The decision to raise import tariffs on cigarettes from 0.1 lats ($0.17) per 1,000 to 30 percent came unexpectedly.
Just a week ago, MPs agreed with Prime Minister Vilis Kristopans to postpone the third reading of amendments to customs tariffs for a month to make sure the proposed changes do not violate international agreements.
"We were surprised," said Andris Kraujins, head of Philip Morris' Latvian bureau. "We think the right thing [for Parliament to do] would have been to follow Kristopans' proposal and wait for ministries to give their conclusion [whether the tariff increase violates international agreements] before making such a decision."
In February, the Parliament's law office concluded that the proposed tariff hike "contradicts many international agreements accepted by the Parliament."
The Association Agreement between the European Union and Latvia prohibits any new quantitative restrictions on imported or exported goods, like quotas or tariffs. It also states that the existing tariffs or quotas cannot be increased.
The adopted changes establish a basic tariff on cigarettes of 30 percent. But for EU countries and members of the World Trade Organization, it is set at 10 percent.
Two weeks ago, Philip Morris held a press conference on behalf of four importers and warned that Latvia may expect retaliatory measures from the West if it increases its import tariffs.
Kraujins said he still expects international reaction.
"International organizations will give their evaluation [of the tariff hike] because we have information that it does not comply with Latvia's international obligations," he said.
For the local consumer, who mainly smokes cheaper brands, the new amendments will mean that they will have less choice, Kraujins added.
The tariff hike was initiated by the Danish House of Prince that owns a cigarette factory in Latvia. The company maintains that Latvia's import tariffs are too low compared with the surrounding countries. After the tariff was lowered from 2.5 lats to 0.1 lats per 1,000 cigarettes in May, the company started incurring losses.
House of Prince Director Vladimirs Camans is still not satisfied with the tariff situation.
"The Parliament accepted a 10 percent tariff when around us it's 30 percent and in Europe 68 percent," Camans said. "We are for equal competition conditions, but this is not equality, this is just cosmetic repairs [of the situation]."
He noted that the tariff hike is not going to influence cigarette import to Latvia, and contrary to importers' predictions he claimed that prices will not increase.