RESTRICTED
WORLD TRADE WT/ACC/LVA/3
28July1995
ORGANIZATION(95-2195)
Original: English
ACCESSION OFLATVIA
Additional Questions andReplies
totheMemorandum ontheForeign Trade Régime
ThefollowingadditionalquestionsandrepliestotheMemorandumontheForeignTradeRégime
havebeenreceived from theMinistry ofForeign Affairs oftheRepublic ofLatvia. Thereferences
made aretodocument WT/L/49.
_______________
CHAPTER IINTRODUCTION AND SUMMARY OBSERVATIONS
2. Institutional Framework
(b) Price System
Question 1(related toQ.3&4)
Theanswers donotappear torespond totheaspect ofthecomparison between internal andexternal
prices, norisitclear atwhat levelprices areregulated (i.e.: primary, wholesale, retail). Please
provide more information.
Reply
Ingeneral, prices inLatvia arenotregulated either ininternal norinexternal markets. The
prices aresetbytheenterprises subject tomarket considerations. Price control maybeapplied inthe
fields where oneenterprise hasadominant market position asinthecaseofnatural monopolies. As
natural monopolies weconsider energy supply, railway, heating-water pipe-lines, etc.These arepublic
services stayed under theState control. These prices havetobefixed orconcerned bytheministry
which isresponsible forthose issues. Those enterprises arenotinvolved intheforeign tradeandthere
arenodifferences between internal andexternal price.
(e) Financial Sector
Question 2(related toQ.8)
Canada ispleased toseethatforeign banks licensed bytheBank ofLatvia donotfacerestrictions
inproviding banking services inLatvia. Please briefly describe therequirements procedures for
obtaining aforeign bank licence inLatvia. Dothese requirements orprocedures differ forforeign
anddomestic banks?WT/ACC/LVA/3
Page2
Canada isalsoplease thatinother foreign financial service sectors (including insurance, operation
ofstockexchanges,securitiesandprivatizationmarkets)therearenonationaltreatmentrestrictions,
andthatforeigners meeting requirements areautomatically granted licences.
Reply
TheBank ofLatvia 'sRegulation ontheGranting andRevocation ofLicences toPerform
Activities ofCredit Institutions (English language translation provided) setsouttherequirements for
obtaining alicence toprovide credit institution services (commercial banks, savings andloans, and
pawnshops) inLatvia.
Thesame requirements areapplied tobothdomestic andforeign entities. Insummary, the
BankofLatvia reviews licence applications, which include butarenotlimited totheproposed business
plan, themanagement, andthefinancial position ofthefounders.
Inonerespect, there isadifference, ifthecommercial bankisestablished solely byaforeign
bankorincaseaforeign bankisestablishing itsbranch orrepresentative office inLatvia, application
forthelicence (permit) isconsidered bytheBank ofLatvia Council. Inother cases applications are
considered bytheBank ofLatvia Board.
There isarequirement thatthemajority ofCouncil members ofthecredit institution shallbe
theRepublic ofLatvia citizens permanently residing inLatvia.
AlicencemayberefusedifthedocumentssubmittedforregistrationdonotcorrespondtoLatvian
legislative requirements orthefoundation ofthebankdoesnotcorrespond totheinterests oftheRepublic
ofLatvia.
Under thelegislation currently inforce, tobeissued withthelicence forstarting business in
securities market, arealperson should taketheexamination inaccordance withconditions setbythe
Ministry ofFinance. Theconditions areapplicable toboththeresidents ofLatvia andforeigners.
Theregulations No.141of17March 1995, bytheMinistry ofFinance, prescribe theprocedure
ofregistration ofsecurities andofissuing thepermits forsecurities emission orputting themintopublic
circulation. Theregulations prescribe that"thisprocedure isendorsed forbeing applicable alsoto
foreign securities which areputtopublic circulation intheRepublic ofLatvia. Thedocumentation
shallbecertified atthediplomatic liaison office orconsular institution oftheRepublic inLatvia operating
intherespective country, inaccordance withtheinstruction of18January 1995 "OntheProcedure
ofConsular Legalization ofDocuments" bytheMinistry ofForeign Affairs andthedocumentation
should beprovided withthetranslation intotheState language".
