Baltic Report: April 11, 2002

APPLICATION FOR TRANSITION PERIOD FOR TAX-FREE TRADE LIKELY TO BE DROPPED.
Foreign Minister Kristiina Ojuland told the Central Association of Estonian Employers on 2 April that Estonia will likely end its efforts to obtain a 6 1/2-year transition period for tax-free trade on ferryboats in its EU membership negotiations, ETA reported. The request, which the EU seems unlikely to grant, has been a stumbling block in closing the chapter on taxation. Ojuland said Estonia might follow the practice used in the Nordic countries, in which the state compensates shipping firms for losses they incur as the result of the abolition of tax-free trade. The losses would be greatest for ferryboats operating between Tallinn and Helsinki and Stockholm.

NO YIELDING ON EU AGRICULTURAL QUOTA.
During his visit to Finland, Agriculture Minister Jaanus Marrandi stressed the importance of obtaining higher agricultural quotas upon Estonia's accession to the EU, BNS reported on 4 April. He said that the harvest, sown-area, and milk-production quotas are considerably below the levels for which Estonia has applied. The European Commission suggested a milk-production quota of 562 million liters per year, but Estonia currently produces about 680 million liters annually and considers a fair quota to be 900 million liters per year. Marrandi said the differences in the quotas of sown area and harvest are on the same scale.

ACCORD SIGNED WITH CROATIA ON AVOIDING DOUBLE TAXATION.
Estonian and Croatian foreign ministers Kristiina Ojuland and Tonino Picula signed a bilateral agreement in Tallinn on 3 April on the avoidance of double taxation and prevention of tax evasion, ETA reported. Picula, who is on a three-day visit to Estonia, told Prime Minister Siim Kallas the two countries have similar foreign-policy priorities and bilateral economic cooperation in trade and among businessmen should be increased. Picula also forwarded to Kallas an invitation from his Croatian counterpart Ivica Racan to visit Croatia this fall. President Arnold Ruutel offered to help Croatia in its efforts to gain EU membership by sharing its experience in harmonizing its legislation with EU laws.

ESTONIAN GENOME FOUNDATION REVEALS INVESTORS.
EGeen International Corporation, the financier of the Estonian Genome Foundation project, revealed on 1 April that two funds and 17 individuals have invested a total of $2 million for the first stage of the project, ETA reported. The international risk-capital funds SEAF CEE Growth Fund and Baltics Small Equity Fund have invested $1.1 million and $400,000, respectively, and private investors have put up from $10,000 to $75,000 each. In the first stage, health data and tissue samples of 10,000 donors will be collected to test the developed model of the project and the security and quality of the processes. Talks are ongoing with new investors in the biotechnology risk-capital sector on obtaining an additional $5 million for the second stage of the project.

* Vice President of the German parliament Antje Vollmer told parliament Deputy Chairman Tunne Kelam on 3 April that she sees no problems for Estonia to gain EU and NATO membership, BNS reported. She also noted that the country's unspoiled forests and swamps were a unique asset that should be preserved and used to attract tourists.

* Finnish Defense Minister Jan-Erik Enestam assured visiting Defense Forces commander Vice-Admiral Tarmo Kouts on 3 April that Finland would continue supporting the development of the Estonian military with cooperation in training and material aid, BNS reported. Kouts also held talks with his Finnish counterpart, Admiral Juhani Kaskeala.

* Minister for Economic Affairs, Transport, and Communications Liina Tonisson told representatives of the Estonian Employers' Central Union that Estonia would likely get from the EU the transition period it is requesting for the delay of the opening of its energy market, BNS reported on 3 April. The period is needed to ensure the renovation of the Narva Power Plants.

* Finance Minister Harri Ounapuu, at a meeting with local government leaders and businessmen in the southern Valga county on 3 April, suggested that the cabinet should have a minister of local government instead of the current practice of a minister without portfolio overseeing regional affairs, BNS reported. The officials also inquired when the local governments can expect to get funds from the still-not-approved state supplementary budget.

* The first 12 of 74 US-built locomotives purchased by Eesti Raudtee (Estonian Railways Co.) will reach Estonia in mid-May, ETA reported on 1 April. The currently used Soviet-era locomotives can handle 60-car trains, while the American ones will be able to extend the trains to 114 cars traveling at up to 100 kilometers per hour.

* The government approved on 2 April a bill that will allow the Finance Ministry to hold a bond issue in June directed at foreign investors for 1.565 billion kroons ($87 million), ETA reported. Most of the bonds would be used to pay old 1.146 billion-kroon foreign loans, but new loans would be used to buy a long-distance surveillance radar system (239 million kroons), sea radars (130 million kroons), and a police monitoring center (50 million kroons). The bill still has to be approved by the parliament.

