Barriers to Trade Encountered by Finnish Businesses in 2009 and Means to Address them

Barriers to Trade Encountered by Finnish Businesses in 2009 and Means to Address them MINISTRY FOR FOREIGN AFFAIRS OF FINLAND

Barriers to Trade Encountered by Finnish Businesses in 2009 and Means to Address them Editors: Aaron Vuola Selina Kangas Ari Sormunen Leila Vilhunen

Table of contents: ABBREVIATIONS AND ACRONYMS... 3 FOREWORD... 5 EXECUTIVE SUMMARY... 7 1. SURVEY ON BARRIERS TO TRADE 2008-2009... 9 2. FINLAND'S MOST IMPORTANT EXPORT AND IMPORT MARKETS IN 2008... 11 2.1 EXPORT MARKETS - RUSSIA IN LEAD POSITION, FOLLOWED BY SWEDEN AND GERMANY... 11 2.1 IMPORT MARKETS - THE SAME COUNTRIES HOLD LEAD POSITION ALSO IN IMPORTS... 13 3. BARRIERS TO TRADE ENCOUNTERED BY BUSINESSES... 15 3.1 TRADE BARRIERS BY TYPE OF BARRIER... 15 3.1.1 External markets - customs procedures, high customs tariffs and TBTs dominate... 15 3.1.2 Internal market - Technical barriers to trade and competition environment as a nuisance... 22 3.2 BARRIERS TO TRADE BY SECTOR... 27 3.2.1 The most frequent barriers in the external markets - ICT and machines and equipment sectors... 27 3.2.2 Internal market - Barriers most common in the service sector... 32 3.3 BARRIERS TO TRADE BY COUNTRY... 35 3.3.1 External markets - over 40% of all identified problems encountered in Russia... 35 3.3.2 Internal market - most barriers in Finland and in the Baltic States and Poland... 40 4. MEANS TO ADDRESS BARRIERS TO TRADE... 43 4.1 BARRIERS TO TRADE IN THIRD COUNTRY MARKETS... 43 4.1.1 Bilateral instruments... 44 4.2 COMMON COMMERCIAL POLICY OF THE EC... 45 4.2.1 Multilateral cooperation... 46 4.2.2 Bilateral agreements between the EC and Third Countries... 49 4.3 MEANS TO ADDRESS BARRIERS ENCOUNTERED IN THE INTERNAL MARKET... 51 4.4 OTHER MEANS... 52 5. IN CONCLUSION... 53 2

Abbreviations and acronyms ACP = African, Caribbean and Pacific Group of States ASEAN = Association of Southeast Asian Nations, established in 1967. Member countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. BASREC = Baltic Sea Region Energy Co-operation BEE = Black Economic Empowerment, South African Government's policy to improve the position of its black citizens. CEFACT = United Nations Centre for Trade Facilitation and Electronic Business CIS = Commonwealth of Independent States, formed by several former Soviet republics. Membership: Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Uzbekistan, Belarus and Russia as well as Associate Member Turkmenistan. DDA = Doha Development Agenda EC = European Community EEA = European Economic Area; EFTA and the EU together (excluding Switzerland) EFTA = European Free Trade Association, an intergovernmental organisation set up to promote free trade and economic integration of its four Member States: Iceland, Liechtenstein, Norway and Switzerland. EK = Confederation of Finnish Industries EPA = Economic Partnership Agreement EU = European Union FDA = Food and Drug Administration, USA GATS = General Agreement on Trade in Services GATT = General Agreement on Tariffs and Trade GCC = Gulf Cooperation Council GPA = General Agreement on Government Procurement, international agreement negotiated in the WTO, applying to public procurement ICT = Information and Communication Technology IPR = Intellectual Property Rights ITA = Information Technology Agreement MFA = Ministry for Foreign Affairs NTB = Non-Tariff Barriers, trade issues such as technical, bureaucratic or legal questions, which can result in impediments to trade OECD = Organization for Economic Cooperation and Development, established in 1961 PCA = Partnership and Cooperation Agreement SASO = Saudi Arabian Standards Organization SFS = Finnish Standards Association SPS = Sanitary and Phytosanitary Measures, regulations aimed at protecting human, animal and plant life and health, and helping to ensure that food is safe for consumption TBT = Technical Barriers to Trade (WTO) TEKES = Finnish Funding Agency for Technology and Innovation TRIPS Agreement = An Agreement on Trade-Related Aspects of Intellectual Property Rights, which covers copyright and related rights, trademarks, including service marks, geographical indications, industrial designs, patents, layout designs (topographies) of integrated circuits, and undisclosed information. UN = United Nations UNECE = United Nations Economic Commission for Europe VAT = value added tax VKE = Promotion of export and internationalisation WCO = World Customs Organization WTO = World Trade Organization 3