Theenterprises which areenrolled ontotheEnterprise Register oftheRepublic ofLatvia, are
eligible toinvolve inbusiness activities intheLatvian securities market asbroker companies.
Under thelaw"Oninsurance" oftheRepublic ofLatvia, "theforeign investors (insurance
agencies)areallowedtoperforminsuranceactivitiesinLatvia,eitherbyestablishinginsurancecompanies
-itcanbedone alsowithout attracting Latvian business partners -orbecoming partners insuch
companies". Forarealperson tobeissued theinsurance broker licence, theapplicant shalltakethe
examination inaccordance withregulations adopted bytheMinisters Cabinet. Theregulations are
applicable toboththeresidents ofLatvia andforeigners.
Theoperations related tothebanking sector, areunder thecontrol oftheBank ofLatvia.WT/ACC/LVA/3
Page3
3. Trade Policy Features andTrends
(a) Facilitating NewRelationships
Question 3(related toQ.10)
More information isneeded ontheagricultural subsidies provided. Please explain thenature
oftheexport subsidies provided forcheese, butter andgrain. How dothese operated? Which
grains benefit from export subsidies? How areexpenditures determined? What isthenature
oftheexport subsidies (re:Agreement onAgriculture, Article 9.1)?
Thestatement, "Itispossible thatdepending upon agricultural production, newexport subsidies
forparticular products willbeprovided" would appear tobeinconsistent withtheWTO Agreement
onAgriculture, which prohibits theuseofexport subsidies onagricultural products notsubsidized
inthe1986-1990 baseperiod (Article 8).Please explain thisstatement.
Reply
Therewereexportsubsidiesallocatedtocheese,butter,cerealsin1994whichwefullydeciphered
intheletter oftheMinister ofAgriculture No.4615, Annex 2,dated 24April 1995.
Asitisclearly seenfromthisannex, allpreviously mentioned products, aswellaspowdered
milkandtinned milk, havebeenallocated export subsidies, i.e.agapbetween world price andcost
price oftheproducts wascovered bythem. Forexample, butter wasallocated asubsidy involume
of320Ls/t, cheese -250Ls/t, etc.
Inthecropgrowing sector, onlyryebenefits from export subsidies. Thatisrelated tothe
factthattheGovernment oftheRepublic ofLatvia fixed in1992 unjustifiably highState guaranteed
buying-in prices which weremuch higher thanworld prices. Asaresult grain processing enterprises
were forced totakecredits from commercial banks withyearly interest rate80-120 percentandto
purchase grain atveryhighprices butcereal prices atlocalmarkets dropped andalready thenextyears
1993, 1994cereals werebought-in fromfarmers atmuch lower prices thanthose in1992. Atthesame
time, thegrain storage costgrew andthegrain bought-in in1992 roseinprice. They could notbe
keptlonger astheywere gradually turning bad. Inorder tocompensate atleastpartially thelosses
which rosefromerroneous government economical policy in1992, itwasdecided toallocate ryeexport
subsidies involume of10Lspereachexported ton.Besides, itshould benoted thattheenterprises
which exported ryedidnotgetthesubsidy directly buttheirdebttotheState budget wascutdown
proportionally tothesumofatransaction, asprocessing enterprises could notreimburse thecredits
which theytookfrom commercial banks andtheywere taken overbythegovernment. Therefore,
thegovernment tookoverprocessing enterprise debts intotalLs6,344 millions. Subsidies, calculated
in1994 for50,000t ofryeexport, cutdown thedebtofprocessing enterprises by529,6 thousand.
Inthebeginning of1995 thisprocess continued byexporting 31,000t ofryeandcalculating
Ls310,000 assubsidies. Ryeexport subsidies infuture arenotbeing planned. Thesame applies to
other product subsidies which arebeing planned toreduce in1995 by50percentaswellasitis
anticipated toreduce subsidized butter exports by53percent, ryeby38percent, tinned milkby
92percent.