* The government discussed the 2002 supplementary budget bill on 2 April, but expects to send it to the parliament only 2-3 weeks later, ETA reported. The budget, which is expected to be about 400 million kroons ($22 million), will help ease the financial problems of local municipalities and provide funds for an additional pension hike in the summer, free school lunches for primary-school pupils, and the holding of the Eurovision song contest in Tallinn.

* The international ratings agency Moody's on 4 April confirmed the credit rating of Estonia's capital Tallinn at Baa1 with an outlook of stable, ETA reported. Tallinn's Financial Director Ahti Kallaste regarded this as a positive development since there were fears that the rating would be lowered.

* Six political parties (Democratic Party, Christian People's Party, Independence Party, Social Democratic Labor Party, Russian Party in Estonia, and Russian Unity Party) sent a petition to President Ruutel on 3 April asking him not to veto the amended local election law. BNS reported. The parties regard the provisions permitting electronic voting and the ban on electoral alliances in local elections as unconstitutional.

FARMERS DEMAND BOOST IN EU PRODUCTION QUOTAS.
A general meeting of Latvian farmers in Riga on 3 April passed a resolution on Latvia's stance in European Union entry talks, LETA reported. They demanded that the EU increase production quotas for Latvia after it joins the EU to the level of the country's own consumption amount in the first year, and increase the quotas by 5 percent each year until the end of the transition period. The resolution blamed the three ruling political parties, Latvia's Way, People's Party, and For Fatherland and Freedom/LNNK, for the critical situation in Latvian agriculture, and called for increasing state subsidies for agriculture to 6-7 percent of the state budget. It also demanded that customs rates for agricultural produce be retained during the transition period to protect the domestic Latvian market from subsidized imports. The parliament's EU Information Center Project manager, Ivars Busmanis, told the meeting that if Latvia does not join the EU, the average income for a person employed in the agricultural sector in Latvia will fall by 16 percent by 2007 compared to levels in 2000, but increase by 60 percent even if the EU grants only the initial 25 percent subsidies that the European Commission has recommended.

LEGISLATION ALMOST FULLY ALIGNED TO EU NORMS.
Latvia's European Integration Bureau (EIB) Director Edvards Kusners stated on 1 April that Latvia has coordinated almost all branches of legislation with the norms of European Union law, BNS reported. He noted that laws in the interior and justice spheres require the most coordination because they are the areas undergoing the most change within the EU itself. Kusners said that six months ago 40 legislative acts still had to be coordinated, but their number has decreased, although he did not give a specific figure. The EIB's main tasks are coordinating Latvia's legislation with EU norms, planning the integration process, coordinating assistance from the EU and member countries, as well as informing the Latvian public about the EU.

LATVIAN-RUSSIAN SOCIAL-SECURITY COOPERATION TREATY IN THE WORKS.
Welfare Ministry State Secretary Maija Porsnova told a press conference on 2 April that a social-security cooperation treaty with Russia is being prepared, LETA reported. She noted that talks in Moscow in late March with a delegation of experts headed by Russian Labor and Social Development Deputy Minister Yurii Lublin ended with an agreement in principle on the wording of the treaty. The treaty will regulate the procedure for paying pensions and benefits to individuals who have been insured or worked in the other country. Both sides agreed to pay pensions for the periods that the pensioners worked on their territory. The pensions will be sent to the country where the respective pensioner resides. Porsnova estimated that the treaty will affect some 22,000 residents and cost Latvia approximately 2.5 million lats ($3.94 million). The treaty must be signed and ratified by the two states along with an agreement on the procedure for its implementation.

TWO ECONOMIC AGREEMENTS SIGNED WITH CROATIA.
Latvian and Croatian foreign ministers Indulis Berzins and Tonino Picula signed agreements in Riga on 4 April on promotion and mutual protection of investments, and on international truck transport, LETA reported. They also discussed the preparation of a bilateral free-trade treaty and a visit by Croatian President Stjepan Mesic to Latvia in the second half of the year. Croatian Prime Minister Ivica Racan is scheduled to be in Riga on 5-6 July for a meeting of the "Vilnius Group" of NATO applicant countries. Picula was scheduled to hold talks with Prime Minister Andris Berzins, Defense Minister Girts Valdis Kristovskis, and parliament Deputy Chairman Rihards Piks before returning home on 5 April.

* The Baltic Crime Prevention and Anti-Terrorism Forum, uniting members from the three Baltic states and Russia, was founded on 30 March in Riga, LETA reported. Its main functions are to strengthen the fight against crime and terrorism by increasing coordination and information exchange. Board member from Russia Vladimir Ovchinsky emphasized that automobile thefts, drugs, trafficking in arms, and illegal immigration would be the main concerns.

