Crisis highlights faults in free trade agreement

  • 1998-12-03
  • Anastasia Styopina
RIGA - The collapse of the Russian market and increased protectionism on the local scene has put the Baltic free trade agreement to the test.

So far, it is not getting high marks across the board. Participants at a Riga agro-food conference organized by the Organization for Economic Cooperation and Development said the Russian crisis has forced Baltic companies to look to each other for alternate markets. However, this has increased competition and regional bickering, thus bringing to light imperfections in the agreement that were previously invisible.

"International agreements are tested when the market experiences problems, and present market conditions caused by the meltdown of the Russian market put pressure on international trade agreements," said Gerard Viatte, director of the Food, Agriculture and Fisheries Directorate at the OECD.

Estonian Agriculture Minister Andres Varik said all the problems are caused by different customs tariffs and agricultural support policies in the three countries.

"Pork is causing particular problems at the moment," Varik said noting that different customs regimes do not provide equal conditions to entrepreneurs.

After the Russian economic crisis started, both Latvia and Lithuania attempted to limit imports of Estonian pork despite the free trade agreement on agricultural products the three countries have adhered to since 1997.

Increased import of meat at the time when the countries lost their traditional export market proved to be a disaster for local producers who complain that exported goods push them out of the market.

"When there were no problems in Russia, there were no problems in other areas," said former Latvian Agriculture Minister Andris Ravins, referring to problems the Latvian agriculture sector is experiencing now.

He said Latvia imports 50 percent more meat than it produces, and the market could deteriorate further if cheap German meat were dumped in the country.

New Prime Minister Vilis Kristopans, who is also acting agriculture minister, and the country's new government will have to tackle this problem.

After meeting with Agriculture Ministry officials Nov. 30, Kristopans urged Baltic governments to stick to the free trade agreement.

But his predecessor, Ravins, spoke in favor of cutting Estonian pork imports to Latvia, thus violating the free trade agreement.

Most representatives of the Baltic countries at the conference defended their trade treaty, calling it "unique."

"The operation of the Baltic free trade agreement has indicated that it is very difficult to apply a unified market if other policies differ. Different support policies and trade regimes do not provide equal terms for competition," Varik said.

He said Estonian companies can import raw material duty free. This is then reflected in prices and also has direct or indirect influence on the market situation in the other Baltic countries.

State support to agriculture, which plunged from nearly 100 percent in Soviet times to almost zero after the countries became independent, is rising now and is different in all the three countries.

The OECD found that agricultural support in the Baltic countries is increasing mostly due to the market price support when the state covers the difference between producer prices and market prices.

"The problems in free trade agreements appear when you don't have sufficient harmonization of domestic policies, mainly in price support policies," said Viatte.

The conference participants called for harmonization of the Baltic agricultural policies to make the agreement work.

Antero Tuominen of Finland's Ministry of Agriculture and Forestry said it is important that the free trade agreement function smoothly because foreign investors view the Baltics as one market. And if the three countries' dreams of EU membership are to become realities, Tuominen said they will have to learn how to function in a new integrated market.

Viatte agreed. "Trade agreements are useful steps for further integration into world structures."