Foreword Dear readers, The promotion of the competitiveness of Finnish enterprises is one of the key goals of the Government and the main task of those responsible for trade policy. Companies' production structure and interests related to internationalisation benefit from open markets. Our companies' unrestricted and equitable access to export markets and an open and effective import system are critical aspects from the point of view of maintaining the competitive capacity. The removal of barriers to trade is an area in which the public authorities can provide concrete assets to companies and thus foster Finnish welfare and employment. The present survey on the barriers to trade that Finnish businesses encounter has been prepared with this goal in mind. By means of cooperation between the private sector and the public authorities, we want to keep closely abreast of the goals set by Finnish businesses in their foreign trade and of problems met by them in order to be able to address any questions as effectively as possible and to pursue our trade policy goals on different trade policy forums. Such forums are, for example, the World Trade Organization WTO negotiations, the EU's free trade negotiations with third countries, and our bilateral contacts with different countries. During my export promotion visits, I have actively sought to resolve many trade barriers. When the survey was started in early autumn 2008, the global economic situation looked somewhat different from what it is today. The full effects of the economic crisis started to show at the turn of 2009 and, consequently, companies' external operating environment has changed markedly on account of substantial reduction in international trade. In many export markets that are important for us, protectionist measures have been resorted to in an effort to protect the countries' own economies and businesses and to safeguard their domestic production capacities. If, as a result of an economic downturn, protectionism started to gain ground in a large scale, our situation would be very complicated. To date, protectionist measures have not been as extensive as was feared at first. However, the adverse effects on individual businesses can be considerable. The current world situation characterised by the economic crisis highlights the importance of the promotion of export and internationalisation and especially work aiming at the removal of trade barriers. Therefore, the results obtained from this survey will contribute particularly valuable elements to the preparation of Finland's trade policy and the practical export promotion measures. I want to thank all those who have been involved in the preparation of this report for excellent cooperation. It is important that we continue the dialogue, and that companies and other actors are active and contact us whenever they encounter barriers to trade or investment in their foreign trade. Paavo Väyrynen Minister for Trade and Development 5

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Executive summary The purpose of this report is to give an overview of the kind of problems Finnish companies encounter in their export and import trade. The report also sheds light on the available means to remove trade barriers. The material used in the report is based on trade barriers that have in general been brought to the attention of the Ministry for Foreign Affairs and on the replies to the survey on trade barriers conducted in 2008. The goal is thus to form an idea of what kind of barriers companies face and a general picture of their current operating environment. In the external markets, the majority of the problems concern customs clearance, customs tariffs, and technical barriers to trade (TBTs). Russia features most prominently in nearly all sectors and in almost all barrier categories. Russia is Finland's most important trading partner and, for example in 2008, it was the largest single export and import market area in terms of euro. As far as the internal market of the EU is concerned, the problems are shared by a large number of countries. Considering barriers to export, above an average number of internal export disturbances are encountered in Poland, the Baltic states and Germany. The most prominent barrier types are technical barriers to trade, competition conditions, and issues related to taxation. As regards technical barriers to trade, the results of the survey confirm the view that as a result of the progress in the harmonisation of technical provisions at EU level, they have become less frequent. The great number of TBTs reported in Finland can be explained by the fact that, in general, problems encountered in the domestic markets are better known than problems confronted in the export markets. As far as import is concerned, the anti-dumping measures applied by the EU attracted criticism. In the report, trade barriers encountered by companies are divided by sector, type of barrier and country. All of them are discussed from the point of view of both the external and internal markets. The intention is to help readers study the report in light of own interests. The end of the report is devoted to removal of barriers to trade. The content of the report is based on information obtained from companies and does not, therefore, necessarily represent the views of the Ministry for Foreign Affairs and the Ministry for Employment and the Economy, which are the public authorities in Finland responsible for barriers to trade. 7

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1. Survey on barriers to trade 2008-2009 In autumn 2008, the Ministry for Foreign Affairs, jointly with the Ministry of Employment and the Economy, the Confederation of Finnish Industries, the Central Chamber of Commerce, the Federation of Finnish Enterprises and Finpro, carried out a survey concerning barriers to export, import and investment. The survey was conducted in the form of a questionnaire, sent to about 2500 Finnish businesses engaged in foreign trade. The questionnaire could be filled out also on the Ministry's website. A commendable number of replies was received, some 360 in all, reporting about more than 700 barriers to trade. Of the reported barriers, less than a fifth concerned problems in the internal market. A similar survey was conducted previously in 2005. The results of this survey largely coincide with the outcome of the previous survey of 2005 and show that Finnish companies face by far the most barriers to trade in their foreign operations in Russia followed by the China, USA and India. The first three are Finland's most important trading partners outside the EU, but this alone cannot explain the large number of reported trade barriers in Russia. As regards different types of barriers, the majority of reports concerned customs tariffs and customs procedures. Technical barriers to trade also became topical again. In Russia, in particular, the burdensome certification procedures and documentation requirements are considered to hinder trade. Furthermore, problems in the business environment, such as cumbersome bureaucracy and corruption in the country of operation complicate Finnish companies' foreign trade activities. Problems related to, among other things, movement of persons were reported as well. The majority of the reports received concerned machines and equipment, electronics, forest and metal industries. Problems were also encountered in the internal market, especially in the Baltic States, Poland and Germany. Barriers were distributed evenly across the range of barrier types. The greatest number of reports concerned technical barriers to trade, taxation and taxation practices, and problems in the competition environment, business environment and public procurement. In terms of different sectors the most reports of problems concerned building and interior design, machines and equipment, and the ICT sectors. When the internal market is discussed, reference is made not only to the EU Member States but also Iceland, Liechtenstein and Norway, which are non-eu countries belonging to the European Economic Area (EEA). The next step in the clarification process is to seek solutions to problems reported by companies. The clarification starts, if required, by contacting the company that has reported a barrier to trade in order to get further information. Which procedure or means of intervention is chosen is conditional upon the nature of the problem or barrier and the country where it is encountered. The Ministry for Foreign Affairs has various channels at its disposal to resolve barriers to trade, the most important ones being direct bilateral contacts with the authorities of the country of operation, contacts to the European Commission and the WTO mechanisms, which are open to Finland through the EC's common trade policy. For questions related to the internal market, the Ministry of Employment and the Economy can use the services of the on-line problem solving network SOLVIT. In handling trade barriers, the Ministries also maintain effective relations with different organisations of the business community. 9

