Commission Opinion on Latvia's application for Membership of the European Union
Date: 1997-07-15
Institutions: European Commission
Subjects: EU relations, Latvia, accession to the European Union, economic situation, political situation

COMMISSION  OF  THE  EUROPEAN  COMMUNITIES 

Brussels,  15.07.1997 
COM(97)  2005  final 

Commission Opinion 

on Latvia's Application 

for Membership of the European Union 

Contents 

A._  INTRODUCTION 

Page 

a)  Preface 

The Application for Membership 
The Context of the Opinion 
The Contents of the Opinion 

b)  Relations Between the European Union and Latvia 

Historical and Geopolitical Context 
Latvia's Position Concerning the European Union 
Contractual Relations 
The Pre-Accession Strategy 
Trade Relations 
General Evaluation 

B.  CRITERIA FOR MEMBERSHIP 

1.  Political Criteria 

1.1  Democracy and the Rule of Law 

Parliament and Legislative Powers: Structure 
Functioning of Parliament 
The Executive: Structure 
Functioning of the Executive 
The Judiciary: Structure 
Functioning of the Judiciary 

1.2  Human Rights and the Potection of Minorities 

Civil and Political Rights 
Economic, Social and Cultural Rights 
Minority Rights and the Protection of Minorities 

1.3  General Evaluation 

2.  Economic Criteria 

2.1  The Economic Situation 

Background 
Liberalisation 
Stabilisation of the Economy 
Structural Change 
Financial Sector 

II 

Economic and Social Development 

2.2  The Economy in the Perspective of Membership 

Introduction 
The Existence of a Functioning Market Economy 
The Capacity to Cope with Competitive Pressure and Market Forces 
Prospects and Priorities 

2.3  General Evaluation 

3.  Ability to Assume the·Obligations of Membership 

3.1  Internal Market Without Frontiers 

The Four Freedoms 

- General Framework 
- Free Movement of Goods 
- Free Movement of Capital 
- Ftee Movement of Services 
- Free Movement of Persons 
-General Evaluation 

Competition 
3.2  Innovation 

Infonnation Society 
Education, Training and Youth 
Research and Technological Development 
Telecommunications 
Audio-visual 

3.3  Economic and Fiscal Affairs 

Economic and Monetary Union 
Taxation 
Statistics 

3.4  Sectoral Policies 

Industry 
Agriculture 
Fisheries 
Energy 
Transport 
Small and Medium Enterprises 

3.5  Economic and Social Cohesion 
Employment and Social Affairs 
Regional Policy and Cohesion 
3.6  Quality of Life and Environment 

Environment 
Consumer Protection 
3. 7  Justice and Home Affairs 
3.8  External Policies 

Trade and International Economic Relations 
Development 
Customs 
Common Foreign and Security Policy 

Ill 

3.9  Financial Questions 
Financial Control 
Budgetary Implications 

4.  Administrative Capacity to Apply the Acquis 

4.1  Administrative Structures 
4.2  Administrative and Judicial Capacity 
4.3  General Evaluation 

C.  SUMMARY AND CONCLUSION 

Annexes 

Composition of Parliament 
Single Market:  White Paper Measures 
Statistical Data 

IV 

SWEDEN 

RUSSIA 

BELARUS 

UKRAINE 

A.  INTRODUCTION 

a)  Preface 

The Application for Membership 

Latvia presented its application for membership of the European Union on 13  October 
1995,  and  the  Council  of Ministers  decided  on  30  October  1995  to  implement  the 
procedure laid down in Article 0 of the Treaty, which provides for consultation of the 
Commission. 

That  is  the  framework  in  which  the  Commission  submits  the  present  Opinion, 
responding  to  the request  of the  European  Council  in  Madrid  in December  1995  to 
present the Opinion as  soon as possible after the conclusion of the Intergovernmental 
Conference, which commenced in March 1996 and concluded in June 1997. 

The Context of the Opinion 

The  Latvian  application  for  membership  is  being  examined  at  the  same  time  as 
applications from  nine other associated countries.  Latvia's accession is  to be seen as 
part  of an  historic  process,  in  which  the  countries  of Central  and  Eastern  Europe 
overcome ·the division of the continent which has  lasted  for more than 40 years,  and 
join the area of peace, stability and prosperity created by the Union. 

The European Council in Copenhagen in June 1993 concluded that: 

"The associated countries  in Central and Eastern Europe that so  desire  shall become 
members  of the  Union.  Accession  will  take  place  as  soon  as  a  country  is  able  to 
assume  the  obligations  of  membership  by  satisfying  the  economic  and  political 
conditions.  Membership requires: 

that the candidate country has  achieved  stability of institutions  guaranteeing 
-
democracy,  the  rule  of law,  human  rights  and  respect  for  and  protection  of 
minorities; 

- the existence of a functioning market economy, as well as the capacity to cope 
with competitive ·pressure and market forces within the Union; 

the  ability to  take  on the  obligations  of membership,  including  adherence to 

-
the aims of political, economic and monetary union. 

The Union's ·capacity to  absorb  new  members,  while  maintaining  the  momentum of 
European integration, is also an important co11sideration in the general interest of both 
the Union and the candidate countries". 

This  declaration  spelled  out  the  political  and  economic  criteria  f<?r  examining  the 
accession requests of the associated countries of Central and Eastern Europe. 

The  European  Council  in  Madrid  in  December  1995  referred  to  the  need,  in  the 
context  of the  pre-accession  strategy,  "to  create  the  conditions  for·  the  gradual, 
harmonious integration of the applicant countries, particularly through: 

-

-

-

the development of the market economy, 

the adjustment of their administrative structure, 

the creation of a stable economic and monetary environment" 

In its  Opinion,  the  Commission  analyses  t~e Latvian  application  on  its  merits,  but 
according  to  the  same  criteria  as  the  other  applications,  on  which  it  is  delivering 
Opinions at the  same time.  This way  of proceeding respects the wish,  expressed by 
the European Council in Madrid, to  ensure that the applicant countries  are treated on 
an equal basis. 

In addition to  the individual Opinions the Commission is presenting separately to  the 
Council, in the framework of its communication "Agenda 2000", a general assessment 
of  the  accession  requests,  and  its  recommendations  concerning  the  strategy  for 
successful enlargement of the Union.  At the same time, it is presenting an evaluation 
of the impact of enlargement on the Union's policies. 

The Contents of the Opinion 

The structure of the Opinion takes account of the conclusions of the European Council 
in Copenhagen. It: 

- describes  the relations up  to  now between Latvia and the Union,  particularly 
in the framework of the association agreement; 

- analyses the situation in respect of the political conditions mentioned by the 
European  Council  (democracy,  rule  of  law,  human  rights,  protection  of 
minorities); 

- assesses Latvia' s situation and prospects in respect of the economic conditions 
mentioned  by the  European  Council  (market  economy,  capacity  to  cope  with 
competitive pressure); 

addresses  the  question  of  Latvia's  capacity  to  adopt  the  obligations  of 
membership,  that  is  the  acquis  of the  Union  as  expressed  in  the  Treaty,  the 
secondary legislation, and the policies of the Union; 

- makes  finally  a  general  evaluation  of Latvia's  situation  and  prospects  in 
respect of the conditions  for  membership  of the Union,  and  a recommendation 
concerning accession negotiations. 

In assessing Latvia in respect of the  economic criteria and its  capacity to  assume  the 
acquis,  the  Commission  has  included  a  prospective  assessment;  it  has  attempted  to 

2 

evaluate  the progress  which can reasonably be  expected on  the  part of Latvia  in  the 
coming years,  before accession,  taking  account  of the  fact  that  the  acquis  itself will 
continue  to  develop.  For  this  purpose,  and  without  prejudging  the  actual  date  of 
accession, the Opinion is based on a medium-tenn time horizon of approximately five 
years. 

During  the  preparation  of ~e Opinion,  the  Commission  has  obtained  a  wealth  of 
· information on Latvia's situation from  the Latvian authorities,  and has utilised many 
other sources of information, including the member states and numerous international 
organisations. 

3 

b)  Relations between the European Union and Latvia 

Historical and Geopolitical Context 

With a territory of some 64 900 sq. km, and a population of 2.5  million, Latvia lies on 
the  Eastern  coast  of the  Baltic  sea  and  shares  borders  with  Estonia  in  the  North, 
Russia and  Belarus in the  East  and  Lithuania_ in  the  South.  The  Baltic  Sea connects 
Latvia  also  with  Sweden,  Finland,  Germany  and  Denmark.  This  location  has 
traditionally  made  Latvia  an  important  transit  route  between  Europe  and  Russia, 
notably during the period of the Hanseatic League. 

In  1201,  German  Teutonic  knights  conquered  Latvia.  Subsequently,  Latvia  came 
under Lithuanian, Polish,  and Swedish rule until,  partly in  1704 and  fully  in  1772,  it 
was annexed by Russia. 

After the first  World War, Latvia proclaimed its independence on November 18,  1918 
and  successfully  defended  it  against  the  Soviet  Union.  A  period  of parliamentary 
democracy in the  1920s was followed by an authoritarian regime in  1934. During the 
period between the two  World Wars,  the  country experienced considerable economic 
growth  and  an  improvement  in  its  standard  of living.  Latvia  was  forced  to  grant 
military bases  to  the  Soviet Union in  September  1939,  and  the  country was  annexed 
by the Soviet Union in June 1940.  It was occupied by Germany in 1941-44. 

After the war Soviet rule was re-established,  though _not  recognised by most Western 
States.  It was accompanied by mass deportations and settlement of Russians.  In 1988 
a  Popular  Front  for  Latvia  was  formed,  and  in  1989  it  won  the  elections  to  the 
In 
Supreme  Council,  which  the  following  year  declared  Latvia  still  independent. 
1990  and  1991  there  were  violent  clashes  between  supporters  of independence  and 
Latvian  communists  and  Soviet forces.  A referendum  in March  1991  voted  73%  in 
favour  of independence,  which was  declared  on  21  August  1991  and  recognised  by 
the  Soviet  Union  the  following  month.  Russian  military  forces  withdrew  from  the 
country in  1994, though there is  still a Russian radar station at Skrunda, under agreed 
OSCE supervision. 

Latvia's Position Concerning the European Union 

Since  regaining  independence  in  August  1991,  Latvia  has  followed  a  consistent 
foreign policy strategy of European integration.  All parties in the present government 
see further European integration and  full  membership  of the EU as  the main priority. 
This was confirmed by the declaration by all parties in Parliament in October 1995, in 
which  the  parties  supported  the  Government's  decision  to  submit  its  application  for 
EU Membership. 

The  determination· to  achieve  membership  in  the  EU  as  well  as  the  commitment  to 
undertake  any  necessary  preparations  were  most  recently  presented  by  President 

4 

Ulmanis  on  4  May  1997  on  the  occasion  of Latvia's  Declaration  of Independence 
Day: 

"We are preparing ourselves for the accession negotiations with the European Union. 
We  see  it  as  a  two-sided  process:  firstly,  the  conformity  of the  model  of state, 
economy and society with the principles of the EU.  Efficient and purposeful operation 
of the  Latvian  administrativ_e  system  is  very  important  in  this  process.  However,  it 
· will  be  only  partially  successful  if we  neglect  the  other,  the  central  aspect.  Each 
resident  of Latvia  should  be  able  to  see  himself in  the  perspective  of Latvia  as  the 
future  member  of the  EU.  Therefore,  we  must  intensify  the  explanation  of the  EU 
principles throughout Latvia and - in the context of popularising the idea of Europe -
we should consolidate our national self-awareness. 

The  opening  of the  EU  and  the  idea  of the  unity  of Europe  is  the  strategy  of our 
common development and Latvia is a stable member of it." 

Contractual Relations 

Diplomatic relations between the European Communities and Latvia were established 
on 2 7 August 1991. A Trade and Cooperation Agreement was signed on 11  May 1992 
and  entered into  force  in  1993.  The present contractual relationship  between the EU 
and Latvia is regulated by a Free Trade Agreement which was signed on 18 July 1994 
and  entered  into  force  on  1  January  1995.  This  preferential  agreement  aims  at 
establishing free trade between the EU and Latvia within a transitional period lasting a 
maximum  of four  years,  on  a  basis  of asymmetry.  Some  sectors  (mainly  textiles, 
agricultural  products  and  fisheries)  are  regulated  by  specific  rules.  The  Agreement 
also  contains  provisions  concerning  payments,  competition  and  approximation  of 
legislation. 

A Europe Agreement was negotiated between the European Communities  and Latvia 
in the first half of 1995  and signed on 12 June  1995.  Latvia ratified the Agreement on 
31  August  1995. 
It will  enter  into  force  on  completion  of ratification  by  all  EU 
Member States.  The Europe Agreement will then replace the  Trade and Cooperation 
Agreement as well as the Free Trade Agreement. 

Once  it enters  into  force,  the  Europe Agreement will  be the  legal  basis  for  relations 
between  Latvia  and  the  Union. 
Its  aim  is  to  provide  a  framework  for  political 
dialogue, promote the expansion of trade and  economic relations between the parties, 
provide a basis  for  Community technical  and  financial  assistance,  and  an appropriate 
framework  to  support  Latvia's  gradual  integration  into  the  Union.  The  institutional 
framework of the Agreement provides a mechanism for implementation, management 
and  monitoring  of all  areas  of relations.  Sub-committees  examine  questions  at  a 
technical  level.  The  Association  Committee,  at  senior  official  level,  provides  for 
discussion  of and  often  solutions  to  problems  arising  under  the  Europe  Agreement. 
The  Association  Council,  at  Ministerial  level,  examines  the  over~ll  status  of and 
perspectives for relations and provides the opportunity to  review Latvia's progress on 
preparation for accession. 

5 

To  pursue  its  European  integration  activities,  Latvia  has  established  a  European 
Integration  Council  consisting  of the  main  Ministers  concerned  which  meets  every 
month  to  coordinate the  implementation  of the  National  Programme  for  Integration 
into  the  EU. 
The  Minister  of  European  Union  Affairs  has. the  day-to-day 
responsibility  for  co-ordinating  the  European  Union  policies  and  has  the  European 
Integration  Bureau  (Effi)  under  his  responsibility.  The  Em  is  the  focal  point  for 
proposals  for  and  implementation  of integration  initiatives. 
It is  supported  by  23 
technical working groups.  A Parliamentary Commission of European Affairs ensures 
political coordination of the integration process. 

