For smaller countries like Lithuania, international trade and economic cooperation in general is of predominant importance for economic development. The forced reorientation of Lithuania's trade after its incorporation into the USSR resulted in a complete destruction of Lithuania's economic ties with the West (mainly United Kingdom and Germany). As a result of occupation, Lithuania was forced to forego multiple benefits flowing from foreign trade in general and the cooperation with the advanced market economies in particular. Only about 2 percent of its trade was with the West at the start of the post-Soviet independence in 1990.
With the international trade-to-GDP ratio at the level of some 90 percent, Lithuania is a strongly outward-oriented economy as of 2000. Its foreign trade is liberalized and regulated largely via market economy instruments known in the West and approved by the World Trade Organization (WTO) of which Lithuania is a member. The earlier licensing and foreign exchange surrender requirements have been repealed. Over two-thirds of the Lithuanian imports enter duty free; the rest face 5 to 15 percent duties, becoming more and more uniform as required by the WTO. By 2000, Lithuania maintained economic relations with over 160 countries. The country has bilateral trade treaties with 22 nations. However, accounting for almost one-quarter of Lithuania's trade turnover , Russia remains a major trade partner. Part of the Lithuanian output decline during transition was due to too slow a reorientation of trade away from the former Soviet Union (FSU) and towards the West. Foreign direct investment into Lithuania is still rather modest due to this and related factors having to do with instability in Russia and elsewhere in the FSU but also shortcomings of the Lithuanian reforms and some communist legacies.
From 1997 to 1999, the nation's imports increased by 27 percent, and its exports increased by 10.6 percent. Lithuania's main exports in 1998 included machinery and equipment (19 percent of exports), mineral products (19 percent), textiles and clothing (19 percent), and chemicals (10 percent). The nation's main export markets were Russia at 17.4 percent, Germany at 15.8 percent, Latvia at 12.7 percent, Denmark at 5.9 percent, and Belarus at 5.2 percent. In 1998, Lithuania's main imports were machinery and equipment at 30 percent, mineral products at 16 percent, chemicals at 9 percent, and textiles and clothing at 9 percent. In 1999, the country's major import partners were Russia with 20.4 percent of imports, Germany with 16.5 percent, Denmark with 3.8 percent, Belarus with 2.2 percent, and Latvia with 2 percent. Lithuania has consistently had a trade deficit . In 1996, the nation imported US$1.2 billion more than it exported, and by 1998 that deficit had increased to US$2.1 billion.
There seems to be a trend to go deeper into external debt . The external debt amounted to over US$2 billion at the end of 2000, balancing around the level of Lithuania's hard currency reserves. However, the increasing levels of foreign investment have helped offset the debt by providing inflows of capital for new investment. The Swedish-Finnish company, Amber Consortium, is the largest single investor in Lithuania with US$510 million in investments, followed by Williams International of the United States with US$150 million and Telia-Sonera, also a joint Swedish-Finnish firm, with US$66 million. By 2000, total foreign investment in Lithuania was US$2.66 billion. Investments in telecommunications accounted for 28.8 percent of total foreign investment while manufacturing accounted for 25 percent, and wholesale and retail trade accounted for 19.5 percent.
In an additional effort to attract foreign trade, in 1995, the Lithuania government established 3 free trade zones , located in Siauliai, Klaipeda, and Kaunas. Companies that locate themselves in these zones receive incentives of up to 30 percent of the cost of building or relocating to the areas.
The entry of Lithuania into the EU will greatly expand the nation's international trade. It will give Lithuania access to the markets of 15 countries which will also be able to use Lithuania as a gateway for entry into the markets of the former Soviet Union. Already, trade between Lithuania and the EU members has dramatically increased. Since 1997, exports to the EU have increased by 21.8 percent. Meanwhile imports from the EU increased by 13.3 percent. Lithuania is also a member of the Baltic free trade zone, a 1994 agreement between the 3 Baltic countries which abolished tariffs on all industrial goods traded among Lithuania, Latvia, and Estonia.