* A special government task force sent recommendations to the Cabinet of Ministers on 2 April that call for restricting the purchase of land set aside for agricultural use only to those people with more than two years' experience in farming in Latvia and who have received special agricultural training, according to "Diena" on 3 April. The task force also recommends that a special line of credit be set aside for low-interest loans so that local farmers could purchase their own land. Interest in rural farmland issues arose in late January, when information about the European Union's proposals concerning agriculture in candidate countries first began to circulate.

* Canadian Ambassador to Latvia Peter P. L. McKellar proposed to Jelgava City Council Chairman Andris Ravins on 4 April to develop cooperation between Jelgava and Canadian businessmen in agricultural production, IT, wood processing, and construction. LETA reported. On his fourth visit to Jelgava in two years, the ambassador pointed to the Latvia University of Agriculture and several agricultural production processors in Jelgava as strengths and insufficient utilization of foreign capital and local talent as the current weaknesses holding back economic development in the region.

* Starting from 1 April, British Airlines airplanes flying between Riga and London will land at Heathrow airport instead of Gatwick, LETA reported. This will be a great convenience for passengers from Latvia because Heathrow is not only geographically closer to London but also has many more connecting international flights.

* At the opening of the "Baltic IT&T" exhibition in Riga on 4 April, Prime Minister Andris Berzins said that the development of high technology and especially software in Latvia should speed up after the country joins the European Union, LETA reported. He noted that the information-technology (IT) sector in Latvia already has a positive trade balance, and exports show a growth trend. Berzins commented that Latvia does not have many natural resources but it does have educated people, many of whom are connected with the IT sector. As a positive development, he mentioned the 7 percent decrease in computer piracy last year and pledged to maintain the trend.

* The United Nations Refugee Agency concluded its work in Latvia on 30 March, LETA reported. Refugee matters in the country will now be handled by the Latvian Red Cross and the Latvian Foreigners Association, which signed an agreement on the matter with the UN agency.

* At its first meeting, the newly elected Riga Stock Exchange Supervisory Board elected Latvijas Unibanka Vice President Ansis Grasmanis as chairman, LET A reported on 2 April. Maris Mancinskis, the head of Hansabank Markets, was elected the board's deputy chairman.

BELARUS IMPOSES COMPULSORY ESCORTS ON TRUCKERS.
Beginning on 1 April, Belarusian customs began requiring that all Lithuanian cargo-hauling trucks transiting Belarus to Russia have a special police escort, "Lietuvos rytas" reported on 4 April. Customs officials have agreed to inspect documents for the cargoes only after arrangements are made for the escorts, for which each truck will be charged $480 plus an additional charge of $150 for preparing the necessary documentation. At a meeting between Lithuanian and Belarusian customs officials and carrier organizations on 29 March in Minsk, Belarus produced a list of Lithuanian companies suspected of smuggling and said that Lithuanian carriers owe Belarus 15 billion Belarusian rubles ($8.7 million). Algimantas Kondrusevicius, the president of National Motor Carriers Association (LINAVA), called the Belarus claims "mystical," since no documentation was provided to justify them. As a result of the new requirements, many Lithuanian truckers are opting to travel to Russia via Latvia.

PRESIDENT DELIVERS ANNUAL REPORT TO PARLIAMENT.
President Valdas Adamkus delivered his annual report for the year 2001 to the parliament on 2 April, ELTA reported. Although the role of the president is strongest in the field of foreign policy, he did not devote particular attention to that area, but he did reaffirm that considerable progress was made toward achieving the country's goals of membership in the EU and NATO. Adamkus urged the government to establish the country's priority economic areas without delay, set the development of a knowledge-based economy as its strategic goal, and continue tax reforms. He called on political parties to eradicate corruption, increase transparency, and restore people's trust in politicians. Noting the previous lack of success in restructuring Lithuania's energy market, Adamkus called for the effective privatization of the Lithuanian gas market and making Mazeikiai Oil profitable, but did not state his position on the EU's demands that the Ignalina atomic power plant be closed by 2009.

'NATO DAYS' TO CONVINCE SKEPTICS HELD.
Deputy Foreign Minister Giedrius Cekuolis, Lithuania's coordinator for NATO integration, told a press conference on 4 April that the primary purpose of the two-day "NATO Days" is not to celebrate the country's expected membership in the alliance, but to convince skeptics in the country of the value of membership, BNS reported. NATO Days began on the 53rd anniversary of the Atlantic alliance's founding in Washington. The Lithuanian parliament the same day adopted a resolution by a vote of 48 to three and four abstentions, with 85 members of parliament not voting. The resolution reiterated support for the country's membership in NATO and urged state institutions and the public to rally to the cause. The resolution mentioned the nonmilitary criteria for NATO membership: developing an investor-friendly economy, combating corruption, strengthening the rule of law, ensuring parliamentary control of the special services, and protecting secret information. The ambassadors of NATO states, parliament deputies, as well as officials from the Defense and Foreign ministries, were scheduled to participate in events in 15 cities across the country on 5 April.