The Pre-Accession Strategy 

Imvlementation of the Free Trade Agreement and the White Paver 

The  measures  envisaged  in  the  Agreement  between  Latvia  and  the  European 
Community  are  being  implemented according  to  the  agreed  timetable.  Over the  last 
two  years,  the  Joint  Committee,  the  Interparliamentary  Committee  and  the  sectoral 
Working Groups have all met regularly.  Pending adoption of an Additional Protocol 
(under  preparation),  autonomous  measures  have  been  adopted  for  agricultural 
products,  processed agricultural  products,  textiles  and  fisheries,  in order to  adapt the 
Free  Trade  Agreement  to  the  latest  enlargement  of the  Union  as  well  as  to  the 
conclusion of the  Uruguay Round.  Implementing rules  on undertakings  and  state aid 
are under preparation. A new Protocol on rules of origin entered into force  on  1 April 
1997  allowing  for  pan-European  cumulation  of  r:ules  of  origin.  Discussions  are 
currently going  on regarding  the  extension of Protocol  1 on  trade  in textiles  beyond 
the  expiry  date  of  31  December  1997.  Agreement  on  the  determination  of  the 
agricultural  component  applicable  to  products  originating  in  the  Community  in 
accordance with Protocol2 is also close to being reached. 

Other main  issues  being  discussed  in  the  context  of the  Free  Trade  Agreement  are: 
approximation  of legislation  and  pre-accession  strategy,  macro-economic  progress, 
Latvia's  relations  with  its  neighbouring  states,  opening  of community  programmes, 
customs cooperation, certification and standardisation issues and trade issues. 

The Commission's White Paper of 1995  on the Internal Market set out the legislation 
which  the  candidate  countries  would  need  to  transpose  and  implement  in  order  to 
apply the acquis, and identified elements essential to  the implementation of the single 
market (known as  Stage I measures)  which would need  priority attention.  Latvia has 
attached considerable importance to  this  work.  The Latvian National Programme for 
EU Integration  was  adopted by the  Government  of Latvia  in  December  1996  as  the 
general  strategy  for  the  pre-accession  phase,  and  as  a  response  to  the  White  Paper. 
The Latvian Programme includes time-tables  and  responsibilities  for  each  legislative 
field.  The programme has been approved in the Parliament's Committee for European 
Affairs. 

The  scope  of the  legislative  programme  so  far  is  mainly  Stage  I  legislation.  The 
Latvian  approach  will  gradually  be  widened  to  cover  other  legislative  fields,  in 

6 

particular transport,  the. environment,  consumer protection and  labour-market  issues. 
The National Programme will be up-dated every six months in order to allow for clear 
priorities to be set: and to ensure rapid progress of the integration process. Progress in 
legislative  alignment  has  been  achieved  in  the  areas  of company  law,  customs 
legislatiQn,  free  movement  of  capital  (including  liberalisation  of  right  to  buy 
property), indirect taxation and procurement procedures. 
-

Overall the EC!Latvia Free Trade Agreement is functioning well.  It has been possible 
to resolve any problems arising in a smooth and productive manner.  Cooperation has 
already advanced further in some sectors than the Agreement requires.  This provides 
a good basis for the enhanced level of cooperation and implementation which will be 
required under the Europe Agreement. 

Structured Dialogue 

Latvia has participated in the Structured Dialogue since the Cannes European Council 
in  June  1995.  Latvia  has  been  an  active  participant,  especially  in  the  political 
In  March  1997,  Latvia  tabled  a  proposal  for  the  development  of  an 
·dialogue: 
individualised political dialogue. 

EU technical  and  financial  assistance  to  Latvia  commenced  under  the  1991  T ACIS 
programme and has  been extended under J:lhare  since  1992.  During the period  1992-
1996, the Phare programme allocated 124 MECU to  Latvia.  The allocation for  1997 
is  38  MECU.  Principal  sectors  have  been:  reform  of the  legal  and  institutional 
framework;  infrastructure development;  restructuring  and privatisation.  It has  had  a 
particular  impact  on privatisation  of enterprises  and  land,  and  on tax  administration 
and customs. 

There is also a growing emphasis on cross-border cooperation programmes, especially 
for transport and environment. 

Particivation in  Community PrQgrammes 

Latvia has indicated that,  once the Europe Agreement has entered into force,  it would 
like  to  participate  in  Socrates,  Leonardo,  Youth  for  Europe,  MEDIA  II  and  Life 
beginning in 1998, and SAVE, Kaleidoscope and Raphael as from the following year. 

Trade Relations 

Latvia was ahnost exclusively dependent on trade with the forrher Soviet Union at the 
time of the re-gaining  of independence  in  19.91.  But the  EU  accounted  in  1996  for 
approximately 45% of exports (Germany  14%,  UK 11%  and  Sweden 7%),  while the 
Russian  share  represented  23%.  The  EU  share  of all  imports  amounted  to  50%  in 
1996.  Following the  entry  into  force  of the Free Trade  Agreement between the  EU 
and  Latvia  and  the  accession  of Finland,  Sweden  of Austria,  EU  exports  to  Latvia 
increased by 29o/o  from  1994 to  1995, while imports from Latvia increased by 18%. 

7 

EU imports  from  Latvia are mainly wood products  and textiles,· while EU exports to 
Latvia consist mainly of machinery and electrical equipment and chemic.als. 

Trade  with  its  Baltic  neighbours,  Estonia  and  Lithuania,  is  modest  but  developing, 
following  a  free  trade  agreement  which  regulates  trade  in  industrial  products  with 
these  countries.  Latvia has been an  active participant in Baltic  cooperation,  both in 
the different cooperation s~ctures that exist between the three Baltic states and in a 
wider context through the Council of the Baltic Sea States. Latvia is also considering 
membership in the Central Europe Free Trade Agreement (CEFTA). 

General Evaluation 

Relations with the EU have developed well since Latvia regained its independence. 
No delays are foreseen to establishing free trade in industrial goods by 1999, as 
foreseen by the Free Trade Agreement. The various subjects and issues dealt with 
under the Free Trade Agreement have been discussed and solved effectively. 
Cooperation will be further enhanced when the Europe Agreement with Latvia enters 
into force. 

8 

B.  CRITERIA FOR MEMBERSHIP 

1. 

Political Criteria 

The European Council in Copenhagen decided on a number of "political" criteria for 
accession to  be met by the candidate countries in Central and Eastern Europe.  These 
countries  must  have  achieved  "stability  of institutions  guaranteeing  democracy,  the 
rule of law, human rights and respect for and protection of minorities". 

In carrying out the assessment required in this connection, the European Commission 
has  drawn  on  a  number  of sources  of information:  answers  given  by  the  Latvian 
authorities  to  the  questionnaire  sent  to  them  by  Commission  staff in  April  1996, 
bilateral  follow-up  meetings,  reports  from  Member  States'  embassies  and  the 
Commission's  delegation,'  assessments  by  international  organisations  (including  the 
Council  of  Europe  and  the  OSCE),  reports  produced  by  non-governmental 
organisations, etc. 

The  following  assessment  involves  a  systematic  examination  of the  main  ways  in 
which the public authorities are organised and operate,  and the steps they have taken 
to  protect  fundamental  rights.  It does  not  confine  itself to  a  formal  description  but 
seeks to assess the extent to which democracy and the rule of law actually operate. 

This  assessment  relates  to  the  situation  in June  1997.  It  does  not  examine  in detail 
any changes which have taken place since the fall  of the Communist regime or which 
may come about in the future, though it generally takes account of any stated intention 
to  reform a particular sector.  The situation of the government is mentioned here only 
in passing: it will be examined in greater depth in chapter 4. 

1.1  Democracy and the Rule of Law 

When Latvia regained its independen~ in August  1991, it declared the primacy of the 
old  Constitution  of  1922  over  all  laws  in  force  in  the  country.  After  various 
amendments  designed  to  establish  parliamentary  democracy,  the  Constitution  was 
restored  in  its  entirety  in  1993.  In  the  meanwhile,  an  ordinary  parliamentary  act  of 
1991  enumerated  the  rights  and  obligations  of the  citizen.  The  Latvian  institutions 
work smoothly, the various authorities being mindful of the limits of their powers and 
of the need for cooperation. 

· 

Parliament and Legislative Powers: Structure 

Parliament  consists  of a  single  house  - the  Saeima.  100  members  are  elected  for  3 
years  by  proportional  representation  on  the  basis  of a  list  at  national  level  (with  a 

9 

minimum threshold raised  from  4%  to  5%  in  1995).  There  are  no  arrangements  for 
specific representation of minorities. 

The right to  dissolve Parliament is subject to  an original procedure.  The President of 
the Republic can put the dissolution of the Saeima to a referendum.  If the referendum 
produces  a  majority  of votes  in  favour  of the  President's  proposal,  the  Saeima  is 
dissolved and elections are ~alled within 2 months (Article 48  of the Constitution). If 
the proposal is rejected, the President is then deemed to have resigned and is replaced 
(Article 50). 

Under  Article  28  of the  Constitution,  MPs  enjoy  a  traditional  array  of immunities 
except  as  regards  any  defamatory  remarks  made  during  debates· in  the  Saeima.  The 
role and involvement of the opposition in the working of the institutions is recognised 
in Latvia. It has  a voice for example in the setting up of parliamentary committees of 
enquiry  (set  up  by  1/3  of the  members  of the  Saeima).  Two  such  committees  were 
recently set up on the use of certain loans ·granted by the G 24 and the privatisation of 
two Latvian banks. 

The existence of numerous political groupings (38  officially registered to  date)  bears 
witness  to  the  fact  that Latvia is  genuinely  a multiparty  State.  While  the  creation of 
parties may appear straightforward, "non-nationals" have no  right to  form  parties (for 
example the  formation  of a party called  the "Latvia Stateless League" was  banned). 
Political parties receive no funding from the State. 

Legislative power lies with Parliament.  Legislation may be initiated by the President, 
the  Government  and  at  least  10%  of the  electorate,  as  well  as  by  Parliament.  The 
President has the right to demand a second reading in Parliament but has to bow to the 
Saeima's  wishes  if it  confirms  its  initial  vote  without  amendment.  The  President 
invoked  this  right  for  example before  the  passing  of the  1994  Nationality  Act.  The 
Government has the power to make regulations conferred on it either by legislation or 
where  there  is  an  absence  of  legislation.  Furthermore,  under  Article  81  of  the 
Constitution, it may pass acts with the force  of legislation should an emergency arise 
during a Parliamentary recess.  However,  such acts  may in no  circumstances  relate to 
the  electoral  system,  the  organisation  and  procedures  of the  judicial  system,  the 
budget,  amnesty  or  the  taxation  system  and  are  deemed  invalid  unless  they  are 
presented to Parliament within 3 days of the resumption of parliamentary proceedings. 

A  referendum procedure is  enshrined in the Latvian constitution.  On the  initiative  of 
either the  President of the  Republic or a third  of the  members  of the  Saeima,  an  act 
passed  by  Parliament  can  be  suspended  in  order  to  be  put  to  a  referendum  at  the 
request of one tenth of the electorate. The suspended act will, however, become law if, 
within 2 months, the threshold of 10% of the electorate required to  hold a referendum 
has not been reached or the act is put to  the vote once again by the Saeima and passed 
by  a  majority  of 3/4  of its  members.  Under  Article  73  of  the  constitution,  the 
referendum procedure may not be applied to  the budget, taxation and customs duties,· 
military service,  declarations  of war,  peace  treaties,  state of emergency,  mobilisation 
and international treaties. 

10 

Functjonioa= of Parliament 

The 1992 and 1995 elections took place in free and fair conditions. In both cases, they 
resulted  in  the  formation  of coalition  governments  (see  Annex:  results  of  1995 
elections). 

Parliament operates satisfactorily. Its powers are respected and the Opposition plays a 
full part in its activities. 

· 

The Executive: Structure 

The  President  of the  Republic,  who  is  elected  by Parliament  for  a  three-year  term, 
which may be renewed  only once,  is  also  accountable  to  the  Saeima,  which has  the 
power to  dismiss  him by a  2/3  majority  of its  members  either  on political  grounds 
(Article  51  of the  Constitution)  or on  grounds  of criminal activity  (Article  54).  He 
exercises the powers traditionally conferred on the Head of State. 

The  Government  is  accountable  to  the  Saeima.  The  President  of  the  Republic 
designates the Prime Minister, who appoints the ministers. The number of ministers is 
fixed  by  law  (12  at  present).  The  ministers  are  also  individually  accountable  to 
Parliament. 

Latvia has not introduced any intermediate levels of government.  The Government is 
therefore  obliged  to  negotiate  directly  with  each  local  authority  concerning  the 
contents of decisions which affect it. 

Latvia has  some 594 local authorities, which fall  into  one of tv1o  types:  districts  (26) 
and  municipalities,  the  latter  breaking  down  into  metropolitan  (7),  urban  (70)  and 
rural  municipalities  (491).  Each  local  authority  has  a  Council  elected  by  direct 
universal  suffrage.  The  role  of the  districts  is  to  coordinate  measures  taken  by  the 
municipalities  in the planning and management of local  public  services.  The  Saeima 
can  dissolve  the  elected  body  of  each  local  authority  and  the  minister  for  the 
environment  and  regional  development  can  introduce  legislation  overruling  any 
decisions of a local  authority which might be incompatible with the Constitution, the 
law or a Government decree. The right of appeal before the courts exists in such cases. 

Civil  service  regulations  have  been  in  force  since  1994.  Civil  servants'  salaries  are 
very low  and the attraction of salaries  in the private sector is  behind the  departure of 
some of the most able senior civil servants for positions in private industry. 

The army,  the secret services and the police are controlled by the civilian authorities. 
The army is still experiencing disciplinary problems and its morale remains relatively 
low.  The  secret  services  are  controlled  by  the  "Office  for  the  Protectipn  of  the 
Constitution", which coordinates the activities of all the services concerned. 

11 

Functjopjpg of the Executive 

The central institutions of the State operate smoothly. 

· number  of  issues  relating  to 

The local  authorities appear to  enjoy a reasonable measure of autonomy,  particularly 
in  financial  matters,  subsidies  granted  by central  government  being  negotiated  with 
each local  authority.  A major debate is  currently taking place in Latvia concerning a 
local  autonomy:  reduction  of  the  number  of 
municipalities  (more  than  400  of therri  ~ave less  than  2000  inhabitants),  method  of 
electing  the  re~onal councils,  redefinition,  of the  allocation  of resources  between 
central  and  local  government,  incorporation  of local  administrators  in  the  national 
civil service, control of local finance. 

Latvia has  launched a vigorous  programme  of civil  service  reform:  establishment  in 
1993  for a two-year period of a Ministry for Central Government Reform, preparation 
of  civil  service  regulations  and  a  programme  to  combat  corruption  in  1994, 
establishment the same year of a National Civil Service College. Despite these efforts, 
the  situation  remains  difficult  and  any  improvement  continues  to  require  a  major 
programme  of  training  and  the  establishment  of  institutions 
to  oversee  the 
implementation of civil  service reforms.  The present government has  made the  fight 
against corruption one of its priorities. 

