Trade war: Latvia strikes back

RIGA - Latvia kept its promise to introduce price restrictions on Lithuanian agricultural imports March 15, but producers to the south appear indifferent.

At a special meeting dedicated to Baltic free trade in Vilnius March 5, Latvian representatives put things clearly: either Lithuania scraps a system that prohibits the price of Latvian agriculture imports from dropping below a certain level, or Latvia will strike back in kind.

"If Lithuanians are doing this, why shouldn't Latvia do the same," said Aiga Smiltane, director of Agriculture Ministry's trade relations department.

At the beginning of the year, Lithuania set a minimum price floor on imported foodstuffs that it uses to calculate taxes. As the established prices are above the market level, imports cannot compete with locally produced goods, and Latvian export to Lithuania plummeted.

At the March 5 meeting, Lithuania promised to review its customs policy and lower the minimum prices to market level, but Latvia wants this system scrapped altogether because it says it violates the Baltic Free Trade Agreement.

The Latvian government decided March 9 to apply the same customs evaluation system against Lithuanian producers to make its southern neighbor reconsider.

"This measure was necessary to put in order the Baltic Free Trade Agreement and to establish the same conditions for trade," said Smiltane. "Lithuanians did not believe we would do this."

Until March 15, Lithuanian producers declared the value of exported goods at the Latvian border. Latvia then applied a value added tax, or VAT.

Now, the value of Lithuanian goods will be calculated according to the established minimum prices. Only then will VAT be added.

The value of beef will be determined taking into account the established price of 0.94 lats ($1.6) per kilogram. Latvia has also established the price of pork at 1.18 lats per kilogram. Minimum prices on eggs range from 1.03 lats to 3.97 lats per kilogram, while prices on milk products vary from 0.29 to 1.10 lats per kilogram.

Smiltane said Lithuanian export to Latvia will drop and losses may run up to 4 million lats by the end of the year.

"I think that Lithuanian exporters will start having problems and they will try to influence their Agriculture Ministry to scrap these prices," she said.

Not at all, say Lithuanian officials.

"No Latvian measures are a threat to our producers. We are producing cheap, quality products," said Jonas Rekesus, the Lithuanian Agriculture Ministry's chief spokesman. "Loss of this market is not dangerous for us, because it's too small for our exporters."

Rekesus denied Latvia's move would influence the policy of the ministry, which promised the World Trade Organization it would junk the price floors on Jan. 1, 2000.

"Nothing will change. This measure won't benefit Latvia in any way," he said.

Lithuania said it would review its prices by March 16. If it opts to decrease some of them, Latvia will change accordingly. But there is no guarantee Lithuania will drop the prices to the market level.

"Prices may decrease," Rekesus said. "But may also increase."