The Baltic States: U.S. Policy Concerns

CRS Report for Congress
The Baltic States:
U.S. Policy Concerns
Updated August 13, 2004
Steven Woehrel
Specialist in European Affairs
Foreign Affairs and National Defense Division

Congressional Research Service ˜ The Library of Congress

The Baltic States: U.S. Policy Concerns
This report provides background and analysis on the political and economic
situations on Lithuania, Latvia, and Estonia (commonly collectively referred to as the
Baltic states), their foreign policies, and U.S. policy toward them. The Baltic states
achieved their long-held dream of full independence from the Soviet Union in the
aftermath of the failed August 1991 coup by Soviet hard-liners. Since 1991, the
these three countries have made great strides in building democracies and free market
economies. They have also sought integration into Western economic and security
structures, in part because they see themselves as part of the West, in part to protect
themselves from instability or a nationalist resurgence in Russia. The Baltic states
achieved these goals in 2004, joining NATO in March and the European Union in
Relations with Russia have not deteriorated since the Baltic states joined
NATO, although tensions remain over Russian allegations of discrimination against
the large Russian-speaking populations in Estonia and Latvia and other issues. Some
in the Baltic states are concerned about continuing Russian influence in their
countries, including through large energy companies, Russian organized crime, and
Russian intelligence agencies.
The U.S. government never recognized the legality of the Soviet Union's 1940
annexation of the Baltic states. After the independence of the Baltic states, the
United States pushed strongly for the withdrawal of Russian forces from the Baltic
states, sometimes performing a mediating and facilitating role between the Baltic
states and Russia. In 2001, the United States strongly advocated Baltic membership
in NATO. The United States has provided significant amounts of economic aid to
the Baltic states. Due to their success in economic reform, the Administration phased
out bilateral aid for Estonia in at the end of FY1996, and did the same for Latvia and
Lithuania at the end of FY1999. The United States continues to provide security
assistance to the Baltic states to strengthen their armed forces and help them achieve
greater interoperability with NATO, as well as to improve their border security and
export controls. The Baltic states have been strong supporters of U.S. policy in Iraq,
Afghanistan, and the war on terror, and have deployed troops to Afghanistan and
Iraq. This report will be updated as events warrant.

Historical Background..............................................1
Current Political and Economic Situation...............................2
Estonia ......................................................3
Political Situation..........................................3
Economy ................................................4
Latvia .......................................................5
Political Situation..........................................5
Economy ................................................6
Lithuania ....................................................7
Political Situation..........................................7
Economy ................................................8
Foreign Policy ....................................................8
Relations With Russia..........................................8
U.S. Policy......................................................10
U.S. Aid to the Baltic States....................................11
Iraq, Afghanistan, and the War on Terrorism.......................12

The Baltic States: U.S. Policy Concerns
Historical Background
Estonia, Latvia, and Lithuania are located northwest of Russia on the south-
eastern shores of the Baltic Sea. They have a combined population of about 8
million, of whom about 5.4 million are Estonians, Latvians, and Lithuanians, many
of the rest are Russian speakers (largely ethnic Russians but also some Ukrainians,
Belarusians and other ethnic groups). While their countries are often referred to
collectively as the "Baltic states," these three peoples differ ethnically, linguistically,
and in their religious traditions from each other. For much of their history, they have
been dominated by other countries.
Russian dominance in the Baltic region was first established in the early 18th
century. Tsar Peter the Great had defeated Sweden in the Great Northern War.
Seeking a military, economic and political "window" to western Europe, he annexed
to Russia what is now Estonia and eastern Latvia in 1721. The rest of Latvia and
almost all of current-day Lithuania were seized when the Polish-Lithuanian
Commonwealth was partitioned by Russia, Prussia and Austria in the late 18th
century. The new rulers did not radically change the social structure of the Baltic
states. German barons (descended from the Teutonic Knights of the Middle Ages)
continued to rule over the native serfs in Estonia and Latvia, while Poles and
Polonized Lithuanian nobility exercised similar control over the Lithuanian
peasantry. In the late 19th century, growing national awareness among the Baltic
peoples clashed with Russification policies pursued by reactionary Russian tsars.
The Baltic countries became independent as a result of the collapse of the
Tsarist Empire in 1917 during World War I. In 1918, all three Baltic states declared
their independence, but had to fight Germans, Bolsheviks and Poles (in the case of
Lithuania) at various times to preserve their freedom. In 1920, Bolshevik Russia
signed peace treaties with each of the three Baltic states, recognizing their
independence. The new states were at first parliamentary democracies, but each had
authoritarian regimes by the mid-1930s.
The Baltic states retained their independence until 1940. A secret protocol to
the Nazi-Soviet non-aggression pact of 1939 assigned all three Baltic states to the
Soviet sphere. In June 1940 Soviet troops entered all three states. Pro-Soviet
governments were installed. Soviet control was interrupted by German occupation.
At the end of World War II the Soviets regained control, and resumed brutal
repression, sovietization, and russification of the native population. Thousands of
Estonians, Latvians, and Lithuanians were executed, imprisoned, or deported to
Siberia. Moscow collectivized agriculture, expropriated industrial and commercial
enterprises, and integrated the Baltic economies into the centralized Soviet system.

