Latvia pushes into world market

  • 1999-02-18
  • Katya Cengel
RIGA - Whether its farmers are ready or not, Latvia became the first Baltic state to officially integrate into the World Trade Organization Feb. 10. Latvia, along with Kyrgyzstan, is at the forefront of former Soviet republics entering the organization.

But being one of the first former communist countries to enter Western organizations is not always an easy thing, as Poland found out in late January. One of the main reasons is that these countries, recovering from collective farms, do not have the money to compete with their better equipped Western neighbors. Recent events in Poland make this all too clear.

When thousands of Polish farmers went on strike, blocking roads and demanding higher prices for their products, Poland discovered it may not be ready for EU membership even though it has already begun negotiations. Unable to compete with their larger Western European neighbors the farmers demanded higher import tariffs, something WTO rules forbid.

Latvian farmers come from the same socialist tradition as Polish farmers, but this has not dampened the Latvian government's eagerness to join the WTO, even though it means a lowering of import tariffs.

"We did not face a dramatic reduction of import duties," said Margers Krams, deputy state secretary of the Agriculture Ministry.

Latvia will have to lower import tariffs on meat from 40 percent to 36 percent and those on grain from 75 percent to 50 percent by 2000. There will also be slight changes in tariffs on beer and raw materials.

Still it was in agriculture that Latvia faced the most difficulties regarding its integration into the WTO.

Like Poland, Latvia lost a large Russian market this fall, causing an excess of goods on the local market and a subsequent lowering of prices. Without the protection of import tariffs cheap imports set to enter the country could lower prices still further and cause serious problems for local producers.

Coupled with the changes in laws and regulations some questions remain whether Latvia is ready to face such competition. In addition, not all producers are aware of how to take advantage of WTO benefits and rules.

"The speed of law change is too fast for us," said Aleksandrs Canders, head of Latvia's Wholesale Pharmaceutical Association.

Latvia will not see immediate benefits from WTO membership, something that makes many producers question whether all the changes and adaptations are worthwhile.

"In many areas companies don't need these benefits now," said Viesturs Kocins of the Latvian Chamber of Commerce. "For these companies the World Trade Organization means additional regulations without benefits."

Yet Latvia is not worried.

For Latvia WTO membership means lower custom tariffs in foreign countries, most favored nation status with more than 130 countries, an inflow of foreign investment and protection from discrimination in the world market. Because of the way Latvia implemented the required changes it is also one step closer to EU membership.

"Of course membership in the WTO is good," said Foreign Ministry spokesman, Toms Baumanis. "We are getting most favored nation status with 139 countries particularly Japan, Egypt, Mexico and others where our goods have markets."

Another advantage of early membership is that Latvia can use its position in the WTO to influence its Baltic neighbors with whom it has had recent squabbles regarding the Baltic Free Trade Agreement.

"Because Latvia joined first we will raise any questions regarding Estonia and Lithuania," said Kocins.

Benefits will be most obvious in the timber and textile industries while those that require the most smoothing of wrinkles are in audio visual and agriculture. The audio visual issue was more a dispute between Europe and the United States, and was fully resolved, but agriculture worries hit closer to home.

While they may be ahead of their Baltic neighbors they still remain behind those in the West.

"Latvian farming potential is higher than internal consumption so we have to orient our goods more toward exports," said Krams.

Yet according to the Latvian Farmers' Association secretary Bruno Barons, the level of production of Latvian farmers is much lower than that of their Western counterparts.

While Krams will not guarantee there will be no problems, he remains optimistic. "We try to keep in communication with farmers so there will not be demonstrations."

Barons doesn't think there will be strikes or demonstrations, but it is because Latvia is "not fond" of organizing them and not because of good communication. The association has received little information about the WTO from state organizations, said Barons adding that most of what they know comes from the media.

While Barons thinks Latvia could face problems similar to those in Poland, he points to a few main differences between the two countries: Poland is eight times larger than Latvia and has eight times as many farmers, all of whom receive much larger subsidies than their Latvian counterparts.

"Our farmers now have hardly any subsidies so they are not afraid of changes brought about by membership in the World Trade Organization," said Barons. "They have nothing to lose because right now they get nothing."