WORLD TRADE
ORGANIZATIONG/SG/N/8/LVA/1
G/SG/N/10/LVA/1
17 December 1999
(99-5469)
Committee on Safeguards Original:  English
NOTIFICATION UNDER ARTICLE 12.1(B) OF THE
AGREEMENT ON SAFEGUARDS ON FINDINGS OF SERIOUS INJURY
OR THREAT THEREOF CAUSED BY INCREASED IMPORTS
NOTIFICATION PURSUANT TO ARTICLE 12.1(C)
OF THE AGREEMENT ON SAFEGUARDS
LATVIA
The following communication, dated 14 December 1999, has been received from the
Permanent Mission of Latvia.
_______________
TABLE OF CONTENTS
Page
A. PROCE DURE.................................................................................................................... .....2
B. PRODUCT UNDER CONS IDERATIO N..............................................................................4
C. INJURY ....................................................................................................................... ...........4
1. Definition of the Domestic industry.....................................................................................4
2. Latvian consumption .......................................................................................................... ..5
3. Volume and market share of imports of swine meat into Latvia .....................................64. Prices of the imports ........................................................................................................ .....6
(a) Price ev olution ............................................................................................................. ...........6
(b) Price und ercut ting.......................................................................................................... .........6
(c) Price und erselling .......................................................................................................... .........7
5. Situation of the do mestic i ndustry.......................................................................................7
(a) Produc tion.................................................................................................................. .............7
(b) Capacity utilisa tion ........................................................................................................ .........7
(c) Sales volume ................................................................................................................ ...........8
(d) Market shares............................................................................................................... ...........8
(e) Prices...................................................................................................................... .................8
(f) Employment.................................................................................................................. ..........8
(g) Inves tmen ts ................................................................................................................. ............9
(h) Profita bility ............................................................................................................... ..............9
(i) Stocks...................................................................................................................... ................9
(j) Disruption of the restructuring pr ogramme of the dom estic industry.....................................9
6. Conclusion on injury ......................................................................................................... .10G/SG/N/8/LVA/1
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Page
D. CAUSAT ION .................................................................................................................... ...10
1. Effect of the imports ........................................................................................................ ...10
2. Effects of ot her factors..................................................................................................... ...11
3. Conclusion on causation.....................................................................................................1 2
E. LATVIAN IN TEREST.........................................................................................................12
1. General comment.............................................................................................................. ..12
2. Latvian industry and other Latvian producers................................................................12
(a) General..................................................................................................................... .............12
(b) Employment.................................................................................................................. ........12
3. Unrelated importers .......................................................................................................... .12
4. Users........................................................................................................................ .............13
5. Competition and trade distorting effects ..........................................................................14
6. Conclusion on Latvian interest..........................................................................................14
F. THE POSITION OF THE GOVERNMENTS  THAT DECLARED AN INTEREST .........14
1. The Baltic States............................................................................................................ ......14
2. The European Union ..........................................................................................................1 5
G. FORM AND LEVEL OF SA FEGUARD MEAS URES.......................................................16
A. PROCEDURE
1. On 21 May 1999, the State Commission on Safeguards (“the Commission”) announced by a
notice (hereafter “Notice of Initiation”) published in the “Latvijas Vestnesis” (“L.V.” - the Official
Journal of the Republic of Latvia),  the initiation of a safeguard investigation with regard to imports
into Latvia of meat of swine (HS code ex 0203).
2. The proceeding was initiated as a result of a complaint lodged on 18 May 1999 by the
Association of Swine Breeders of the Republic of Latvia, on behalf of Latvian producers representing
a major proportion of the Latvian production of swine meat.  The complaint contained evidence of
serious injury suffered by the domestic swine meat industry on account of rising volumes of imports
at increasingly low prices.  After due consideration and having regard to the provisions of Articles 5and 6 of the Law on Safeguards, the complaint was considered to contain sufficient evidence to justify
the initiation of a safeguard proceeding.
3. By virtue of Article 15 of the Law on Safeguards, the above-mentioned complaint requested
the Commission to impose provisional safeguard measures, due to the apparent urgency of the
situation.  After due investigation, it was found by the Commission that the conditions necessary forimposition of emergency provisional safeguard measures were satisfied.  Accordingly, on
27 May 1999, by Law published in the L.V. (L.V. 177/178 / 1.6.99), provisional safeguard measures
against imports into Latvia of swine meat, or HS code ex 0203, were imposed, in the form of 70 per
cent ad valorem import duty, but not less than LVL 0.34 per kg.  These measures entered into force on
1 June 1999.G/SG/N/8/LVA/1
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4. In accordance with international obligations incumbent upon the Republic of Latvia by virtue
of its accession to the World Trade Organisation (“WTO”), the EU-Latvia Europe Agreement, the
Baltic FTA, the Baltic FTA in trade of agricultural products and the Latvia-Poland FTA, the
Commission notified the official representations of the WTO, the European Union and theGovernments of Estonia, Lithuania and Poland, that it had received a properly documented complaint
alleging that imports of swine meat were causing serious injury to the Latvian industry.  Furthermore,
the Commission indicated to these Governments its decision to initiate a safeguard investigation in
accordance with the Law on Safeguards, and its decision to impose emergency provisional safeguard
measures as described above, as from 1 June 1999.
5. The aforementioned Governments and official representations in Latvia were invited for
consultations with the aim of clarifying the factual situation and arriving, if possible, at a mutuallysatisfactory solution.  The European Commission ( on behalf of the EU), the Government of the
Republic of Poland, and the Governments of the Republic of Lithuania and the Republic of Estonia all
accepted the offer of consultations.  Such consultations were duly held in the institutional framework
of the aforementioned international agreements and due note was taken of the comments made by
those Governments with regard to the allegations contained in the complaint, regarding imports and
serious injury being suffered by the Latvian industry producing the like and/or directly competitive
products.
6. By way of the Notice of Initiation, the Commission invited all other interested parties
concerned to register their interest, and to make th eir views known in writing and to request a hearing,
within 15 days from the date of publication of the Notice of Initiation.  It is noteworthy that noGovernment other than those invited to consultations nor any other interested party responded within
this time limit.