The native Baltic populations were severely reduced by casualties during World
War II, by emigration, and by massive deportations that accompanied sovietization.
In addition, the three small states had to absorb a large in-migration of non-Baltic
people, mostly Russians, from the Soviet Union. In 1989 only about 52% of the
population of Latvia consisted of Latvians compared to 77% in 1939. In Estonia, the
percentage of ethnic Estonians was about 60% in 1989, compared to 92% in 1939.
Lithuania maintained its ethnic population share at about 80%.
Beginning in 1985 Soviet President Gorbachev's support for glasnost gave the
Balts opportunities to reexamine and debate their recent past, including their incor-
poration into the Soviet Union. In addition, perestroika allowed grassroots econom-
ic, political, and cultural activities to occur that resulted in a massive resurgence of
national consciousness among the Baltic peoples. A burgeoning environmental
movement, spurred by glasnost and severe environmental problems caused in large
measure by Soviet industrial policy, induced activists to address larger political
issues. At the end of 1988, popular front organizations arose in all three Baltic re-
publics. This development was accompanied by the proliferation of political groups
and parties including "independence-now" parties, environmentalist "Green" parties,
as well as the rebirth of many parties, such as the Social Democrats, which existed
during the independence period. In addition, largely Russian "intermovement"
groups also arose opposing changes in the Baltic area.
In 1990, Baltic parliaments with non-communist majorities were elected in
relatively open and free elections. On March 11, 1990, the Lithuanian parliament
declared the restoration of the Lithuanian republic independent of the Soviet Union.
On March 30, 1990, the Estonian parliament declared Soviet law invalid in Estonia
and declared a period of transition from Soviet control to independence. The Latvian
parliament declared a transition period to independence on May 4, 1990. After the
attempted August 1991 coup against Gorbachev, Estonia declared its full and
immediate independence from the Soviet Union on August 20, 1991 and Latvia did
the same on August 21, 1991. On August 24, Russian President Boris Yeltsin
recognized the independence of Estonia and Latvia (having acknowledged the
independence of Lithuania earlier). On September 6, 1991, the Soviet State Council
with President Gorbachev presiding recognized the independence of Estonia, Latvia,
and Lithuania.
Current Political and Economic Situation
Since achieving independence, the Baltic states have established parliamentary
democracies and free market economies. The political scene has sometimes been
unsettled. Democracy in the Baltic states has seen a proliferation of relatively small
parties, none large enough to form a government on its own. Politics are not based
on sharp differences in ideology: there has been a broad consensus among almost all
of political elites on the goals of democracy, the rule of law, free market reform, and
membership in NATO and the European Union. Instead, political conflicts are based
largely on personal differences between party leaders or the support of parties for
competing business interests, or on a rural/urban split, or between those who have
benefitted most from reforms and those who have not. Parties in the Baltic states

