ESTONIA'S FULLFILMENT OF OECD ACCESSION CRITERIA

UNCLAS TALLINN 000567 SIPDIS SENSITIVE SIPDIS DEPT FOR EUR/NB KATHARINE GARRY, EUR/ERA BRIAN GUSS, AND EEB/EPPD JONATHAN MUDGE REF: STATE 118192 E.O. 12958: N/A TAGS: ECON ETRD PGOV SENV KDEMK OECD EN SUBJECT: ESTONIA'S FULLFILMENT OF OECD ACCESSION CRITERIA ¶1. (SBU) Summary: In post's judgment, Estonia fulfills the accession criteria for membership in the OECD. Estonia is an active, prosperous and developed member of many international organizations, including NATO, the European Union and the WTO. It demonstrates a broad respect for the values of current OECD member countries in the areas of democracy, human rights, religious freedom, a commitment to market economics, media freedom and a vibrant non- governmental sector. Major international surveys of economic freedom, anti-corruption, and political development consistently rank Estonia in their upper tier of countries. In recent years, Estonia has moved from aid recipient to donor nation; many neighboring countries look at Estonia as a model for successful economic and democratic transition. End Summary. Pre-Accession Criteria: -------------- ¶2. (U) Estonia has been a Member State of the European Union since May 2004. Within the EU, Estonia has promoted advancements in the areas of competitiveness, improved IT security and communications, climate change and energy, agricultural and financial reform, justice and home affairs and external relations. Estonia is a strong advocate of the European Neighborhood Policy and provides technical assistance and training to Ukraine, Moldova and Georgia as well as Afghanistan and several countries in the Balkans and Caucasus. In 2006, Estonia donated $15.29 million (0.84 of GDP) for development assistance. The GOE's goal is to increase its assistance budget to 0.10% of GDP by ¶2010. Estonia also regularly contributes to and participates in international and multinational assistance projects such as the World Food Program, UNICEF, UNDP, UNHCR, Doha Development Agenda Global Trust Fund, and the EU's Development Assistance Program. ¶3. (U) Estonia is a constructive member of the International Labor Organization (ILO),has ratified 33 ILO Conventions and used ILO standards to develop the legal framework for labor-related legislation in Estonia. Estonia has been a member of the World Trade Organization (WTO) since November 1999. In August 1993, Estonia ratified the Stockholm convention establishing the World Intellectual Property Organization (WIPO),and in June 2007, it ratified the WIPO Geneva convention on copyrights. Estonia has established a strong domestic legal framework for IP protection, and has not been on the USTR Special 301 Watchlist since 1998. The USG and GOE actively cooperate on IPR training and awareness programs in Estonia. Like-Mindedness: -------------- ¶4. (U) Estonia has a vibrant and pluralistic democracy. In the sixteen years since its re-independence from Soviet occupation, Estonia has earned high marks for creating strong democratic institutions and one of the world's most open economies. Business development has boomed, encouraged by Estonia's stable political climate, consistent economic policies and fiscal discipline. Freedom House has given Estonia its highest ratings for its commitment to liberal democracy, civil liberties, and open economic markets. The OSCE declared Estonia's 2002 Parliamentary elections in accordance with international standards and has not deemed it necessary to observe any subsequent elections. Estonia's media environment is equally open: Reporters Without Borders Worldwide ranked Estonia sixth on their international Press Freedom Index in 2006 -- far ahead of the United States. ¶5. (U) Estonia's economic fundamentals are strong. According to the IMF, Estonia's "prudent macroeconomic policies and regional integration have resulted in the fastest convergence among new EU members and an impressive rise in living standards." Successive governments have demonstrated a commitment to promoting economic growth and foreign investment. Since 2001, the GOE has had budget surpluses of at least 1% (and as high as 6%) of GDP - thus earning a strong international reputation for fiscal responsibility. Since 2000, real GDP growth has averaged seven percent or higher. Of note, in the short- to medium- term, inflation, a tight labor market and a large capital account deficit are causing some concern. Also, Estonia has the fastest growing HIV infection rate in Europe. While absolute numbers are small and the GOE has steadily increased