Stockholm and Helsinki disagree on tactics: if the project “Northern Dimension” is supported by Finland and is aimed at the gradual democratization of Russia and rapprochement with the West, the project “Eastern Partnership”, which is backed by Sweden, in fact recognizes that Russia is unlikely to be part of the Western world in the foreseeable future, and aims to establish control over the newly independent states established on the ruins of the Soviet Union.

Political upheaval and civil war in the Ukraine in this sense are not the starting point of the crisis in relations between Russia and the North European countries, but is a new stage of ideological confrontation, which was indicated in the middle of the 2000s. The aforementioned Swedish politician does not hide it as well. According to Carl Bildt, Russia in the 1990s demonstrated commitment to Western values, but with the coming of Vladimir Putin to power Moscow faced tough opposition to the Western policy. Former Minister of Foreign Affairs of Sweden believes that the contradiction between Russia and the West is of a fundamental ideological character: “The new anti-Western and antidecadent line of Putin is built on deeply conservative orthodox ideas»[3].

It must be noted that the offensive Western policy towards Russia, combined with tough rhetoric of certain Western politicians have almost fully revived the political atmosphere of the “cold war”, and the media of the West has begun to carefully sculpt an “enemy image” from Russia. How long will the new “cold war” be, and how long will be the economic sanctions against Russia? This raises the third question: what is the position of countries on this issue? In particular, what do leaders and leading politicians of the North European countries think about it?

Many years of mutually beneficial cooperation have taught many to conclude that the North of Europe is quite a well-off region and Russia’s relations with the countries of the region seem to be promising and mutually beneficial. And, in fact, there were no open conflicts in the North of Europe with the participation of Russia, except for those systematic violations of the rights of Russians living in the Baltic states, and they mostly boil down to two main problems: failure of Latvia and Estonia to grant citizenship to all residents, who were born there and lived at the time of the declaration of independence of these countries, as well as the denial of the right of these people, and especially ― their children ― to receive education in their native language. In 2010, Russian initiative was to settle the dispute between Russia and Norway regarding the section of the Barents Sea between two countries. Thus, all potential conflicts in the region have been minimized.

However, it did not prevent the Norwegian oil company Statoil from withdrawing from the joint project of developing the Arctic shelf with Russia; Norway declared that its sanctions and EU sanctions against Russia wouls be cancelled only when Russia changed its policy in Ukraine. Explaining the position of the state, Norwegian Foreign Minister Børge Brende recalled that the sanctions against Moscow were introduced after the annexation of the Crimea, as well as other “violations of the international law in the eastern regions of Ukraine[4].

It should be noted that Norway not being a member of the EU, was free on the question of participation in the sanctions, as well as on the issue of the degree of its rigidity and duration. For example, Turkey, which, together with Norway being a member of the North Atlantic Alliance, decided not to join the sanctions at all, because it saw it as a threat to its national interests in the Black Sea region.

The fact that Norway did not simply join the sanctions, but chose their toughest variant, signifies either a serious crisis in bilateral relations, or that the foreign policy of Norway on the question of sanctions is completely subordinated to politics of Washington or Brussels. This situation has opened another unpleasant situation for Russia’s foreign policy: the signing of a bilateral agreement between Moscow and Oslo on the delimitation of the disputed waters of the Barents Sea in 2010 and reciprocal steps by President Medvedev had absolutely no effect on improving the climate of bilateral relations. Nevertheless, even in Norway one can hear louder voices of opposition to the current position of the country with regard to Russia. Thus, ex-Minister of Foreign Affairs Jonas Gahr Støre recalled “the millennial experience of a peaceful neighborhood” with Russia.[5].

Thus, the events of the Ukrainian crisis has shown that the most irreconcilable and active critics of Russia’s actions are the North European countries, namely Sweden, Norway and Denmark. Acuity of their position is not inferior to the positions of the United States and Canada, and on the degree of hardness it’s stronger that one of France and Germany. On the contrary, Finland and Iceland at the outset showed much more balanced position, based on considerations of economic pragmatism dominated the political arguments.

Finland’s position from the beginning tended to a compromise, and Prime Minister Alexander Stubb has repeatedly spoken out against imposal, extension and tightening of the sanctions, as the importance of Russia for the Finnish economy is too huge[6]. It can be explained by the fact that among all North European countries, Finland faces the greatest losses from the sanctions regime, as well as the impact from Moscow responses, which imposed a total ban on exports of beef, pork, vegetables and fruit, meat, poultry, fish, cheese, milk and dairy products to Russia.

Denmark and the Danish Board of Agriculture and the Economy also warned on the serious impact of Russian counter-sanctions on its economy. According to the National Institute of Statistics of Denmark, exports to Russia in 2013 amounted to 2.14 billion USD, of which 891 million USD accounted for agricultural exports. At the same time, the share of Russia in the exports of Denmark does not exceed 1.9%, which allows the country’s leaders to insist on the continuation of anti-Russian sanctions. This, in particular, was declared by Prime Minister Helle Thorning-Schmidt[7].