often have ephemeral lives. Parties that win one election, often due to a charismatic
leader, may fragment or fail to win any seats at the next election. These factors have
often resulted in unstable coalition governments, prone to breakup due to personality
conflicts, or corruption and other scandals. As in other countries in the region,
corruption remains a significant issue, despite ongoing efforts to fight the problem.
Nevertheless, the governments of the Baltic states have continued to move
forward with political and economic reforms that have made their countries among
the most successful transition countries in central Europe, enjoying high economic
growth rates, substantial foreign investment, and rising living standards.
Estonia at a GlanceEstonia
Population: 1.35 million (2004 EstonianPolitical Situation. The
government estimate)current Estonian government isa coalition of two center-right
Area: 45,227 sq. km., slightly larger thanparties, Res Publica and theReform Party, and a center-left
New Hampshire and Vermont combinedparty, the Estonian People’s
Union. The coalition, which
Ethnic Composition: 67.9% Estonian,emerged after March 2003
25.6% Russian, 2.1% Ukrainian; 1.3%parliamentary elections, is
Belarusian (2000 census) headed by Prime Minister Juhan
Parts of Res Publica. Some
GDP: $8.4 billion in 2003 (IMF)experts believe tensions
between the two center-right
Political Leaders: President: Arnold Ruutel;parties and the Estonian
Prime Minister: Juhan Parts; Speaker of thePeople’s Union over the
National Assembly: Ene Ergma; ForeignPeople’s Union’s demands to
Minister: Kristiina Ojuland; Defensepostpone tax cuts and increase
Minister: Margus Hanson social spending could lead to
the government’s collapse later
this year. The People’s Union
could then be replaced by the
center-right Pro Patria Party or the center-left Social Democrats, currently in the
opposition. The largest opposition party, the leftist Center Party, has been weakened
by divisions over the party’s lack of support for EU membership and over the
allegedly dictatorial style of party leader Edgar Savisaar.
Estonia also has a President, elected by parliament. The post of President is
largely ceremonial, but the President does have the right to appoint the Prime
Minister, who must be approved by the parliament. He can also send legislation back
to the parliament for reconsideration. The current President is Arnold Ruutel,
formerly head of the Estonia People’s Union Party. He was elected by an electoral
college of parliament members and local government representatives in 2001 for a
five-year term.
The status of Estonia’s large Russian-speaking minority (about 400,000 persons,
or under 30% of a total population of 1.35 million) has been a controversial issue in
Estonia’s relations with Russia. Russia has charged that Estonia violates the human

rights of the minority. Western countries and international organizations disagree,
but have urged Estonia to intensify efforts to integrate the minority into Estonian
society. The 2003 State Department human rights report says that Estonia generally
respects the rights of non-citizens.
In 1992, an Estonian law took effect giving citizenship to all who were citizens
in 1940 and their descendants. Most Russian-speaking inhabitants in Estonia settled
in Estonia after the Soviet takeover of the country in 1940, and all but about 80,000
of them were excluded from Estonian citizenship. Over 126,000 people, mostly
Russian speakers, have applied for and received Estonian citizenship, most under a
naturalization procedure that requires them to pass an Estonian language exam,
among other requirements. Approximately 160,000 (nearly 12% of the population)
remain non-citizens, although most of them have permanent residency permits.
Another roughly 100,000 have taken Russian citizenship. Non-citizens cannot run
for office or vote in national elections, but can vote in local elections. On December
8, 1998, the Estonian parliament adopted a law that grants citizenship to non-citizen
children born since 1991, if their parents have lived in Estonia for five years and do
not have citizenship in another country. Russian speakers have also complained
about language laws that require employees to speak Estonian and education laws to
increase the use of the Estonian language in largely Russian-speaking schools.
Economy. Estonia has one of the most competitive and dynamic economies
in central and Eastern Europe. Estonia’s Gross Domestic Product grew by 6.8% in
the first quarter of 2004, on a year-on-year basis. Due to its use of a currency board
that strictly ties Estonia’s kroon to the Euro, Estonia has pursued a stringent
monetary policy. Consumer price inflation is very low, at 1.3% for 2003. Estonia
has also pursued sound fiscal policies; the government is currently running a budget
surplus. Estonia privatized almost all of its industries in the 1990s. However,
Estonia is seeking to sell off more of its telecommunications sector and must still
liberalize its electricity market.
Pro-reform policies have led to perhaps the best climate for business and foreign
investment in the region. Foreign Direct Investment increased by 150% in 2003.
Estonia plays a significant role in technology industries, especially by manufacturing
cellular phones for Nordic telecommunications firms. Estonia has joined the
European Exchange Rate Mechanism, a prerequisite for joining the European
Monetary Union, which could occur as soon as mid-2006. One dark spot in Estonia’s
economic situation is its high current account deficit of 15.3% of GDP in 2003.1

1 Economist Intelligence Unit, Country Report: Estonia, July 1, 2004; Oxford Analytica,
“Estonia: Small, Competitive Economy Remains Vulnerable, August 3, 2004.