The  secret  services  are  subject  to  control  by  Parliament  through  a  "Committee  on 
national security''. 

The Judiciary: Structure 

The separation of the Latvian judiciary from  the other powers appears  secure.  Judges 
are  appointed  by  the  Minister  of Justice  and  their  appointments  are  confirmed  by 
Parliament  after  two  years'  professional  practice.  From  then  on,  they  have  absolute 
security of office,  which  can  only be  called  into  question  if they  have  committed  a 
crime.  The judges at the  Supreme Court are  appointed by the  President of that body. 
Latvia has  no  specialised courts  but the  ordinary courts  all  have  lawyers  responsible 
for  handling  specific  types  of cases  (administrative,  civil,  criminal).  The judges  are 
not subject to  any pressure from the Government. 

The  Chief Prosecutor  is  elected  for  7  years  by  Parliament  on  the  proposal  of the 
President of the Supreme Court. He is totally independent of the Minister of Justice. 

The  compatibility  of  decrees  and  acts  of  the  President  of  the  Republic,  the 
Government  and  local  authorities  with the  Constitution and the  law  is  subject to  the 
judicial  review  of the  Constitutional  Court  while  in  other  cases  judicial  review  is 
exercised by the ordinary courts. 

The  role  traditionally  assigned  to  an  Ombudsman  is  among  the  many  functions 
fulfilled  by the National Human Rights  Office set up  in July  1995. · It is  responsible 
for handling complaints, including those concerning the private sector, proposing such 
amendments to  legislation or regulations as  it sees  fit  and informing the public about 

12 

human  rights.  More  particularly,  it  has  the  task  of overseeing  the  protection ·of the 
most  vulnerable  social  groups  (children,  the  handicapped  etc.)  and  may,  of its  own 
initiative,  conduct  any  investigation  it  regards  as  appropriate  in  the  field  of the 
protection  of human  rights.  It is  completely  independent  from  the  Government  and 
reports to the Saeima. 

The Constitutional Court, which was set up in June  1996, consists of 7 judges elected 
. for  10 years by an absolute majority of the members of the  Saeima (3  are nominated 
by  Parliament,  2  by  the  Government  and  2  by  the  Supreme  Court).  It verifies  the 
constitutionality  of primary  legislation,  treaties  and  secondary  legislation.  Matters 
may  be  referred  to  the  Constitutional  Court  by  the  President  of the  Republic,  the 
Government,  1/3 of the memhers of the  Saeima, the Chief Prosecutor or even a local 
authority. However, the courts and the citizen may not apply to it directly. 

Functioning of the Judiciary 

Considerable  improvements  are  needed  in  the  workings  of the  judicial  apparatus  in 
order to  reduce  the  time  taken to  judge cases.  The judicial  system  is  also  somewhat 
inefficient  as  regards  the  enforcement  of decisions  taken  by  the  courts.  'This  is 
attributable  either  to  the  lack  of appropriate  instruments  (bailiffs  do  not  exist  in 
Latvia)  or  to  lack  of authority  particularly  over  certain  public  bodies  (for  example 
occasional failure  of the body responsible for 'managing the naturalisation system - to 
implement decisions taken concerning it by the courts in this area). 

The  National  Human  Rights  Office  plays  an  essential  role  in  ensuring  respect  for 
fundamental  rights  in  Latvia.  It  enjoys  real  independence  from  the  other  public 
authorities  as  illustrated  for  example by  its  investigation  of the  differences  in  status 
between citizens and non-citizens in Latvia (December 1996). 

1.2  Human Rights and the Protection of Minorities 

Latvia  has  introduced  various  internal  rules  designed  to  ensure  respect  for  human 
rights  and minorities'  rights.  Such respect may  also  be guaranteed by the  application 
of  certain  international  conventions,  foremost  among  which  is  the  European 
Convention  for  the  Protection  of Human  Rights  and  its  main  additional  protocols. 
Under Article F of the TEU, observance of human rights forms part of the acquis:  any 
State wishing to join the European Union must first have ratified these texts. 

In  June  1997,  Latvia,  which  has  been  a  member  of the  Council  of Europe  since 
February 1995, ratified the European Convention for  the Protection of Human Rights 
and most of the  additional protocols (with the  exception of Protocol  No  6 on capital 
punishment).  It also  permits  individuals  to  take  their  case  to  the  European  Court  if 
they consider that their rights under this convention have been violated. 

13 

Among  the  other  main  conventions  protecting  human  rights  and  minority  rights, 
Latvia has  signed  but  not  ratified  the  framework  convention  on  minorities  and  the 
European Social Charter. It has not signed the convention on the prevention of torture 
but is now working in that dire~tion. By contrast, it has ratified the main human rights 
conventions concluded in the framework of the United Nations. 

Under Latvia's Law on intet:national treaties, these take precedence over the law once 
they have been ratified. 

Civil and Political Rights 

Access to the courts is unrestricted in Latvia. An act of April  1993  enshrines the right 
of every  individual  to  the  services  of a  lawyer  free-of-charge  at  all  stages  of the 
procedure. However, owing to a shortage of qualified lawyers, this is difficult to apply 
outside Riga. 

Although  still  not  abolished  in  Latvia,  capital  punishment  was  suspended  by  the 
President of the Republic in September 1996. 

The right not to be arbitrarily arrested appears secure.  Arrest warrants are now issued 
by a judge and,  since 1994, no  longer by the Public Prosecutor. No individual may be 
held  by  the  police  for  questioning  for  more  than  72  hours,  after  which  the  Public 
Prosecutor must  either prefer charges  or release  the  person  detained.  The  maximum 
period of remand is  18 months. 

Everyone aged 18 years or over has the right to vote. 

Freedom of association is guaranteed, as shown by the vitality of Latvia' s civil society 
(1700  non-governmental  organisations  in  1995,  2400  in  1996).  There  are  many 
associations devoted to protecting the rights and interests of non-nationals despite the 
fact that non-nationals may not form political parties. 

Freedom of assembly is established. 

Freedom  of  expression  is  well  established  in  Latvia  as  can  be  seen  from  the 
proliferation of the press and audio-visual media (2000 newspapers and magazines, 25 
radio  stations,  41  television  stations  including  two  national  public  stations  and  one 
private one).  Censorship  is  banned (1991  Act  for  the press,  1995  Act  for  the  audio 
visual media). The political parties enjoy unrestricted access to the media. 

The  right  of ownership  is  guaranteed  in  Latvia  except  for  non-nationals.  Properly 
registered  foreigners  have  the  right  to  acquire  land  if the  States  of which  they  are 
nationals have concluded agreements on the mutual protection of investments.  Latvia 
has introduced arrangements for the return to  the former owners of property of which 
they had been dispossessed by the  Communist regime.  More than 70%  of claims  for 
the  return  of property  have  now  been  processed.  Latvia  is  moreover  engaged  in  a 
review of its land register, which should be completed by 2005. 

14 

Respect  for  privacy  is  ensured  by  the  need  to  obtain  a  warrant  from  the  judicial 
authorities before property can be searched or postal or telephone communications can 
be monitored. 

The position of asylum-seekers  should improve with the forthcoming  adoption of an 
act  governing  the  status  of such  people  in  Latvia.  It should  afford  asylum-seek~rs 
greater  access  to  justice  t~an they  enjoy  at  present  and  prevent  a  repeat  of the 
·  conditions  which  existed  at  the  Olaine  accommodation centre until  December  1996. 
This  new  act  should  also  enable  Latvia  shortly  to  ratify  the  Geneya  Convention  of 
1951. 

A  number  of cases  of inhuman  and  degrading  treatment  have  been  recorded  in  the 
prisons, the army and the asylum-seekers'  accommodation centres (see above).  In the 
prisons,  adolescents  are  not  always  kept  separate  from  adults  and  are  held  in poor 
sanitary  conditions.  The  opening  in  1996  of  Latvia's  first  detention  centres 
specifically intended for adolescents may mark the beginning of an improvement. 

Economic, Social and Cultural Rights 

All inhabitants of Latvia, whether they have Latvian nationality or not, have the right 
to the minimum means of subsistence. 

The right to  social security is also recognised. 

Freedom  to  belong  to  a  trade  union  is  guaranteed  except  in  the  armed  forces. 
Pluralism is  demonstrated by the existence of 109 registered trade unions.  More than 
half of the country's employees are represented by two large federations.  Around 30% 
of wage-earners are members of a trade union in Latvia. 

The right to  strike is  recognised in the  private sector but does  not extend to  the civil 
service, the police, judges or members of the armed and security forces. 

Free access to education is available to all. 

Freedom of religion is  based on the  1995  Act  laying down  the  separation of Church 
and  State.  It  provides  that  only  registered  denominations  are  entitled  to  various 
benefits  and  rights.  So  far,  800  have  completed  the  registration  formalities  with  the 
Ministry of Justice.  Only the  Jehovah's  Witnesses  were  refused  registration because 
of the rules which the members of this religion follow in the field of health care. This 
decision has been attacked in the courts.  The investigation of the  1995  bomb outrage 
against the Riga synagogue has still not produced any significant results. 

Minority Rights and the Protection of Minorities 

In any  assessment of the situation of the minorities  in Latvia,  a distinction has  to  be 
made  between  rights  and  safeguards  connected  with  membership  of an  ethnic  and 

15 

cultural  community  regardless  of the  nationality  held  and  differences  in  personal 
status arising from non-possession ofLatvian nationality. 

In  Latvia,  minorities,  including  non-citizens,  account  for  nearly  44%  of  the 
population, including 30% Russians, 4% Belarusians and 3% Ukrainians. Latvians are 
a  minority  in  7  of the  country's  8  largest  towns.  Within  that  44%,  28%  of the 
population,  i.e.  some  685 090 people,  do  not  have  Latvian  citizenship  and  a  large 
proportion  of  that  group,  consisting  of  former  citizens  of  the  USSR,  have  no 
citizenship  at  all.  The  present  situation  is  largely  attributable  to  the  Soviet  Union's 
post-1945  policy  of encouraging  the  settlement  of Russian-speakers  (1935  census: 
75.5%  Latvians  and  12% Russians;  1959:  62%  Latvians  and  26.6%  Russians;  1979: 
53.7% Latvians and 32.8% Russians). 

· 

The Act of August  1994 laid down various  conditions  for  the  acquisition of Latvian 
citizenship: 

1. The right to  apply for naturalisation is governed by a criterion of age.  More 
precisely, the population is divided up into various age brackets, each of which 
is entitled to  apply during a specific year, applications from persons in the last 
of these brackets only being accepted in 2003. 

2. The acquisition 'of citizenship depends on passing an examination where the 
applicant must demonstrate  his/her knowledge  of the  Latvian  language  and  a 
certain  knowledge  of  the.  country's  history,  its  national  anthem  and  its 
institutions. 

So  far,  this  system  has  not  served  to  grant  Latvian  nationality  to  very  many 
people,  a  fact  which  suggests  that  a  large  proportion  of  the  country's 
population may remain  foreigners  for  a long time  to  come.  Since  the  start of 
the  naturalisation  procedure  in  February  1995,  around  4700  people  have 
acquired Latvian nationality. (Aprill997): 

In  1995-1996,  some  93  000  people  could  have  applied  for  it  under  the  age-brackets 
arrangement.  7170 did so  during those two  years.  The National Human Rights Office 
has been instructed to carry out an inquiry into the reasons for this phenomenon. 

This situation may be attributable to  a variety of factors.  The relative difficulty of the 
tests may be one of the reasons and the Latvian authorities have already taken steps to 
lower the level  of knowledge required.  This  factor could well  explain the  difficulties 
encountered  particularly  by  the  elderly.  However,  Latvia  has  introduced  language 
training programmes  for  Russian-speakers  to  help  them  prepare  for  the  examination. 
The Phare programme has been providing support for these activities since 1996. 

The system of age brackets, initially devised as a way of preventing the administration 
from  being  overwhelmed  by  a  flood  of applications,  has  had  an  inhibiting  effect. 
Given  this  "shortage"  of applications  for  naturalisation,  such  a  system  no  longer 
appears warranted. Furthermore, tl;le examination enrolment fees  are ~till high. 

16 

In  some  cases,  non-possession  of  Latvian  citizenship  may  have  appeared  as  an 
advantage,  which  may  also  help  to  explain  the  low  number  of  naturalisation 
applications:  no  military  service  obligation,  ease  of travel  to  the  countries  of the 
. former USSR thanks to the old Soviet passport etc. 

Faced  with  this  situation,  the  present  government  has  undertaken  to  increase  the 
number of naturalisations in_ the years to  come  so  as  to  reduce  the foreign portion of 
the Latvian population but without changing the existing law on citizenship. 

The  Latvian  authorities  must  consider ways  to  make  it  easier  for  stateless  children 
born in Latvia to become naturalised, so that the European Convention on Nationality 
concluded by the Council of Europe can be applied as soon as possible. 

( 

As  regards the position of "non-citizens", the  1995  Act conferred  a clearer status  on 
stateless  people,  and  the_ issue  of  special  passports  to  them,  which  should  be 
completed  by  the  end  of  1997,  already  represents  a  considerable  step  forward, 
particularly from the point of view of their freedom of movement. 

to  be  affected  by  various 

Nonetheless,  "non-citizens"  continue 
types  of 
discrimination.  They  are  barred  from  certain  occupations.  While  some  of these  bars 
are  not  unusual  (for  example  in  the  case  of civil  service  posts  where  duties  have  a 
bearing  on  national  sovereignty),  others  are  far 
less  comprehensible  (private 
detectives,  lawyers,  airline  crews,  fire-fighters,  pharmacists).  In its  above-mentioned 
study of December  1996,  the National Human Rights  Office  observes  that  10  of the 
differences  in  status  between  citizens  and  foreigners  are  contrary  to  the  Latvian 
Constitution  and  the  United  Nations  Convention  on  Civil  and  Political  Rights. 
However,  the  Latvian  Government  has  undertaken  to  abolish  these  instances  of 
discrimination and a first  legislative step  in this  direction was  taken at  the beginning 
of 1997. 

In  addition,  "non-citizens"  cannot  directly  acquire  ownership  of land  and  have  no 
right to  vote,  even in local elections, even though that would be a powerful factor for 
encouraging  integration.  Lastly,  some  of  their  fundamental  rights  are  less  well 
protected;  they  are,  for  example,  excluded  from  the  scope  of the  1995  amnesty  law. 
These differences will have to be reduced, particularly while the foreign portion of the 
population of Latvia remains so large. 

As regards the more general situation of the Russian-speaking minority (regardless of 
whether  they  possess  Latvian  citizenship  or  not),  their  rights  are  respected  and 
protected  even  if some  problems  still  have  to  be  resolved.  Moreover,  there  are  no 
major problems in relations between the Latvians and the Russian minority. 

