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