Latvia at a GlanceLatvia
Population: 2.3 million (2004 LatvianPolitical Situation. Thepresent Latvian government is a
government estimate)minority coalition headed by
Area: 64,600 sq. km., slightly larger thanPrime Minister Indulis Emsis ofthe centrist Green and Farmers’
West VirginiaParties grouping. Two other
parties are part of the coalition,
Ethnic Composition: 58.7% Latvian, 28.8%the conservative People’s Party
Russian, 3.9% Belarusian, 2.6% Ukrainian,and the Christian Latvia’s First
2.5% Polish, 1.4% Lithuanian (2004 LatvianParty. The government was
Naturalization Board data)approved by the Latvian
parliament in March 2004. It
GDP: $9.5 billion in 2003 (IMF)replaced a similar center-right
government headed by Einars
Political Leaders: President: Vaira Vike-Repse of the center-right New
Freiberga; Speaker of the SaeimaEra Party, the largest party in
(Parliament): Ingrida Udre; Prime Minister:the parliament. The Repse
Indulis Emsis; Foreign Minister: Artisgovernment collapsed due to
Pabriks ; Defense Minister: Atis Slakteris. personal squabbling within the
government, including over
Repse’s reputed authoritarian
governing style. The new
government may also be on shaky ground. It depends on the votes of the left-wing
National Harmony Party to form a majority in parliament. Another possible coalition
party, the nationalist For Fatherland and Freedom-National Independence Movement,
is opposed to the participation of the Christian Latvia’s First Party, which includes
members supporting the interests of ethnic Russian speakers in Latvia. Despite the
frequent reshuffling of Latvian governments, the country’s leadership will likely
continue to work towards key objectives such as legal and administrative reform, and
fighting corruption, as part of its efforts to bring Latvia into line with EU norms.
Latvia’s next parliamentary elections are not scheduled to be held until fall 2006.
Latvia also has a President, elected by parliament. The post of President is
largely ceremonial, but the President does have the right to appoint the Prime
Minister, who must be approved by the parliament. He or she can also send
legislation back to the parliament for reconsideration. The current President is Vaira
Vike-Freiberga, first elected in June 1999 and re-elected in 2003. Vike-Freiberga
spent most of her life in Canada as a scholar before her election. She has remained
the country’s most popular politician, despite sometimes taking unpopular decisions,
such as sending back to parliament for reconsideration a language law criticized by
the EU and OSCE. Her main task has been to improve Latvia’s image abroad to
assist Latvia’s efforts to join the EU and NATO.
The presence of a large Russian-speaking minority has been a controversial
issue in Latvia’s relations with Russia, and to a much lesser extent, with Western
countries. Russia has charged that Latvia violates the human rights of the minority.
Western countries and international organizations disagree, but have urged Latvia to
intensify efforts to integrate the minority into Latvian society. After it achieved

independence in 1991, Latvia gave citizenship only to persons who were Latvian
citizens on June 17, 1940 and their descendants. About 470,000 (over 20%) of the
2.3 million residents of Latvia do not have Latvian citizenship, almost all of them
ethnic Russians or Russian speakers. In June 1998, the Latvian parliament approved
amendments to the naturalization law aimed at making access to citizenship easier
for the non-citizen population. However, the number of applicants and consequently
the number of naturalized citizens remains low. Under 75,000 persons have been
naturalized. Many Russian speakers are also upset about recent government efforts
to implement an education law that will require 60% of subjects be taught in the
Latvian language for students in grade ten or higher.
The 2003 State Department report said that Latvia generally respected the rights
of non-citizens. Non-citizens enjoy most of the rights of Latvian citizens. However,
non-citizens cannot vote, establish political parties, occupy government posts, and
hold certain jobs (such as armed guards, private detectives and attorneys). Land
ownership by non-citizens can be hampered by complicated administrative
procedures. EU and other Western officials have urged Latvia to accelerate the
integration of minorities into Latvian society. Some have expressed concern at the
slow pace of naturalization of non-citizens. Latvian officials note that, of those
applying for naturalization, more than 95% pass the language tests and meet all other
requirements for citizenship. Some observers say that part of the reluctance of many
Russian speakers to apply may be due in part to certain benefits that flow from
noncitizen status (such as exemption from compulsory military service), and a sense
that the status of permanent resident noncitizens, while far from ideal, is relatively
Economy. Since regaining independence in 1991, Latvia has made substantial
economic progress by implementing a program of restraint in fiscal and monetary
policy, establishment of a strong currency (the lat, which is currently pegged to the
IMF’s accounting unit, Special Drawing Rights, but will soon be pegged to the Euro),
and liberal trade and investment rules. Latvia hopes to meet the criteria to join the
European Monetary Union in 2007 or 2008. Latvia’s privatization efforts started
slowly due to mismanagement, corruption and power struggles between contending
political-economic groups in the country but have moved forward. Several key
enterprises to privatize remain, including the very important oil transport firm
Ventspils Nafta and the energy monopoly Latvenergo. Latvia’s economy is growing
rapidly. Gross Domestic Product increased by 7.5% in 2003 and 8.8% in the first
quarter of 2004, on a year-on-year basis. Inflation is currently relatively high: 6.1%2
in June 2004, year-on-year. Latvia suffers from a high current account deficit of