resources dedicated to prevention, treatment and harm reduction, it is too early to predict the long term social and economic impact of the disease on Estonia. ¶6. (U) Estonia is a leader in promoting transparency and efficiency in governance. In 2000, Estonia implemented a highly effective paperless system of e-government. Since then, the GOE has conducted only paperless weekly cabinet meetings. Ministers review draft bills, make comments and suggestions and vote online. Decisions are instantly made available for public review on the internet. Additionally, in 2007, Estonia was the first country in the world to allow for e-voting in a national election. ¶7. (U) Estonia also promotes human rights at home and abroad. The State Department's Human Rights Report has consistently given Estonia high marks on protecting human rights and religious freedom. Estonia does have a significant ethnic Russian minority and a large stateless population (currently about 115,000 people). The GOE is in the process of developing the second phase of its integration program and has actively promoted naturalization as a means of reducing the number of stateless people in Estonia. Since 1992, the number of stateless people declined from 32% of the population to 8.5%. More than 145,000 people naturalized during this period. (Note: While most naturalizations took place between 1992 and 2000, on average 5000 people have naturalized each year since 1998). For the first time since re-independence, the number of naturalized citizens exceeds the number of stateless persons. ¶8. (U) Open Markets: Since joining the EU in 2004, the Estonian government has sought to maintain liberal policies in order to attract export-generating investments. All foreign investors are treated on an equal footing with local investors. In 2007, the International Institute for Management Development ranked Estonia 22nd of 55 economies on its "World Competitiveness Scoreboard" (higher than Japan as well as 13 other EU member states, and the highest rating among the former Soviet Bloc countries). ¶9. (U) Sustainable Development: Estonian environmental practices are fully in accordance with EU standards. (Note: Estonia's accession agreement gave Estonia until 2015 to meet EU standards on carbon dioxide emissions. End note.) The GOE recognizes that maintaining an ecological balance is a central precondition for sustainability. In September 2005, the Estonian Parliament approved the first- ever Estonian National Strategy on Sustainable Development: Sustainable Estonia 21. This strategy laid out the GOE's plan for integrating successful global competition with a sustainable development model. The strategy seeks to take into consideration interaction between environmental and development factors such as the viability of Estonian cultural space, the growth of welfare, coherent society and ecological balance. ¶10. (U) Control of Corruption: Estonia has in place the necessary laws, regulations, and penalties to combat corruption. While incidences of corruption do occur, it is not considered a significant problem in Estonia and is not cited as an obstacle to foreign direct investment. In June 2004, Estonia became a full participant in the OECD Working Group on Bribery in International Business Transactions. In 2006, Estonia rose to 24th place among 163 countries in Transparency International's Corruption Perceptions Index (CPI). ¶11. (U) Encouraging Economic Freedom: Estonia actively promotes economic freedom domestically and in developing and transitioning countries. Estonia has provided technical assistance in fields ranging from WTO accession negotiations and reforming the national health care system to the implementation of information technology in state administration. In 2006, the Cato Institute awarded former Prime Minister Mart Laar its Milton Friedman Prize for Advancing Liberty. Laar has been an active advisor to the government of Georgia on market and tax reforms and democratic institution building. The GOE has been lauded by President Bush for its flat income tax structure and zero tax on reinvested corporate profits. In the Heritage Foundation and Wall Street Journal's 2007 Index of Economic Freedom, Estonia ranked 12th in the world. A key area where Estonia needs to improve economic freedom, however, is labor market flexibility. Currently, rigid employment contract laws and bureaucratic barriers to the importation of non-EU labor are exacerbating an already tight labor market, which has contributed to rising wage inflation in the economy. PHILLIPS