Costs arebeing determined byquestioning processing enterprises ontheirexpenditures needed
toproduce acertain typeofproduct. Thecosts include payment toagricultural produce suppliers as
wellascosts connected withprocessing technology.WT/ACC/LVA/3
Page4
Wearenotplanning atpresent newexport subsidies, in1995weareanticipating theirreduction
butacertain transition period isneeded inorder tocome toazerolevel. Wecannot agree toWTO
Agreementbasicperiodfrom1986-1990asLatviathenwasoneoftheUSSRrepublicswhenallexports
weredirected toRussia andallagricultural products benefited fromguaranteed Statebuying-in. After
independence regaining, export subsidies inagriculture wereallocated in1994which should beaccepted
asbasic period inthenegotiations onexport subsidies.
CHAPTER IIECONOMY AND FOREIGN TRADE
1. Economy
(b) Main Direction ofOngoing Economic Policies
- Pricing Policy
Question 4(related toQ.29)
Latvia hasindicated thatquestion 29isaddressed intheanswer toquestion 27.Theanswer to
question 27doesnotseem toaddress thespecific questions posed inquestion 29.Please provide
acomplete answer toquestion 29.
Reply
According totheregulations oftheCabinet ofMinisters oftheRepublic ofLatvia No.185 from
23August 1994 "OnCommodity andService Price andTariff Formation", itisinthecompetence
oftheCabinet ofMinisters tofixState guaranteed foodgrain buying-in prices. Atthesame time,
thelaw"OntheStateBudget for1995" doesnotenvisage money resources forsuchprice guarantee.
TheStatebudget resources havenotbeenallocated forthepriceguarantee purposes theprevious years
aswell. Therefore, until now, theState guaranteed prices forfood grain have been ormore
recommendable nature andgrain actually waspurchased attheprices established atmarket ina
corresponding period oftime.
In1995theStategrain reserve which hasbeenestablished in1992isbeing sold. Thus, about
1.8million Lswillbeobtained which could beusedtopurchase fortheStatereserve 22500t ofwheat
and7500t ofrye,itmakes 3.37percentfrom thetotalgrain yield, forecasted inthecountry. The
sumofmoney usedfortheStatereserve fundamounts to4.5percentofthetotalgrain value inmarket
prices.
AsaStateguaranteed priceoffoodgrain isfixedonlyforthegrain meant fortheStatereserve,
itisapproved bytheState Grain Bureau Board, taking several indices, asbasis -domestic market
situation, grain market priceinacurrent period oftime, presumptive grain production cost,etc.These
prices for1995 arefixed asfollows:
foodwheat 71Ls/tor136USD/t
foodrye 55Ls/tor105USD/t
(Currency exchange rate17.05.95 -1USD =0,522 Ls)
According totheinformation being atourdisposal, concerning world market prices (Financial
Times 07.04.95), itis169USD/t forwheat.
Thus, grain fortheStateReserve willbebought-in atprices guaranteed bytheStateandsold
ifnecessary atthesame prices. Market prices areoperative intherestofmarket andtheState does
notinfluence them, usually seller andbuyer agree ontheprices ofalltheagricultural products.WT/ACC/LVA/3
Page5
CHAPTER III FOREIGN TRADE REGIME
1. Import Regulations
(a) TheEvaluation oftheCustoms Tariff Regulation
Question 5(related toQ.53)
Latvia states thatitis"considering thescope oftariff binding thatislevel ofeconomic
development". Please clarify thisstatement. Under theWTO Agreement onAgriculture, all
agricultural tariff items must bebound. How isthisconsistent withtheabove statement?
Reply
Taking intoaccount therestructuring ofitsagricultural sector, Latvia isconsidering aceiling
binding, inprinciple, of50percentadvalorem. However, thisceiling binding would needtoprovide
flexibility foralimited number oftariffs above theceiling binding. Specifically, Latvia would need
tomaintain tariffs above theceiling forcertain cereals, certain seeds under chapter 12,ethyl alcohol
andcertain spirits, andcigarettes (HS1001, 1002, 1003, 1004, 100890100, 100890900, 1209, 2207,
2208 and240220).