7. On 11 June 1999, i.e. six days after the expiry of the above time-limit set by the Notice of
Initiation, one Latvian meat processor (i.e. end-user) declared an interest to participate in the
proceedings and made its initial views known to th e Commission in writing.  Shortly thereafter, an
association of Latvian meat processors, representing at most 30 per cent of domestic production of
meat processed products, also declared an interest  in the proceedings.  Although such requests were
submitted well after the expiry of the time limit set by the Notice of Initiation, all these parties were
granted hearings.  Accordingly, several public and private hearings took place.  In the public hearings,
the complainants and various meat processors, including representatives of their association, were
participants.  These parties, apart from the co mplainants, were heard at the discretion of the
Commission, in the interests of the most complete investigation.
8. The Commission sent questionnaires to all Latvian producers known to be concerned and
received replies from 35 of them, constituting 43.1 per cent of the domestic industry (see definition of
domestic industry below).
9. The Commission sought and assessed all the information it deemed necessary for the purpose
of a final determination of injury caused by the imports, and carried out verification visits at thepremises of the companies listed below.  Due to the very large number of producers constituting the
domestic industry within the meaning of Article 1.5 of the Law on Safeguards, it was deemed
necessary to investigate a sample of six domestic producers, representing 89.6 per cent of the current
capacity utilisation (number of live swine) of all complainants.  In the absence of specific rules as to
sampling in the Law on Safeguards, the Regulations on Procedure and the WTO Agreement onSafeguards, the sample was chosen in accordance with standard international practice, based on
geographical spread, levels of production and level of integration (possession of slaughtering
facilities).  Three of the producers sampled produce only live swine for sale, whereas the other three
producers are vertically integrated, i.e. they own fu ll commercial slaughterhouses and freeze facilities.G/SG/N/8/LVA/1
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These last three producers may thus sell swine meat in fresh, chilled or frozen form.  The Latvian
producers sampled were the following:
- SIA “Uzvara-Strauti”;
- A/S “Latgales Bekons”;- A/S “Jekabpils Labiba”;
- Nosaukums LLU mps “Vecauce”;
- SIA “Stari”; and
- SIA “Ancers”.
10. The period of investigation concerning injury of the domestic industry was 1 May 1998 to
30 April 1999 (hereafter referred to as “the investigation period”).  Historical data concerning theperformance of the domestic industry and the development of imports were collected from 1996 to the
end of the investigation period.  The period used for the injury findings, in particular for establishing
undercutting and underselling margins, is the above-mentioned investigation period.
B. PRODUCT UNDER CONSIDERATION
11. The product under consideration is swine meat, fresh, chilled or frozen.  This product is
currently classified within HS codes ex 0203.  Swin e meat is produced further to the slaughtering of
live swine.  Further to the slaughtering, swine meat is  traded either in the form of half-carcasses or in
the form of animal parts.  Such parts may be semi-processed (salted, marinated, cut to pieces, etc.),
further processed into meat products together with other meat products (sausages, smoked sausages,
frankfurters, etc.) or sold directly for human consumption.  Swine half-carcasses are sold to meatprocessors or to the meat markets and either cut to pieces or used for the production of semi-processed
or processed products.
12. In Latvia, swine meat is produced in slaughter houses either owned by live swine breeders or
by independent slaughterhouses which purchase live swine from live swine breeders.  Such
slaughterhouses purchase their requirements mostly from domestic live swine breeders.  Therefore,imported fresh, chilled or frozen swine meat affects directly live swine sold for slaughter by Latvian
producers to independent slaughterhouses in Latvia.
C. INJURY
1. Definition of the Domestic industry
Latvian Producers
13. In Latvia, the product concerned is manufactured by:
- Producers on behalf of which the complaint was lodged and which actively co-operated in the
investigation, (“the co-operating complainants”),
- Producers on behalf of which the complaint was lodged and which did not actively co-operate
in the investigation, (“the non-co-operating complainants”), and
- Other Latvian producers, which are not complainants, and did not co-operate in the
proceeding but did not oppose to it.  It is to be noted in this respect that no Latvian producer
raised any objection to the initiation of the proceeding and thereafter.G/SG/N/8/LVA/1
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14. Latvian swine producers either sell their live swine to independent slaughterhouses or they
slaughter them in their farms and sell swine meat in  half-carcasses and/or in parts to meat processors
and the meat markets.  Meat processors, who slaughter the swine and use the swine meat for meat
processing and/or sell if further to the meat markets, own the largest slaughterhouses.
15. Latvian production of the product concerned was found to exist in a variety of sizes and
organisations, ranging from farms breeding several thousand swine at any one time to farms breeding
only one swine.  The domestic production is currently undergoing consolidation, despite the fact that
there still exist a very large number of producers w ho own one to ten swine only.  The total number of
swine bred in farms owning le ss than 10 swine was 30.5 per cent on 1.7.99 as compared to 41.5 per
cent on 1.1.98 and 36.6 per cent on 1.1.99.  The majority of production, however, now consists of
farms owning 50 swine or more (50.9 per cent of  total swine on 1.7.99 as compared to 40.4 per cent
on 1.1.98 and 46.3 per cent on 1.1.99).  The farms, which rather define market prices, due to their
higher efficiency and economies of scale, are those which own 200 swine or more at any time
(40.5 per cent of total swine on 1.7.99, as compared to 33.8 per cent on 1.1.98 and 41.2 per cent on
1.1.99).  All complainants own over 200 swine.  A minimum commercial efficiency scale was found
to exist, and, therefore, the Commission investigation and analysis was carried out with regard toproducers owning 50 swine or more.  Smaller farms have been considered to be non-commercial or
non-determinant on market prices.  In addition, it was virtually impossible to investigate individual
data from such small farms, due to their extremely large number, nation-wide (over 55,000 Latvian
farms owned less than 50 swine on 1.7.99).
16. As described above, the product under investigation was found to be in direct competition
with domestically produced live swine sold for slaugh ter.  The fact that certain producers may sell live
swine or swine meat depends solely on whether such producers own slaughtering facilities or not.  In
any event, live swine sold from farms is immediat ely slaughtered and converted to swine meat, either
in slaughterhouses owned by meat processors, which, according to the association of meat producers
which presented an interest in the proceedings, slaughter approximately 80 per cent of Latvian liveswine, or, to a lesser extent, to independent slaugh terhouses.  Live swine is not sold on the market as
such, apart in very small quantities for non commercial purposes, as far as swine meat is concerned,
such as piglets or boars for breeding improvement.   Therefore, for the purposes of establishing the
domestic industry, domestic production was considered as including both breeders selling swine meat
and breeders selling live swine for slaughter to inde pendent slaughterhouses.  An appropriate industry
factor generally used in the Latvian swine meat industry, as established by the investigation, has been
used in order to convert live swine into the slaughtered equivalent.  The average factor by which theweight of live swine was divided in order to reach slaughtered equivalent was 1.44.  The investigation
has proven that in Latvia such a factor is appropriate for general use for the conversion of Latvian live
swine of 80-120 kg into slaughtered equivalent.  Invoices from slaughterhouses including both prices,
i.e. live and slaughtered, yielded such a factor as an average.