The reported barriers to trade and investment have been addressed and work on them is well under way. Progress has been reached in many cases already and individual barriers have been eliminated. All reported cases are kept in absolute confidence and measures to remove a trade barrier are taken only after the company concerned has given its consent to the procedure. The Ministry for Foreign Affairs encourages companies to report barriers to trade and investment whenever encountered in their foreign trade also in the future. Barriers to trade can be reported to the Ministry via a link to a questionnaire at http://formin.finland.fi/public/default.aspx?nodeid=15278&contentlan=2&culture=en-us) or directly by email or phone to the Market Access Unit. Head of Unit Ilkka Saarinen +358 9 1605 6327 Commercial Secretary Selina Kangas +358 9 1605 5543 Ministry for Foreign Affairs Department for External Economic Relations Unit for Market Access PO Box 413, 00023 Government Finland E-mail: tradebarrier@formin.fi 10

2. Finland's most important export and import markets in 2008 1 2.1 Export markets - Russia in lead position, followed by Sweden and Germany The value of Finland's export in 2008 was 65.5 billion euro, which corresponds almost exactly to the level of the previous year. The boom of the first half of the year ended in a tumble in November-December, when export was clearly down as compared with 2007. The poor performance in late 2008 was caused, in particular, by a decline in the export of mobile phone accessories and metal and forestry products. Export of chemical industry products, machinery and motors, on the other hand, was on the increase. The trade surplus remained at 3.4 billion euro as compared with nearly 6.1 billion euro a year before. The surplus has been smaller than the previous year last in 1992. Non-EU countries' share of Finland's foreign trade grew mainly thanks to trade with Russia and Russia became Finland's most important trading partner in both export and import. Russia's share of the total value of Finland's exports in 2008 was 11.6 %. Sweden and Germany were next with a share of precisely 10 % both. Of the big export countries, also Ukraine, Brazil and Australia were up. As regards non-eu countries other than Russia, the biggest export destinations were the USA with a share of 6.3 % and China with 3.1 % of the total value of Finland's exports. The EU's share of Finland's exports shrank slightly. As recently as in 2007, the EU accounted for 56.8 % of Finland's total exports but because of the favourable development in the external trade the union's share fell to 55.9 % in 2008. Of the EU Member States that are Finland's big trading partners, Poland increased its share considerably in both export and import. Exports to Italy and Denmark developed well while exports to Germany, Sweden and Great Britain remained below the previous year by several percentage points. Finland's main trading partners 2008 Exports Target country Accumulated value 1000 Share % Change 07/08 (%) Russia 7 612 000 11,6 13 Sweden 6 578 000 10-7 Germany 6 557 000 10-8 USA 4 146 000 6,3-1 United Kingdom 3 595 000 5,5-6 Netherlands 3 368 000 5,1-8 France 2 288 000 3,5-2 Italy 2 161 000 3,3 17 Poland 2 105 000 3,2 36 1 Source: National Board of Customs 11