Question 6(related toQ.54)
What percentage ofagricultural products andfisheries products being exported toandimported
from Latvia 'sFTApartners arecurrently entering those markets andLatvia, respectively, duty-
free? What willthese percentages beattheendofthephase-in period, based onthecurrent
structure ofthetrade?
Reply
Currently there areFTAs between Latvia andEU,Norway, Switzerland andtrilateral FTAs
onindustrial goods between theBaltic States. ATrilateral agreement onTrade inAgricultural Products
iscurrently being negotiated. Statistics arenotavailable atthepresent timeatthenecessary levelof
detail because theydonotspecify whether imports aremade under FTAs ornot. TheAgreements
provide review clauses foranassessment ofhowfreetradeinagricultural products could befurthered
anditisnotpossible toforesee thefuture trade coverage ofthese. TheAgreements already cover
substantially allthetrade originating intheterritories oftheparties totheAgreements.
Question 7(related toQ.55)
Theresponse doesnotseem torelate tothequestion. (Itisarepeat oftheresponse toquestion 48).
Reply
Increased customs tariffs affect negatively thedevelopment ofLatvia 'sforeign tradeturnover.
Increased tariffrateswillremain forgoods, production ofwhich iseconomically important forLatvia.
After having joined theGATT/WTO, Latvia willcomply withWTO requirements ifthere willbe
necessity toraisetariffs.WT/ACC/LVA/3
Page6
(b) Customs Tariff Nomenclature, Types ofDuties, etc.
Question 8(related toQ.58)
Itdoesnotappear thatthesecond partofthequestion average trade-weighted tariff averages)
hasbeen answered (either hereoratquestion 52).
Reply
What concerns agricultural commodity tariffs theyaresubjected tothesame conditions asthe
restofcommodity tariffs. ThelawoftheRepublic ofLatvia "OnCustoms Tax(tariffs)" setsseveral
commodity protection levels:
1. minimal -forgoods wedonotproduct, tariff is0.5-1 percent;
2. general -forgoods, thedemand forwhich atinternal market wepartially cover ourselves,
onthelevelof15-20 percent;
3. increased -forsensitive commodities, forinstance, livecattle andpigs,beefandpork, butter,
cheese, eggs, several cereal crops andthelike.
Theaverage trade tariff levelaccording totheClassification ofCommodity Description and
Coding Harmonization System forAgricultural Goods (1-24)is14.8percent.Decoding bytheproper
commodity positions isgiven inAnnex I.
CHAPTER IV OTHER POLICIES AFFECTING FOREIGN TRADE
2. Agricultural Policy
Question 9(related toQ.113, 115and116)
Theanswer toquestion 116refers totheanswer toquestion 10.However, thisanswer doesnot
adequately address thequestion ofhowthesupport offarm prices corresponds totheregulation
offarm prices. Theanswer toquestion 113and115arealsonotadequately dealt withbythe
answer toquestion 10.Please provide more detailed answers tothese questions.
Reply
Thelistofsubsidies isgiven intheanswer toquestion 10.Atpresent, alocallevelsupport
classification isgoing on.There are3subsidy sources inLatvia:
1. theState budget resources inaccordance withthelaw"OntheState Budget of1995";
2. Sugar Production Promotion Fund which receives resources mainly from theState budget -
in1995, 1.35million Lsareenvisaged, though, alittlebitfromother finance sources (sugar
factory sponsor payments). Theresources ofthisfundonlypartially areusedforsubsidized
ofsugar-beet growing. Mainly, thefundresources areanticipated forrenewal ofsugar factory
technological process;
3. Regional Cereal Production Compensatory Fund where 3percentofallgrainy grain forage
aswellasflour andgroats sales(except self-grown cereal sales) areincluded.WT/ACC/LVA/3
Page7
Performing alocalsupport levelclassification according toGATT/WTO requirements, itis
seenthatthere aretwotypes ofsubsidies inLatvia:
1. "green boxes" -those inaccordance withAnnex 2oftheWTO Agreement onAgriculture;
2. "yellow boxes" -theirvolume issosmall thatitdoesnotexceed 5percentofaproper basic
product production value, nether in1994 norin1995. Inaccordance withArticle 6.4ofthe
WTO Agreement onAgriculture, these subsidies arenotdescribed inamore detailed way.
