So much for Baltic cooperation: Latvia threatens to tax Estonian, Lithuanian imports

RIGA - After exports to Russia froze in mid-August, Baltic food producers were forced to empty their loaded warehouses on the closest markers.

In Latvia, milk products, pork and eggs from Lithuania and Estonia flooded the market, thus making life more difficult for local producers.

Recently the Latvian government announced it is toying with the idea of customs tariffs on imports from its Baltic neighbors as a way to protect the local market. The announcement was met with strong opposition from Estonia and Lithuania since all three Baltic states have free trade agreements on manufacture and agriculture goods signed respectively in 1993 and 1995.

The Estonian and Latvian Agriculture Ministers Andres Varik and Andris Ravins, together with the Lithuanian Agriculture Vice Minister Vytautas Grusauskas met in Tirva, Estonia, to discuss this problem Sept. 23.

Latvia delayed protective measures until a joint working group thoroughly studies the situation. The group will meet for the first time in Riga on Sept. 30, and it has to report to the ministries by the end of October.

According to Irina Pilvere, deputy state secretary at the Latvian Agriculture Ministry, the increased flow of Estonian and Lithuanian import is directly connected with the Russian crisis.

"This problem is the consequence of the situation on the Eastern market. Food producers are now selling their accumulated products, intended for export to Russia, in the neighboring countries because there is a free trade agreement between the three Baltic states," Pilvere said.

In July, according to Pilvere, Lithuania exported 292 tons of milk, 8 tons of butter and 28 tons of cheese to Latvia. In August, exports skyrocketed to 797 tons of milk, 26 tons of butter and 43 tons of cheese.

The Central Union of the Latvian Dairy Producers sent a letter to the Parliament asking for protective measures. Lithuanian exports are knocking local producers off their feet, they claimed.

Export of Latvian dairy products to Russia has been stopped for five weeks. Aigars Kalvitis, the Union's board chairman, said local milk producers can overcome the crisis only if they develop new markets and keep the prices at the current level.

Kalvitis said Lithuanian companies are selling their products in Latvia at cheaper prices than in their home market. In Lithuania, a kilogram of butter goes for 1.15 lats ($1.98), while in Latvia it costs 0.7 lats. Lithuanians buy local cheese at 1.6 lats a kilogram, Latvians get it at 1.34 lats.

"That is pure dumping," Kalvitis said. "The Lithuanian expansion is pushing local producers to lower the prices."

Kalvitis said Latvian companies are already developing new markets in Uzbekistan, Holland and Great Britain, but it's hard to preserve the prices on the same level because of unfair competition.

Pilvere confirmed that the Agriculture Ministry has information about some Lithuanian companies that are practicing dumping, and named the dairy Zemaitijos Pienas as an example.

Lithuanian Vice Agriculture Minister Vytautas Grusauskas told TBT that he promised his Latvian colleagues to personally check the Zemaitijos Pienas case but noted that he doubts the company is guilty.

"Some could have used Zemaitijos Pienas labels on products," Grusauskas said.

Alviras Ramanauskas, president of the Lithuanian association of dairy producers, said, "The alarm is caused by people who don't understand this business."

Ramanauskas said it is incorrect to say Lithuanian producers have "flooded" the market because only 2 percent of all Lithuanian export of dairy products goes to Latvia.

Grusauskas said he agrees that Latvia may introduce certain protective measures if the situation in the agriculture sector is critical, but it should discuss it first with Estonia and Lithuania.

Latvia announced an emergency situation in the countryside Sept. 15 because farmers incurred 36 million lats worth of loss due to bad weather.

According to Pilvere, Estonian meat exports to Latvia also increased. In the first quarter, Latvia imported 271 tons of pork, in the second quarter 428 tons.

"In August, Estonia exported almost as much meat (251 tons) as in the whole first quarter," Pilvere said.

In April, Latvian meat processing companies were buying 1,374 tons of local pork, in August they bought only 845 tons and imported 251. Now Estonian import constitutes about 30 percent of all processed pork in Latvia.

"This policy is dictated by the meat processing company Rigas Miesnieks, which occupies a major place in the Latvian meat processing industry. If they don't buy local pork, that strongly influences local producers," Pilvere said.

Rigas Miesnieks is owned by the Estonian meat processing company Rakvere Lihakombinaat. Valtur Telliskivi, spokesperson at the Estonian Agriculture Ministry, said after Rigas Miesnieks closed its slaughterhouse, it started importing most meat from Estonia because it is profitable.

The move has led to complaints among local producers.

"They are complaining that they can't sell meat, they are unsatisfied with the low purchase price, that's why we are looking for measures to protect local producers," Pilvere said.

Latvia may suspend the free trade agreement and impose import tariffs on Estonian and Lithuanian goods ranging from 15 to 45 percent.

Telliskivi said it's strange that one of the countries wants to violate the free trade agreement it signed. "Maybe it is connected with the future elections - whoever is protecting a farmer will get the necessary votes."

Would Latvia have to take extreme measures against possible inflow of Western gods intended for Russia?

"Western imports can't influence the situation in Latvia," Pilvere said. "Although there is a free trade agreement between the EU and Latvia, some import tariffs on foodstuffs have been preserved. Western imports can't increase extremely."