According to the polls carried out in March 2014 by Taloustutkimus, the majority of Finnish society (60%) is foreign to anti-Russian sentiment, and Russia is not perceived as a threat. Finnish President Sauli Niinistë agrees with the opinion of the Finnish society: “We are neighbours. Unlike other neighbours of Russia, we are not members of NATO. Our relations with Russia are based on bilateral contacts”[8]. The position of Finland is not opportunistic, but consistent and is based on the mood of the majority of Finnish society, which has been recently shown by the events, when the Finnish leadership voted against the supply of arms of Kiev authorities^[9].

Against the balanced and moderate position of Finland Sweden is continuing to demonstrate hardness against Moscow. Swedish Foreign Minister Margot Wallström said that Russia poses a serious threat to the security of Europe, however, along with the pressure on Russia one should continue political dialogue as well[10]. The announcement of Ambassador of Sweden in Russia Veronika Bard Bringus was in similar mode, when she did not exclude the possibility of exit of Swedish companies from the Russian market[11]. The main argument of the Ambassador was the situation with the Swedish concern Oriflame, which was accused by Russian tax authorities of deliberately understating the company’s revenues for the reduction of tax payments to the Russian budget. After losing the lawsuit in the Russian arbitration court, the company announced its intention to appeal to the international investment arbitration.

It should be noted that the current crisis in Russian-Swedish relations is not accidential. Stockholm has long been regarded Russia as a threat to its security, and therefore critically perceives any Russian actions of political or economic nature, aimed at strengthening the security of Russia in the Baltic Sea, whether it’s laying of the pipeline “Nord Stream” or the development of the military infrastructure of the Baltiysk and Kronstadt.

The story of unsuccessful search for “Russian submarine” in Swedish territorial waters in October 2014 recalled a similar story from “cold war”, when in 1981, a Soviet damaged submarine was discovered close to the Swedish naval base at Karlskrona. Stockholm reacted to Russia’s actions to ensure security of Abkhazia and South Osetia with obvious disapproval, accusing Moscow of violating the territorial integrity of Georgia. A similar position was taken by the Swedish Ministry of Foreign Affairs in Crimean issue.

Playing the “Russian card” and the spread of the thesis of the “Russian threat” was the brand style for a number of leading Baltic politicians. The toughest position on the Russian question among the Baltic States has traditionally been shown by President of Lithuania Dalia Grybauskaite. In her opinion, three Baltic countries faced “Russian threat” and they should be ready to respond to it during three days at least, until they get assistance from NATO members[12]. However, a different position was shown by Latvian President Andris Berzins, who does not support the imposal of sanctions and calls for their soonest cancellation. His views are shared by Foreign Minister of Latvia Edgar Rinkevich and Ventspils Mayor Aivars Lembergs.

Some political consequences of the deterioration of relations of North European and Baltic countries with Russia within the framework of the Ukrainian crisis followed shortly. In particular, it was reflected with newly resumed talks on accession of Sweden and Finland into NATO, the North European countries and the Baltic States published their plans to deepen cooperation in defense and security. So, the ongoing projects within the North European defense cooperation (Nordic Defence Cooperation ― NORDEFCO) were joined by the Baltic States ― Latvia, Lithuania and Estonia[13].

Minister of Foreign Affairs of Sweden, Margot Wallström was the initiator and inspirer of the plan; she declared that military cooperation between the North European countries and the Baltic countries would decrease defense expenses and improve cooperation on border security. Russia replied immediately by performing tactical flight exercises in the Barents Sea, which were attended by the crews of fighter-interceptor MiG-31 and tactical bomber Sukhoi Su-24M of Central Military District[14].

Thus, Russia’s relations with the countries of Northern Europe are developing in an unfavorable scenario; however, there is still some potential for a gradual improvement in case of easing policy by the majority of the North European countries in respect of Russia. In this situation, the most pressing question is what position will prevail: the policy of deepening confrontation or a pragmatic and balanced policy aimed at overcoming the sanctions crisis. It seems no one can state the way of further development of relations between Russia and the North European countries, as Brussels and Washington both have a strong impact on the foreign policy of the North European countries. We can only hope for traditional Scandinavian sanity, willingness of all parties to move towards each other and take into account the legitimate interests of Russia.

