RESTRICTED
WORLD TRADE WT/ACC/LTU/2/Add.1
12September 1995
ORGANIZATION(95-2598)
Original: English
ACCESSION OFLITHUANIA
Introductory Note toQuestions andReplies
totheMemorandum ontheForeign Trade Régime
Addendum
Thepurpose ofthisintroductory noteistoprovide ashort overview ofdevelopments related
tothereformprocessintheLithuanianeconomyandforeigntradesincetheMemorandumontheForeign
Trade Régime wassubmitted (L/7551, 14December 1994).
After therestoration ofIndependence, during thepastfiveyears theLithuanian economy has
greatly changed. Instead ofacentrally planned system amarket based system isinplace withahigh
levelofliberalization andopenness. Themainpartofeconomy waspassed totheprivate sector. The
national currency (thelitas)wasintroduced andanewbanking system andstock exchange werecreated.
During thefiveyears from 1990, GDP decreased. In1990 GDP (compared totheprevious
year) fellby3.3percent,in1991 itfellby13.1percent,in1992 itfellby34percent,andin1993
itfellby23.7percent.Nineteen-ninety-four could becalled astabilization year,because GDPincreased
by0.6percent. Growth, inthefuture, willbedriven byincreasing private sector andforeign
investment.
Thestructure ofGDP haschanged considerably. Theindustry sector in1992 made up
36percentofGDP, thenin1993 -30.4percent,andin1994 -only23.2percent. Agriculture and
forestry in1994reached 8.1percent,construction -8.7percent. Thepercentage share oftheservices
sector increased considerably in1993andin1994reached 60percentofGDP(thelargest partsbeing
thewholesale andretail trade (23.5 percent) andtransportation (8.1percent)). Also, asignificant
partofGDP wascreated bybanking (4.1percent).
In1993, theaverage inflation ratedecreased to9.2percentpermonth. Theinflation rate
for1994 was45.1percent, foritsfourth quarter -10.5percent(in1993 -188.7 percentand
21.7percentrespectively). Thefirstquarter of1995wasmarked byanincrease inmonthly inflation
to5.7percentinJanuary, before dropping to3.9percentinFebruary and1.6percentinMarch.
Thebudget deficit wasunder strain inthefirstquarter of1995 withbudget revenue only
amounting to86.5percentofthetarget level. However, during thesecond quarter oftheyeartax
administration wasimproved and,attheendofJune, revenue stood at99.7percentofthetarget level.
Theintroduction ofanational currency inJune1993 wasoneofthemain reasons forthe
strengthening, developing andstabilizing ofthecountry 'seconomy. However, thefixed exchange
ratepolicy isunder strong internal criticism. Obviously, inflation remains onarelatively highlevel,
andthecountry 'sexporters arefacing many problems. Additional constraints areraised bytheLitas
Stability Law, under which thedeficit ofthenational budget isnotcovered bythebankcredit emission.
Butatthepresent stage ofeconomic development, stability ofthenational currency isnecessary to
solve theeconomic andsocial problems ofthecountry.WT/ACC/LTU/2/Add.1
Page2
Asaresult oftheprivatization process, theshare ofprivate capital intheeconomy ofLithuania
hasgrown significantly. From thebeginning ofprivatization in1991upto1April 1995, 5442 objects
(81percentofallobjects included intheprivatization) havebeenprivatized. Privatized capital makes
up71percentofcapital which willbeprivatized. Thelargest partofprivatized capital isinindustry.
Atthemoment, preparation forafurther privatization process, which willbecarried outbyfollowing
principles ofcommercial privatization forcash, isunder way. ThenewLawonPrivatization onState
andMunicipalities Property (4July1995) hasbeen passed andwill enter into force on
15September 1995. Thislawprovides morepossibilities forpurchase ofStateproperty byallinterested
purchasers.
Thestrategy ofinvestments, including domestic andforeign, isbased onthecountry 'seconomic
development priorities programmes which areapproved bytheGovernment. They aretheprogramme
onreconstruction oftheenergy sector; programme onexpansion ofthetransport system; programme
ondevelopmentofthecommunicationandinformatics;programmeonexpansionofagricultural(farmers)
activity; programme ontourism development.
Intheperiod fromOctober 1990untilApril 1995, 3409 joint-ventures and1127 foreign capital
enterprises wereestablished inLithuania. Foreign direct investments amounted toUS$310 million.