Domestic industry
17. The co-operating complainants own 43.1 per cen t of live swine in commercial farms, i.e.
those breeding 50 swine or more.  They form 89.6 per cent of the total swine owned by all
complainants..  As mentioned earlier, no Latvian producer of the product concerned raised any
objections against the initiation of the current procedure or thereafter. The co-operating complainants,therefore, constitute the domestic industry whether they own slaughterhouses or not.
2. Latvian consumption
18. For the purpose of the assessment of the apparent Latvian consumption of pigmeat, the
Commission relied on data relating to the sales volume and imports of the product concerned inG/SG/N/8/LVA/1
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Latvia provided by the domestic industry and the national statistical and customs offices, as well as on
a report drafted by the European Commission with the co-operation of several Latvian national
authorities and other bodies. As there is some conflict between the data provided from these various
sources, the Commission decided to rely on data provided by the European Commission. This data isbased upon statistics provided by the Central Statistics Bureau in Latvia.
19. The total Latvian consumption of the product concerned expressed in tonnes amounted to
69,936 tonnes in 1996, 65,436 tonnes in 1997 (figures prepared by Latvian public authorities and
other bodies for the working document of the European Commission: Agricultural situation and
prospects in Central and Eastern European countries 1998), 65,800 tonnes in 1998 (estimate: based on
number of live swine and increase of imports).  Although there is no consumption data for 1999, it
probably increased by 2 per cent during the investigation period to 67,200 (estimate: based onincrease of national production, as verified at the premises of the largest farms and on increase of
imports).
3. Volume and market share of imports of swine meat into Latvia
20. The imports in metric tonnes developed as follows: 3,251.5 in 1996, 1,228.8 in 1997, 3,041.9
in 1998 and 4,650.7 during the investigation period, which corresponds to an overall increase of378 per cent since 1997.
21. The market shares of imports have also significantly and steadily increased as follows:
4.65 per cent in 1996, 1.88 per cent in 1997, 4.62 per cent in 1998 and 6.92 per cent during the
investigation period, which corresponds to an increase of approximately 50 per cent since 1998.  By
taking into account that 1998 already includes 8 months of the investigation period, it is clear thatimports increased dramatically during the last few months of the investigation period.
4. Prices of the imports
(a) Price evolution
22. The average c.i.f. price of the imports in Latvian currency (LVL) per kg at the Latvian border,
duty unpaid, evolved as follows: 0.84 in 1996, 1.02 in 1997, and steadily decreased from that timeonwards to 0.95 in 1998 and 0.76 in the investigation period.  Notably during the investigation period,
import prices slumped to their lowest level in recent years, in the first four months of 1999.  In March
and April 1999, average import price was at its lowest, i.e. merely LVL 0.48/kg.
(b) Price undercutting
Methodology
23. With respect to price undercutting, actual sales prices of swine meat for the domestic industry
were established on an ex-works (ex-farm) basis.  The prices of imports were established on a c.i.f.
Latvian border, duty unpaid, basis.  These two prices have been compared in order to calculate price
undercutting.  The domestic industry’ s sales prices of livestock were converted to their slaughtered
equivalent by applying the above-mentioned factor of 1.44, which is generic to the Latvian industry.
Thus, a uniform price per kg of slaughtered equivalent was obtained.
24. The imports’ countrywide undercutting margins have been calculated on the basis of import
prices obtained by the Latvian customs authorities and actual domestic prices of the six producers
sampled, which were verified by the Commission.  This constituted the best information available in
accordance with international best practice, given that the six producers verified constituted 27.5 perG/SG/N/8/LVA/1
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cent of total commercial production in Latvia, which is a substantial sample.  In addition, no
opposition was expressed by any producer with regard to the structure of the sample.
Undercutting margin
25. The weighted average undercutting margin for identical types of the product concerned,
slaughtered equivalent, during the investigation period, in accordance with the above methodology,
was found to be 1.9 per cent.  The low undercutting margin is explained by the fact that domestic
prices closely followed the low-priced increased imports on a monthly basis, as domestic producers
attempted to maintain their market shares.  Hence, the low undercutting margin proves that price
depression resulted in substantial losses for the domestic producers.
(c) Price undersellingMethodology
26. With respect to price underselling, target sales prices per kg of swine meat for the domestic
industry were established on an ex-works (ex-farm) basis. Where appropriate, notably in the case of
swine meat sold by independent slaughterhouses, a slaughtered equivalent was also taken intoaccount, in accordance with the factors mentioned above. Target prices have been calculated on the
basis of the average cost of production plus a reasonable profit margin of 5 per cent, which would
enable Latvian producers to maintain viability, including the necessary investments in the context of
the current restructuring taking place in the Latvian swine production facilities.  The prices of imports,
were established on a c.i.f. Latvian border, duty unpaid, basis.  These two prices have been comparedin order to calculate price underselling.
27. The imports’ countrywide underselling margins have been calculated on the basis of import
prices obtained by the Latvian customs authorities and target domestic prices of the six producers
sampled, for identical products, calculated as explained above.
Underselling margin
28. The weighted average underselling margin for identical types of the product concerned,
slaughtered equivalent, during the investigation period, in accordance with the above methodology,
was found to be 38.14 per cent.
5. Situation of the domestic industry
(a) Production
29. Total production in thousand tonnes of the domestic industry evolved as follows: 44.1 in
1996, 44.5 in 1997 and slightly increased thereafter, until the investigation period.  (See Table in
“Injury Factors” in enclosed Chart)
(b) Capacity utilisation
30. The capacity utilisation rate of the sampled producers in 1996  was 73 per cent.  It increased
between 1997 and 1998 (from 77 per cent to 89 per cent) and slightly thereafter during theinvestigation period (91 per cent).  Such increase is justified due to the development of the breeding
programmes of the domestic industry.  In any event, it would appear that capacity utilisation nation-
wide remains at low levels, i.e. slightly above 50 per cent, as it results from (non-verified) data
provided by the association of swine producers. (See Table in “Injury Factors” in enclosed Chart.)G/SG/N/8/LVA/1
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(c) Sales volume
31. The sales volume of the domestic industry remained relatively stable between 1996 and 1998.
It slightly increased in 1998 and during the investigation period, as was shown by the largest farms
that were verified.  However, the sales volume is not a reliable factor of injury as such during times ofsevere price depression.  Indeed, farms may not adjust their production volume and sales in a short
time period.  Rather, they are obliged to sell their live or slaughtered swine in much lower prices.
