VZCZCXRO1277
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHTL #0211/01 1691307
ZNR UUUUU ZZH
R 171307Z JUN 08
FM AMEMBASSY TALLINN
TO RUEHC/SECSTATE WASHDC 0672
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0045
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 TALLINN 000211 
 
SENSITIVE 
SIPDIS 
 
COMMERCE FOR ITA LEAH MARKOWITZ 
PLEASE PASS USTDA 
 
E.O. 12958: N/A 
TAGS: ECON EINV EWWT CH EN
 
SUBJECT: ESTONIA COURTS CHINESE INVESTMENT IN PORTS 
 
¶1.  (SBU) SUMMARY:  With two new deals in the works - a 
commercial investment agreement between Estonian and 
Chinese ports, and a state-level bilateral shipping 
agreement - Estonia has come out ahead of potential 
regional competitors in attracting Chinese capital to 
its shipping sector.  These agreements will help promote 
Estonia as a desirable transit point for trade between 
the EU and the Far East.  They may also enable Estonian 
transit companies to reduce dependence on Russian goods. 
END SUMMARY. 
 
¶2. (U) Estonia has been a player in Baltic trade since 
the days of the Hanseatic League of the 13th century, so 
its appreciation of commerce via sea is well-ingrained. 
So are its profits.  The Port of Tallinn handled the 
third-highest volume in the eastern Baltic in 2007:  36 
million tons.  (Note: The top two were both in Russia -- 
Primorsk (70 million tons) and St. Petersburg (60 
million tons). The total freight turnover in the eastern 
Baltic Sea for 2007 reached 378 million tons. End Note) 
 
¶3.  (U) The Port of Tallinn comprises 5 distinct ports: 
The largest - Muuga - lies just east of Tallinn and 
handles the majority of cargo shipments in Estonia.  The 
Tallinn Old Town Harbor is a combined passenger and 
container port in the city center.  The Port of 
Paljasaare handles cargo and containers on the western 
edge of Tallinn.  South Paldiski port lies 50km west of 
Tallinn, and the Port of Saaremaa is on Estonia's 
largest island, off the western coast.  In addition, 
Estonia has numerous municipal and private ports - the 
largest of which are the private Port of Sillamae (30km 
from the Russian border) which handled 1.77 million tons 
of goods in 2007, and the North Paldiski port, which 
handles under one million tons of goods per year. 
 
GO EAST, YOUNG MAN 
 
¶4. (U) For years, part of the GOE's long-term economic 
growth strategy has been to promote the country as a 
stable hub, transit center, and business platform. 
Estonia's ports are accessible to Russia and positioned 
on the trade route to the Far East.  The GOE's patient 
and persistent overtures to China are now paying off. 
Estonia and China are moving to conclude two cooperative 
agreements: one a bilateral shipping agreement between 
Estonia and China, and the other a commercial investment 
agreement between the Tallinn and Ningbo ports. 
 
STEP ONE: Tallinn and Ningbo Ports Talk Investment 
 
¶5. (U) In January 2008, Estonia's Port of Tallinn and 
the Ningbo Port of China jointly announced a declaration 
of intent to build a 2.33 billion EEK (USD 220 million) 
container terminal and Chinese goods distribution center 
at Muuga Port.  The project will be built in three 
phases across 107 hectares of the present harbor.  The 
Port of Tallinn's initial plan called for completion by 
early 2011, but a start date will not be set until the 
final investment deal is signed.  The first phase of the 
terminal is projected to have a capacity of nearly one 
million container units (TEU) per year.  (Note: For 
comparison, Finland's largest container terminal at the 
Port of Kotka handled 570,880 TEU in 2007.  End Note.) 
The new terminal would be the first major distribution 
center for Chinese goods on the Baltic Sea, and would 
serve the markets of northwest Russia, Scandinavia and 
the Baltic countries. 
 
STEP TWO: Estonia and China Talk Trade 
 
¶6. (SBU) In mid-March, the Estonian Ministry of Economy 
sent a delegation to Beijing to negotiate a bilateral 
shipping agreement.  According to Raul Allikivi, head of 
the Ministry of Economy's Policy Division, the new 
shipping agreement is necessary to address issues not 
covered in sufficient detail in the EU-China agreement 
on market access and cooperation on maritime affairs 
that came into force March 1.  The bilateral Estonia- 
China agreement will cover mutual recognition of 
documents, granting of shore leave, and tax questions, 
and will play an important role in enhancing the 
cooperation between the Tallinn and Ningbo Ports.  Once 
other Estonian ministries have cleared the agreement, 
the GOE has to get the European Commission's endorsement 
before final approval. 
 
TALLINN 00000211  002 OF 002 
 
 
 
WHY ESTONIA? 
 
¶7. (SBU) Through patient diplomacy, Estonia positioned 
itself as a target for investment by Chinese ports.  The 
groundwork for the January commercial agreement was laid 
during a succession of senior-level bilateral visits 
that have taken place since 1994.  Mait Martinson, 
Estonia's Ambassador to China from 2002-2007, speculated 
that Ningbo Port chose Estonia because it has several 
advantages over other ports in the region.  Finnish 
ports do not possess the logistical advantages of 
Estonia, with easy rail access to Russia, points south 
in the Baltics and the rest of Europe.  Lithuania's 
ports do not have the same capacity to handle large 
container ships and volumes.  Russian ports often freeze 
in winter, and their workers do not display the same 
level of reliability and work ethic that exists in 
Estonia.  Latvia, he noted, has been less diplomatic 
with China over time on issues such as Tibet and Taiwan. 
All in all, Martinson said, Estonia comes out as "... 
the most stable and pragmatic..." of all the suitors for 
Chinese maritime investment. 
 
¶8. (SBU) On the other side of the deal, the Chinese 
Embassy in Tallinn talks bullish on trade opportunities 
with Estonia.  Economic Counselor Liu Mingguo emphasized 
that China encourages cooperation and investment in 
every field.  Estonia is very active, the country is 
welcoming to Chinese, and there is steady progress on 
educational and cultural ties between the two countries. 
In Liu's opinion, the only obstacles to even greater 
cooperation with Estonia is the long distance between 
the countries, and the relatively difficult process 
Chinese businessmen face in getting visas to Estonia. 
When we asked if China sees Estonian-Russian relations 
as a possible hindrance to trade, Liu responded that 
"...if there is mutual interest between companies in 
Estonia and Russia then the problems can be taken care 
of."  Liu emphasized that the formal investment 
agreement between the Port of Tallinn and Ningbo is not 
signed yet, but he hoped that both parties will continue 
making progress. The Port of Tallinn is drawing up its 
business plan for the deal announced in January, and 
hopes to sign the final agreement by the fall of this 
year. 
 
¶9. (SBU) Comment:  Estonia's efforts to court 
cooperation with China on developing its ports took on 
even greater significance this past year.  Although 14 
months have passed since the Bronze Soldier riots, the 
impact of Russia's informal boycott of Estonia are still 
significant in the transit sector and it appears 
unlikely transit trade will fully rebound anytime soon. 
The Port of Tallinn's 2007 net profit dropped nearly 44 
percent when compared to 2006.  Coal shipments are down 
almost 90 percent, and oil transit is down nearly 20 
percent from the levels they were at prior to April 
¶2007.  GOE, rail and port officials consistently point 
to expanding connections with China as an important 
component of Estonia's strategy to diversify its transit 
sector. 
 
PHILLIPS