Honourable presidents of the Senate and Seim,
Members of Parliament,
Ladies and gentlemen,

It is four years and 51 weeks since I last visited Poland. These five years, which have passed in the Europe of the 90s, create a temptation to speak in great detail about the positive developments that have taken place in this time, which we can consider calling an era; an era in which Estonia has strengthened its independence and Poland has regained its natural place in Europe. I know that my good colleague Vaclav Havel, who spoke here in Warsaw a month ago, also fell victim to the same temptation. Doing so, it is only one step to become trapped in nostalgia, recalling with yearning the triumphant inebriation and national unity during the struggle for freedom and regretting that this unity has now been replaced by daily troubles. President Havel avoided this trap, including concrete tasks of the Czech Republic, Poland and Hungary in their preparations for joining NATO among the daily problems. But the need to discuss this is actually a pleasure.

My pleasure today is primarily to speak of the need and of our opportunities to form a common position of Estonia and Poland in negotiations with the European Union. But I am also glad to speak to you because the day when the Baltic states will in their turn join NATO, employing the experience of the Central European states, might also not be far away - thanks in great part to Poland's responsible attitude. Besides political statements, Poland has shown in actions that the hearts of the Polish people cannot find peace before Estonians are feeling secure as well - this is confirmed, among other things, by the active participation of Poland in regional defence cooperation, as well as by the training of Estonian officers in Poland - a programme that we were planning for during my last visit here.

The need to sum up the past five years is not just a temptation for me, it is also a duty. Five years ago I stressed that Poland and Estonia belong together in their living historic memory and as a result of that, in a common responsibility before democracy. I also said that the Baltic Sea that unites us can become an axis shaping the integrating Europe. Now it is time to ask: how well have we used our opportunities?

On the level of political ties we have surely been successful. The geographical truth that Poland is the nearest friendly big power - soon a member of NATO - has become an axiom in daily diplomacy. First of all it gives me pleasure to assert that our bilateral diplomatic relations have reached a proper level - we have embassies in each other's capitals, our base of bilateral treaties is broad, our government officials are often on visits and return visits. All this beauty is a bit marred by the gap of a missing free trade agreement and by much less eager communication on the grassroots level, but an international observer will not doubt that Estonia and Poland do have mutual interests that are amplified in cooperation.

This is exemplified by the diplomatically well-timed meeting of Poland, Hungary, the Czech Republic and the Baltic states that was practically organized by the Polish President Alexander Kwasniewski during the NATO summit meeting; by our mutual interest and aid towards the Ukraine, one form of which is the participation of the Polish and Ukrainian heads of state in the consultations of the Baltic presidents; or by a mutually clearly expressed wish for Poland and Estonia to develop good neighbourly relations. In this sense Poland is the key state of the region, Poland's activity in the direction of Lithuania, Germany, the Ukraine has been exemplary in Europe. The relations between Estonia and Russia can regrettably not yet be called exemplary, but I have declared that we are developing them according to three simple and generally established principles - as based on international law, long-term perspective and mutual benefit. Estonia as a stable and wealthy European Union member state on Russia's western border is well suited to the interests of Moscow, and this is now becoming more and more clear in Russia itself as well.

On the other hand, Estonia has known from the start that this stability and wealth, as well as a wider independence and integration with the West, can only be achieved by rapid economic development and broad, effective reforms. Poland was the first postcommunist state to launch a hard economic shock therapy and to reach a steady, stable development. Estonia's starting position was not as good and we started out later, but we have nevertheless arrived at the negotiating table of the enlarging EU at the same time with Poland. I do not need to describe the difficulties of shock therapy to you, but I would like to describe the present-day life in Estonia and to explain the basis of our success.

The invitation to begin accession negotiations characterises the hallmarks of the Estonian economy: a developed free market, a liberal trade regime, and overall dynamic growth.

The growth rate in 1997, 10 percent, was actually so high that it raised concerns that the Estonian economy is in danger of overheating. We have taken measures to reduce the risk through more aggressive macroeconomic policies, and conservative projections suggest a further 6 percent of growth in GDP in 1998.

Behind these statistics lie the political, administrative and economic choices made since Estonian independence was restored. This course has been steady regardless of changes in Government or Parliament and this is one of the reasons why Estonia was included to the first group to negotiate EU accession.

Our reforms had seven important aspects:

1. Our constitution requires the Parliament to pass a balanced budget.

2. We based our monetary reform on a currency board arrangement using a fixed 8:1 exchange rate with German Mark. As a result, the exchange rate has remained stable since 1992 and inflation has been falling consistently. Estonia's inflation rate for 1997 was 11 percent.

3. In reforming trade policy, Estonia immediately established an open and tariff-free trade regime - one of the most liberal trade regimes in the world. Estonia has working free trade agreements with the European Union, EFTA, Latvia, Lithuania, the Ukraine, the Czech Republic and Turkey. Taking all of Estonia's Free Trade Agreements into account, the free market for goods produced in Estonia exceeds 600 million consumers.

In addition, Estonia has neither subsidised nor directly supported the agricultural sector until this year. This, however, has actually caused difficulties with respect to the Common Agricultural Policy of the EU, as many of the challenges faced by our agricultural sector are the opposite of those in EU member states and candidates.

4. In the reform of our revenue collection system, Estonia instituted a universal value added tax, and a flat rate corporate and personal income tax of 26% - many people do not have to fill out any tax forms at all. From the very beginning the state sector has been able to meet its financial commitments and Estonians were given clear incentives to work industriously and save conscientiously.

