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Expert article 916 Baltic Rim Economies, 21.12.2011 Quarterly Review 5�2011 Future of North-South connections – about transportation, but not only transportation By Erik Terk and Jüri Sakkeus The countries on the Eastern shore of the Baltic Sea have made during the past twenty-odd years rapid progress in their integration into the world economy, especially the economy of the European Union. Yet this integration has not been equally rapid in all prospective directions. For example, the economies of Estonia and Latvia have very closely integrated into the Nordic economies, while their relations with Germany and Poland, which were several times stronger that whose with the Nordic countries during the pre-war period, have developed quite slowly. It can be generally argued that the ties of the so-called border states of the EU “Eastern rim” with central Europe have suffered due to the inadequate land transport connections. For the same reason the mutual integration of the region’s countries has been hindered to some extent. Relations between Estonia and Finland serve as the sole exception here as the absence of land link has been compensated by the rapidly developing maritime traffic. The North-South transport link is topical not merely from the aspect of better connections between the Baltic and central European states; it is also an important premise for intensifying the economic relations between the three Baltic states and Finland and an extensive geographical area from Ravenna in Italy to Odessa in Ukraine and further on to the large and growing market of Turkey. This direction has started to attract considerable interest among the economic circles of the aforementioned countries. The situation in the region can significantly change with the construction of a direct European-gauge rail link from Tallinn to Warsaw. This project, the Rail Baltic, has recently undergone a feasibility study and has found support among the leading politicians of the region as well as the European Commission. It seems that even Latvia is overcoming its initial pessimism regarding the project. Finland’s premier Jyrki Katainen recently expressed his unequivocal support to the project by welcoming the decision of the Baltic states’ premiers to create a joint enterprise for the realisation of the Rail Baltic project. Katainen emphasised that the project is highly important for the improvement of the competitiveness of Finland’s economy. The new railway would be electric and have two tracks. It would carry both passengers and cargo, allowing passenger trains to travel from Tallinn to Warsaw within roughly six hours and freight trains to reach the Polish border from Tallinn in ten hours. The 728-kilometre route of Rail Baltic would preferably run to the Polish border along the trajectory Tallinn-Pärnu- Riga-Panevezys-Kaunas. The realisation of the project will take clearly more than ten years, while the assessment of its impact requires operating with an idea of economic and social conditions in twenty or more years and the latter could significantly differ from those currently considered as normal. The extrapolation into the future of the existing trends and relations could therefore be quite risky. The demand for transport, including different modes of transport could be driven in the future by new factors different from the current ones, while the completed new transport corridors could create additional economic and social effects, which were initially viewed as insignificant. Improved transport 80 connections or e.g. handling new flows of transit will change the relations and structure of economy and will contribute to economic growth; the changing economy, incl. the emergence of new businesses and improving standards of living in turn will initiate additional or different demand for transport. We shall attempt in the following text to present some viewpoints and considerations about which factors and changes should be taken into account. These positions were formed predominantly during the realisation of two projects: the cooperation of Estonian, Latvian and Lithuanian experts while building the Baltic states’ integration scenarios (Baltic Way(s) of Human Development: Twenty Years On) and the H-T Transplan project, financed by the European Commission and addressing the planning and transport connections of the Helsinki and Tallinn metropolitan areas. During the realisation of these projects a series of partly interrelated problems with greater geo-economic significance cropped up, which provide a broader view of the issues concerning the Rail Baltic construction and the general development of a transport corridor linking the countries to the East of the Baltic Sea. The most important of these issues were: � the volume, type and impact on Rail Baltic of the Finland-related flow of cargo; � the share of long-range (further than the next country) travels in Rail Baltic passenger traffic portfolio; � the change of cargo flow structure in the traffic within the Baltic Sea region, incl. the changes caused by the convergence of the former post-socialist economies with the so-called old EU countries; � further development of the three Baltic states’ economies, its forms and impact on demand for transport; � the impact of the development of integration of Helsinki and Tallinn metropolitan regions, the emergence of a twin city, on future demand for transport; � the impact of potential processes in the functioning of the EU on the likelihood of supporting major transportrelated infrastructure projects; � the potential of mutual