Question 10(related toQ.137)
Does Latvia intend tobecome asignatory totheGovernment Procurement Agreement? Ifso,
what timeframe isenvisaged?
Reply
Latvia intends tobecome asignatory totheWTO Agreement onGovernment Procurement
by1996. Latvia iselaborating anewLawonPublic Procurement which isbased ontheWTO Agreement
onGovernment Procurement andtheUNCITRAL Model LawonProcurement. ThatLawwilllikely
enter intoforce byendof1995.
7. State-Trading Enterprises
Question 11(related toQ.138 and149)
TheArticle XVII (State-Trading Enterprises) aspects arenotadequately addressed intherespective
answers. Please provide more detail otheState-trading aspects ofthese twoquestions.
Reply
IntheRepublic ofLatvia State-owned trade enterprises operate inthesame wayasprivate
enterprises onlytheStatehasownership. Neither State-owned enterprises noranyprivate enterprise
hasneitherexclusiverightsnorspecialprivilegesintheirpurchasesorsalesinvolvingimportsorexports.
Wecould notprovide aspecific listofcompany names andgoods andcommodities tradebecause current
statistics donotdivide enterprises between State-owned andprivate companies. Also, theprivatization
process isgoing onandthenumber ofState-owned enterprises isconstantly reducing.
Question 12(related toQ.139)
Itdoesnotappear thatthefirsttwosub-questions have been answered. Inthisconnection, we
donotread thesecond question asrelating tocustoms valuation; which isthecontent ofthe
response which wasgiven.
Reply
There arenoenterprises inLatvia whether State-owned orprivate which havebeengranted
anyexclusive rights orprivileges onimports orexports inLatvia.
Domestic wholesale prices offarm products arecomparable withimport prices taking into
account tariff levels anddifferences inquality. Infact,thedomestically produced farmproducts face
verystrong competition from theimported products.WT/ACC/LVA/3
Page8
Annex I
AVERAGE TRADE TARIFFS FOR 24AGRICULTURAL COMMODITY GROUPS
Group Title Percentage
01 Liveanimals 16.5
02 Meat andby-products 26.6
03 Fishes andcrustacean, molluscs andother water
invertebrates8.9
04 Milk anddairy products; eggs; natural honey; food-stuff
ofanimal origin which havenotbeenmentioned anywhere
else27.1
05 Products ofanimal origin 12.1
06 Livetreesandother fruit 16.9
07 Vegetables, several foodroot-vegetables andtuberous
plants15.9
08 Food fruitandnuts, citrus andcucurbiaceous plant peels 0.8
09 Coffee, tea,mateandspices 0.5
10 Cereal crops 10.9
11 Milling industry produce; malt, starch, wheat gluten 18.5
12 Oilplant seeds andfruit, different grain, straw andforage 12.1
13 Lacquer, resin andother plant juiceandextracts 13.3
14 Wattling material ofplant origin 15.0
15 Animal andvegetable fatsandoils 2.1
16 Meat, fishorcrustacean, mollusc orother water
invertebrates derivatives30.7
17 Sugar andsugar confectionery 9.2
18 Cocoa anditsderivatives 11.4
19 Cereal, flour, starch anddairy derivatives 20.7
20 Fruit, vegetable, nutderivatives orderivatives ofother
parts ofplants14.0
21 Mixed (various) food-stuffs 10.8
22 Non-alcoholic beverages andalcoholic drinks vinegar 24.9
23 Food processing andflavour industry leftovers andrefuse,
ready-made animal feed13.5
24 Tobacco anditssubstitute 15.0
Average trade tariff forall24groups -14.8percent