This is explained by the fact that each farm has a breeding programme that takes several months to
design and to breed the animals for slaughter.  Thus, if a sudden drop of prices occurs, it is not
possible for farmers to adjust production and remain profitable.  In addition, when farms are unable to
sell their live swine for slaughter (which forms the vast majority of commercial farms in Latvia), the
live swine become overweight, with the result that the slaughtered equivalent sales price also fallsdramatically.  Either of these two cases results in heavy losses for the farms.
(d) Market shares
32. The relatively steady market share of the domestic industry during 1998 and the investigation
period shows that the domestic industry suffered even more intensively from price depression, due to
the tremendous increase of low-priced imports.  Farms were obliged to dispose of their pigs, in orderto continue their breeding programme, at a very low price.  The investigation has established that the
price depression of the domestic industry followed closely the reduction of import prices, on a month-
by-month basis.  This is a more important figure than market share in the context of live animal
breeding, to the contrast with other industries in which production volume may be adjusted (or put
into stocks) more easily. (See Table on Market Share in enclosed Chart)
(e) Prices
33. The average sales prices per kg of the six sampled producers increased between 1996 and
1997 by 9.2 per cent.  However, in 1998, which includes eight months of the investigation period,
their prices dropped by 3.8 per cent in comparison to 1996.  During the investigation period, the price
fall was much more marked, as it was lower by 20.2 per cent than in 1996.  Low-priced imports’volume substantially increased as from 1996 and while some members of the domestic industry
managed to maintain a reasonable level of prices , most of them were obliged to follow the sharp
decline of import prices and reduced them dramatically during the investigation period.  Only between
1998 and the investigation period, which overlap for eight months, prices dropped by 17 per cent.
This factor indicates that the domestic industry has suffered from price depression, in perfect
parallelism, virtually on a monthly basis, with the decline of import prices.  In addition, the domestic
industry could not react immediately to the increase of the volume of low-priced imports by reducing
production, as swine production may not be adjusted immediately, due to each farms ’ breeding
programme.  In view of the suppression of prices, certain producers were able to focus on  market
niches, where prices (but also costs of production) were higher and direct competition from imports
was less intense.  Such market niches are the trade of genetic material, the trade of high-quality parts,
etc.  However, such producers constituted a small minority of the domestic industry and relevant trade
of these products is in minimal quantities.  The vast majority of live swine and swine meat sold by
domestic producers suffered a severe price depression, notably in the last four months of the
investigation period.
(f) Employment
34. The domestic industry’s workforce has steadily decreased as from 1996, reaching the lowest
levels when the impact of increased imports first became pronounced.  Indeed, the workforce of the
sampled producers has evolved from (index) 100 in 1996, to 96 in 1997, to 92 in 1998 and 89 in theG/SG/N/8/LVA/1
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investigation period, showing a net drop of 11 pe r cent between 1996 and the investigation period.
However, substantiated data from the association of producers show a net loss of employment of
8.8 per cent during the investigation period.  Such loss resulted in a substantial increase of
productivity (live swine per employee), of 22.4 per cent, during the investigation period only. (SeeTable of employment in enclosed Chart.)
(g) Investments
35. Investments, which had come to a peak in 1997 and in 1998 (210 per cent and 300 per cent
times higher respectively from 1996 levels), and which were necessary for the ongoing restructuring
of the swine meat production industry, declined by 28 per cent between 1998 and the investigation
period.  Investments virtually stopped in the first four months of 1999, when the price depression of
imports was particularly marked.  The Commission found that producers who relied on bank credit forongoing investments were unable to repay related instalments and sustain credit cost during the first
half of 1999.  It is therefore concluded that lo w-priced imports had a direct negative impact on
investment, thereby threatening the viability of the Latvian producers of the product concerned, since
they are currently deprived of the necessary funds to finance the long due restructuring of their
production facilities. (See Table on Investment in enclosed Chart.)
(h) Profitability
36. The profitability of the Latvian industry was in any event low in 1996, in the area of 1.6 per
cent.  In 1997, when investments were substantial, profitability naturally decreased and several large
farms started recording losses, due to heavy financing and restructuring costs (average losses of
sampled producers 4.14 per cent).  Average losses in 1998 (including eight months of theinvestigation period) reached 12.3 per cent and, during the investigation period, these losses increased
to 19 per cent (data derived from transaction-by-transaction listings of the co-operating producers by
taking account of sales to independent customers and at the same level of trade).  These data are based
on the six producers sampled and verified.  Notably during the second half of the investigation period,
several producers were unable to endure the crisis and had to either shut down their operations or haverecourse to barter trade, due to total collapse of cash-flow figures.  Under such circumstances, it can
be clearly assumed that, in the absence of urgent provisional measures, the trend of losses would have
been even worse if the domestic industry had kept on producing and selling swine meat subject to the
aggressive pricing patterns and rapidly increasing volumes of imports. (See Table on Profit and Loss
in enclosed Chart)
(i) Stocks
37. The investigation showed that the closing balance of “stocks” during the investigation period
in two of the largest farms was 480 per cent higher over the period concerned (1996 to investigation
period).  Notably after 1997, stocks increased by over 4,000 per cent!  This figure further proves the
price suppression suffered by the domestic industry; given that over-aged (i.e. overweight) live swine
have a much lower commercial value than when they are at their optimal weight. (See Table on
Stocks in enclosed Chart.)
(j) Disruption of the restructuring programme of the domestic industry
38. Yet another specific injury factor is the fact th at the crisis due to low-priced imports hit the
domestic industry in the middle of a substantial effort to restructure.  The industry was heavily
investing since 1996 in order to establish production and qualitative standards equal to those existing
in the EU.  Otherwise, it will not be able to face international competition, notably further to Latvia’sG/SG/N/8/LVA/1
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accession to the EU and the opening of the Latvia’s agricultural market to competition by large firms
with much bigger economies of scale.