MORE FAVORABLE RESULTS FOR 2001 ANNOUNCED.
The Statistics Department announced on 29 March that it has raised the growth of the country's GDP in 2001 from its January estimate of 5.7 percent to 5.9 percent, ELTA reported. The GDP is now calculated to be 47.96 billion litas ($11.99 billion) or a per capita GDP of 13,752 litas. The state's current-account deficit in 2001 declined by 405 million litas from 2000 to 2.29 billion litas, which amounts to 4.8 percent of GDP, or 20 percent less than the 6 percent of GDP in 2000. In 2001, foreign direct investments in Lithuania rose by 14.2 percent and totaled 10.66 billion litas as of 1 January 2002. The largest investments in 2001 came from Denmark (18.6 percent), Sweden (16.1 percent), Estonia (10 percent), Germany (9.2 percent), and the United States (8.3 percent).

* Deputy Commander of Supreme Allied Command Europe General Dieter Stockman gave a positive evaluation of Lithuania's defense reforms to Defense Minister Linas Linkevicius in Vilnius on 3 April, BNS reported He praised the decision to emphasize quality rather than quantity. Stockman also met with Lithuanian armed forces commander Major General Jonas Kronkaitis. The next day he delivered a lecture at the Lithuanian Military Academy and held talks with Deputy Foreign Minister and Lithuania's coordinator for NATO integration Giedrius Cekuolis and the chairmen of several parliament committees.

* Foreign Minister Antanas Valionis, as chairman of the Council of Europe's Committee of Ministers, visited Bosnia and Herzegovina on 3 April to congratulate the federation's leaders on admission to the Council, ELTA reported. He held talks in Sarajevo with the speakers of both houses of the parliament, Zeljko Mirjanic and Sejfudin Tokic.

* Deputy Foreign Minister Darius Jurgelevicius and Russian Ambassador to Lithuania Yurii Zubakov agreed on 4 April that diplomats from their countries will hold talks in late May on visa regulations for Kaliningrad residents, BNS reported. Their visa-free travel to Lithuania will end from July 2003 due to Lithuania's EU commitments. They also discussed the upcoming 110th session of the Committee of Ministers of the Council of Europe in Vilnius on 2-3 May, which will mark the end of Lithuania's six-month chairmanship of the council.

* Lietuvos Energija (Lithuanian Energy) signed an agreement with the Russian energy giant Inter RAO EES on 29 March for long-term electricity export, BNS reported on 2 April. Inter RAO EES will pay 0.04 litas ($0.01) per kilowatt-hour (kWh) for electricity exports to the Kaliningrad region and 0.044 litas to Belarus. It is expected that the Russian company will purchase 5.7 billion kWh of electricity this year and 6.9 billion kWh in 2003.

* U.S. Ambassador to Vilnius John Tefft and Foreign Minister Antanas Valionis signed a memorandum of understanding on financial assistance to Lithuania's anti-corruption Special Investigation Service (STT) on 29 March, ELTA reported. The funds will come from the Bureau of International Narcotics and Law Enforcement programs of the U.S. State Department. The STT will use the money to organize and improve the investigation of corruption and criminal prosecution of those crimes.

* Parliament Chairman Arturas Paulauskas signed on 29 March the law on value-added tax (VAT) that President Adamkus had decided not to veto or sign, BNS reported on 1 April. The law will, from 2003, place an 18 percent VAT on newsprint and 5 percent on newspapers and magazines, which had been tax-free. It also places a 5 percent tax on medicines from 2004. Adamkus had expressed concern that the law gives the government the right to set and apply tax rates, although the Constitution states that tax rates are established by the laws adopted by the parliament.

* Liberal Democrat Party Chairman and former Prime Minister Rolandas Paksas told a news conference on 29 March that his party would soon present amendments to the state budget law that would call for continuing the restoration of lost, ruble bank deposits, ELTA reported. He said that some of the funds his government had deposited in the Privatization Fund could be used to restore the bank deposits of group II depositors (persons over age 70 and large families).

* The government, at its 3 April sitting, approved newly designed drafts of passports, ID cards, and driver's licenses that will be issued gradually starting next autumn, ELTA reported. It also decided to reform the Tax Police Department into the Financial Fraud Investigation Service of the Interior Ministry and endorsed its regulations. Finally, the cabinet ruled that the oil reserves that the EU is requesting the country to have will be split in equal parts between the state and private companies.