8.3% of GDP in 2003.

2Economist Intelligence Unit, Country Report: Latvia, July 1, 2004.

Lithuania at a GlanceLithuania
Population: 3.4 million (2004 LithuanianPolitical Situation. Themost recent elections to the
government estimate)Lithuanian parliament, the
Area: 65,200 sq. km., slightly larger thanSeimas, were held in October2000. They resulted in a crush-
West Virginiaing defeat for the ruling right-
of-center Homeland Union.
Ethnic Composition: 83.5% Lithuanian,The largest grouping in the

6.7% Polish, 6.3% Russian; 1.2% Belarusiancurrent parliament is the left-of-

(2000 census)center Social Democratic Party
with 48 seats. The right-of-cen-
GDP: $18.2 billion in 2003 (IMF)ter Liberal Union won 34 seats,
the populist New Union-Social
Political Leaders: President: ValdasLiberals won 29 seats, and the
Adamkus; Prime Minister: Algirdasright-wing Homeland Union
Brazauskas; Speaker of the Seimaswon only 9. The remaining 21
(parliament): Arturas Paulauskas; Foreignseats were scattered among ten
Minister:Antanas Valionis ; Defensesmall parties and independents.
Minister: Linas Linkevicius.The current government is
coalition composed of the So-
cial Democratic Party and the
New Union-Social Liberals.
The next parliamentary elections are scheduled for September 2004. According to
pre-election polls and the results of the European parliament elections in June 2004,
the Labor Party, a newly-emerged, populist group promising to help poorer
Lithuanians, is likely to be the largest party in the new parliament, although it will
fall short of a majority on its own. The SDP and NU-SL will likely lose ground
Although the institution of the presidency in Lithuania is not as powerful as the
U.S. Presidency is, its powers are more significant than those of the largely
figurehead presidencies common to most parliamentary systems. In April 2004,
Lithuanian President Rolandas Paksas was impeached and removed from office by
the parliament for corruption. In October 2003, a report by the Lithuanian
intelligence agency charged that some of Paksas’s key advisors and campaign
contributors had links to Russian organized crime. These figures used their
connections to steer privatization deals to their associates. The chief financial backer
of Paksas’s campaign, Russian businessman Jurijus Borisovas, received Lithuanian
citizenship and was tipped off about police surveillance against him. Paksas
nevertheless continues to have a populist appeal among poorer Lithuanians, who
claim he was framed by corrupt political opponents. However, Paksas is barred from
holding elective office due to his removal from the presidency, according to a ruling
from Lithuania’s constitutional court.
In June 2004, Valdas Adamkus was elected to the Presidency. Adamkus, a
Lithuanian-American who had been an official in the U.S. Environmental Protection
Agency, ran as a center-right, pro-Western figure. He beat former Prime Minister
Kazimira Prunskiene, who was supported by Paksas’s party and center-left groups.