5. In privatising large state enterprises, Estonia followed the German Treuhand model of international tenders with the goal of attracting inflows of foreign capital and new management. No vouchers were used.

6. Foreigners are allowed to own land.

7. There are no restrictions placed on foreign ownership of business or the repatriation of profits. Currently 85% of Estonian businesses are private, and over two-thirds of GDP comes from the private sector.

The results speak for themselves. In the area of foreign investments, the 1997 World Investment Report shows that between 1989 and 1996, Estonia is ranked second in Central and Eastern Europe in terms of per capita foreign direct investment (FDI) inflows. At the same time, the Estonian economic space is becoming too small for our businesses. The trend has been for Estonian firms to branch out into neighbouring economies. In 1996, Estonia was already the highest per capita investor among the Central and Eastern European countries. In 1997, this figure trebled for Estonia to $86 a per head. Approximately two-thirds of this investment has gone to Latvia and Lithuania, and in Latvia alone there are an estimated 400 companies based on Estonian capital. Estonia has trade surpluses with both Latvia and Lithuania, and with other regional markets such as the Ukraine.

To sum up: Estonia is situated in the centre of a region whose market, when counting only the Scandinavian countries and northwestern Russia, reaches 80 million consumers. And Estonia has become a trustworthy trading partner and a carrier of dynamism in this region. At the same time, the bilateral trade of Estonia and Poland has continuously grown.

But have we, in mutual relations, fully employed each other's strong sides - the position of Estonia in a dynamic and developing Northern Europe and Poland's central position in the Central Europe of huge potentials? Have we succeeded in making the Baltic Sea an axis of the integrating Europe, as we wanted to do five years ago?

For an answer, it should be sufficient to recall that a train trip from Tallinn to Warsaw still takes 22 hours instead of 5, and that a motorist still prefers to drive round the Baltic Sea instead. Thus, besides successfully developed political ties, in the Baltic Sea Council as well as elsewhere, we must seriously think how to overcome the really un-European obstacles in our relations. And I am not only talking about the infrastructure of road and rail transport, the importance of which has recently been stressed by the Polish Foreign Minister Geremek - I also mean the unconcluded free trade agreement, the non-existent common energy circle round the Baltic Sea, too restrained cultural relations and too few mutual investments.

Because now, as we have started the accession negotiations with the European Union, our relations should be closer than ever before. For a very simple reason - during the negotiation period there has to be trust between the applicant countries. But trust cannot be achieved without a thorough knowledge of each other.

It is in the interests of applicant countries that their policies and positions with respect to the Union be as clear as possible. Only then can we effectively present our case to EU institutions, officials, and member state governments - just as we must present it to our own citizens and to other applicant countries.

It is useful therefore that applicant countries clarify to one another the similarities and the differences in their starting positions for the negotiations. The European Commission avis are an independent audit of the situation in each of the applicant countries. The positions we have prepared for the accession negotiations, however, are a personal evaluation of our weaknesses and strengths relative to the EU norms, regulations and standards.

Based on the statement that the Polish Foreign Minister Geremek made on March 31 in Brussels, there are clearly many similarities between the initial negotiating positions of our two countries:

I would like to point out just three areas:

Environment: Both Estonia and Poland are committed to meeting the Union's high environmental standards and have made considerable efforts in the field of environment. Yet we share common problems in this field that are a legacy of our recent history. Great investments will need to be made. We have both indicated that temporary transitional arrangements will be necessary. While taking into account that environmental issues are sensitive in the Union, we should insist upon the Union's understanding on this issue.

Internal Market: Our countries are both committed to full integration into the Internal Market and are prepared to fully take on board the acquis in this field. We also share the conviction that the 'four freedoms' should be treated integrally, not fragmented. We should insist that all areas and policies of the Internal Market be extended to new members, including the free movement of labour. It is of utmost importance that the negotiating table is a field governed by the rules of fair play.

Institutional issues: Both Poland and Estonia expect that the same criteria will apply to both current and future members of the Union.

The EU has confirmed that the negotiations are to be conducted individually with each applicant country. Indeed, parallelism should be avoided as much as possible.

However, the principle of individuality is not inconsistent with conducting regular consultations on issues that affect our common future as EU member states. The Union is currently in the process of reforming its institutions. Applicant countries cannot influence this process from the outside.

There are, however, a number of institutional questions that form part of the negotiations agenda and that we can discuss amongst ourselves. For example, the number of national representatives in EU institutions such as the European Commission and the European Parliament. Or the official language issue. Just as incumbent member states discuss what is necessary to create a more effective Union, so should we.

It is, after all, inevitable that after accession to the Union, Poland will be affirmed as one of the great powers in Europe and that Poland's word will count. And it is equally inevitable that Estonia remains one of the smallest. But in enhancing the general competitive abilities of the Union, the rapidly developing economies and societies of both Poland and Estonia will contribute. And Estonia, as well as Poland, is seeking for a negotiation outcome that would be constructive and, first of all, acceptable to our people. We have our own individual interests that we are as prepared to defend as is every other applicant country. But we are colleagues, not rivals.

In addition to the bilateral and multilateral cooperation between the states participating in the first phase of the Union's expansion negotiations, Estonia sees as of utmost importance the close exchange of information and continuous cooperation with other applicant countries, especially, of course, with our Baltic neighbours. Again with the aim of putting our Baltic Sea axis to a better use.

We are confident that during the demanding negotiation process the mutual trust between all the countries involved will grow. This is also confirmed by the historic experience of Poland and Estonia - by the experience of the last five years of our history.

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