The minorities have no  special parliamentary representation. However, a Consultative 
Council  of the  Nationalities  set  up  in  July  .1996  brings  together  representatives  of 
11  ethnic  minorities  and  is  responsible  for  monitoring  the  situation  and  proposing 
necessary  reforms.  On  the  cultural  level,  the  Association  of  National  Cultural 
Societies,  which  spans  some  twenty  organisations,  strives  to  promote  tolerance  and 
good relations between the various communities. 

17 

As  regards  the  use  of' national  languages,  this  is  permitted  in  the  courts  if all  the 
parties  agree.  Otherwise,  the  party  concerned  is  entitled  to  the  services  of  an 
interpreter.  However,  some  obstacles  exist  for  those  who  have  no  command  of 
Latvian:  need to know Latvian to  receive unemployment benefit, obligation to  pass a 
high-level language test to be able to stand for election. 

In the education field,  Latvia has two  parallel education systems,  one in Latvian and 
· one  in  Russian,  both  financed  by  the  State.  Eight  other  minorities  have  state-aided 
schools  in  their  national  language.  The  1995  amendment  of . the  Education  Act 
introduced  the  obligation  for  schools  to  increase  the  number  of lessons  taught  in 
Latvian. However, its implementation is being hampered by the lack of teaching staff 
with  the  qualifications  necessary  to  give  such  courses  in  schools  serving  the 
minorities.  In higher education,  students have  to  pass  a test  in  Latvian before  being 
admitted. Ho:wever,  a number of private establishments provide high-quality teaching 
in Russian. 

In this  area,  the  main  criticism  concerns  the  fact  that  Latvia has  not  yet  introduced 
legislation on education for the minorities which would provide a solid framework for 
approaching  this  matter  and  planning  for  the  medium  term.  This  sort  of situation 
provokes  some  fears  amongst  the  minorities  concerning  the  permailence  of  the 
measures  currently  taken  by  the  public  authorities  to  promote  their  educational 
establishments. 

1.3  General Evaluation 

Latvia's political  institutions  function  properly  and  in  conditions  of stability.  They 
respect the  limits  on their competences  and  cooperate with each  other.  Elections  in 
1992  and  1995  were  free  and  fair,  and  in  each  case  permitted  the  establishment of 
coalition  governments.  The  Opposition plays  a  normal  part  in the  operation  of the 
institutions.  Efforts  to  improve the  operation of the judicial system and to  intensify 
the fight against corruption need to be sustained. 

There are no major problems over respect for fundamental rights.  But Latvia needs to 
take measures  to  accelerate naturalisation procedures  to  enable  the  Russian-speaking 
non-citizens to become better integrated into Latvian society.  It should also pursue its 
efforts  to  ensure  general  equality  of treatment  for  non-citizens  and  minorities,  in 
particular for access to professions and participation in the democratic process. 

With  the  reservation  that  steps  need  to  be  taken  to  enable  the  Russian-speaking 
the 
minority  to  become  better  integrated  into  society,  Latvia  demonstrates 
·characteristics  of a  democracy,  with  stable  institutions  guaranteeing  the  rule  of law 
and human rights. 

18 

2. 

Economic Criteria 

In  examining  the  economic  situation  and  prospects  of Latvia,  the  Commission's 
approach  is  guided  in  particular  by  the  conclusions  of the  European  Council  in 
Copenhagen in June  1993, which stated that membership  of the Union requires  "the 
existence  of a  functioning  market  economy,  as  well  as  the  capacity  to  cope  with 
competitive pressure and market forces within the Union". 

This chapter of the Opinion therefore gives a concise survey of the economic situation 
and background,  followed by a review of Latvia' s progress in key areas  of economic 
transformation  (liberalisation.  of  the  price  and  trade  system,  stabilisation  of  the 
economy, structural change, reform of the financial sector) as well as its economic and 
social development. It concludes with a general evaluation of Latvia in relation to  the 
criteria mentioned by the  European Council  and  a review  of prospects  and  priorities 
for further reform. 

· 

2.1  The Economic Situation 

Background 

Latvia,  with  a  population  of 2.5  million,  has  a  gross  domestic  product  (GDP)  of 
ECU 8 billion (expressed in purchasing power parity); its population is  about 0.7% of 
that of the Union,  while its  economy is  only about 0.1 %.  GDP  per head is  about  18% 
of the  Union  average.  The  average  monthly  wage  is  about  ECU 170  (November 
1996). 

Latvia has applied for membership of the WTO and expects to  accede during 1997. 

Progress in Economic Transformation 

In the inter-war period,  Latvia was  an independent state,  and highly integrated in the 
world economy.  In  1940,  the  country was  forcibly  annexed by the  Soviet Union and 
subsequently  central  planning  was  introduced.  Relatively  large  and  sophisticated 
industries  were  established  in  Latvia,  because  of its  comparatively  well-developed 
infrastructure.  Latvia became totally dependent  on the  Soviet Union,  both for  inputs 
and for selling finished products. As the economy was relatively efficient, Latvia was 
the richest republic of the former Soviet Union.  However,  as  in the rest of the  Soviet 
Union, economic growth declined steadily over the years. 

Although Latvia undertook some economic reforms  during  the perestroika  era under 
Soviet rule, the fact that it regained independence only in 1991  has delayed the start of 
reforms. The country has had to  face the difficult task of rebuilding a market economy 
and,  at  the  same  time,  re-establishing  the  institutions  of an  independent  state.  The 
speed  of reforms  has  not  been  equal  in  all  areas:  while  price  liberalisation  and  the 
building  of a  new  tax  system  had  started  before  independence,  and  while  foreign 
trade,  wages  and  interest rates  were  liberalised  immediately  afterwards,  privatisation 
advanced much more slowly, particularly in industry.  In  1995,  the country suffered a 

19 

severe banking crisis, which had knock-on effects on the budget. Although this dented 
the recovery in output, Latvia's inflation record has remained relatively good and GDP 
has started expanding again. 

Until  the  late  1980s,  Latvia  was  a  pure  command  economy,  without  a  significant 
private  sector.  Small-scale  privatisation,  and  privatisation  in. the  agricultural  sector, 
are now almost complete,  b1:1t  progress  with  the  sale of the  big industrial  enterprises 
has been slow.  The share of the private  sector in  GDP  had  increased to  50%  in  1995 
while in employment it had risen to 62%. 

Foreign Direct Investment 

Since independence, foreign direct investment (FDI) has been relatively limited. It did 
improve  in  1994,  when  net  inflows  were  equal  to  4.2%  of GDP,  the  second-highest 
ratio  of all  associated  countries  in  transition.  As  a  percentage  of GDP,  FDI  was 
slightly lower in 1995  and again in  1996, but the amounts in ecus increased. Between 
1989  and  1996,  FDI  totalled  ECU 467  million  (source:  EBRD).  Investment  came 
mainly  from  Denmark,  Russia,  the  USA,  Germany,  the  UK  and  Sweden,  and  was 
almost completely concentrated in  the  services  sector (transport and  communication, 
banking). 

Economic Structure 

Agriculture remains  relatively  important with  a  9.9%  share  in  gross  value  added  in 
1995  and  an  employment  ~hare of 18.5%.  The  sector plays  a role  as  an  employment 
buffer.  As  a result of privatisation and  restructuring,. the  agricultural  sector is  largely 
made  up  of  widely  dispersed  individual  farms  with  little  equipment  and  low 
productivity. Efficiency gains in food processing are limited by the lack of capital and 
management skills in both farms and enterprises. Nearly half of the agricultural land is 
occupied by family  farms  with an  average  size of 20  hectare.  About one third  of the 
land  consists  of much  smaller  plots  and  is  used  for  part-time  farming  for  own 
consumption.  Government  support  to  the  sector  has  been  reduced  sharply  during 
transition.  The  lack  of budgetary  resources,  the  extension  of  free  trade  with  the 
neighbouring  Baltic  countries,  and  integration  in  the  WTO  will  further  expose  the 
sector to market forces and enforce restructuring. 

In  1996,  industry  as  a  whole  accounted  for  about  one  quarter  of  GDP,  and 
manufacturing  for  more  than  one  fifth.  Industry  has  not  only  shrunk  since 
independence,  but  its  composition  has  changed.  Currently,  the  only  areas  which  are 
growing are wood and pulp production, textiles and food processing. Under the Soviet 
regime  the  main  areas  were  machine  building,  electronics  and  light  industries.  The 
linkage  and  dependence  on  the  Soviet  Union  is  indicated  by  the  fact  that  prior  to 
independence,  every second motorcycle,  every  fifth  radio,  and  every  eighth  washing 
machine that were used in the  entire USSR were produced  in  Latvia.  The  large-scale 
enterprises  were  completely  integrated  with  the  Soviet  industry  and  depended  on 
cheap  supply- of  raw  materials  and  energy  from  other  republics.  After  the 
disintegration  of the  Soviet  Union,  Latvian  industry  lost  its  access  to  cheap  inputs 
because  Russia  started  to  charge  world  market  prices;  demand  for  Latvian  products 
plunged, so  output declined rapidly.  Recent indicators show that industrial  output has 

20 

started to  grow again from  the  low level  to  which it had fallen,  but overall growth is 
slow and the conversion process from producing finished products for Soviet markets 
to producing higher-quality products for western markets is still going on. 

Under  the  Soviet  regime,  services  such  as  tourism  and  financial  services  were 
typically  under-developed.  Consequently,  output in  the  services  sector declined  less 
than  in  agriculture  or  industry,  and  its  share  in  total  gross  value  added  increased 
rapidly from  32% in  1990 to  57% in  1995.  Now transport and communication is  the 
biggest services sector, and provides currently for the largest part of GDP  growth. 

Main indicators of economic structure 
(all data for 1996 unless otherwise indicated) 

Population 

GDP  per head 
as % of EU-15  average 

Share of agriculture in: 

gross value added 
employment 

million 

PPS-ecu (1995) 
per cent (1995) 

per cent (1995) 
per cent (1995) 

Gross foreign debt/GDP 

per cent 

Exports of goods and services/GDP 

per cent (1995) 

2.5 

3200 
18 

9.9 
18.5 

8 

47 

Stock of foreign direct investment 

ECU billion (1989-1996)  0.47 
ECUperhead 
167 

* FDI stock converted at end-1996 exchange rate,  I  ECU= $1.25299 
Source: Commission services, national sources, EBRD 

Liberalisation 

Price Re.gime 

Price liberalisation started in early  1991.  Goods and services with administered prices 
still represent about 20% in the basket of the consumer price index.  Prices for energy 
supply,  utilities, transport and rents  are  still administered and do  not cover full  costs. 
Although  cost  coverage  is  increasing,  full  coverage  is  only  envisaged  for  the  year 
2005.  This  gradual  adjustment  of administered  prices  will  continue  for  a  number  of 
years  and  will  contribute  to  inflation.  Regulatory  bodies  have  been  set  up  for  ~asic 
telecommunication  services  and  energy  prices  to  find  a  proper  balance  between 
producer and consumer interests. 

Trade Re.gime 

21 

After  independence,  Latvia  built  up  a  very  liberal  trade  regime.  Quantitative 
restrictions  and  export  tariffs  have  been  almost  completely  removed.  Import  tariffs 
range  from  1% or less for raw materials, inputs and products not produced in Latvia, 
to  20%  for  most  other  finished  goods,  However  agriculture  goods  continue  to  be 
highly protected,  with an average production-weighted tariff rate  of more than  50%. 
The vast majority of imports are subject to  free  trade agreements or have MFN  status. 
The government is committed to reducing the peak tariffs, but hesitates to do so in the 
face of the negotiations for WTO accession. 

Latvia  has  reached  free  trade  agreements  with  EFT A  countries,  has. applied  for 
membership  of the  WTO  (exp~cted in  19~7) and  is  considering  applying  for  CEFTA 
membership. It also has a number of other bi-lateral agreements. Since 1 April 1996, a 
free trade agreement with its Baltic neighbours, Estonia and Lithuania, is in force.  On 
1 January  1997,  this  agreement  was  extended  to  trade  in  agricultural  products.  The 
objective is to establish a full customs union at a later stage. 

Foreign Exchange Rt:gime 

The  introduction of the  new  national  currency,  the  lat,  was  done  in two  steps.  First, 
the Russian rouble was replaced by the Latvian rouble in 1992, which was allowed to 
float  freely.  When  the  Latvian  rouble  was  considered  strong  enough,  the  lat  was 
gradually introduced,  starting from  March  1993, becoming the sole legal tender from 
October 1993.  After a period of managed floating,  when it was allowed to  appreciate 
in nominal terms, it was pegged to  a basket of currencies (the IMF's  Special Drawing 
Rights basket) in February 1994. The regime was chosen to provide a nominal anchor 
which would facilitate business planning and bring aown inflation.  It has been fairly 
successful in achieving its objectives to date.  The currency is fully convertible. Latvia 
accepted the obligations of Article VIII  of the IMF  from  10 June  1994,  so  there are no 
exchange restrictions on current account transactions. 

Almost  all  restrictions  on capital  movements  have  been  abolished.  Since  December 
1996,  the  purchase  of rural  land  by  foreigners  is  less  restricted  (except  for  Latvia's 
"non-citizens").  A  similar  law  relating  to  urban  land  ownership  has  been  passed  in 
early 1997. Legal entities, registered in the State Enterprise Register, in which Latvian 
citizens  and  foreign  nationals  from  countries  with  which  Latvia  has  agreements  on 
mutual  protection  of investment  have  a  majority  stake,  are  now  free  to  buy  land  in 
Latvia. 

Stabilisation of the Economy 

Domestic 

The  first  three  years  of independence were  marked by a dramatic  output decline:  by 
the  end  of  1993  real  GDP  had  halved  compared  to  1990.  The  transition  from  a 
command  to  a  market  economy,  and,  even  more  importantly,  the  _end  of the  close 
input  and  output  relations  with  the  Soviet  Union,  provoked  a  crisis  in  industry  and 
agriculture. The decline seemed to  have ended in 1994, but the incipient recovery was 

22 

interrupted in 1995. Largely due to the uncertainties related to the banking and budget 
crises, real GDP  in 1995  declined by 1.6%.  GDP  growth turned positive again in  1996, 
when it is estimated to have been 2.8%. It can be expected to accelerate further in the 
coming years, if investment increases and the required restructuring takes place. 

Rapid price liberalisation and loose monetary policy pushed up the inflation rate high 
into  the  three  digit  range  in  1992.  As  monetary  policy  was  tightened,  inflation  fell 
sharply in  1993  to  around 35%,  and  declined  gradually afterwards  reaching  8.8% in 
April  1997.  Inflation  is  likely  to  remain  in  high  single  digits  for  some  time  as 
administered prices are adjusted to cover costs fully. 

