228. Despatch From the Embassy in Finland to the Department of State0
REF
- CERP Section D, Item I–A–61
SUBJECT
- Moscow Economic Agreements, November 1960
President Kekkonen returned from his four-day visit to Moscow November 25 with a series of economic “agreements” reminiscent of his 1958 visit. He announced that a satisfactory understanding had been reached on the EFTA/MFN question, the 1961 trade agreement had been signed, and that the Soviets had agreed in principle to a 50-year lease of the Saimaa Canal and to consider arrangements for a new sawmill to be built in eastern Finland using Soviet timber as material.
The parallel with 1958 is striking. In 1958 the underlying motive on the Finnish side for the agreements was widely believed to be to soften up Russian opposition to Finnish participation in OEEC. The “package” then included an unneeded ruble credit, again Saimaa, a butter-wheat barter of dubious utility, and an announcement regarding the next anticipated five year trade agreement, and the whole was described in glowing terms as if a substantial triumph had been achieved. Again on this occasion it appears that substantially nothing has been accomplished, and again virtually worthless “concessions” are glowingly received.
The most important objective of Kekkonen’s visit was to reach agreement with the Russians on how to reconcile Finland’s MFN commitment to the Soviet Union with association with EFTA. The exact nature of the agreement reached is still not publicly known and the Government has announced that it would divulge no details until discussions have been held with all of the EFTA countries. It was generally felt before the visit that the Soviets would demand the same treatment for its products that Finland would give to the other EFTA countries, which would necessitate Finland’s seeking some sort of GATT exception. The unanswered question was, and still is, whether the Finns’ concessions to the Soviet Union were such that the other EFTA countries cannot accept Finnish association with EFTA. Immediately after Kekkonen’s return, Olavi Munkki, Director of Commercial Affairs in the Foreign Ministry, and Reino Rossi, a Director of the Bank of Finland, left on a tour of EFTA capitals to explain the Finnish-Soviet agreement. In the light of press reports from Stockholm, Copenhagen, and London, it is now widely believed that no substantial concession on the MFN question was obtained in Moscow, though there has been no published comment to this effect by the Finnish press.
Negotiations on the Finnish-Soviet trade agreement for 1961 had been largely completed prior to Kekkonen’s departure and signature was delayed to coincide with his visit. The agreement calls for an estimated 7–9% increase in trade over the level of this year’s basic agreement. Some observers expressed surprise at the size of this increase, but the general tenor of press comment was that the increase was not unusual considering the strong upswing in Finland’s total trade this year. [Page 594] The Embassy’s D–253 of November 30 and D–255 of December 12 discuss the provisions of the agreement in greater detail.
The two other items raised at Moscow on Finnish initiative came as a surprise. The Saimaa Canal question was considered pretty well buried after negotiations following Kekkonen’s 1958 visit. The only new aspect raised this time is that the suggested 50-year lease would include areas of land on the sides of the canal. This meets to some extent the criticism of the 1958 proposed lease, when land rights were excluded, but does not solve the basic problem of how to be certain of continuity of operation in Soviet territory and subject to the whims of Soviet policy. The Finns are understandably chary of placing an important investment in a position vulnerable to Soviet interference. The canal has deteriorated over the years and will take billions of Finnmarks merely to restore it to its pre-war condition. Even that would be insufficient, however, because the pre-war width was already too small. Experts say that the canal must be both wider and deeper if it is to handle the size of craft which can operate economically in canal traffic. These vessels present another problem. A fleet of specially designed ships operated in the pre-war Saimaa Canal, and these for the most part have been scrapped. Regardless of whether the canal is enlarged or merely restored, Finland therefore would need a new fleet of canal vessels. Finding funds for building such a fleet would not be easy.
Another point to be considered is that during the postwar years alternate means of transport have been developed. Goods which once were shipped via the Saimaa and Viipuri now are transported by rail or truck to Hamina or Kotka for export shipment. Costs of rail and truck shipment have decreased steadily, so that the competitive position of the Saimaa would not be indisputable. There are of course political considerations involved.
Much as the notion of using the Saimaa Canal may appeal to the uninformed in eastern Finland, it appears highly unlikely that Finland will elect to make the large investment needed for the canal so long as it runs through alien territory. Nevertheless the matter will be pursued, as it has been periodically, for years. A Finnish committee is to be appointed to study the matter as a first step.
At this stage, there is little known about the sawmill proposed by the Finns for eastern Finland, except that it is planned to use timber supplied by Russia. Negotiations on this facility are planned for “the near future.” Finnish reaction to the plan was somewhat cool since the mill would have but slight effect on the employment situation in eastern Finland and there is little interest here in investing a sizable sum in a sawmill [Page 595] which would merely create forest employment for Soviet workers. There is already exchange of timber in both directions between Finland and the USSR. The differences in the new proposal evidently are that the amount imported by Finland would be larger, a new area might be involved, and there would be a greater dependence on Soviet supply. The annual quota for saw log imports into Finland from the USSR in 1960 was 170,000 piled cubic meters and the quotas for 1961–65 are 200,000 tons; the new mill, by comparison, it is estimated would use 400,000 cubic meters.
Several press comments have been reported in earlier messages. Probably most worthy of note is that of the governing Agrarian Party’s “Maakansa,” which began laying the groundwork even before the Moscow meeting for blaming the Seven rather than Kekkonen and the USSR if Finnish affiliation with EFTA is not accepted on the basis of the Moscow terms. “Maakansa” said in an editorial November 26, for example, that “not the least of questions now is the importance of a reasonable western attitude toward the EFTA matter.”
Other press reaction to Kekkonen’s visit was generally friendly, though not overly enthusiastic, except for “Maakansa” which pointed to the “spirit of cooperation” and “strengthened goodwill” which the trip engendered. Much of the comment consisted of speculation as to the terms of Finland’s agreement with the Soviet Union on the EFTA/MFN issue and its effect on Finland’s association with EFTA. Most took a sanguine view of things, saying that it “appeared as if EFTA association could be worked out.” At the same time there were enough expressions of concern to suggest that some of the optimism may be whistling in the dark.
For the Chargé d’Affaires ad interim:
Counselor of Embassy
for Economic Affairs
- Source: Department of State, Central Files, 660E.6141/12–260. Confidential.↩
- Section D, Item I–A–6 of the Comprehensive Economic Reporting Program (CERP) of 1957, identified economic relations with the Soviet Union as a subject of general and continuing interest to the Department of State. (Ibid., 121.60E2/3–1957)↩
- Despatches 253 and 255 from Helsinki are both entitled “Finnish-Soviet Trade Agreement for 1961.” (Ibid., 660E.6141/11–3060 and 660E.6141/12–160)↩