39. The Latvian Government has assisted since 1994, on an ongoing basis, swine breeders to
restructure.  Several farms were and are eligible for support from three subsidies, which apply toagriculture across the board.  These are investment support to farms, support for pedigree animal
production and support for import of high quality genetic material.  Several other programmes are in
place, such as support for investment (30 per cent).  During the crisis, the Government subsidised the
live and slaughtered swine production by temporary measures (LVL 0.8 per slaughtered and LVL 0.5
per live weight kg in 1998 and LVL 8 per live swine in 1999).  In addition, the Latvian Government
has designed a new funding action, called Programme for Development of Meat Production and
Processing (to be adopted in the next few months), to which all operators in the meat sector will beeligible.  Notably, the meat processors will also be eligible for funding.  The Latvian Government is
fully aware that a competitive meat sector can not be achieved in the absence of a modern and healthy
meat processing industry.
40. Finally, the EU-based programme SAPARD will be in place as from 2000.  It is expected that
investments such as technical equipment for feeding and feed preparation, feed production, farmequipment, etc., will be assisted by funding up to  50 per cent by these actions.  However, the cost of
restructuring was and will still be high for the swine producers.  Therefore, the disruption of this
programme was and still is a substantial further injury factor suffered by the domestic industry.
6. Conclusion on injury
41. During the investigation period, the Latvian producers suffered severe price suppression from
a tremendous increase of imports at an increasingly low price.  This has resulted in heavy losses for
the domestic industry.  In addition, if one compares the investigation period to 1998 (which includes
8 months of the investigation period), turnover decreased by 10.92 per cent, capacity utilisation
increased by 2.45 per cent, profit lost was 54.73 per cent higher, investments decreased by 27.97 per
cent and virtually stopped during the first four months of 1999, employment decreased by 2.97 percent and stocks substantially increased from the start of the investigation period.  It is therefore
concluded that the Latvian industry has suffered serious injury.  Furthermore, it is also concluded that
the sudden drop of prices during the last two months of the investigation period justified the urgency
of adopting provisional safeguard measures.
D. CAUSATION
1. Effect of the imports
42. The significant increase of the volume of the imports during the investigation period as well
as the substantial underselling found (38.14 per cent on weighted average) coincided with the
deterioration of the situation of the domestic industry in terms of loss of market shares, price
depression and rapidly deteriorating profitability resulting in heavy losses, on a month-by-month
basis.
43. The total market for swine meat in Latvia rema ined relatively stable since 1996 but signs of
recovery were recorded between 1997 and the end of the investigation period.  Nevertheless, the sales
volume of the Latvian industry was not able to maintain market share during the investigation period.
By contrast, the imports considerably increased over the same period, and their market share
increased sharply during the investigation period.  Such  increase took place in perfect parallelism with
the downward trends of the prices and the financ ial situation of the domestic industry, which lostG/SG/N/8/LVA/1
G/SG/N/10/LVA/1
Page 11
market shares and had to virtually stop any investment, resulting in heavy financial losses in the end
of the investigation period.
44. When faced with low-priced imports in 1998, the majority of the Latvian producers tried to
maintain the level of sales prices, whereas a few others reduced them.  Both strategies resulted in adirect negative impact on profitability (lower prices).  During the investigation period, all Latvian
producers were obliged to substantially lower their sales prices, which had a further negative impact
on their profitability, even though certain producers tried to concentrate on market niches to avoid
being affected even more substantially by the effects of the imports.  This clearly shows the price
sensitivity of the market and the important negative impact of the price underselling and price
depression of imports on the producers’ prices, as explained above.
2. Effects of other factors
45. In accordance with Article 11(2) of the Law on Safeguards, the Commission has examined
whether factors other than imports might have had a negative effect on the situation of the domestic
industry.
46. Certain parties claimed that the Latvian industry’s injury was not caused by imports but by
the Russian financial crisis in 1998.  However, the Commission is of the opinion that the Russiancrisis had nothing to do with the development of the swine sector in Latvia and that it should not be
exported to Latvia.  Therefore, this argument must be dismissed.
47. During the hearings that took place in the context of the investigation, certain end-users
expressed the view that the above-mentioned Russian crisis had as a result that they could no longer
export to Russia, with the consequence that they were unable to purchase local swine meat as theirproduction volume decreased.  This allegedly caused further injury to domestic producers.  However,
it has been verified during the investigation that these parties purchased swine meat from the domestic
market with improved profitability in their financial results.  Therefore, this argument must also be
dismissed.
48. Several parties also invoked the fact that in Latvia there exists a large “grey market” of meat,
which includes the product concerned.  Such grey market allegedly benefits from illegal imports and
non-declared live swine, which results in high pr ofits for those who benefit from the grey market.
However, these arguments were not substantiated by evidence.  Even if there exists a grey market in
Latvia, which remains to be confirmed, the Latvian Government wishes to stress that the present
proceedings are totally irrelevant to such illegal activities.  The outcome of the present proceedings
may only be based on official data provided by the responsible Latvian authorities.  Any illegal
activity must be dealt with in a different context, by bodies responsible for the implementation ofnational legislation, such as customs, the police and the veterinarians and, in any event, the re-
enforcement of these bodies is already under- way in Latvia.  Any other solution would run contrary
to the letter and the spirit of the Law on Safeguards and relevant implementing legislation.  Therefore,
this argument must also be dismissed.
49. The same parties also submitted that fraud is allegedly taking place with regard to inward
processing relief supplies.  Again, such arguments are displaced in the context of these proceedings
and, in any event, were not at all substantiated during the proceedings.
50. Thus, it is concluded that the effect of  factors other than the imports were not such as to
break the casual link between imports and the serious injury suffered by the Latvian industry
therefrom.G/SG/N/8/LVA/1
G/SG/N/10/LVA/1
Page 12
3. Conclusion on causation
51. In view of the above, it is concluded that imports of swine meat during the investigation
period into Latvia have caused serious injury to the domestic industry.
E. LATVIAN INTEREST
1. General comment
52. For the investigation of Latvian interest, the Commission examined two scenarios, i.e. the
most likely effects in the event that safeguard measures were imposed, and the most likely effects in
the event that no such measures were taken.  In this context, particular consideration was given to the
effect that safeguard measures would have on th e domestic industry, on end-users of the product
concerned (i.e. swine meat processors), and on consumers.  In this examination, the Commission was
aided by positive evidence of the impact of the provisional safeguard measures since their impositionon 1 June 1999.