Fifty-onepercentofjoint-venturesandforeigncapitalenterprisesareengagedinindustryand47percent
involved intrade.
Despite themodest recovery in1994, when GDP grewby0.6percent,Lithuania 'sindustries
arestillinadifficult situation. Partly forseasonal reasons, industrial output fellby4.7percentin
December 1994, 14.4percentinJanuary and7percentinFebruary 1995. Industry remains plagued
bycutsinoilsupplies andpotential increases inenergy prices. Themajority ofenterprises andentire
industrial branches (forexample, theelectronic andelectrotechnics industry, metal processing and
machine tools building plants), when faced withareduction indemand havefound itnecessary to
restructure theproduction process.
Household gasandelectricity prices arerising substantially because theGovernment intends
toremove subsidies fordomestic consumers tobring themintolinewithindustry. Energy iscurrently
theonlymajor product inLithuania which remains subsidized.
Recent price liberalization measures, removing oneofthefewprice subsidies remaining in
Lithuania, willpushupthecostofdomestically produced food, which willnotbenefit localfarmers.
Atthesame time, thecostofimported foodwilldecline because ofLithuania 'sobligations totheIMF
toreduce itstariffs, which make localproducers increasingly uncompetitive.
Theagricultural sector alsohastorecover from lastyear'ssevere drought. Agriculture in
Lithuania performs animportant economic, social andethnocultural function andthusitisapriority
branch ofthenational economy. Themainchanges areinagricultural support programmes, agricultural
trade regulations andrecent trade arrangements.
Inresponse totheLaw onState Regulation ofEconomic Relations inAgriculture
(22December 1994), theGovernment issued resolutions establishing minimum purchase prices and
subsidies forsome agricultural products asasupporting measure in1995(thereview ofthisissubmitted
inthetextofthereplies).
From 1994tothepresent, moreconsistent tradepolicies haveemerged which worktoharmonize
thetrade régime withdomestic andworld market conditions andconstraints. External pressures to
establish consistent andtransparent trade policies ledtotheelimination ofnon-tariff barriers anda
switch totheuseofonlyadvalorem tariffs. Bilateral andmultilateral agreements withpartner countriesWT/ACC/LTU/2/Add.1
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influence thisprocess. Among themostsignificant agreements aretheIMFMemorandum ofEconomic
Policies prepared inSeptember 1994 andtheFreeTrade Agreement withtheEuropean Union that
came intoforce on1January 1995. Decisions ontrade policy takeintoaccount theIMF'sandWorld
Bank'srequirements andtheneedtokeeppolicies consistent withWTO standards.
With amodest economic recovery inplace, Lithuania 'strade islikely toincrease. Imports
would havetorisebecause ofthegrowing needforcapital goods.
TheGovernment hasfinalized asystem ofdifferential customs tariffs, under which duties fall
intooneofthree categories depending onwhether thecountries concerned havesigned freetrade or
other agreements withLithuania. Thesystem isinlinewithinternationally accepted practices (the
review ofthissystem issubmitted inthetextofthereplies).
Further liberalization oftrade policy isplanned according tocommitments totheIMFnotto
increase tariffrates, nottointroduce orusequantitative restrictions, andtogradually reduce theaverage
tariff rateforthemain products intheconsumer foodbasket.
Aswasstressed intheMemorandum, theratioofLithuanian foreign trade between Eastand
Westcountries wasgreatly changed. In1994Lithuanian exports toCIScountries made up46.7percent
(in1993 -57.4percent, in1992 -71.5percent, in1991 -94.9percent), while imports from CIS
countries -50.2percent(in1993 -67.2percent, in1992 -82percent, in1991 -90.2percent).
Atpresent thefollowing maincustoms policies areapplied: therearenoduties imposed upon
theexports ofgoods; temporary export prohibitions areapplied onlytoseveral kinds ofgoods; the
import andexport ofsome dangerous goods, nature blessings, works ofcultural andartistic significance
canonlybeexported withappropriate permission; forthemajority ofgoods noimport duties areset;
import duties aresetforthose goods which aresimilar togoods produced inLithuania; insome cases
import duties arenotapplied; asystem ofguarantees, deposit andpolice guard isapplied ongoods
transiting Lithuania; awidenetwork ofvarious customs warehouses isinexistence.