strengthening of North-South and East-West (predominantly related to Russia) transport flows; � the change of ratio between various modes of transport, incl. due to ecological demands and restrictions; � the effect of geo-economic changes (especially the ascent of East Asia) on the increasing of Europe-related flows of cargo; � the emergence of new international transit corridors, which could be related to the region under observation; � likely changes of the dynamics and pattern of the people’s mobility; their effect on the demand for passenger transport. It is not possible to provide definite answers to a large share of the above questions, but it is possible to attempt to foresee the most likely trends of developments and their interrelation. The H-T Transplan project included the building of four possible scenarios for the analysing of the � Pan-European Institute � To receive a free copy please register at www.tse.fi/pei �
Expert article 916 Baltic Rim Economies, 21.12.2011 Quarterly Review 5�2011 changes of the transport situation and the related effects dependent on the potential growth rte of international economy, the ability of the EU to support major infrastructure projects in the future and the ability and motivation of the region under observation to operate proactively and to coordinate activities. The initial analysis of the scenarios shows that in case of continued normal growth of the international economy and retained/strengthened strategic capability of the EU it is possible to foresee continued integration of the EU’s Eastern edge countries as well as significant increase of transport volumes and the continued important role of the transport and logistics sector as an economic growth engine. The conclusion is based primarily on the following positions: � Rail Baltic becomes not merely a rail link between the three Baltic states and Central Europe, but will probably handle a rather large cargo flow related to Finland; � The two important components of this cargo flow are, first, Finland’s increasing trade with Latvia, Lithuania and central Europe (possibly also with the Southeastern direction) and, secondly, the East Asian cargo flow from the Arctic Ocean, which will at least partly move southward across Finland; � While at present it is maritime transport, which primarily suffers from the stricter norms concerning sulphur pollution, it can be presumed in the longer run that ecological criteria applied to all modes of transport will continue the already existing policy of driving the transport from the roads to railways and to the sea. This will mean the continued competitiveness of logistics schemes based on the combination of maritime and rail traffic. � The mobility of the people will increase with the rising of the living standards, the mobility pattern will become more diverse; � The Helsinki-Tallinn integration will increase; the emergence of the twin city will significantly boost the need for transport. It is possible that in the further future this will lead to the construction of a Helsinki-Tallinn tunnel; � The North-South and East-West transport corridors would not compete in the longer perspective, but will mutually strengthen each other. Fast rail link to the core of Europe will crease premises for logistics and distribution centres, which can handle the movement of cargos not only in the North-South, but also in the East- West direction. There will be better opportunities for providing warehousing and value adding services to enterprises in Northwestern Russia in handling their products moving to Europe. � Estonia, Latvia and Lithuania will gradually turn into an increasingly integrated economic space, where international firms, largely based on the Nordic capital, can specialise and cooperate. This will be related, among other factors, to the increasing cargo volumes; � In case of increasing cost of aviation fuel the Rail Baltic can successfully compete with air traffic in longer distances; 81 � Although a large share of the present intra-industrial trade between Finland and the Baltic states would disappear with the reduction of the wage gap and other price gaps of production input, it would be replaced by a new type of intra-industrial trade, based largely on balanced cooperation, both concerning manufactured goods and services. The “less distant” Central Europe, thanks to good rail connections, will increase the market of the firms operating in the Baltic states (and Finland), their competitiveness in the value chain of goods and services for the European market will improve. This will accelerate the modernisation of the structure of goods being produced in the Baltic states. Well functioning transport connections both for passenger and cargo transport are a vital premise for trade and the development of closer forms of integration. The transport projects of the Eastern Baltic countries like the Rail Baltica, Via Baltica, the construction of large port terminals, incl. for handling transcontinental cargos, etc, will presume good international cooperation and the EU support, but their realisation is a significant factor in bridging the development gap between the new EU member countries and the Nordic countries so as to contribute to the development of the entire Baltic Sea region. Erik Terk Professor, Director Tallinn University Estonian Institute for Futures Studies Jüri Sakkeus H-T Transplan Research Coordinator Tallinn University Estonian Institute for Futures Studies Estonia � Pan-European Institute � To receive a free copy please register at www.tse.fi/pei �
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