Cabinet moves to protect domestic producers

RIGA - Recent Latvian threats to raise tariffs on Estonian and Lithuanian goods revealed increased competition between the Baltic producers and pinpointed the need for market protection mechanisms.

Last week, the Latvian Cabinet of Ministers adopted a draft law on domestic market protection that allows the state to raise tariffs or introduce quotas on imported goods if they cause damage to local producers.

According to the law, which fully complies with the World Trade Organization's requirements, any local producer may file a complaint with the Economics Ministry if it incurs serious losses due to increased import of similar goods.

The regulation, though, should not scare foreign importers away. "The goal of this law is not to promote protectionism, but rather to give time for those producers that incurred losses to prepare themselves for increased competition after the protective measures are lifted," said Iveta Ozolina, senior officer at the department of foreign economic relations at the Economics Ministry.

In September, local milk producers complained to the Agriculture Ministry that increased Lithuanian imports are pushing them out of business. Moreover, Lithuanians were selling their products at dumping prices.

Latvia does not have an anti-dumping law, so it had to count on Lithuanian's honesty. The Lithuanian Agriculture Ministry's representatives said dairies would stop dumping by Oct. 10, and they have appeared to keep their promise.

Aigars Kalvitis, chairman of the Central Union of Latvian Dairy Producers, said Lithuanian producers are raising their prices. Latvia is not likely to impose any tariffs on these goods. Lithuanian imports will keep surging and that might bring complaints from Latvian producers.

Ozolina said no one has complained to the Economics Ministry yet, but she predicted agricultural producers might be the ones to bemoan losses related to imported goods.

Kalvitis said the law will not be able to solve short term problems because it will take up to one year for Latvia to decide whether increased imports damaged a local company's performance.

The ministry has up to nine months to check into each complaint. According to the draft, the ministry should check import volumes and their impact on local production. If the damage to local producers is proven, the state may increase customs tariffs on these products or introduce quotas for a period of up to three years.

The law applies to all countries except newly developed ones, mainly in Africa and Asia, as long as their share does not exceed 3 percent of all imports.

Iveta Sulce, director of the Foreign Ministry's EU and Foreign Economics Department, said that although the law does not guarantee immediate help, it is necessary because Latvia must have the means to protect its own producers.

The law permits to increase tariffs or introduce quotas without checking the complaint only in what the Economics Ministry deems "critical situations." However, if the complaint proves false, Latvia is required to pay importers back the punitive tariff.

Both Sulce and Ozolina noted that the law is for emergency situations and stressed that Latvia must try to solve the problem by other means first.

"Before applying for any measures one should very carefully calculate and try to apply other financial instruments to help local producers," Sulce said, referring to subsidies and financing redirection of production.

Sulce also warned that importers may fight back if hit with punitive tariffs and said Latvian exports may be the recipient of the blows.

"Latvia should keep in mind that its exports to Estonia and Lithuania are 17 percent, while their total exports to Latvia are 15 percent."