Adamkus had been President from 1998 until 2003, when he was defeated by Paksas
in an upset.
Economy. The Lithuanian economy, like its Baltic neighbors, is growing
rapidly. Real GDP grew by 7.7% in the first quarter of 2004, on a year-on-year basis.
Almost all of Lithuania’s state-owned firms are privatized, with the exception of a
few utility companies. Lithuania has pursued sound fiscal and monetary policies.
Inflation in the first quarter of 2004 was -0.2% on a year-on-year basis. Lithuania has
pegged its currency, the litas, to the Euro and is seeking to meet the criteria to join
the European Monetary Union by 2007.3
Foreign Policy
The key foreign policy goal of the Baltic states since the restoration of their
independence has been integration into Euro-Atlantic organizations, including
membership in the European Union (EU) and NATO. The Baltic states achieved
these goals when they joined NATO in March 2004 and the European Union in May
2004. They continue to work to restructure their economies and societies to bring
them closer to EU norms. Needed changes include improving public administration
in order to make use of the large amounts of EU aid the countries will receive;
fighting corruption, a particularly serious problem in Latvia and Lithuania; and
preparing to join the European Monetary Union in 2007 or 2008.
The Baltic states also continue to improve their armed forces and enhance their
interoperability with NATO. To this end, they have pledged to continue reforms that
they began before being admitted into NATO, including a pledge to spend at least 2%
of their GDP on defense. They have also deployed platoon or company-sized forces
to U.S. and NATO-led missions in the Balkans, Afghanistan and Iraq, a significant
commitment given their modest populations and military manpower.
The Baltic states have established strong political and economic links with the
Nordic countries. Links between Finland and Estonia (whose majority peoples are
ethnically related) are especially close. The Baltic states have also increased
cooperation among themselves in security, economic and political matters through
the Baltic Council, the Baltic Assembly and other inter-governmental organizations.
Relations With Russia
Russian-Baltic relations have been strained by the issue of Russian-speaking
minorities in Estonia and Latvia, and by the Baltic states' efforts to join NATO.
Although the foreign trade of the Baltic states has been radically reoriented toward
the West and away from Russia over the past decade, Russia retains important
influence in the energy and transport sectors. Moreover, many people in the Baltic
states are concerned about the influence of Russian intelligence agencies and
organized crime in their countries. The impeachment of President Rolandas Paksas

3Economist Intelligence Unit, Country Report: Lithuania, July 1, 2004.

in Lithuania in 2004 for close ties with a Russian organized crime boss is a
particularly dramatic illustration of this problem.
The Russian government has denounced treatment of Russians in Estonia and
Latvia at the U.N., OSCE and other international organizations. Estonia and Latvia
reject the Russian assertions, and asked international organizations to offer opinions
on their laws and to investigate Russia's charges of human rights violations. OSCE
representatives have said that Estonia and Latvia do not violate the human rights of
their Russian-speaking minorities. However, both countries have changed laws that
OSCE experts believed were not in line with European standards. Russian officials
have said these efforts are insufficient. Despite concerns raised by Russia and local
Russian speakers, emigration of Russian speakers from Latvia and Estonia since
Baltic independence has been moderate. Observers believe that despite their
grievances, most Russian speakers prefer to remain in the relatively stable and
increasingly prosperous Baltic states than to move to Russia. Russia has not signed
border treaties with Latvia and Estonia. Russia has initialed border treaties with both
countries but has linked the signing of the accords to its grievances on the status of
Russian speakers in Estonia and Latvia. Russia and Lithuania signed a border treaty
in October 1997.
Russia expressed strong opposition to NATO membership for the Baltic states,
claiming that having a NATO country on their borders would weaken Russia’s
security. They noted that Russia’s Kaliningrad region would be surrounded by
NATO states if Lithuania were to join the alliance. Baltic membership in NATO has
not led to a drastic deterioration in relations between Moscow and the Baltic states.
However, Russian officials continue to express concerns and issue warnings about
the deployment of foreign forces from NATO countries on Baltic soil. Baltic
observers believe Russia’s objections are based on an assumption that, as former
Soviet republics, the Baltic states belong in a Russian “sphere of interests.”
Russia’s economic role in the Baltic states has declined over the past decade, but
is still significant in some sectors. Russia has maintained double tariffs on Estonian
goods since 1992, in retaliation for alleged human rights violations against the
Russian-speaking population in Estonia. This policy has had the side effect of
sharply redirecting Estonia’s trade toward Western countries and away from Russia.
Russia will eventually have to drop the trade restrictions against Estonia now that
Estonia is an EU member. However, Russia retains an important role in certain
sectors of Estonia’s economy. Estonian ports are heavily dependent on Russian
transit trade (unlike Russian ports in the region, Estonia’s ports are ice-free year-
round). Estonia’s port facilities bring in as much as 14% of the country’s GDP.
Russia similarly accounts for a decreasing fraction of Latvia’s imports and
exports, as trade with other EU countries increases. However, as in the case of
Estonia, Latvian ports are heavily dependent on Russian transit trade. Ventspils in
particular is a key port for Russia’s oil exports. The ports of the Baltic states
compete with each other, as well as possible new port facilities developed in Russia.
Russia has an important role in Lithuania’s energy sector. Lithuania’s huge
Mazeikiai oil refinery accounts for 10% of Lithuania’s GDP and 20% of government
tax revenues. In 2003, the state-controlled Russian oil transport firm Transneft cut
off oil shipments to Ventspils in an effort to secure an ownership stake in the oil

