USDOC DAS FOR EUROPE VISITS ESTONIA

UNCLAS SECTION 01 OF 02 TALLINN 000621

SIPDIS

SIPDIS
SENSITIVE

STATE FOR EUR/NB KATHERINE GARRY AND EEB/CBA
HELSINKI FOR SCO BRIAN MCCLEARY
COMMERCE FOR ITA LEAH MARKOWITZ

E.O. 12958: N/A
TAGS: BEXP ECON PGOV EN
SUBJECT: USDOC DAS FOR EUROPE VISITS ESTONIA



1. (SBU) Summary: GOE officials told Department of Commerce
DAS for Europe Paul Dyck that Estonia is very open to more
U.S. investment and noted that Estonia's business climate
has not suffered from the cyber attacks of early May. They
also expressed interest in the goals of the new Trans-
Atlantic Economic Council. However, business leaders and
GOE officials both cited difficulties caused by Estonia's
labor shortage. Estonia's trade promotion agency reviewed
its strategies for encouraging more investment, including
interest in direct flights to the U.S. and persuading a
major international bank branch to locate in Estonia. The
Ministry of Economy said they are keeping all options open
with regard to Estonian participation in nuclear energy
projects in both Finland and Lithuania. End Summary.


2. (U) During a visit to Tallinn September 11-12, Commerce
DAS Dyck met with Siim-Valmar Kiisler, Deputy Minister for
Economic Affairs and Communication and Mart Laanemae,
Undersecretary of the Ministry of Foreign Affairs for
Economic and Development Affairs. He also met with Dr.
Viljar Jaamu, Chairman of the state trade and investment
agency, Enterprise Estonia (EAS). As the keynote speaker
at an Amcham "Charter Gold" reception, Dyck addressed
members of the business community on U.S. investment goals,
and challenges facing employers in Estonia.

Investment, Labor Shortage, and Estonia's Economic Future


3. (U) DAS Dyck told all his interlocutors that the USG is
interested in identifying new opportunities for U.S.
businesses in Estonia and increasing the proportion of U.S.
foreign direct investment. (Note: the U.S. is currently
the 8th largest in FDI, at 2.1 percent. End Note.) The USG
recognizes that Estonia is a transparent, investment-
friendly location, with a simple, pro-business tax
structure and a growing economy. However, he noted, the
labor shortage in Estonia's workforce is a big concern for
many firms. (Note: The registered unemployment rate is
currently 1.5 percent, and several firms -- including a
telephone call center for Hilton hotels -- have recently
announced closure or downsizing due to their inability to
find enough workers at competitive wages and flexible
hours. End Note.) Kiisler from the Ministry of Economic
Affairs (MOE),and Laanemae from the MFA, both admitted it
would be hard to bring even a single new auto plant to
Estonia now, given how much labor such a factory would
require. "We've lost more jobs to China than we have
here!" said Laanemae, only partly in jest. Also, he
acknowledged that locating one car factory in Estonia would
soak up so many jobs that other sectors of the economy
could suffer. Nevertheless, both reiterated that Estonia
would be very open to any potential investors, and would
treat U.S. firms with equal preference to Estonian ones.


4. (U) Dr. Viljar Jaamu, Chairman of the state trade-
promotion agency Enterprise Estonia (EAS),told DAS Dyck
that while Estonia wants to emphasize non-labor intensive
sectors like IT and tourism, it does not want to become a
one-dimensional economy "like Cyprus or Egypt." EAS still
views attracting manufacturing to Estonia as a priority,
but Jaamu admitted that it is unclear where the workers
will come from. Politically unpopular proposals to
facilitate permits for workers from outside the EU are
currently stalled in the GOE cabinet. Jaamu listed
bringing a major international bank like CitiBank to
Tallinn and opening up direct flights to the U.S. as other
priorities. To that end, he has urged the Tallinn airport
authority to grant special concessions to any airline
opening new routes in and out of Estonia. (Note: Jaamu
said that 36,000 passengers per year fly from Estonia to
the U.S., which is enough for two full flights per week.
End note.) Jaamu had even more ideas about pressing
Parliament for legislation to allow international ship
registry in Estonia and to attract accounting, logistics
and other service providers, but again, lack of labor is a
bottleneck. Jaamu told DAS Dyck that the newly opened EAS
office in San Jose, CA is focused on the IT sector, but is
also trying to facilitate partnerships in Silicon Valley
for Estonian firms. Shortly after meeting with DAS Dyck,
Jaamu also led a delegation to London to talk with
financial regulators about opening an alternative stock
market in Tallinn for small-cap firms, like London's AIM.


5. (SBU) At the American Chamber of Commerce (AmCham)
reception, senior managers at both the Radisson hotel and
UPS voiced concerns about the service sector workforce.

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They have very low turnover at the mid- to upper-levels of
management, but extremely high annual turnover (almost 90
percent) among drivers, housekeeping and restaurant staff.
To meet next year's wage pressures (25 percent growth in
2006) in an environment of modest revenue growth, the
Radisson plans to cut 5 percent of their workforce in order
to give senior staff raises. According to the Radisson's
General Manager, the hotel industry has been hurt in part
by the fact that the convention tourism industry in Estonia
has made little effort in recent years to seek out new
business because it assumed that past growth would continue
without additional encouragement.

Trans-Atlantic Cooperation and Life after Cyber Attacks


6. (SBU) MFA interlocutors asked for more information on
the Trans Atlantic Economic Council created at the April
U.S. - EU Summit. Laanemae said that "Estonia would be
happy to have as special a relationship with the U.S. as
possible." Both he and MOE's Kiisler noted that before EU
accession, Estonians were very skeptical about what
benefits membership would bring, but now they are very
positive. DAS Dyck asked his counterparts what affect the
April Bronze Soldier riots and subsequent cyber attacks
have had on the business and investment climate in Estonia.
Both Laanemae and Jaamu said they do not feel that the
Cyber Attacks have scared off potential investors. Paul
Elberg, MFA's Director of External Economic Policy and
Development Cooperation, noted that previous disruptions in
trade with Russia have resulted in Estonian firms re-
orienting their business toward Western firms and
investors. (Note: A couple of U.S. companies have told us
privately that the riots and cyber attacks made them
reconsider plans to invest or expand investment in Estonia.
End Note.)

Ignalina Nuclear Power Plant


7. (SBU) Einari Kisel, Director of MOE's Energy Department,
told DAS Dyck that Estonia is keeping all its options open
for energy cooperation in the region. Estonia has been in
talks with Latvia, Lithuania and Poland for the past 18
months about collaboration on a replacement for the
Ignalina Nuclear Power Plant (INPP). Recently, however,
Minister of Economy Juhan Parts and Prime Minister Andrus
Ansip have discussed Estonia's interest in a new Finnish
nuclear power plant with the Government of Finland. Kisel
commented that it is hard to think of any other example in
the world of a national-level nuclear power project
involving more than two partner countries, as the INPP does
right now. Deputy Minister Kiisler welcomed the interest
that U.S. companies such as GE and Westinghouse have shown
in Ignalina, but added that most likely there would be no
public tenders for the INPP until 2010 or beyond.


8. (U) DAS Dyck cleared on this cable.

PHILLIPS