38 % 3 3 % % 3 %4 % Main Trading Partners 2008 Exports 12 % 5 % 6 % 10 % 10 % 6 % Russia Sweden Germany USA UK Netherlands France Italy Poland China Others The value of exports of metal, mechanical and vehicle industries grew almost throughout the first months of last year, but in November exports declined by more than a quarter, and in December by almost a fifth as compared with the previous year. The change was largely due to falling prices in the basic metal industry. Export in the shipbuilding sector remained below the previous year's figures, too. On the other hand, the export of machinery and equipment grew throughout the year except for a few months and was up by 7 % on 2007 at the end of the year. In the export of cars, there was a clear dent in October-November, but at the annual level the sector was still slightly up on the previous year. In the export of electro-technical products, there were marked fluctuations. The growth rate was at its highest in April, with a quarter up on the year before. The value of exports fell by one decimal point in July, increased again in September-October, but took a dive again in November-December and was finally clearly down from the previous year. Considering the whole year, the outcome was growth by 2 %. The value of mobile phone exports was 6.5 billion euro, showing a 5 % decline on the year before. The biggest countries of export were Great Britain, Italy, which has grown its share markedly, and Russia. Forest industry exports were slightly increasing in January-February as a result of paper exports, but have been on a marked decline since then. In November-December, exports fell both in mechanical forest industry and in pulp and paper industry, dropping by a fifth on 2007. In the year 2008 as a whole, paper exports came down by 7 % and pulp exports by 13 %. Mechanical forest industry exports plunged a fifth in the year under review. Exports of plywood and other wood products dropped by only 12 %, but sawn wood exports dwindled by a fourth. In the chemical industry, export grew by 14 % in 2008. The sector experienced a boom in export from January through October with only a minor drop in April. In November, export 12

turned down by 5 % and, in December, the sector showed a decline by a fifth. Even though the value of exports in all the main chemical industry product groups fell during the last months of the year under review, the annual value of oil products rose by a fourth on the previous year and the value of basic chemical industry grew by 12 %. The export of plastic industry products also remained at the level of exports in 2007 despite a fall towards the end of the year. 2.1 Import markets - The same countries hold lead position also in imports 2 Imports too fell towards the end of the year under review, but its value was nevertheless 4 % up on the year before, totalling 62.1 billion euro. The growth of Finland's imports slowed down because of, for example, the fall in metal and ore concentrate prices. The lead country in imports was Russia with a share of 16.3 %, up by more than 20 %. Germany was the second largest source of imports with a share of 14 %, followed by Sweden with a share of 9.9 %. Imports from Sweden grew by about five per cent on the previous year. The other main import countries were Poland, South Korea and Norway; imports from South Korea grew as much as 43 % and its share of Finland's total imports rose to 2.5 %. Imports from Great Britain and Italy clearly decreased. As for the external markets, China continued to remain an important source of imports, showing a 7 % share of Finland's total imports. The EU's share of Finland's imports fell from 56.1 % in 2007 to 54.8 % in 2008. Finland's main trading partners 2008, Imports Country of origin Accumulated value 1000 Share % Change 07/08 (%) Russia 10 140 000 16,3 21 Germany 8 707 000 14 3 Sweden 6 168 000 9,9 5 China 4 365 000 7-2 Netherlands 2 604 000 4,2-4 United Kingdom 2 570 000 4,1-11 France 2 109 000 3,4-1 Italy 1 866 000 3-10 USA 1 853 000 3-8 Norway 1 677 000 2,7 29 South-Korea 1 553 000 2,5 43 Japan 1 253 000 2-22 Poland 1 099 000 1,8 38 2 Source: National Board of Customs 13

28 % 2 % 3 % 3 % 3 % 3 % 3 % 4 % Main Trading Partners 2008 Imports 4 % 16 % 7 % 10 % 14 % Russia Germany Sweden China Netherlands UK France Italy USA Norway South Korea Poland Others In the majority of the main industrial groupings (MIG), imports grew last year. The value of energy products grew by a third and imports in MIG energy was up in January-September on the corresponding months in the year before by 30 to 50 %. In October, the growth fell to 5 % and its value turned to a downward trend in November-December. The changes in the value of imports were caused by the development in crude oil prices; the price of oil was clearly higher than in the year before, except in October-December, while its volume remained below the level of imports in 2007 throughout the year under review. Raw material and intermediate goods import dropped last year by 6 %. The value of imports fell in nearly every month. In November-December, there was a sharper plunge and imports remained about a fifth below the figures of the year before. The dive in the grouping was caused mainly by a fall of basic metal industry product prices and the drop by 40 % in the imports of electronics components. On the other hand, import of basic chemical industry products grew by 7 %. The import of capital goods continued to increase January through September, but started to decline by a few percentage points in October-November and in December capital goods imports remained a fourth lower than in December 2007. As a result of the positive trend in the early months of the year, capital goods imports in 2008 surpassed the corresponding figure of 2007 by 3 %. Automobile imports kept consumer durable imports up in the first half of the year even though the import of radios, television sets and other entertainment electronics started to decrease. In November-December, car imports plummeted about 40 % below the previous year but because of imports earlier in the year, the annual imports of consumer durables remained at the 2007 levels. 14

