RESTRICTEDWORLD TRADE
ORGANIZATIONWT/ACC/LTU/23
14 May 1998
(98-1920)
Working Party on the
Accession of LithuaniaOriginal:  English
ACCESSION OF LITHUANIA
Communication from Lithuania
The Permanent Mission of the Republic of Lith uania has submitted the following information
on conditions causing a necessity for Lithuania to maintain export subsidies in agriculture, with the
request that it be circulated to Working Party members.
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1. Lithuania’s agriculture sector (as whole economy) is still in the process of transition and
restructuring
Lithuanian land-based industries have gone through an unprecedented social, political and
economic upheaval in the past few years.  With the dissolution of the Soviet Union and the
breakdown of all previously established production and trading practices, Lithuania has had toconfront the demands of transformation to a market-based economy.  For continuing development of
market institutions and more flexible response by the agricultural sector to changes in both domestic
product supply and price levels on the world market, Lithuania does still need to make improvements
in a number of policy orientations.
However, there are several intrinsic problems in the country and whilst trying to encourage
trade liberalisation in agricultural and food products as a fulcrum to economic development in the
country, accession to the WTO itself poses a possibility that liberalised trade might result in the
development of a core and periphery of agricultural activity. Nevertheless, accession to the WTO in
the country is in motion and seems irreversible.
As with the economy as a whole, Lithuania’s food and agriculture sector is facing a difficult
adjustment to the new market-oriented conditions.  Agriculture is still in the process of recovery and
productivity of the sector including food industry has not reached its potential level.  This is due toinflation, distortion in production and prices, and a disruption in relations, and resulting competition
with its main trading partners in  the former Soviet Union.  Growth and development within the sector
is restrained by the insecurity of farm and land user rights, poor infrastructure, and lack of proper
channelling of inputs and outputs.  In addition to fragmented farms and insufficient competition,
farmers’ income are squeezed by a negative trade balance and a lack of access to credit.  Land reform,in particular the process of restitution, privatisation and the development of clear-cut ownership rights
has not proceeded as quickly as was hoped.
However, within the context of a focused national agenda, the integration into the world
market structures has an immense bearing on the country’s outward-looking policy successful
implementation and the national trade balance improvement along the continuation of its economic
development.  This is because there is a sizeable rural economy share in the country’s balance of
payments.  The food and agriculture sector is the second largest of the Lithuanian economy.  TheWT/ACC/LTU/23
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sector accounts for 20 per cent of GDP, 23 per cent of employment and 20 per cent of all exports.
However, there is a huge structural overcapacity of an amount equivalent to the exports to the former
Soviet Union whilst recently emerging new trade patterns have not been put on rational economic and
marketing grounds yet.  Having in mind high tariff protection and internal support for agriculture in
Western countries Lithuanian products are not able to enter and  compete in Western markets.
However the quality of Lithuanian products does not fully meet the international standards - processof  improvement takes place but it requires certain period of time - this also creates additional
difficulties for access to those markets.  Export subsidies currently are the only way to dispose of
rapidly increasing production and becoming a surplus as internal demand is still sluggish because of
low incomes.
2. Russia and the other CIS countries are the main export market for Lithuanian agriculture
products
During the Soviet period, the Russian market wa s the main market for Lithuanian agricultural
exports and from 1991 to 1995 this market was clos ed because the Soviet Union at that time, and
Russia later, applied double MFN import duties for Lithuanian export - this meant a de facto  embargo
to the main export market.  Such measures resulted to the decrease of Lithuanian agricultural
production and export by 50 per cent.  During that time (1991-1995), other countries - WTO Members
(including Western developed countries) entered into this market with its subsidised production and
under normal customs tariffs.
From 1995 when the Agreement between Lithuania and Russia on Trade and Economic
Co-operation entered into force and the application of double customs tariffs was no longer practised,Lithuania started to export its production to the former market - Russia and other CIS countries -
which were traditional markets developed by the food system which was established in the formerSoviet Union. However, due to the differences of prices between the subsidized production from
Western countries and Lithuanian products Lithuanian products are not competitive in that market
without export subsidies.
3. The processing industry cannot be restructured without the subsidized exports
The food-processing industry of Lithuania needs restructuring.  Production of raw materials,
infrastructure of marketing and distribution of products are not sufficiently developed.  The currentlevel of direct foreign investments does not satisfy the needs of restructurization.  The main share of
investments goes to the trade sector.  The largest enterprises with the participation of foreign capitalare focused on the domestic market.  An increase of foreign investments could be more likely if it
benefited from the export of production.  On the other hand, domestic food-processing enterprises are
not invested with a high degree of market understanding to actively sell and promote their products
abroad, and their lack of focus both in their product range and geographic coverage.  Greater
competitive activity places emphasis on concentrating resources on areas of strength, hence a broadframe of support is necessary in order to consolidate the industry with a view to achieving a critical
mass in production of niche products unless be closed out of future competition.  Still yet, the
marketing infrastructure has not been developed in Lithuania in order to support the implementation
of international trade agreements.  At this stage of the processing restructuring the exports can only
take place with export subsidies.
4. Major social problems could be solved by temporary use of export subsidies in agriculture
Agriculture as was stressed earlier is the sector of high priority in the Lithuanian economy. It
still employs 23 per cent of the country’s population.  Reasons why such a situation is still existing
are:  the land reform based on pre-war ownership is not completed yet;  traditional agriculture activity
remained dominating due to insufficiency of investments which could change the production profile.WT/ACC/LTU/23
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Traditional agricultural activities produced the products surplus which is too much for domestic
market and should be exported.
Restructuring of the Lithuanian agricultural sector is of essential importance to the economic
stability of the country because otherwise it will result in high unemployment of the rural population.
5. The WTO provisions do not prohibit export subsidies in agriculture
Lithuania currently provides export subsidies in agriculture and sees the necessity to continue
these measures in future.  The request to eliminate export subsidies for Lithuania is not reasonable
taking into consideration the fact that WTO Members themselves apply such measures.  The
Agreement on Agriculture does not preclude from the use of export subsidies in agriculture to the
extent they are listed in the country’s Schedule.  A number of WTO Members use export subsidies in
agriculture, including the United States and the European Communities.
6. Justification of export subsidies
Lithuania applies direct export subsidies (i) for meat, milk and grain products, vegetable oil
and (ii) for sale of non-commercial stocks of agriculture products and food products from the State
reserve.  Export subsidies for agricultural and food products are justified under the Article 9 (Export
Subsidy Commitments) item 1(a) and item 1(b) of the Agreement on Agriculture.
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