The list of bibliography:

1.         Dogovor o druzhbe, sotrudnichestve i vzaimnoy pomoshi mezhdu Sojuzom Sovetskikh Socialisticheskikh Respublik i Finljandskoy Respublikoy. URL: http://www.heninen.net/sopimus/1948_e.htm

2.         V Danii opasajutsja posledstviy rossijskikh sankciy URL: http://russian.rt.com/article/44314

3.         Karl Bil’dt. Putin povel sebja kak Saddam URL: http://www.bbc.co.uk/russian/multimedia/2014/07/140708_v_bildt_hard_talk_int

4.         Litva pugaet Pribaltiku «rossiyskoy ugrozoj». URL: http://www.stoletie.ru/lenta/litva_pugajet_pribaltiku_rossijskoj_ugrozoj_423.htm

5.         MID Norvegii: tol’ko izmenenie politiki RF v otnoshenyi Ukrainy privedet k snjatiu sankciy. URL: http://versii.com/news/320114/

6.         Nad Barencevym morem proleteli 40 istrebiteley URL: http://www.stoletie.ru/lenta/nad_barencevym_morem_proleteli_40_istrebitelej_555.htm

7.         Norvegiya dolzhna prodolzhat’ politiku dobrososedstva s RF. URL: http://www.norge.ru/news/2015/02/14/26538.html

8.         Nosovich, Aleksandr. Baltijskiy kontrast: Finljandiya otkazalas’ otvorachivat’sa ot Rossyi. URL: http://www.rubaltic.ru/article/politika-i-obshchestvo/baltiyskiy-kontrast-finlyandiya-otkazalas-otvorachivatsya-ot-rossii/

9.         Posol Shvecyi: v RF sozdajutsja prepjatstviya dlja raboty shvedskihk companiy URL: http://1prime.ru/state_regulation/20150306/804132680.html

10.       Pravoslavie ― glavnaya ugroza dlya Zapadnoy civilizacii: mnenya. URL: http://www.iarex.ru/interviews/47573.html

11.       Prem’er Finljandiyi: Ukraine ne nuzhna voennay pomoshh’ URL: http://vz.ru/news/2015/2/4/727740.html

12.       Strany Severnoy Evropy I Baltiki dogovorilis’ ukrepit’ voennye svjazi. URL: http://vzgliad.ru/news/2014/11/30/717796.html

13.       Shadrina, Tat’jana. Finljandijaotkazalas’ otsankcij k Rossii URL: http://www.rg.ru/2014/08/14/finlyandiya-site.html.

14.       Wallström, Margot. Rysslandettallvarligt hot mot Europasfred. // SvenskaDagbladet, 6 mars. URL: http://www.svd.se/opinion/brannpunkt/ryssland-ett-allvarligt-hot-mot-europas-fred_4388101.svd

[1] Договор о дружбе, сотрудничестве и взаимной помощи между Союзом Советских Социалистических Республик и Финляндской Республикой / Agreement of Friendship, Cooperation, and Mutual Assistance with the Soviet Union. URL: http://www.heninen.net/sopimus/1948_e.htm

[2] http://www.bbc.co.uk/russian/multimedia/2014/07/140708_v_bildt_hard_talk_int

[3] Православие – главная угроза для Западной цивилизации: мнения. / Orthodoxy is main threat to Western civilization . opinions / URL: http://www.iarex.ru/interviews/47573.html

[4]МИД Норвегии: только изменение политики РФ в отношении Украины приведет к снятию санкций. URL: http://versii.com/news/320114/ / MFA Norway: only changes of Russia’s policy in respect of Ukraine will lead to cancellation of sanctions

[5] Норвегия должна продолжать политику добрососедства с РФ. URL^: http://www.norge.ru/news/2015/02/14/26538.html. / Norway must continue policy of neighbourliness with Russia.

[6]http://www.rg.ru/2014/08/14/finlyandiya-site.html

[7]http://russian.rt.com/article/44314

[8] Носович, Александр. Балтийский контраст: Финляндия отказалась отворачиваться от России. URL: http://www.rubaltic.ru/article/politika-i-obshchestvo/baltiyskiy-kontrast-finlyandiya-otkazalas-otvorachivatsya-ot-rossii/ / Nosovich Alexander. Baltic contrast: Finland refused to turn back from Russia

[9]Премьер Финляндии: Украине не нужна военная помощь URL: http://vz.ru/news/2015/2/4/727740.html / PM of Finland: Ukraine does not need military aid

[10]Wallström, Margot. Rysslandettallvarligt hot mot Europasfred. // SvenskaDagbladet, 6 mars URL:http://www.svd.se/opinion/brannpunkt/ryssland-ett-allvarligt-hot-mot-europas-fred_4388101.svd

[11]Посол Швеции: в РФ создаются препятствия для работы шведских компаний URL:http://1prime.ru/state_regulation/20150306/804132680.html / Ambassador of Sweden: Russia imposes difficulties for activity of Swedish companies

[12] Литва пугает Прибалтику «российской угрозой». URL: http://www.stoletie.ru/lenta/litva_pugajet_pribaltiku_rossijskoj_ugrozoj_423.htm / Lithuania threatens Baltics by “Russian threat”

[13]Страны Северной Европы и Балтики договорились укрепить военные связи. URL:http://vzgliad.ru/news/2014/11/30/717796.html / The North European countries and Baltics agreed on strengthening military cooperation

[14]URL:http://www.stoletie.ru/lenta/nad_barencevym_morem_proleteli_40_istrebitelej_555.htm