Unemployment increased sharply after the start of the reforms, and it has only slightly 
decreased  since  1994.  As  the  restructuring  of industrial  enterprises  continues,  a 
further increase in unemployment over the coming years cannot be excluded, but it is 
more likely that unemployment will be further reduced as a result of the growth of the 
services sector. 

Main economic trends 

1994 

1995 

1996 

Real GDP  growth rate 

per cent 

0.6· 

-1.6 

2.8 

Inflation rate 

annual average 
December 

per cent 
on  per cent 

Unemployment rate, end-year  per cent 

ILO 

35.9 
26.2 

-

25 
23.2 

18.9 

17.6 
13.2 

18.3 

General  government  budget 
balance 

per cent of GDP 

-4.4 

-3.4 

-1.8 

Current account balance 

per cent of GDP  5.5 

-0.4 

-9.8 

Debt/export ratio 

per cent 

19.9 

19.5 

18.6 

Foreign 

direct 

investment  per cent of GDP  4.2 

3.9 

3.6 

Source: Commission services, national sources, EBRD 

After  a  period  with  marked  fluctuations  between  defic~ts  and  surpluses,  the 
government budget has been in deficit since  1994. The deficit ran up to  3.4% of GDP 
in  1995,  significantly  higher  than  originally  planned.  It  was  because  of low  tax 
revenue,  as  a  result  of negative  economic  growth,  widespread  tax  evasion,  growing 
tax  arrears  and  poor  tax  administration,  and  because  the  low  revenue  was  not 
sufficiently  offset  by expenditure  cuts.  The  financing  of the  deficit was  made  more 
difficult and costly by the banking crisis as the market for Treasury bills collapsed and 
interest rates rose.  The problem was only in central government, as the social security 

23 

fund,  local  government,  and  other  extra-budgetary  funds  were  all  in  surplus.  The 
government  has  since  successfully  tackled  the  problem  by  cutting  expenditure  and 
improving tax  collection;  the  1996  budget  deficit only reached  1.8%  of GDP,  and  in 
1997 the budget should be balanced. 

External 

In  1995,  for  the  first  time  since  the  start  of transition,  exports  rose  in  real  terms. 
Nevertheless, the foreign trade deficit increased further, since imports grew faster than 
exports.  The trade deficit in  1996 was very high,  at  18% of GDP.  This was,  however, 
largely offset by the positive balance on transit trade and services. 

Latvia has rapidly built up foreign exchange reserves, which by  1993  already covered 
4.5  months  of imports.  However,  the  speculation  against  the  currency  during  the 
banking  crisis,  and  increased  imports,  meant  the  import  coverage  dropped  during 
1995, after which it stabilised. At the end of 1996, foreign exchange reserves stood at 
358.5 million lats (ECU 514 million or 3.5 months of imports). The external debt ratio 
remains low and was less than 10% ofGDP in 1995. 

Structural Change 

Foreign  Trade 

After·regaining independence, export and import shares fell  back from  50% of GDP to 
around 30% and 48% respectively in  1996.  It also  led to  trade reorienting to  western 
markets to  a significant extent.  While trade relations outside the Soviet Union used to 
be  almost  non-existent,  in  1996  they  represented  over  50%  of exports  and  65%  of 
imports.  Although in  1996, Russia was  still  Latvia's main trading partner accounting 
for  23%  of exports,  the  importance of Germany  (14%),  the  United Kingdom  (11 %), 
and Sweden (7%) had increased significantly. The total EU share of exports was 44%. 

The  composition  of trade  also  underwent  dramatic  changes.  Before  the  start  of 
transition,  machinery  and  equipment  was  the  most  important  export  category, 
representing  around 28% of total  exports.  By  1996  its  share had  fallen  to  only  14%. 
Similarly,  the  share  of food  products  declined  from  around  22%  to  12.5%.  On  the 
other hand, the share of wood and wood products increased from some 3% to  as much 
as  24.2%,  and  is  now  the  most  important  export  category.  These  remarkable  shifts 
illustrate  that  Latvia has  competitive  advantage  in  generally  low-value-added  areas. 
Its post-war industries have not been able to penetrate western markets. On the import 
side, the shares of textiles  and machinery and  equipment were  approximately halved, 
while  mineral  products  gained  importance  and  became  the  biggest  import  category. 
Latvia is  heavily reliant  on energy  imports.  As  the  product  categories  that  represent 
the highest  shares  in exports  (wood  and wood products,  textiles,  and  food  products) 
have also  experienced the fastest  export growth,  export commodity concentration has 
increased, making the economy more vulnerable to  external shocks .. Consumer goods 
account for  a relatively high share of imports  (22%)  given the  level  of development, 
which suggests that the quality of locally produced goods is inferior. 

24 

Labour Market 

Registered  unemployment  has  stabilised  at  between  6  and  7%~  of  the  active 
population.  These figures  do  not adequately capture the extent of unemployment:  the 
labour  force  survey carried  out in  1995  indicated  that  19%  of the  active  population 
were looking  for work and ILO  figures  suggest unemployment rates  of around  18%. 
The  proportion  of long-te~ unemployed  has  increased  rapidly  and  now  represents 
more than 50% of all unemployed. 

The  minimum  wage  in  1996  was  set  at  38  lats  per  month.  At  50%  of thy  average 
wage,  it  is  quite  high  and  suggests  that  the  wage  distribution  is.  compressed  at  the 
lower levels. A proposal to increase the minimum wage to 50 lats is foreseen. 

Public Finances 

Latvia had to  replace the Soviet government revenue system,  which mainly consisted 
of levies on enterprise turnover, by a tax  system suited for a market economy.  It also 
had  to  build  up  a  national  tax  administration.  In  its  initial  version,  the  new  revenue 
system  consisted  of a  personal  income  tax,  a  corporate  profits  tax,  a  payroll  tax  to 
finance  social  security  expenditures,  a  turnover  tax,  and  taxes  on  natural  resources, 
land  and  property.  In  1993,  excise  duties  w·ere  added  and  the  turnover  tax  was 
modified,  and  finally replaced by a value-added tax in May  1995.  A new tax  law has 
just been  adopted.  Tax  avoidance  is  widespread,  especially  in the  enterprise  sector, 
and revenue collection is still a serious problem. The tax burden on those who  do pay 
is  already  relatively  high,  so  the  only  realistic  option  for  increasing  revenue  is  to 
improve  administration  and  collection.  Improvements  in  this  area  have  been  made 
recently. 

The  structure  of government  expenditure  has  changed  considerably.  Price  subsidies 
were  virtually  eliminated,  but  tlie  cost  of general  government  administration  and 
defence  increased  after  independence.  Expenditures  are  dominated  by  wages  and 
transfer  payments,  mainly  pensions.  Together,  these  categories  represent  about  two 
thirds of total  expenditure.  Interest expenditure and public  investment remain low by 
international  comparison.  To  ensure  the  sustainability  of the  pension  system,  the 
pension age  has  been  increased,  and  a  gradual  transformation  of the  current  pay-as 
you-go system to a funded system has been initiated. 

Public finances  are highly decentralised and rather inflexible,  specific tax  sources  are 
often earmarked for specific government sub-sectors. For example income tax accrues 
to  local  authorities  while  central  government  receives  VAT  revenue.  Since  the 
responsibility  for  macroeconomic policy rests .with  the  central  government,  which to 
date  has  received  the  most  volatile  revenue  sources,  fiscal  policy  is  severely 
handicapped. At the same time, pressure to reduce social expenditure is almost absent, 
since they are financed by constantly rising revenues from the payroll tax. 

The new  government which took office in December  1995  heralded  a new period of 
fiscal  discipline.  In  1996  the  budget  deficit  was  1.8%  of GDP.  The budget situation 
though  is  still  fragile  and  there is  only  limited  room  for  manoeuvre  on both revenue 
and expenditure. 

25 

Enterprise Sector: Privatisation and Enterprise Restructuring 

Until  recently,  large-scale  privatisation,  especially  of the  big  industrial  enterprises, 
had not advanced very fast in Latvia. Before 1994, there was no separate privatisation 
office,  and  the pennission to  privatise enterprises  was  only given  on a  case-by-case 
basis.  However,  the  new  government,  fonned  in  December  1995,  took  measures  to 
. accelerate  the  process~ The  piecemeal  approach  was  abandoned  and  all  assets  were 
transferred to the Latvian Privatisation Agency (LPA),  a semi-autonomous part of the 
Ministry  of  Economy,  in  February  1996.'  Foreigners  will  now  also  be  able  to 
participate  fully  in  the  privatisation process.  The  preferred  methods  of privatisation 
will remain international tend~rs and public offerings, but citizens will be able to  use 
vouchers  distributed  free  of  charge  for  part-payment.  VirtUally  all  remaining 
enterprises  can  now  be  privatised,  including  the  large  shipping  company  and  the 
energy utilities. The objective is to complete privatisation by mid 1998. It is expected 
that the number of companies for which there are no buyers will increase towards the 
end of the privatisation process. The main reasons  are the poor financial condition of 
some of the  firms,  the  dragging  out of the  denationalisation  and  property  restitution 
process  and  the  lack  of strategic  investors.  The  good  ratings  recently  awarded  to 
Latvia by international credit rating agencies could help to increase foreign interest. 

The  privatisation  of  th~  energy  utilities  should  end  the  influence  of  political 
consideratio~s on  the  pricing  and  supply  of energy,  and  thus  hopefully  reduce  the 
important  payment  arrears  in  this  sector.  In  February  1997,  the  World  Bank  made 
available  loans  to  resolve the  debt problems  of the  Latvian energy supplier.  In April 
1997,  the  LPA  reached  agreement with Russian  Gazprom  and  a German  consortium, 
which  will  take  a  stake  of 32.5%  in  Latvian  Gas.  This  constitutes  a  foreign  direct 
investment of ECU 48 million. 

The  recent  changes  to  the  privatisation  procedures,  and  the  approval  of recently 
submitted  new  legislation  to  eliminate  almost  all  limitations  on  foreign  land 
ownership,  will probably increase  foreign  interest.  The  method  of open,  direct  sales, 
combined with an important role  for  foreign investors, will promote  faster  enterprise 
restructuring:  it  should  lead  to  relatively  concentrated  ownership  and  injections  of 
new  capital.  The  introduction  of a  new  insolvency  and  bankruptcy  regulation  in 
September 1996 can also be expected to  enhance restructuring,. provided the new  law 
is  implemented  efficiently.  However,  bank  lending  is  still  a problem.  Banks  cannot 
easily provide  long-te~ loans  because  of the  lack  of business  plans,  the  absence  of 
credit  histories,  difficulties  in  providing  collateral  due  to  the  infancy  of the  land 
market,  and the  lack of a mortgage system.  This will  continue to  hinder restructuring 
for some time. 

Financial Sector 

The authority responsible for monetary policy is the Bank of Latvia (BoL ), which was 
created  in July  1990.  The commercial banking operations of the  BoL were  separated 
from  its  central  bank  functions  in  May  1992.  The  Bank  has  a  large  degree  of 
independence,  and  is  responsible  for  monetary  and  exchange  rate  policy,  as  well  as 

26 

banking regulation and supervision.  The use of direct instruments of monetary policy 
- quantity limits on the amounts banks could lend and borrow - had ended by 1993. A 
standard  range  of indirect  instruments  are  used  but  they  are  not  yet  fully  effective, 
mainly  because  the  money  market  is  still  very  thin.  Interest  rates  have  been  fully 
liberalised.  The Bank extended credits to  the  government to  cover the budget deficit 
during 1995. 

· As a consequence of the higli commercial credit risk, due to a lack of proper collateral 
and the infancy of bankruptcy legislation,  lending rates remain very high.  As interest 
rates  on deposits  are  considerably  lower and  bad  loans  inherited  from  the  past  still 
exist,  the spread between deposit and lending rates  is between  10  and  15  percentage 
points,  which  distinctly  hampers  the  intennediation  role  of the  banking  sector  to 
support domestic investment. Interest rates are set to come down:  since the beginning 
of 1996  the  BoL  reduced  the  refinancing  rate  from  24%  to  4%  (April,  1997)  as 
inflation and Treasury bill rates have fallen.  The fall  in these rates should force banks 
to operate more efficiently and increase their lending activity in order to make profits. 
This in turn should help reduce interest rate spreads. 

At the  outset,  in  1992,  Latvia had  three  state-owned banks  that  accounted  for  about 
90% of total assets and credits. Additionally, due to the liberal banking legislation, an 
important  number  of small  banks  were  set  up,  some  with  foreign  (mainly  Russian) 
capital.  The capital of the state-owned banks has been strengthened by the  state,  and 
they  are now being prepared for  privatisatio~.  75%  of the· banking  sector is  now in 
private hands of which 40% is accounted for by foreign ownership.  ·  ~ 

In  1994 and  1995,  a  large number of banks became insolvent. 'This  escalated  into  a 
major banking crisis when the  largest commercial bank collapsed in April  1995.  The 
crisis  began  as  a  result  of inexperienced  bank  management,  excessive  influence  of 
large customers who were also bank shareholders, fraud in some banks, and too many 
new and undercapitalised banks. It escalated because of a lack of confidence in banks, 
and  hesitant  intervention  by  the  supervisory  authorities.  To  prevent  a  repeat  of the 
crisis,  new legislation has  been approved  to  decrease  the  default  risk in the  banking 
sector.  The new rules provide for limits on high-risk credits, increases  in the required 
bank capital, prevention of excessive credit concentration,  and a strengthening of the 
supervisory capacity of the BoL.  As  a consequence of the banking crisis,  the  lack of 
deposit insurance,  and the tighter supervision, the number of banks was reduced from 
67 in  1992 to  33  by February  1997.  Only  16  "core" banks are  still  allowed to  accept 
household  deposits.  The  profitability  of the  16  core  banks,  which  represent  half of 
total assets, has improved considerably, but remains low.  Most banks restrict business 
to "basic" services.  Despite the progress since the crisis in  1995,  the banking system 
as a whole remains fragile due mainly to weak portfolios, low profitability, and under 
capitalisation. 

A  number of factors  suggest that bank lending to  the  economy would  increase.  Such 
factors  are  the  stabilisation  of treasury  bills  rates  and  the  lowering  of m;rket  rates, 
improved liquidity of banks,  availability of international credit lines  to  big banks and 
the  increase  in  the  activity  on  the  interbank  market.  At  present,  about  two  thirds  of 
loans granted to the private sector have a maturity of less than one year. 