3. Barriers to trade encountered by businesses 3.1 Trade barriers by type of barrier 3.1.1 External markets - customs procedures, high customs tariffs and technical barriers to trade dominate By far the most common problems encountered by companies in their foreign trade are related to customs procedures and technical barriers to trade. The problems in the crossborder movement of goods concern both the actual customs procedures and high customs tariffs. Not only the high tariffs and other fees but also their variability and poor predictability complicate trade. Technical barriers to trade include, for example, different technical regulations, standards and certification, which are discriminatory or unduly complex. Customs procedures, customs tariffs and technical barriers to trade constitute nearly half of all the identified barriers to trade. The next biggest barrier category is the business environment in the country of operation. Barriers by type outside the EU and the EEA 250 200 203 188 171 150 124 100 50 89 86 80 67 51 51 51 37 33 20 0 Customs proceedings, 16% Technical barriers to trade, 15% Customs tariffs, 14% Business environment of the target country, 10% Taxation, fiscal legislation and other additional fees, 7% Other problems and barriers, 7% Movement of persons, 6% Quantitative restrictions and licensing, 5% Competition environment, 4% Industrial property rights and copyrights, 4% Capital movements and current transactions, 4% Public procurement, 3% Questions concerning the company's judicial position, 3% Anti-dumping duties, countervailing duties and safeguard measures, 2% 15

Customs procedures on export and import of goods Customs procedures refer to all the phases that are linked with the cross-border movement of goods in export and import trade. Issues that are closely related to the procedure include code of conduct, customs categories, required documentation and other special measures. Out of all identified technical barriers to trade, 16 % are linked with customs procedures. Over a half of all identified problems concerning customs procedures are encountered in the export to and import from Russia. Considerable difficulty has been caused by burdensome documentation requirements, heavy bureaucracy, and slow customs clearance. Recently, problems have also been encountered in temporary customs clearance of equipment in which there are inconvenient procedures and complicated customs and documentation requirements. In the forest sector, the new classification requirements of timber in Russia are causing problems in the import sector. Inconsistencies related to customs procedures have been reported not only in Russia but also in nearly all other external markets. In Ukraine, in particular, customs procedures are considered to be cumbersome and slow. The procedure is complicated because of, for example, constant changes in practice and in documentation requirements. Customs procedure problems have been noted also in Brazil, China and the USA. Trade facilitation, that is, simplification and harmonisation of international trade procedures, has been long on the agenda of, for example, the United Nations Centre for Trade Facilitation and Electronic Business (CEFACT), a UN body under the administration of the United Nations Economic Commission for Europe (UNECE), and the World Customs Organization (WCO). The World Trade Organization (WTO) included trade facilitation in its agenda in 1996 with a view to supplementing relevant regulations. The objective of the negotiations is to clarify and develop the existing WTO obligations in order to expedite the movement, release and clearance of goods. Another objective is to enhance the capacity for technical assistance and support and to create standards that would enable effective cooperation between customs authorities and other relevant public authorities. Customs tariffs on export and import of goods High customs tariffs cause considerable trade barriers to companies in different parts of the world. Problems are encountered mainly in Russia, but high tariffs are faced also in, for example, India, the USA and South America, where high customs tariffs upheld especially by Brazil and Argentina hamper trade enormously in the forest, metal and machines and equipment sectors. In India, high customs tariffs are particularly common in the ICT, metal and forest sectors. In the USA, high tariffs are met, among other things, in the medical devices sector, even though the general level of the customs duties on industrial products is fairly low. Rising customs tariffs have been detected recently in different sectors, especially in Russia in, for example, metal, forest and foodstuff industry products. Of the identified trade barriers, 14 % are export and import tariffs or other similar charges. Customs tariffs are high in several sectors but, above all in the metal and forest industries. 16

Reports from companies clearly indicate that there is uncertainty concerning import tariffs and their increases imposed by Russia. Nearly all forest industry companies in Finland have in one way or another had to deal with customs tariff increases and the related uncertainties. In the metal industries, too, problems related to various import and export charges are common. Customs tariffs as such are an acceptable means of restricting trade. WTO member countries have bound their customs tariff rates at a certain maximum level which the applied rate must not exceed. However, some countries have not bound all their tariff headings or they have bound them to a level clearly higher than the applied rate. Customs tariffs agreed within the WTO may be reduced by both multilateral WTO negotiations and bilateral agreements. One of the objectives in the WTO negotiations is that member countries would bind their tariff headings as comprehensively as possibly. Technical Barriers to Trade (TBTs) Technical barriers to trade refer to the differences between technical regulations, standards and conformity assessments, which hinder trade. Examples of typical TBTs include various product specifications, compulsory certificates and documents, such as hygiene certificates, conformity certificates, and compliance certificates. Technical regulations are laid down to ensure that products are safe, they are made for a certain use and are compatible with other products, but in some cases the regulations can also effectively protect domestic production and markets. Based on information gathered from companies, technical barriers to trade are nearly as common a problem as customs barriers and account for about 15 % of all trade barriers. The majority of TBTs, over half of them, have been encountered in Russia; however, they have become a factor that disrupts trade also in, for example, the USA and China. In Russia, problems occur especially in relation to the GOST R certification requirements. The Russian GOST R conformity certification is a compulsory certification system, which enables products' access to the Russian market and their sale in Russia. Products that are subject to compulsory certification have been specifically defined. The list of such products fluctuates and, therefore, in unclear situations the need for a certificate should always be clarified in advance. The US Lacey Act, which dates from 1900, prohibits trade in fish, game and endangered plants obtained by violating the protection laws. The US Lacey Act was amended in summer 2008 to apply to trees and all plants, the objective is to ensure that they are of legal origin and have not been harvested illegally outside the USA. The amendment imposes a wide duty to present a declaration for products made of wood and plants imported to the USA. Unlike US manufacturers, foreign importers must file an import declaration at the customs. The import declaration requirement, linked with the implementation of the Lacey Act, entails the risk of turning into a trade barrier because of the cumbersome bureaucracy. The requirement to file a declaration also discriminates against importers, because a similar declaration is not required from US manufacturers who sell timber or plant products on their domestic market. 17