2. Latvian industry and other Latvian producers
(a) General
53. The domestic industry has proven to be a structurally viable industry, able to adapt its product
range to the changing competitive conditions on the market and to concentrate on market nicheswhere there was less competition from imports.
54. Despite this structurally viable background, it can however, not be excluded that this industry
would reduce its production in Latvia and its viability would be endangered if no measures against
imports were taken.  This conclusion is justified in view of the duration of the deteriorating
profitability situation suffered due to increased, low-priced imports.  Indeed, in the absence ofmeasures, the price-depressive effect of the imports will continue to frustrate all efforts of the
domestic industry to regain a satisfactory margin of profitability and thus seriously impede necessary
investments in the sector in the future.
(b) Employment
55. As explained above, the situation of the domestic industry has steadily deteriorated since
1997.  Should this trend continue, the domestic industry might be forced to substantially reduce or
stop production in Latvia, and hundreds of jobs directly linked to the product concerned would be
endangered in Latvia.  On the other hand, the imposition of measures would enable this industry to
maintain and further develop its activities and, thus, maintain the current levels of employment.
3. Unrelated importers
56. No unrelated importer of the product concerned in Latvia fully co-operated during the
proceedings.  Thus, the investigation as to the likely impact of measures on such companies wasbased on the best information available.  In fact, it was observed that most imports were made by the
processing industry, i.e. end-users, for which comment is made below.  Significantly, the measures
proposed are not likely to stop imports but merely to establish a level playing field on the Latvian
market between domestic and imported products.  Therefore, it is presumed that unrelated importers
will be able to continue importing swine meat, notably by taking account of the fact that Latvia is anet importer of swine meat since 1994.G/SG/N/8/LVA/1
G/SG/N/10/LVA/1
Page 13
57. This justifies the conclusion that safeguard measures will most likely not have a decisive
impact on unrelated importers.
4. Users
58. Users are meat processors whose finished produ cts are sold afterwards for retail, export, or
other direct consumption.  Further to the Notice of Initiation’s public announcement of the proceeding
and call for comments of interested parties, comments from seven users were received (and these
were submitted outside the time limit specified in the Notice of Initiation):
- Stock Company “Rigas Miesnieks”;
- Stock Company “Daugavpils Galas Kombinats”;
- Stock Company “Tukuma Galas Parstrades Sabiedriba”;
- Stock Company “Bulls”;- Stock Company “Jelgavas Galas Konbinats”;
- “Trials” Ltd; and
- “Lido” Ltd.
Questionnaires intended for end-users have been sent to the association of the above-mentioned
processors.  Replies have been received within the time-limit set by five out of them and verification
of two of these processors took place, namely “Rigas Miesnieks” and  “Tukuma Galas Parstrades
Sabriedriba”.
59. The above-mentioned users were all given the opportunity for a hearing in any event, and
their comments, both oral and written, were duly taken into account by the Commission, when
substantiated.  In particular, it was noted that several users complained of the quality of the domestic
industry’s swine meat sold.  However, it was also noted that users claimed to be willing to purchase
imported frozen swine meat, generally acknowledged to  be of lower quality, and further, the reasons
for domestic meat having become lower quality were seen to be due to ageing of the swine beforeslaughter during the investigation period, caused by an inability to sell at the prime ages
(approximately 120-150 days).  This inability to sell had been observed to have been caused by the
increased imports.  Thus, it was concluded that protection from imports would enable the domestic
industry to sell swine for slaughter at the most preferred ages once again, thus ensuring maximum
quality.  It was further concluded that the domestic industry had sufficient capacity to supply
increased demand, and that any safeguard measures imposed would be unlikely to remove imports
from the markets altogether, merely to raise their price to a non-injurious level.  Therefore, security ofsupply could be guaranteed and given the reasonable level of measures imposed any increase in the
price of users’ raw materials would not be significant.
60. The limited co-operation of most end-users and the above considerations justify the
conclusion that safeguard measures, if any, will most likely not have a decisive impact on the user
industry.  Notably, it has been verified that the Latvian user industry was able to re-direct suppliesfrom the domestic industry after the imposition of measures, as it was verified.  Swine meat
constitutes a quite significant cost factor for the end-user industry, ranging between 23-40 per cent in
terms of value of finished product, depending on the recipes used by each one of the processors and
the types of products produced at each period.  However, measures will not foreclose the Latvian
market from imports.  Due to the interest of Latvia in having competitive cost of production in meatprocessed products, the effect of the measures is expected to be relatively moderate upon the volume
of imports concerned.  In addition, given the high number of competing producers located in Latvia,
the measures are not likely to lead to an overall major price increase for processed swine meat
products in Latvia and in the export markets of these processors.G/SG/N/8/LVA/1
G/SG/N/10/LVA/1
Page 14
61. The Latvian Government wishes to stress that the impact of the measures on the overall
situation of the end-users (processors) has been taken very seriously into account in the present
investigation, notably, with regard to the nature of measures (variable duty based on minimum price).
The measures adopted by the Latvian Government should normally not disrupt at all the importactivity of the processors.  However, when the time will come for the current safeguard measures to
be gradually liberalised, one year after their adoption, the Latvian Government will closely examine
the situation of the processors and will take it into account in the context of the establishment of the
liberalisation timetable.
5. Competition and trade distorting effects
62. As to trade effects of possible safeguard measures, it is noted that the product concerned is
being exported by the Latvian industry to other third countries in insignificant quantities.  Exportsfrom Latvia of all products ex-0203 were 1.9 tonnes in 1997, 0.248 tonnes in 1998 and 6.5 tonnes in
the first quarter of 1999.  Latvia is a net importer of swine meat as from 1994.
63. With respect to the effects of possible measures on competition in Latvia, some interested
parties have argued that duties would lead to the disappearance of imports from the Latvian market,
thus considerably weakening competition, and to an increase of the prices for swine meat.  This view
was not substantiated and is not shared by the Commission, for whom all evidence suggested that the
impact of safeguard measures would not be such as to remove imports from the Latvian market
altogether, merely to raise their price levels to a competitive level playing field with domestically
produced meat.
64. In view of the above-mentioned market position of the imports, the reasonable character of
the measures, the very large number of producers in Latvia as well as the price sensitiveness of the
market, it can be concluded that Latvian producers will continue to compete on the Latvian market.