27 

Major  steps  have  been  taken  to  create  an  organised  securities  market,  including  the 
adoption of a legal framework for the securities market, the Riga stock exchange and 
the  central  depository.  The  stock  exchange  started  operating  in  July  1995.  Trading 
remained limited at first, but more recently started to pick up. 

Economic and Social Development 

Social Indicators 

Latvia has a population of 2.5. million people. Population growth has turned negative 
due  to  emigration and  a decline  in the  birth rate.  In  1994,  the  size  of the population 
decreased by 1.5%. 

The  education  level  is  fairly  good:  61%  of the  employed  received  higher  secondary 
education  and  8%  are  receiving  training.  Secondary  education  has  concentrated  on 
vocational and technical specialisations. 

Regional and Sectoral D{f!erences 

in  terms  of  industrial  concentration  and 
Regional  differences  exist  notably 
unemployment.  The lowest unemployment is  found  in the city of Riga, where 40% of 
the population lives and where unemployment is  less than 4%.  In other towns, where 
employment  was  often  dependent  on  a  single  enterprise 
that  was  closed, 
unemployment is  much higher.  The rural parts of the country are  sparsely populated 
and have a weakly developed infrastructure and production structure. 

2.2  The Economy in the· Perspective of Membership 

Introduction 

The  European  Council  in  Copenhagen  in  1993  defined  the  conditions  that  the 
associated countries  in central  and  eastern  Europe  need  to  satisfy  for  accession.  The 
economic criteria are: 

• 

the existence of a functioning market economy; 

• 

the capacity to cope with competitive pressure and market forces within the Union. 

These criteria are linked.  Firstly,  a functioning market economy will be better able to 
cope with competitive pressure.  Secondly, in the context of membership of the Union, 
the  functioning  market  is  the  internal  market.  Without  integration  into  the  internal 
market,  EU membership would lose its economic meaning, both for Latvia and  for  its 
partners. 

The  adoption  of the  acquis,  and  in particular the  internal  market  acquis,  is  therefore 
essential  for  a  candidate  country,  which  must  commit  itself  penuanently  to  the 

28 

economic  obligations  of membership.  This  irreversible  commitment  is  needed  to 
provide the certainty that every part of the enlarged EU market will continue to operate 
by common rules. 

The capacity to  take  on the  acquis  has  several  dimensions.  On the  one hand,  Latvia 
needs to be capable of taking on the economic obligations of membership,  in such a 
way that the single market functions  smoothly and fairly.  On the other hand, Latvia's 
capacity to benefit fully froni the competitive pressures of the internal market requires 
that  the  underlying  economic  environment  be  favourable,  and  that  the  Latvian 
economy  have  flexibility  and  a  sufficient  level  of  human  and  physical  capital, 
especially  infrastructure.  In  their  absence,  competitive  pressures  are  likely  to  be 
considered  too  intense  by  some  sections  of society,  and  there  will  be  a  call  for 
protective measures, which, if implemented, would undermine the single market. 

The  capacity  and  determination  of a  candidate  country  to  adopt  and  implement  the 
acquis will be crucial, since the costs and benefits of doing so may be unevenly spread 
across  time,  industries  and  social  groups.  The  existence of a broad  based  consensus 
about the nature  of the changes  to  economic policy which membership  of the Union 
requires, and a sustained record of implementation of economic reforms in the face of 
interest  group  pressure  reduce  the  risk  that  a  country  will  be  unable  to  ma~ntain its 
commitment to the economic obligations of membership. 

At  the  level  of  the  public  authorities,  Membership  of  the  Union  requires  the 
administrative  and  legal  capacity  to  transpose  and  implement  the  wide  range  of 
technical  legislation needed to  remove obstacles  to  freedom  of movement within the 
Union and so  ensure the working of the single market.  These as.pects  are examined in 
later chapters.  At the level of individual firms,  the impact on their competitiveness of 
adopting  the  acquis  depends  on  their  capacity  to  adapt  to  the  new  economic 
environment. 

The Existence of a Functioning Market Economy 

The existence of a market economy requires equilibrium between supply and demand 
to  be  established  by  the  free  interplay  of  market  forces.  A  market  economy  is 
functioning  when  the  legal  system,  including  the  regulation  of property  rights,  is  in 
place  and  can be  enforced.  The  performance  of a market  economy  is  facilitated  and 
improved  by  the  macroeconomic  stability  and  a  degree  of  consensus  about  the 
essentials  of economic  policy.  A  well-developed  financial  sector  and  an  absence  of 
significant barriers to market entry and exit help improve the efficiency with which an 
. economy works. 

Latvia has  made  substantial  progress  in  establishing  a  functioning  market  economy. 
Prices  and  trade  have  been  liberalised  to  a  large  extent  and  private  property  has 
become the dominant form of ownership. However, market entry for new firms  is still 
made difficult by sometimes inconsistent legislation, red tape and arrangements which 
are  not  common  practice  in  EU  markets.  The  entry  of foreign  firn1s  can  meet  with 
opposition  from  local  firms.  Although  the  majority  of  sn1all  and  n1edium-sized 

29 

enterprises have now been sold,  the  privatisation process  started  slowly and  still has 
some way to go.  The new government plans to have completed the privatisation of the 
larger state-owned enterprises by mid-1998. 

The government has implemented legislation and set up  some of the institutions of a 
market  economy,  but  further  efforts  are  needed.  Competition  and  market  regulation 
and supervision are limited.  At the present time there is no effective regulatory body 
in  place  for  monopolies  buf a  competition  council  is  to  be  established  in  the  near 
future.  The situation can be expected to improve with the adoption of the new law on 
competition, which has been passed recently by the Latvian Parliament. Further rapid 
development of market mechanisms will certainly be aided if the recent privatisation 
programme  is  successfully  implemented;  if foreign  investment  continues  to  upgrade 
and modernise technology;  and if the plans for adopting and implementing legislation 
on  industrial  and  competition  policy  are  realised.  The  utilities  and,  in  particular, 
energy supply will require particular attention. 

The  government  has  developed  a  number  of strategies  to  increase  competition.  The 
key  elements  are  to  privatise  industry,  to  encourage  foreign  investment  and  to  give 
support to  small  and medium-sized  enterprises.  The  observance  of property rights  is 
improving but is not complete. Recent decisions on ownership of land,  in general and 
also  by foreigners,  should help  in  this  area.  Good progress  in implementation of the 
Europe  Agreement  should  help  to  ensure  that  the  transition  to  membership  of the 
Union is relatively smooth. 

Significant  progress  has  been  made  in  stabilising  the  economy:  inflation  has  been 
brought  down,  the  economic  decline  caused  by  Soviet  disintegration  and  the 
upheavals  of transition  was  halted,  and  the  economy  withstood  a  banking  crisis  in 
1995. The signs in 1996 were that the economy was back in a recovery,  albeit a slow 
one.  The stability of the macroeconomic environment is important to  the development 
of  the  market.  In  turn,  the  sustainability  of  growth  depends  on  how  well  the 
instruments of monetary and fiscal policy function and whether they are efficient. 

At present, the main handicap  for monetary policy is  the vulnerability of the banking 
sector and the problem of bank lending.  It has  so  far not been possible to  use interest 
rates effectively as  a policy instrument; hence the weight placed on the exchange rate 
instrument and  reserve requirements  as  a way  of controlling the  money  supply.  One 
crucial  objective  is  to  gain  credibility  in  policy-making.  This  requires  constancy  of 
decision making,  co-ordination of policies and a healthy dose of realism.  Despite the 
apparent  absence  of  some  of these  elements  during  the  banking  crisis,  the  BoL 
managed  to  maintain  the  currency's  stability  without  incurring  huge  costs  from  the 
loss of reserves. 

The  main  handicap  for  fiscal  policy  is  taxation:  the  tax  base  is  limited,  and  tax 
collection is  poor.  In addition,  flexibility  in the  central  government budget is  limited 
by the  fact  the  revenue  is  very  uncertain  and  variable  - income  tax  accrues  to  local 
authorities  while  central  government receives  VAT revenue.  The  ability  of the  public 
administration to develop and implement policy needs to be strengthened. 

30 

An  essential  feature  of a  modem  market  economy  is  the  financial  sector,  which  in 
Latvia is clearly  still  vulnerable  after the banking  crisis  in  1995.  As  a  result  of this 
crisis,  the  sector  has  strengthened  somewhat  and  rules  have  been~ toughened.  At 
present only a limited number of banks  are  allowed to  take deposits because there is 
no  deposit  insurance  scheme  operating.  These banks  generally  look  sound,  but they 
are  not  yet  entirely  fulfilling  their  role  as  financial  intermediaries; ·this  is  partly 
. because  of the  problem  of _bad  loans  on  their  books  and  the  lack  of collateral  or 

competent risk assessments. 

The Capacity to Cope with Competitive Pressure and Market ~otces 

It is  difficult,  some  years  ahead  of prospective  membership,  and  before  Latvia  has 
adopted  and  implemented  the  larger  part  of Community  law,  to  form  a  definitive 
judgement of the country's ability to fulfil this criterion. Nevertheless, it is possible to 
identify a number of features  of Latvia's development which provide some indication 
of its  probable  capacity to  cope with  competitive pressure  and  market  forces  within 
the Union. 

This  requires  a stable macroeconomic  framework  within which  individual  economic 
agents can make decisions in a climate of a reasonable degree of predictability. There 
must be a sufficient amount of human and physical capital including infrastructure to 
provide  the  background  so  that  individual  firms  have  the  ability  to  adapt  to  face 
increased competitive pressures in the single market.  Firms need to  invest to  improve 
their  efficiency,  so  that  they  can  both  compete  at  home  and  take  advantage  of 
economies  of scale  which  flow  from  access  to  the  single  market.  This  capacity  to 
adapt will be greater the more  fi~s have access to  investment finance,  the better the 
quality of their workforce, and the more successful they are at innovation. 

Moreover,  an  economy will  be better able  to  take  on the  obligations  of membership 
the  higher  the  degree  of economic  integration  it  achieves  with  the  Union  ahead  of 
accession.  The  more  integrated  a  country  already  is  with  the  Union,  the  less  the 
further  restructuring  implied  by  membership.  The  level  of economic  integration  is 
related  to  both  the  range  and  volume  of goods  traded  with  member  states.  Direct 
benefits  from  access  to  the  single market may  also  be  greater in  sectors  where  there 
are  a  sizeable  proportion of small  firms,  since  these  are  relatively  more  affected  by 
impediments to trade. 

Latvia is a relatively open economy.  With its exports, it competes primarily in the low 
value-added  segment  of the  world  market.  Much  of  the  competitiveness  of the 
economy,  and  its  ability to  export,  derives  from  the  low  level of wages.  Exports may 
also  still be benefiting from  the devaluation of the currency in  1992.  The openini up 
of  the  Latyian  economy  to  competition  has  underlined  the  need  for  a  further 
restructuring  of  industry  and  agriculture.  Enterprise  restructuring,  especially  in  . 
industry, is  far from finished.  Changes in the composition of external trade show that 
Latvia's light industry has not been able to  upgrade its products to be able to penetrate 
western  markets.  The  share  of consumer goods  in  imports  suggests  that  many  local 
products  are  considered  as  being  of inferior  quality.  So,  the  sector  can  produce  at 
competitive  prices  mainly  because  of  low  labour  costs,  but  its  products  do  not 
generally match western quality and design standards.  The announced acceleration of 

31 

privatisation,  with the possibilities  for  an  important  role  for  foreign  investors,  could 
remedy these problems and increase the pace of restructuring. 

The  de~e of trade  inte~tion and the nature  of trade  with the Union  suggests  that 
Latvia,  as  it  stands,  would  have  difficulties  in  coping  with  competitive  pressures 
within the single market.  The Union accounts  for  about half of Latvian imports  and 
somewhat less of its exports, but the imported and exported goods are not in the same 
categories:  Latvia's main imports are energy, investment goods and consumer goods; 
its  main exports  are wood products.  Latvian industry has  not succeeded in exporting 
other goods to  the West because of inadequate quality standards.  Russia remains  the 
single most important trade partner. One ofLatvia's main sources of revenue is transit 
trade, because of its position between Russia and the Baltic Sea. 1\t present, growth in 
the  Latvian  economy  depends  on the  fortunes  of wood  production  and  textiles.  An 
important  area  for  future  development,  given  the  capacity  and  position  of its  three 
harbours, could be transport and communication services. 

Further  enterprise  restructuring  is  crucial  if Latvia  is  to  be  able  to  adjust  to  the 
requirements of membership of the Union, and also to meet the acquis. The number of 
firms has increased since independence as  a result of enterprises being broken up  and 
by the creation of new firms,  but it  is  not  clear whether the  management techniques 
have changed. Firms do not have adequate access to  new investment,  as hank  lending 
is  weak.  This  is  due  to  the  lack  of collateral,  business  records  and  risk management 
skills.  Until. recently  foreign  involvement  was  restricted,  which  has  damped  foreign 
investment,  and  therefore  the  import  of technology,  and  business  know-how.  FDI 
flows  typically  constitute  an  efficient  way  to  transfer  technology  to  the  enterprise 
affected  as  well  as  to  the  rest  of the  economy  through  demonstration  and  spillover 
effects.  FDI  would  also  be  useful  in  helping  Latvian  industry  adapt  to  the 
requirements of the acquis. 

Investment  has  increased  and  the  vast  majority  of this  has  gone  to  transport  and 
communications.  The  banking  sector  has  also .received  a  significant  amount  of the 
total  spending  as  a 
investment.  Research  and  development  spending  is  low: 
percentage of GDP  amounted to  0.5%  of GDP  in  1995.  However,  this  figure  does  not 
capture  the  full  extent  of R&D  as  much  of it  is  embodied  in  capital  and  in  the 
imported investment goods. 

The banking  sector has  only recently begun to  develop  and  remains  weak  in  certain 
areas.  It does not as  yet provide sufficient lending to  firms  to  boost restructuring,  but 
there  is  a  noticeable  shift  away  from  trading  only  Treasury  paper  towards  more 
lending to  firms  operating in Latvia.  The importance of bad loans  decreases  with the 
increase in business volume. 

Prospects and Priorities 

Significant progress has been made in stabilising the economy.  Growth is picking up, 
inflation h.as  slowed  to  8.8%)  (April  1997),  interest rates  and  the  budget  deficit  have 
been reduced,  the  currency  is  stable  and  trade  has  been re-oriented  to  a  large  extent. 

32 

The  crisis  in  the  banki~g sector  set  back  economic  development  but  the  Bank  of 
Latvia managed  to  maintain  credibility  and  avoid  a  run  on  the  currency.  For  these 
reasons,  and  because  of the  country's  relatively  low  external  indebtedness,  the 
international credit rating agencies have awarded Latvia an·investment grade rating. 