The basic principles of the WTO Agreement on Technical Barriers to Trade and the Agreement on the Application of Sanitary and Phytosanitary Measures include nondiscrimination, use of least trade-restrictive means and international standards, and transparency of procedures. According to these basic principles, all relevant provisions have to be drawn up so that they do not discriminate against a product on the basis of origin, their trade-restrictive effect is minimised and they are essentially based on international standards. Moreover, transparency has to be ensured by publishing all provisions in good time before bringing them into force and by giving separate notifications in an appropriate manner in cases where such notifications are required. Business environment in the countries of operation Of all reported trade barriers, about 10 % are related to the business environment in the country of operation. This category includes, among other things, such often systemic problems as corruption and bureaucracy and problems arising from deficiencies in infrastructure and political and economic uncertainty. Problems linked with the business environment in a country of operation occur most often in the least-developed countries. However, about two thirds of these problems are encountered in Russia. Furthermore, Finnish companies that have established business operations in the CIS countries and India have reported a host of problems linked with the business environment, the majority of which are encountered in the service sector. The business environment is in fact an element that plays a role in all sectors. By far the most reports concern corruption and adverse effects to trade caused by it. Other problems are defects in infrastructure, such as the road and communications network, and shortcomings in the legislation. Problems in the business environment are often attributable to an unstable economic and political situation. Taxation, fiscal legislation and other surcharges Out of the identified trade barriers, about 17 % are linked with taxation and fiscal legislation and most of the problems are related to value added taxation (VAT) and VAT refunds. In many cases, getting the VAT refunds takes so long that it becomes a trade barrier. In some cases recipients have failed to obtain the refunds altogether. VAT refund problems are also raised from time to time bilaterally. Ambiguities related to taxation occur not only in Russia and Ukraine but also, for instance, in India, China and Brazil and mainly in such sectors as the ICT, forest and metal industries. WTO rules do not restrict member countries' internal taxation. However, according to Articles I and III of the GATT Agreement, internal taxes and other payments shall not discriminate against foreign products or companies in favour of domestic ones, or favour imports from certain countries. Movement of persons About 6 % of the trade barriers, dealing with external markets, concern movement of persons and related elements that restrict trade. Well over a half of the reported barriers are linked with movement of persons between Finland and Russia. In nearly all cases, 18

respondents reported about very slow, complicated and bureaucratic visa and work permit processes. As for work permits, the requirements have increased and changed. In some cases, obtaining a work permit to the USA, India and China has been regarded as causing friction in trade. Problems related to visas and work permits do not depend on the field of business and they occur in all sectors. Quantitative restrictions and licensing Different quantitative restrictions, such as export and import quotas or monopolies and exclusive rights, can, together with customs duties and taxes, also restrict international trade. The licensing and control document requirements belong to this category; the identified barriers in this category account for about 5 % of the reported barriers to trade. A more than average share of barriers is encountered in India and Russia but similar problems are also encountered in China and South America. South American countries require licences that slow trade and cause additional expenses. Furthermore, applying and obtaining a licence for export of certain products to Ukraine is cumbersome. There is not a single field of business that encounters more barriers to trade than another, but barriers are encountered relatively evenly across the different categories; in trade in services, problems also occur in terms of licences. In principle, the WTO system prohibits quantitative restrictions. However, restrictions are permitted in exceptional cases, for example to complement trade policy instruments used pursuant to WTO rules. Licensing may also be used for such purposes as supervision of compliance with technical regulations. The measures have to be then applied in a manner that restricts and discriminates against trade as little as possible with an equitable impact on all those that it concerns. Articles XI and XIII of the GATT Agreement and the WTO Agreement on Import Licensing regulate provisions on quantitative restrictions and import licensing. Article XVII of the GATT Agreement, on the other hand, lays down the constraints for state-owned enterprises and monopolies' activities and regulates their procurement related to foreign trade. Competition environment The competition environment refers to defective legal regulations, monopolies, cartels, practices that discriminate against foreign actors and support for domestic companies. About 4 % of all trade barriers fit into this category. Roughly a half of them are detected in Russia, where such problems as subsidies and discrimination against foreign actors are encountered. Individual cases related to the competition environment, equally in the form of discrimination against foreign actors, have also been reported in India and China. The WTO Agreements contain rules that concern competition indirectly but there are no actual competition rules or a separate competition agreement in the WTO system. The Working Group on Trade and Competition has examined trade and competition policy issues and the elements of a possible multilateral framework agreement. The Working Group has addressed, in particular, the basic principles related to transparency, nondiscrimination and prohibition of cartels. Other important subject matters are modalities for voluntary cooperation and support for a gradual development of institutions responsible for 19