terminal. It is also trying to boost the importance of a competing Russian oil terminal
at Primorsk, which it owns.
In a similar move, the Russian firm Lukoil, which is closely connected with the
Russian government, cut off oil shipments to the Mazeikiai refinery after Lithuania
sold a controlling share in the firm to a U.S. firm, Williams International. As a
result, the refinery remained unprofitable. In 2002, Williams sold its shares in the
refinery to the Russian oil firm Yukos, a competitor to Lukoil that offered to supply
the refinery with oil. In 2004, Yukos came under attack from the Russian govern-
ment, allegedly for tax evasion. Observers believe the move could be an effort by
Russian President Vladimir Putin and his cronies to gain greater control over Yukos’s
assets and the Russian oil sector as a whole, a development that some believe could
have negative consequences for Mazeikiai and Lithuania.
U.S. Policy
The United States recognized the independent states of Estonia, Latvia, and
Lithuania on July 28, 1922, and never recognized the legality of their incorporation
into the Soviet Union. The U.S. Government continued to accredit the representa-
tives of the former independent governments. When the Baltic states started to push
for independence from Moscow in 1990 and 1991, the Bush Administration
encouraged Baltic independence efforts, but stopped short of taking stands that might
provoke a strongly negative response from Moscow. The Administration did,
however, begin some direct involvement with the current Baltic governments such
as the shipment of medical supplies to all three Baltic states in early 1991. After the
failed Soviet coup of August 1991, the Administration established full diplomatic
relations with all three Baltic governments on September 2, 1991. P.L. 102-182 as
enacted on December 4, 1991, extended nondiscriminatory (most-favored-nation)
treatment to the products of Estonia, Latvia, and Lithuania. U.S. embassies began
some operations from temporary quarters in all three Baltic states in all three Baltic
countries on October 2, 1991 and were formally opened in February 1992.
After the independence of the Baltic states, the United States pushed strongly
for the withdrawal of Russian forces from the Baltic states. The United States tied
aid to Russia to Baltic troop withdrawal; carried out a $166 million program to
provide housing to retired Russian officers withdrawn from the Baltic states; and
performed a mediating and facilitating role between the Baltic states and Russia on
this issue, until the withdrawal was completed in 1994. U.S. officials have also tried
to support minority rights in the Baltic states, while not sanctioning Russian charges
of massive human rights violations in the Baltic states.
Since 2001, the United States has strongly advocated the Baltic states’ entry into
NATO. The United States has also sought to help integrate the Baltic states into
European institutions through the Enhanced Partnership in Northern Europe (e-PINE)
program. This program focuses on three main areas: 1) ensuring political security,
which includes combating terrorism and the proliferation of weapons of mass
destruction; 2) nurturing healthy societies, which ranges from efforts to protect the
environment to anti-trafficking activities; and 3) promoting economic growth through