Thus, users should also in the future benefit from the choice of different suppliers of the product
concerned and from prices as low as possible.  However, such prices will be at a fair level, which
would permit the Latvian swine meat production industry to remain viable.
6. Conclusion on Latvian interest
65. Given the above reasons, it is considered that there are no compelling reasons based on
Latvian interest, which militate against the imposition of safeguard measures.
F. THE POSITION OF THE GOVERNMENTS THAT DECLARED AN INTEREST
1. The Baltic States
66. Both Estonia and Lithuania argued an alleged violation by Latvia of the terms of the Free
Trade Agreement between the Republic of Estonia, the Republic of Latvia and the Republic ofLithuania on Trade in Agricultural Products.  However, Article 13 of the Free Trade Agreement in
question provides that the parties to the agreement may take emergency action on imports of any
product originating in Estonia, Latvia or Lithuania where the import is in such increased quantities
and under such conditions as to cause, or threaten to cause, inter alia,  serious injury to domestic
producers of like or directly competitive products in the territory of the Party.  Therefore, thisargument must be rejected because, as long as serious injury is established, measures may be taken
against the free trade partners.
67. The Republic of Latvia did in fact determine that imports of pork meat from, inter alia ,
Estonia were in such increased quantities and under such conditions as to cause serious injury to theG/SG/N/8/LVA/1
G/SG/N/10/LVA/1
Page 15
domestic producers of the like product.  Under Latvia’s international obligations (WTO/GATT) and
the MFN principle, safeguard measures are adopted erga omnes , therefore against its free trade
partners as well, insofar as the Free Trade Agreement in Trade of Agricultural Products does not
specifically prohibit it.
68. Concerning the respect of procedural obligations by Latvia, the State Safeguard Commission
immediately published a notification of the decision  to initiate the inve stigation in “Latvijas
Vestnesis” (21 May 1999).  Then, on 28 May 1999, both Estonia and Lithuania were notified of the
decision to initiate the investigation and to take provisional measures.  All relevant information was
therefore supplied.  Consultations were duly held within the framework of the Free Trade Agreement
with Estonia in Riga on 1 June 1999 and with Estonia and Lithuania in Riga on 7 June 1999.
Therefore, the Republic of Latvia maintains that bo th in terms of substance and procedure, the terms
of the Free Trade Agreement have been complied with.
69. Lithuania further argued that under Article XXIV:8 of the GATT, Latvia could not adopt
safeguard measures against its free trade partners.  However, Latvia maintains that there is nothing
that prevents it from doing so, insofar as it is not specifically prohibited under the Baltic FTA.  In the
WTO Panel Report – “Argentina – Safeguard Measures on Imports of Footwear”, the Panelspecifically addresses the issue of the application of safeguard measures both within a customs union
and/or a free trade area and as against third countries.  That Panel did not agree with the argument that
a country is prevented by Article XXIV:8 of the GATT from applying safeguard measures to all
sources of supply, i.e., third countries as well as other member States of a customs union or free trade
area.  To the contrary, the Panel stated that: “Although the list of exceptions in Article XXIV:8 ofGATT clearly does not include Article XIX, in our view, that paragraph itself does not necessarily
prohibit the imposition of safeguard measures between the constituent territories of a customs union
or free-trade area during their formation or after their completion. […]  In our view, the express
omission of Article XIX of GATT from the lists of exceptions in Article XXIV:8 of GATT read in
combination with the requirement to eliminate all duties or other restrictions of commerce on“substantially all trade” within a customs union, leaves both options open, i.e., abolition of the
possibility to impose safeguard measure between the member States of a customs union as well as the
maintenance thereof.”  Given that swine meat trade between Latvia and its Baltic free trade partners
forms an insignificant proportion of global trade between the parties, substantially all trade is not
affected by the measures.
70. Significantly, the Republic of Latvia must respect the principles of General Most-Favoured
Nation Treatment as provided by Article 1 of GATT 1994.  This provides inter alia  that “any
advantage, favour, privilege or immunity granted by  any contracting party to any product originating
in or destined for any other country shall be accorded immediately and unconditionally to the like
product originating in or destined for the territories of all other contracting parties.”  In upholding this
fundamental principle of international trade law, Latvia may not therefore adopt safeguard measures
as against one trade partner and not against another on the basis that the latter are partners within theframework of a Free Trade Agreement.  In any case, Article 13 of the Free Trade Agreement between
the Republic of Estonia, the Republic of Latvia and the Republic of Lithuania specifically provides
for the possibility of taking emergency action on the imports of a particular product where the
circumstances justify such measures.  Therefore,  the argument in question of Lithuania must be
dismissed.
2. The European Union
71. During the consultations held with the EU, the latter asserted that Latvia did not comply with
the procedural requirements of Articles 33(2) an d 33(3)(a) of the EU-Latvia Europe Agreement so as
to provide for a mutually acceptable solution within the time limit of 30 days prior to the adoption ofG/SG/N/8/LVA/1
G/SG/N/10/LVA/1
Page 16
measures.  Secondly, the EU asserted that the Latvian Parliament and the Latvian Government
introduced the temporary measures within the framew ork of the WTO before any official consultation
took place with the EU.
72. Firstly, Article 33(2) provides that in except ional circumstances, either the Community or
Latvia shall supply the Association Council with a ll relevant information with a view to seeking a
solution acceptable to the two parties. Similarly, provision is also made to the effect that Safeguard
measures are to be notified immediately to the Association Council.  Article 33(3)(a) further provides
for reference to the Association Council for a decision and a 30-day period in which a solution may be
found.
73. However, the Republic of Latvia maintains that its provisional safeguard measures are in full
compliance with Article 33(3)(d) of the EU-Latvia Europe Agreement which permits precautionarymeasures to be taken under exceptional circumstances that require immediate action (urgency).  The
exceptional circumstances in question include the situations outlined under Article 30 (safeguardmeasures) and allow the implementation of precautionary measures which are “strictly necessary” to
deal with the situation.