competition policy in developing countries. The goal has been to establish a general framework agreement on the core principles related to competition rules. A possible multilateral agreement would not exclude the elaboration of bilateral cooperation agreements in use today. The EU has concluded such agreements with the USA, Canada and Japan. Intellectual property rights Intellectual property rights are the biggest problem in China. The problems relate to copying products and other material. These and especially problems concerning registration are common also in Russia. IPR barriers to trade account for about 4 % of all trade barriers in external markets. The majority of reported IPR barriers occur in the machines and equipment sector. International rules on the protection of intellectual property rights are laid down in the WTO's TRIPS Agreement (Agreement on Trade-Related Aspects of Intellectual Property Rights). The TRIPS Agreement covers copyright and related rights, trademarks, geographical indications, industrial designs, patents, layout-designs of integrated circuits and protection of undisclosed information. The TRIPS Agreement strives to protect intellectual property rights in order to enable holders of these rights to benefit from their inventions and to prevent abuse of the inventions. Free movement of capital Problems related to the movement of capital arise from slow and insecure transfer of payments, under-developed banking systems and internal payment transfers, such as repatriation of profits. Disruptions in the aforementioned areas have been reported in Russia, Eastern Europe, India and, to a minor extent, also in Latin America. From Venezuela, in particular, reports have been received about restrictions and bureaucracy imposed by the currency administration (Cadivi, Comisíon de Administracíon de Divisas). About 4% of the identified trade barriers concern free movement of capital. Machines and equipment, and the ICT, especially IT and consumer electronics, are sectors where problems of free movement of capital are encountered. Public procurement Public procurement refers to procurement by government authorities and by regional and local administrations, such as federal states, provinces and municipalities as well as by procurement units of special fields (among other things, drinking water, electricity, traffic, ports and airports). About 3 % of trade barriers encountered in the external markets are related to public procurement. Finnish companies face problems in Russia, Ukraine, the USA, China and India. Most often, requirements, which result in the exclusion of foreign companies, are added to competitive tendering. Machines and equipment, and ICT are the sectors with the greatest number of barriers related to public procurement, but barriers are encountered also in the service trade. 20

Public procurement is regulated internationally by the WTO GPA Agreement 3 (General Agreement on Government Procurement). The GPA Agreement covers procurement of both goods and services. The negotiating parties' commitments may vary markedly. To a certain extent, the principle of reciprocity is observed by the parties and, for example, the commitments of regional and local administrations are applied only to countries which have included the relevant entities or services in their commitments. As a rule, agreements on public procurement are essentially based on the principle of non-discrimination and legislative and procedural transparency. Domestic and foreign suppliers must be treated equitably in all procurement conducted in accordance with the Agreement and invitation to tender must be announced. Problems related to the legal status of companies In this report, issues that concern company form, status of ownership and, for example, restrictions to foreign ownership are included among questions related to a company's legal status. Trade barriers of this type account for about 3 % of all identified barriers to trade. Problems occur in India, Russia and South America more than in other countries and the problems usually concern restrictions to foreign ownership. Individual barriers have been encountered in several different sectors. Anti-dumping duties, countervailing duties and safeguard measures on export and import of goods Anti-dumping duties, countervailing duties and safeguard measures are trade policy instruments used against trade-distorting measures which are applied temporarily to raise import duties on certain products. Out of all identified trade barriers, 2 % are related to these instruments. Companies reported on trade defence measures related to India, Ukraine, Indonesia, Brazil and the USA. At their highest, anti-dumping duties may rise even to 70 %, which means that they form a significant trade barrier. The metal and forest industries, in particular, have reported about anti-dumping duties. The use of anti-dumping duties, countervailing duties and safeguard measures is subject to WTO rules. In the EU, anti-dumping duties are used in situations where import from non- EU countries is based on dumping and where it has had an adverse effect on industries in the EU Member States. Countervailing duties may be imposed when import gains disproportionate competitive advantage from government support and it causes damage to producers in EU Member States. Safeguard measures may be taken to protect industries in the EU against sudden and unexpected import. The measures must not be more comprehensive than necessary to eliminate artificially obtained competitive advantage. 3 The following countries, for example, have acceded to the GPA Agreement: EU Member States, Canada, Hong Kong, Israel, Japan, Korea, Liechtenstein, Norway, Iceland, Singapore, Switzerland and the USA. 21