the development of commercial ties.4 The program attempts to involve non-
governmental organizations (NGOs) and private sector enterprises, which often
require little or no government funding. its Northeastern. The program also aims to
improve cooperation between the U.S. and Nordic countries and increase regional
cooperation with Russia. Program involve OPIC insurance for U.S. investments in
the region , law enforcement assistance in improving border controls, and health and
environmental programs in northwest Russia and other areas.
U.S. Aid to the Baltic States
Over the past decade, the United States has provided significant aid to promote
political and economic reforms in the Baltic states, and to improve the capabilities
of their armed forces and their interoperability with NATO. From FY1990 to
FY1999, the United States obligated $29.7 million in aid from the Support for East
European Democracy (SEED) program to assist political and economic reform in
Estonia. At the end of FY1996, Estonia was “graduated” from bilateral SEED
funding, due to its success in carrying out reforms. From FY1990 to FY1999, the
United States obligated $54.3 million in aid SEED aid for Latvia. From FY1990 to
FY1999, the United States obligated $79.73 million in SEED aid in Lithuania. The
Administration “graduated” Latvia and Lithuania from bilateral SEED funding at the
end of FY1999.
The Baltic states continue to receive small amounts of aid from U.S.-funded
regional projects, including the Baltic-American Partnership Fund, which aims to
strengthen NGOs in the Baltic states. The Fund has a $15 million endowment, half
of which comes from the U.S. government and half from the Soros Open Society
Institute. In addition, a U.S.-funded Baltic Enterprise Fund, capitalized at $50
million, makes equity investments and loans, and offer technical assistance to small
and medium-sized business and U.S.-Baltic joint ventures.
Currently, the main focus of U.S. aid to the Baltic states is security assistance.
In FY2004 Estonia will receive an estimated $6.2 million in Foreign Military
Financing (FMF) aid in FY2004 and $1.099 million in IMET military education and
training funds. The Administration requested $5 million in FMF aid for Estonia in
FY2005 and $1.2 million in IMET funding. Estonia has also received U.S. aid to
improve its export control system: $1.175 million in FY2004 and a requested $1
million for FY2005. Latvia will receive an estimated $6.61 million in FMF in
FY2004, $1.2 million in IMET, and $1.825 million to improve its export control
For FY2005, the Administration requested $5 million in FMF, $1.2 million in
IMET, and $1 million for export control system improvements for Latvia. In
FY2004, Lithuania is slated to receive $6.95 million in FMF, $1.2 million in IMET,
and $1.020 million in assistance to improve export controls. In FY2005, the
Administration requested $5.5 million in FMF, $1.2 million for IMET, and $1
million in export controls aid for Lithuania. The United States also provides Excess
Defense Articles to the Baltic states.

4See E-PINE web page: [].

The key focus of U.S. security assistance to the Baltic states is to improve their
interoperability with NATO and bolster their capabilities. U.S. aid and equipment
helps the Baltic states participate in Partnership for Peace training exercises with
NATO countries and in U.S. and in NATO-led operations throughout the world. The
United States has provided equipment for the Regional Airspace Initiative, which
aims to develop integrated regional civil-military airspace regimes that are
compatible with Western civil airspace organizations and NATO. U.S. military aid
includes such things as communications equipment, light anti-tank weapons, trucks,
and spare parts for existing equipment. IMET programs are aimed at helping the
Baltic states upgrade officer training. In the congressional presentation on its
FY2005 forign aid request, the Administration said that funding to set up an effective
export control system in the Baltic states would be discontinued after FY2005, due
to the progress they have made, and that future funding would focus on providing
equipment to improve the countries’ border security.5
Iraq, Afghanistan, and the War on Terrorism
The Baltic states have supported U.S. operations in Iraq, Afghanistan, and in the
war on terrorism. In Iraq, an Estonian infantry platoon is stationed in Baghdad under
the command of the 1st Cavalry Division. A cargo handling team is located at an
airport near Nasiriyah. A 105-man Latvian infantry company platoon has been
deployed to the Polish sector in Iraq, as well as a logistics support platoon and an
Explosive Ordnance Disposal (EOD) unit. Lithuania has contributed over 100
soldiers to multinational forces in Iraq, in the British and Polish sectors.
Estonia has deployed an EOD team and a medics staff officer with the
International Security Assistance Force (ISAF) in Afghanistan. A team of Latvian
military medics have also been deployed to ISAF. Lithuania has contributed 40
troops to Operation Enduring Freedom, the U.S.-led anti-terrorist campaign in
Afghanistan, as well as a handful of logistics troops, medical personnel, and an air
traffic controller to ISAF. All three Baltic states have strongly supported the war on
terrorism, including by tightening border controls and enacting improving anti-money
laundering legislation.

5 FY2005 Congressional Budget Justification for Foreign Operations, from the State
Department website, [].