74. The Republic of Latvia submits that the procedures referred to under Article 33(3)(a) and
those under 33(2) are by definition not applicable to the nature of the circumstances provided for
under Article 33(3)(d).  Indeed, at the time of the adoption of provisional safeguard measures the
circumstances of this case were clearly exceptional and, therefore, the provisions of Article 33(2)
were irrelevant.  Indeed, the increase of imports of the product concerned into Latvia from the rest of
the world started in late 1998, but became dramatic during the first months of 1999.  On a monthly
basis, import volume increase was 483 per cent in April 1999, if compared with May 1998.  By that
time, it was already clear to the Latvian swine producers that price depression would lead them to
stopping their activity.  There was no time to initiate  consultations with any trade partner.  Much more
prima faciae  evidence of the dramatic increase of imports  is included in the complaint of the Latvian
swine meat producers.  Latvia maintains that the appropriate legal basis to request consultations withthe EU was Article 33(3)(d), i.e. after the imposition of urgent provisional measures.  Therefore, the
argument of the EU concerning the non-respect of procedural requirements under the EU-Latvia
Europe Agreement must be dismissed.
75. Secondly, the Republic of Latvia fails to see the pertinence of the argument of the EU that
consultations should have first taken place within the institutional framework of the EU-Latvia
Europe Agreement, before Latvia took emergency action under the WTO.  Indeed, the provisional
measures were not imposed against the EU only, but against all Latvia’ s trade partners.  Therefore,the appropriate body to notify by priority was indeed the WTO, by virtue of Latvia’s obligations as
WTO member.  In any event, Latvia did notify the EU as well immediately after the notification of
the measures to the WTO and consultations were duly held with the EU soon after, under the
institutional framework of the EU-Latvia Eur ope Agreement by using Article 33(3)(d) as an
appropriate legal basis.  Therefore, this argument of the EU must equally be dismissed.
G. FORM AND LEVEL OF SAFEGUARD MEASURES
76. On the basis of the conclusions on injury, causal link to imports and Latvian interest, the
Commission considers it appropriate to adopt definitive safeguard measures for a period of two years.
These measures shall have the form of a variable duty, based on a minimum price at the Latvian
border.G/SG/N/8/LVA/1
G/SG/N/10/LVA/1
Page 17
77. For the purpose of determining the level of these measures, the Commission took account of
the level of import price necessary to eliminate the injury sustained by the Latvian industry, notably
by having due regard to the underselling margin found.
78. As regards the form of the measures, particular consideration was given to the fact that the
injury established consisted mainly of a depression of the Latvian producers’ prices, together with the
negative impact of these low prices on their profitability.  Particular consideration was also given to
the interests of the Latvian meat processing indust ry, which needs to ensure that imports will not stop
during the period of application of the safeguard measures.  Given that the prices of agricultural
products may frequently fluctuate, it was considered that the appropriate way to remedy injury is the
imposition of a variable duty based on a minimum price and not an ad valero  customs duty, which
could possibly render the import price higher than the injury elimination level in case of increase ofprices.  The minimum price was determined on the basis of a comparison of the weighted average
import price used to establish price undercutting and underselling, as outlined above, with the non-
injurious price (target price) of swine meat produced by the domestic industry.  The non-injurious
price has been obtained by adding to the cost of production of the domestic industry, slaughtered
equivalent, a profit margin of 5 per cent, to arrive at a fair price by reference to cost per kg of swinemeat.  This profit margin corresponds to what has been found as a minimum necessary in for this type
of industry to permit restructuring and reasonable return on investment.  One single minimum price
has been thus calculated for all products falling under HS code ex 0203, by applying the factor 1.44,
where appropriate, in order to reach slaughtered equivalent.
79. In summing up, the Commission has established that the above-described type of variable
duty corresponds to the minimum level necessary to remove injury and no more.  Therefore, the
following measures based on a minimum price net free-at-Latvia-frontier, duty unpaid, are proposed
for adoption by the Commission on Safeguards to  the Government of the Republic of Latvia.
80. A safeguard measure on imports of swine meat, falling within HS code ex 0203, in the form
of a variable import duty based on a minimum price.  The amount of duty is proposed to be thedifference between a minimum import price of LV L 1.05 and the net free-at-Latvia-frontier price,
duty unpaid, in all cases where the net free-at-Latvia-frontier price, duty unpaid, per kg is less than the
minimum import price.  No duty shall be collected where the net free-at-Latvia-frontier price, duty
unpaid, per kg is equal to or higher than the minimum import price.G/SG/N/8/LVA/1
G/SG/N/10/LVA/1
Page 18
TURNOVER
1996 1997 1998 POI
TOTAL 3420637 5969693 5419517 4827726
INDEX        100        175        158             141
DIFF. POI-1998 (4 months) -10.92%
PRODUCTION CAPACITY AND UTILISATION
1996 1997 1998 POI
TOTAL Actual
productionin volume14072.8 16348.8 18771.9 19231.5
Production
capacity19200 21200 21200 21200
Capacity
utilisation
(%)73% 77% 89% 91%
DIFF. POI-1998 (4 months) 2.45%
010 0 0 020000300004000050000
199 6 199 7 19 98 POITOTAL
Production
capacity
TOTAL Actu alproduction involum e02000000400000060000008000000
199 6 199 7 199 8 POIG/SG/N/8/LVA/1
G/SG/N/10/LVA/1
Page 19
PROFIT/LOSS % ON TURNOVER
1996 1997 1998 POI
TURNOVER 4511269 7093385 6151746 N/A
PROFIT /
LOSS72410 -293703 -754625 N/A
% ON
TURNOVER1.61% -4.14% -12.27% -18.98%
DIFF. POI-1998 (4 months) 54.73%
INVESTMENTS
1996 1997 1998 POI
TOTAL 81430 174,733 244,677 176,240
INDEX 100.00 214.58 300.48 216.43
DIFF. POI-1998 (4 months) -27.97%
EMPLOYMENT
1996 1997 1998 POI
TOTAL 766 736 706 685
INDEX   100.00     96.08     92.17          89.43
DIFF. POI-1998 (4 months) -2.97%-25.00%-20.00%-15.00%-10.00%-5.00%0.00%5.00%
19 9 6 19 9 7 19 9 8 POI
01 00000200000300000
199 6 199 7 19 98 POIG/SG/N/8/LVA/1
G/SG/N/10/LVA/1
Page 20
STOCKS
1996 1997 1998 POI
TOTAL 243.6 25.9 1089.9 1168.3
INDEX   100.00     10.63   447.41        479.60
DIFF. POI-1997 4410.81%
__________600650700750800
199 6 19 97 199 8 POI
050010 0 0150 0
19 9 6 19 9 7 19 9 8 PO I