Other barriers and problems 'Other barriers' is a category which comprises all other problems, which have not been mentioned yet. Examples of these include obligations to use domestic raw materials and inputs and export obligations imposed in order to get certain investment or import benefits; very different types of barriers that are not classified in other categories have been listed in this category. However, barriers in this category overlap with other types of barriers. Other problems linked with business activities in this term of reference are, for example, access to credits, insurance or guarantees; access to services - such as transport services -; bookkeeping and audit requirements; problems related to agents', business partners' and distribution networks' operation; and access to information about markets and trading practices. Of all barriers to trade, 7 % fall in this category and the majority of known problems concern Russia, India, China and the USA. Barriers are found in all lines of business. 3.1.2 Internal market - Technical barriers to trade and competition environment as a nuisance Approximately 80 of the companies that responded to the trade barrier survey had encountered barriers or problems in the internal market, and 130 cases were reported. Barriers in the internal market account for about 17 % of all replies to the survey. In the EU's internal market, the most common problems are those that are related to technical barriers to trade and competition environment, followed by problems concerning interpretation of taxation and national fiscal legislation. The chart below illustrates individual companies' reports of different barriers or problems in the survey. It is worth noting that only one entry per barrier type for a company has been made in the chart even though a company may have encountered the same problem in one or several countries. 22

Barriers by type in the EU and the EEA Technical barriers to trade Competition environment 25 22 21 Taxation, fiscal legislation and other additional fees Other problems and barriers Public procurement 20 15 10 5 0 18 13 1111 77 5 5 4 3 2 Business environment of the target country Movement of persons Capital movements and current transactions Questions concerning the company's judicial position Customs proceedings in export and import Quantitative restrictions and licensing Industrial property rights and copyrights Customs tariffs related to export and import Technical barriers to trade Technical barriers to trade form the largest category of trade barriers in the internal market. They occur rather evenly in different countries and lines of business. Technical barriers are the most frequent in the sectors of machines and equipment, metal, steel and extractive industries, and building and interior design. Technical barriers to trade encountered in the domestic market complicate business operations in some cases in export and in import, for example, the Finnish bottle return system causes difficulties. Finnish companies have encountered typical technical barriers to trade in the internal market mainly in the EU Member States in general, and more specifically in the Baltic States, Poland, Great Britain, Italy and Germany. Generally speaking progress in the technical harmonisation of the regulation of the internal market and, among other things, the improved status of the CE Marking can be considered to reduce technical barriers to trade. The outcome should be compared with the number of the businesses that replied to the survey. The most marked difference between this survey and the corresponding survey conducted in early 2005 can be found in technical barriers to trade. 31 % of the barriers and problems reported in 2005 concerned technical barriers as opposed to 17 % in 2008. The EC Court of Justice has issued significant decisions in the 21st century, which have improved especially the free movement of products with a CE Marking. The CE Marking is meant to enable free movement of products in the internal market of the European Union. The CE Marking is the manufacturer's declaration that the product complies with the essential requirements of the relevant European health, safety, environmental and consumer 23

protection legislation. The CE Marking can be affixed to a variety of products, such as toys, building materials, machines, pharmaceutical equipment, personal protective equipment and low voltage equipment. Further information: http://eur-lex.europa.eu/fi/index.htm Examples of EC Court of Justice case-law: C-14/02 ATRAL (2003) ECR I-4431, C-40/04 Yonemoto (2005) ECR I-7755, C-470/03 AGM.COS-MET (2007) ECR I-2749 and C-6/05 Medipac (2007) ECR I-4557. Member States can continue to issue national regulations in areas where the EC does not have harmonised legislation. Barriers to free movement occur usually especially in these situations, if the principle of mutual recognition is applied defectively. In accordance with the principle of mutual recognition, Member States are, as a rule, obliged to accept market entry of a product which has been manufactured or lawfully marketed in another EU or EEA Member State. Efforts are made to enhance the practical application of the principle of mutual recognition by means of a new decree (EC) No 764/2008. Further information can be accessed at http://ec.europa.eu/enterprise/regulation/goods/mutrec_en.htm. There is also a list of "Product Contact Points", from which information can be obtained about the national product legislation of each Member State. Competition environment Based on companies' reports, competition environment, which accounted for 16 % of trade barriers, is the second biggest group of barriers. Problems concerning the competition environment were the most frequent in Finland. A few reports of a general character were received about similar problems in the EU Member States in general, Germany, the Baltic States, Poland, Slovakia, Denmark and Portugal. The problems mainly related to trade in services, machines and equipment, and building and interior design. Companies also informed about cases in the foodstuff, forest, metal and clothing and textile industries, where the competition environment caused problems to their business operations. Different forms of subsidies and monopolies were mentioned most frequently as problems competition environment. Public support can be admitted under certain preconditions. The European Commission is responsible for reviewing the legality of state aid. Companies can submit complaints concerning alleged unlawful state aid to the Commission. Alternatively, the matter can be referred to a national court of law. Further information: http://ec.europa.eu/competition/forms/intro_fi.html. Taxation, fiscal legislation and surcharges Taxation, fiscal legislation and other surcharges with a share of 14 % formed the third biggest entity of problems in the internal market. This barrier category caused problems at home also, mainly due to the preferential tax scheme of the Åland Islands. Poland and the EU Member States were mentioned several times, too. Individual findings of trade barriers of this type were made in several countries. The ICT and service sectors suffered from these problems the most. Reported cases usually concern VAT or authorised national practices that are under the Member State's own jurisdiction. 24