However,  the  situation remains  fragile.  The  trade  deficit  is  high  and  rising,  and  the 
financial  sector is  still  weak.  Economic  reform  and  the  fiscal  stance  are  maintained 
·  through the discipline of an -IMP-supported programme.  In addition,  there is a certain 
lack  of  dynamism  in  the  economy.  The  main  problems  are  that  the  growth  is 
dependent  on  low-value-added  exports,  and  industrial  production  and  productivity 
gains are still slow because' of the lack of investment and restructuring to date. 

The productivity of the agricultural sector will have to be increased to be able to cope 
with  foreign  competition,  when the  trade protection for  the  sector is  reduced.  Given 
that  privatisation  is  almost  complete  and  budgetary  means  are  limited,  a  market 
driven restructuring seems· to be most appropriate. 

·Completing the institutional and legal framework of a market economy is an essential 
part of creating an environment in which private enterprises can  flourish.  Progress  is 
being made in establishing the necessary legislation, but the effective implementation 
of new and existing legislation is perhaps even more important. 

The  economic  policies  of Latvia  to  date  have  not  been  guided  by  an  elaborated 
medium-term  plan.  Short-term  policies . are  within  the  framework  of  an  IMF 
programme, which focuses on tightening fiscal policy, accelerating structural reforms, 
and  further  liberalising  foreign  trade.  Current  policies  are  focused  on  rationalising 
public  expenditure  and  reforming  the  revenue  side,  while  strengthening  the  banking 
system and accelerating the privatisation process. The areas where significant progress 
has  been  made  since  the  new  government  came  to  power  are  privatisation  and  the 
budget deficit. Policy initiatives to get the market mechanisms operating are just being 
devised  and  implemented:  e.g.,  export promotion,  and the  development of small  and 
medium-sized  enterprises.  The  timing  and  impact  of the  initiatives  is  not  entirely 
clear. 

2.3  General Evaluation 

Latvia  has  made  considerable  progress  in  the  creation  of a market  economy.  Trade 
and prices have largely been liberalized. Much headway has been made in stabilizing 
the economy.  While there has been significant progress in establishing the legislative 
framework,  effective  implementation  is  still  lagging  behind.  Also,  not  all  the 
necessary  regulatory  bodies  are  in  place  or  working  properly.  Privatization  is  not 
complete,  the  remaining  state-owned  companies  are  generally  in  poor  financial 
condition, and there is a shortage of strategic investors. 

Latvia would  face  serious  difficulties  to  cope  with  competitive  pressure  and  market 
forces within the Union in the medium term.  The Latvian economy is relatively open 
and labour costs are low. However, exports consists of mainly low value-added goods. 

33 

Industrial restructuring, as well as enterprise restructuring, is still needed. The banking 
sector is underdeveloped and weak in parts. Agriculture needs to be modernized. 

34 

3.  Ability to Assume the Obligations of Membership 

The European Council in Copenhagen included among the criteria for accession "the 
ability to  take on the  obligations of membership,  including adherence  to  the  aims  of 
political, economic and monetary union". 

In applying  for  membership_on  the  basis  of the  Treaty,  Latvia has  accepted  without 
reserve  the  basic  aims  of the  Union,  including  its  policies  and  instruments.  This 
chapter examines Latvia' s capacity to assume the obligations of membership - that is, 
the  legal  and  institutional  framework,  known  as  the  acquis,  by· means  of which  the 
Union puts into effect its objectives. 

With  the  development  of the  Union,  the  acquis  has  become  progressively  more 
onerous, and presents a greater challenge for future accessions than was the case in the 
past.  The ability of Latvia to  implement the  acquis  will  be central  to  its  capacity to 
function successfully within the Union. 

The following sections examine, for each main field of the Union's activity, the 
current and prospective situation of Latvia. The starting-point of the description and 
analysis is a brief summary of the acquis, with a mention of the provisions of the 
Europe Agreement and the White Paper, where they are relevant. Finally, for each 
field of activity there is a brief assessment ofLatvia's ability to assume the 
obligations of membership on a medium-term horizon. 

3.1 

Internal Market Without Frontiers 

Article 7a of the Treaty defines the Union's internal market as an area without internal 
frontiers  in  which  the  free  movement  of goods,  persons,  services  and  capital  is 
ensured.  This internal market, central to  the integration process, is based on an open 
market economy in which competition and economic and social cohesion must play a 
full part. 

Effective  implementation  of the  liberties  enshrined  in  the  Treaty  requires  not  only 
compliance  with  such  important  principles  as,  for  example,  non-discrimination  or 
mutual recognition of national regulations  - as  clarified by Court  of Justice rulings  -
but also concomitant, effective application of a series of common specific provisions. 
These are  designed,  in particular, to  provide safety, public health,  environmental and 
consumer protection, public confidence in the  services  sector,  appropriately qualified 
persons to practise certain specialist occupations and, where necessary, introduction or 
coordination  of regulatory  and  monitoring  mechanisms;  all  systematic  checks  and 
inspections necessary to  ensure correct application of the rules  are  carried out on the 
market, not at frontier crossings. 

It  is  important  to  incorporate  Community  legislation·  into  national  legislation 
effectively,  but  even  more  important  to  implement  it  properly  in  the  field,  via  the 
appropriate  administrative  and  judicial  structures  set  up  in  the  Member  States  and 

35 

respected by companies.  This is an essential precondition for creating the mutual trust 
indispensable for smooth operation of the internal market. 

This chapter must be read in conjunction with, inter alia, the chapters <?n  social policy, 
the environment, consumer protection and sectoral policies. 

The Four Freedoms 

A  step-by-step  approach  is  being  taken to  absorption  of the  acquis  by the  candidate 
countries: 

- The  Association  Agreement  between  i:he  Community,  its  Member  States  and 
Latvia was signed in 1995  and is being ratified.  With regard to the four freedoms  and 
approximation of legislation, the Agreement provides, in particular,  for  immediate or 
gradual application of a number of obligations, some of them reciprocal,  covering, in 
particular,  freedom  of  establishment,  national  treatment,  free  trade,  intellectual 
property and public procurement. 

- The Commission's 1995 White Paper (COM (95)  163  final),  guidelines intended to 
help  the  candidate  countries prepare  for  integration into  the  internal  market,  gives  a 
closer definition of the legislation concerned.  It identifies the "key measures" with a 
direct effect on the free movement of goods, services, capital and persons and outlines 
the  conditions  necessary  in order  to  operate  the  legislation,  including  the  legal  and 
organizational  structures.  Twenty-three  areas  of Community  activity  are  examined, 
dividing  the  measures  into  two  stages,  in  order  of  priority,  to  provide  a  work 
programme  for  the  pre-accession  phase.  The  Techn~cal Assistance  and  Information 
Exchange Office (T AIEX) was set up  with the objective of providing complementary 
and focused technical assistance in the areas of legislation covered in the White Paper. 
A legislative database has recently been established by the Office. 

- The candidate countries will have to implement all the acquis.  The Action plan for 
the single market submitted to  the Amsterdam European Council gives  details  of the 
priority measures necessary to make the single market work better between the Fifteen 
in  preparation  for  introduction  of the  single  currency.  This  will  inevitably  entail 
changes to the acquis. 

- General Framework 

Whatever their field  of activity,  undertakings must be able to  operate on the basis  of 
common rules.  These  are  important  since  they  shape  the  general  framework  within 
which  economies  operate  and,  hence,  the  general  conditions  of competition.  They 
include  the  rules  on  competition  (on  undertakings  and  State  aid)  and  tax  measures 
discussed  elsewhere  in  this  Opinion,  the  opening-up  of public  works,  supply  and 
service  contraGts,  harmonisation  of the  rules  on  intellectual  property  (including  the 
European  patent),  harmonisation  of the  rules  on  company  law  and  accountancy, 
protection  of personal  data,  transfer  of proceedings  and  recognition  of judgments 
(Article 220 EC Conventions). 

36 

Descriptive Summary 

As  regards  p~ procurement,  the  Latvian  law  on  government  and  municipal 
procurement. elaborated on the basis of the Uncitral (United Nations Commission on 
International Trade) Model Law,  entered into  force  on 1 January  1997. Implementing 
rules were adopted in March 1997. 

Moreover, Latvia intends to join the WTO Agreement on Government Procurement in 
the near future. 

Latvia has been undertaking efforts  to  adopt legislation on intellectual  and  industrial 
property rights.  It has acceded·to a number of international conventions. Latvia is also 
preparing  for  accession  to  the  World  Trade  Organisation  (WTO)/TRIPS  Agreement 
(Trade  Related  Aspects  of International  Property  Rights)  during  1997  and  aims  to 
accede to  other international conventions (Rome convention, Trademark Law Treaty, 
etc.)  in the  near future.  New  legislation concerning patents,  trademarks,  designs  and 
copyright has been introduced in 1993. 

As  regards  company  law,  Latvia's  legal  system  recognises  a  number  of different 
enterprises,  including public  and  private  limited  companies.  Over 52 000  companies 
are  registered  in the  private  sector.  Only public  limited  companies  can  issue  shares, 
and  there  is  a  basic  level  of shareholder  protection.  There  are  minimum  capital 
requirements  for  public  and  private  limited  companies.  There  are  a  number  of 
obligations  to  which  companies  are  subject  regarding  the  protection  of creditors. 
Companies are required to publicise information about major decisions affecting them 
such as  a reorganisation or liquidation,  and there is  a central register of companies to 
which the public has  the right  of access  upon  payment  of a duty.  At  present  the  law 
governing companies is  very fragmented.  A new Commercial Code is  being prepared 
which is  intended to be in place by December 1997. 

The  Law  on  Accounting  (1993)  and  the  Law  on  Company  Annual  Reports  (1993) 
provide  the  basic  framework  for  the  annual  accounts  of companies.  The  laws  were 
amended in November  1996.  Additional rules  and regulations,  as  well  as  accounting 
standards  exist.  There  is  a Law on  Sworn  Auditors  (1997).  The  Ministry  of Finance 
and  the  Board  of Accounting  Methodology  are  responsible  for  the  supervision  of 
auditors. 

Latvia has not yet passed a general law on the protection of personal data.  Some data 
protection  rules  are  laid  down  in  several  separate  laws  prohibiting  institutions  and 
officials  from  disclosing  information.  These  concern  the  police,  state  statistics, 
revenue  service,  postal  services,  auditors,  insurers,  attorneys,  telecommunication 
services, state control, doctors  and credit institutions.  This year an "umbrella" law on 
data protection for informatics will be passed, and in  1998  it is intended to  harmonize 
legislation with the EC data protection directive. 

37 

Current and Prospective Assessment 

Whilst  the  scope  of the  Public  and  Municipal  Procurement  Law  covers  most  of the 
contracting authorities within the meaning of the classic sectors directives, the utilities 
sectors remain, for the time being, outside the scope of the rules. 

At  present,  Latvian  firms  receive  preferential  treatment  as  regards  the  awarding  of 
public procurement contracts. Firms located in the EU will get equal access only after 
the expiry of the transitional period laid down in the Europe Agreement (31  December 
1999 at the latest). 

Furthermore,  the  rules  concerning  services. and  tendering  procedures  are  not  in  line 
with  the  EC  requirements.  Therefore,  it  appears  that  further  amendments  will  be 
needed  in order  to  comply with  all  the  requirements  of the  directives.  It seems  that 
Latvian authorities intend to  amend their law by the end of 1999.  In any case, Latvia 
seems  to  be  heading  in  the  right  direction.  Accession  to  the  WTO  Agreement  on 
Government Procurement would be an important step forward. 

Regarding  intellectual  and  industrial  property  rights,  some  progress  has  been 
achieved. The new Patent law, passed by Parliament in 1995, is considered by Latvian 
authorities  to  be consistent with the basic provisions of the Munich Convention.  The 
law  on  trademarks  includes  the  basic  provisions  of the  corresponding  Community 
legislation,  but  needs  some  minor  amendments.  The  government  plans  to  pass  an 
amended Trademark Law in 1997. 

Essential improvements in copyright protection are needed for computer programs, on 
rental rights and lending rights, satellite broadcasting and cable retransmission as well 
as duration of protection.  A draft law is being prepared regarding the legal protection 
of topographies  of semiconductor products.  A new act on border enforcement has  to 
be  adopted.  Effective  implementation  and  enforcement  will  remain  a  significant 
concern in the medium term due to  the lack of experience of the authorities involved 
and to  the current weakness of internal-control  and border-enforcement mechanisms. 
However,  important  efforts  are  being undertaken  to  improve  the  situation.  Piracy  is 
still widespread. 

According  to  the  information  on company  law  provided by Latvia,  conformity with 
the First and Second Directives will be achieved by the end of 1997.  There appears at 
present  to  be  compliance  with  only  parts  of  the  Third,  Eleventh  and  Twelfth 
Directives.  Work  is  understood  to  be  in  progress  to  bring  Latvia  into  line  with  the 
remainder. 

The  1993  laws  on  accounting  and  the  law  on  company  annual  reports  made  a  good 
start  towards  alignment  with  the . 4th  Directive  and  were  brought  closer  to  full 
conformity by the  1996  amendments.  A law on consolidated accounts,  which should 
transpose the 7th Directive, is being prepared, with a deadline of 1 January  1998.  The 
law on sworn a}lditors  is based on the 8th Directive. Certain transitional problems are 
in  evidence  relating  to  the  practical  implementation  of the  new  ~lies,  including  a 
shortage  of qualified  accountants  and  auditors,  and  major  efforts  will  be  required  if 
these are to be solved in the medium term. 

38 

The existing fragmentary  provisions on protection of personal data do  not provide a 
level  of protection  compatible  with  the  standards  laid  down  in  the  EC  framework 
Directive.  Legisla~ive changes  are  needed  in particular  to  enable  the  creation  of an 
independent authority to supervise the application of legislation. 

Conclusion 

In certain areas significant progress has recently been made regarding the adoption of 
framework directives necessary for regulating a market economy. Latvia has taken on 
or is in the process of taking on the most important directives. 

Still,  further 
legislative  efforts  must  be  made,  especially  regarding  public 
procurement, intellectual and industrial property rights and data protection, before full 
compliance  can  be  achieved.  If  the  pace  of  harmonisation  with  EC-legislation 
achieved in the last year is maintained, Latvia should have a good chance of fulfilling 
the legislative requirements "in this field in the medium term, although some problems 
of implementation and enforcement may persist. 

Free Movement of Goods 

Free movement of goods  can be achieved only by removing 'measures which restrict 
trade  - not  only  customs  duties  and  quantitative  restrictions  but  all  measures  with 
equivalent, i.e. protectionist, effect, irrespective of whether or not they are specifically 
aimed  at  domestic  or  imported  products.  Where  technical  standards  are  not 
harmonised, the free movement of goods must be ensured by applying the principle of 
mutual recognition of national rules and accepting the rule that national specifications 
should  be  no  more  stringent  than  is  required  to  achieve  their  legitimate  objectives. 
This rule was established in the Cassis de Dijon judgment. 

For the purpose of harmonisation, the European Community has developed the "New 
Approach" which introduces an approach carefully balanced between government and 
private  autonomous  bodies  and  in  which  European  Community  legislation  and 
European  standards  play  a  distinct  complementary  role.  Thus,  instead  of imposing 
technical  solutions,  European  Community  legislation  is  limited  to  establishing  the 
essential  requirements  which  products  must  meet.  Products  manufactured  in 
accordance  with  European  standards  are  presumed 
to  meet  such  essential 
requirements, but European standards are not the only way to prove such conformity. 
The  ''New Approach" works  in conjunction with  the  "Global Approach" on product 
certification which governs the apposition of the "CE Mark" on the product. For other 
products  such  as  pharmaceuticals,  chemicals,  motor  vehicles,  and  food  products, 
European Community directives follow the traditional regulatory pattern of providing 
fully detailed rules. 

The free movement of goods also dictates that a number of Community harmonisation 
measures  be  transposed  into  national  law.  Implementation  of  h~alth  and  safety 
harmonisation  rules  is  particularly  important  and  requires  the  establishment  of 
appropriate mechanisms and organisations, both for businesses and the authorities. 

39 

Two  of the  "horizontal" directives  essential  to  smooth  running  of the  single  market 
are the Directive on general product safety and the Directive on liability for defective 
products. The regulations concerning general product safety are covered in the section 
on consumer protection. 

The  rules  on  agricultural  products  (compliance  with  veterinary  and  plant-health 

_ standards) are explained in d~t~il in the section on agriculture. 

Descriptive Summary 

Latvia has made considerable progress towards establishing the conditions for the free 
movement  of goods.  Latvia  has  already  introduced  liberal  price,  trade  and  foreign 
exchange regimes and established basic legal and commercial rules. 

All  prices  have  been liberalised  except  for  energy  (electricity,  heating  and  gas)  and 
water  supply,  housing  rents,  postal  and  telecommunication  services,  port  services, 
railways, airport services, archives and stumpage fees in the forestry sector. Maximum 
and minimum prices are stipulated for different transit services for oil and oil products 
as  well  as  for  passenger transport by motor  vehicles.  For pharmaceuticals  the  profit 
margin may not exceed 20% per product. 

In order to  limit illegal circulation of excise taxable goods,  protect consumers  and to 
create  a  statistical  data  base  the  government  maintains  licensing  requirements  for 
tobacco,  tobacco  products  and  alcoholic  beverages.  The  Ministry  of Finance  issues 
these licences according to the same objective criteria for both locally produced goods 
and to  imported goods.  There are no  quantitative limits on the number of licences  to 
be  issued.  Following  WTO  requirements  the  quantitative  sugar  import  restrictions 
were  cancelled  in  March  1997  and  instead  automatic  licences  are  granted  by  the 
Ministry of Agriculture. Also for grain and cereals, new laws eliminating quantitative 
import restrictions have been submitted to  the Parliament  and  are  due  to  be  adopted 
during 1997. In general there are now no discriminatory measures. 

With regard to technical barriers to trade, a law on the safety of products, services and 
liability  of  producers  and  service  suppliers,  corresponding  to  EC  Directives 
92/59/EEC  and  85/374/EEC,  was  adopted  in  September  1996.  This  law  covers  not 
only products, but also services and damages to property and environment. 

The  last  version  of the  legislative  harmonisation  programme  presented  in  1996  has 
announced  transposition  measures  of New  Approach  directives  to  be  adopted  in  a 
period going  from  1997  to  1999.  In the  foodstuffs  sector certain measures,  basically 
horizontal, have been adopted. 

Alignment  for  the  chemical  sector  is  planned  for  1999.  In  the  automotive  sector, 
adoption  of  a  type-approval  system  based  on  the  EC  system  should  become 
in  any  case,  it  needs  to  be  borne  in  mind  that  secondary 
operational  in  1999. 
legislation is often necessary for implementation of the general legislative framework. 

40 

A  law  on  conformity  assessment  was  adopted  in  1996  as  well  as  a  number  of 
regulations  on  the  authorisation,  accreditation  and  procedures  of  testing  and 
calibration laboratories, certification and inspection bodies. 

A  new  concept  of  standardisation  was  adopted 
in  1995  by  ·the  National 
Standardisation Programme providing for voluntary standards and organisation .of the 
standardisation  activities  by  the  Latvian  National  Centre  of  Standardisation  and 
Metrology.  Latvia  has  affiliate  membership  of  the  European  Committee  for 
Standardisation (CEN). 

Current and Prospective Assessment 

The process  of approximation of technical  legislation to  the  EC  acquis  identified  in 
the  White  Paper  has  made  a  slow  start,  but  Latvia  is  currently  making  substantial 
efforts  in  order  to  adapt . as  quickly  as  possible  to  the  acquis  regarding  the  free 
movement of goods. Important developments in this respect are the entry into force on 
1 April  1997  of the  new  rules  of origin  allowing  for  Pan-European  Cumulation  and 
the  numerous  new  laws  aimed  at  harmonisation with  EC-regulations  on  conformity 
assessments  and  standards.  Nevertheless,  further  efforts  are  required  for  the  full 
adoption and implementation of the acquis. 

Efforts from Latvian authorities should now focus  on improving the alignment record 
in  technical  legislation  where  reinforcement  of technical  expertise  is  needed.  The 
adoption of the  law on the safety of products,  services  and liability of producers  and 
service  suppliers  was  an  important  step  forward.  The  New  Approach  Directive  for 
electric equipment for use within certain voltage limits has  already been implemented 
and  the  directives  on  electromagnetic  compatibility  and  CE-marking  are  under 
implementation. 

In the  areas  subject to  national  rules  and not  covered  by Community harmonisation, 
there is too  little information available to  assess whether Community legal principles 
on the free movement of goods are properly applied in Latvia. 

The  reporting  procedures  which  form  part  of the  internal-market  machinery  are  not 
yet operational and so cannot be used  in the pre-accession period. The most important 
instruments in this connection are:  Directive 83/189, requiring  governments to  report 
draft  national  technical  standards  and  regulations;  Decision  3052/95  on  measures 
derogating  from  the  principle  of the  free  movement  of goods;  procedures  by  which 
complaints  can  be  submitted  to  the  Commission;  and  Article 177  of the  Treaty, 
enabling Member States to  ask for preliminary rulings  from the Court of Justice.  It is 
also  hard to  assess whether Latvia complies with the principle of mutual recognition; 
more  information  is  required  on  its  national  rules,  and  on  administrative  practices, 
which can have an effect on product sales. 

Conclusion 

Some progress  has  recently been  achieved,  to  fulfil  the  requirements  of Community 
legislation on free  movement of goods.  Good efforts have been made in the  fields  of 

41 

standardisation and conformity assessment.  However, efforts from Latvian authorities 
should  now  focus  on improving  the  alignment  record  in  technical  legislation where 
reinforcement of technical expertise is also needed. 

If the pace of harmonisation adopted in the last year is maintained, implementing the 
acquis in this  field  should not represent a serious obstacle to  Latvian accession.  The 
major difficulty in this proc~ss is the lack of experienced staff. 

The Latvian authorities  should also  ensure that,  in  areas  not covered by Community 
harmonisation, their own national laws do not hamper trade. In particular, they should 
check that measures are proportionate to their objectives. 

Free Moyemept of Capital 

The  Europe  Agreement  establishes  the  principle  of the  free  movement  of capital 
between Latvia and the EU from entry into force of the Agreement. This, as far as the 
obligations  of Latvia are  concerned,  applies  from  the  entry  into  force  of the  Europe 
Agreement  as  regards  direct  and  portfolio  investment,  commercial  credits  and 
financial  loans  made by  companies  already  established  in  Lithuania  and,  as  regards 
branches  and  agencies  of Community  companies  (as  well  as  the  self-employed), 
gradually during the transitional period. 

The White Paper highlights the link between the free movement of capital and the free 
movement of financial  services~ 

It suggests a series of measures to  liberalise capital movements, ranging from medium 
and long-term capital movements and those linked to commercial operations, to  short 
term capital. 

Descriptive Summary 

There  are  no  exchange restrictions  in  Latvia  for  payments  on current  account  or for 
capital  transfers  to  and  from  Latvia.  The  physical  importation  and  exportation  of 
financial  assets  is  free.  Consumption  abroad  of any  financial  services  by  Latvian 
residents  is  free.  The  Latvian  currency  is  fully  convertible  with  regard  to  current 
account transactions. 

Foreign  direct  and  portfolio  investments  in  Latvia  are  regulated  by  the  Law  on 
Foreign Investment (last amended in April  1996), which guarantees  foreign investors 
the same rights  and obligations as  the national  laws.  All notification requirements  of 
foreign  direct  investments  (FDI)  were  cancelled  in  the  spring  of  1996,  as  were 
restrictions  on  majority  holdings  by  foreign  investors  in  particular  branches. 
Participation  of foreign  investors  in  the  privatisation  process  was  promoted  through 
the  abolition of restrictions  on purchases of privatisation certificates by  foreigners  at 
the beginning  of 1996  and by  an  acceleration  of the  privatisation process  itself.  The 
right of foreigners to buy land in connection with economic activity has been secured, 
provided that Latvia has reached an investment protection agreement with the foreign 
nationals' country of origin. 

42 

During the period from  1991  to 1995 substantial efforts have been made to attract FDI 
to develop the business and industrial base of Latvia.  The total figure  for the period 
1990-1996 stands at 470 MECU 

Since 1992, transport and communication have attracted the biggest proportion ofFDI 
industry  received  25%  and  16% 
( 42% ),  while  financial 

intermediation  and 

. respectively. 

In 1995  foreign exchange reserves of the Bank of Latvia decreased  as  a result of the 
banking  crisis.  In  1996  large  capital  inflows  have  brought  the  level  of  official 
international reserves  above  the  pre-crisis  level,  reaching  518  MECU by  September 
1996.  State  involvement  in  international  financial  markets  is  restricted  by  limits 
imposed  on  external  debt  and  total  public  debt  amounts.  According  to  the  State 
Budget Law, maximum amounts are set for each year. 

Current and Prospective.Assessment 

Almost  all  restrictions  on  capital  movements  have  been  abolished.  Since  January 
1997,  the  purchase  of land by foreign  companies  is  less  restricted.  Legal  entities  in 
which a majority stake is held by foreign nationals  from  countries with which Latvia 
has mutual investment protection treaties  are allowed to  purchase land.  The scope of 
these  liberalisation measures  goes  beyond  the  obligations  of tqe  Europe  Agreement 
and represents a liberal approach to the movement of capital: 

Following the 3?1endments enabling foreigners  to  fully participate in the privatisation 
process, the securities market has experienced an upswing. This development is  likely 
to  continue  taking  into  account  the  planned  privatisation  of  a  number  of  large 
companies.  Also  the  macroeconomic  stability  which  was  recognised  by  the  recent 
credit rating should contribute to  increased investments. 

Conclusion 

introduced  current  account  convertibility  and  almost  complete 
Latvia  has 
liberalisation  of  capital  movements  and  should  be  able  to  abolish  remaining 
restrictions in the medium term. 

Free Movement Qj'Services 

The  free  movement  of  services  functions 
through  exercise  of  the  right  of 
establishment  and  the  cross-border  provision  of  services.  Its  foundations  are  the 
prohibition of discrimination, in particular on grounds of nationality,  and rules on the 
alignment of divergent national legislation. These rules often concern both the right of 
establishment, which comes under the heading of the free  movement of per,.sons,  and 
the  freedom  to  provide  services.  Their  implementation  implies  the  establishment  of 
administrative  structures  (banking  control  boards,  audio-visual  control  authorities, 
regulatory  bodies)  and  greater  cooperation  between  Member  States  in  the  area  of 
enforcement (mutual recognition arrangements). 

43 

A  substantial  amount of the  legislation  applicable  to  the  free  movement  of services 
relates to  financial  services.  It also concerns the problems relating to  the opening-up 
of  national  markets  in  the  sectors  traditionally  dominated  by  monopolies,  e.g. 
telecommunications and, to a certain extent, energy and transport.  These subjects will 
be dealt with in the sections of the Opinion specifically referring to them . 

.  Descriptive Summary 

The Bankin~ sector in Latvia has largely_ recovered from the 1995 crisis. To avoid any 
repeat of this crisis, new prudential legislation has been introduced limiting high-risk 
credit, increasing required bank capital, preventing excessive credit concentration and 
strengthening the supervisory capacity of the Bank of Latvia. 

In  line  with  the  policy  of suspending  licences  of banks  which  do  not  comply  with 
strengthened regulations, the licences of twelve banks were revoked in 1996. This has 
reduced  the  total  number· of banks  in  operation.  7 5  %  of the  banking  sector  is  in 
private hands, of which 40% is accounted for by foreign ownership. 

The presence of foreign banks is gradually increasing.  Average interest rate spread in 
banking decreased to  10-15%. At present, the Bank of Latvia in collaboration with EC 
Phare  is  working  on  a  new payment  and  settlement  system's  project  to  provide  for 
real-time gross settlement in full conformity with EU requirements. 

Deals on the Stock Excbange can be conducted by members only. 

Investment  services  on  a  professional  basis  may  be  provided  by  investment  firms, 
insurance  undertakings  and  credit  institutions  duly  licensed  by  their  respective 
supervisory authorities. The Riga Stock Exchange is a non-profit joint stock company 
owned by commercial banks and financial institutions. The laws on securities and the 
law on the securities-market commission meet most but not all the requirements of the 
relevant  EC  regulations.  The  Securities-Market  Commission was  formed  in  1996  in 
order to  ensure the development and stability of the market.  Its  Council is  appointed 
for  a  seven-year period by the Parliament,  which  ensures  its  independence.  Tasks  of 
this  body  include  the  protection  of  investors'  interests  and  licensing  of  market 
participants. 

The  development  of the  privatisation  process  has  led  to  a  boost  in  the  securities 
market, increasing market capitalisation. 

Market concentration is very high in the insurance sector. 

Two  new  draft  laws  on  insurance  supervision  and  insurance  contracts  are  in  the 
legislative  process.  EC  rules  on  calculation  of solvency  of margin  were  adopted  in 
1993. A law based on the EC motor-vehicle insurance directive will enter into force in 
September  1997.  An  Insurance  Supervisory  Authority  was  set  up  in  1991  at  the 
Ministry of Finance. 

Foreign insurance companies in Latvia function widely under the same regulations as 
local insurers. 

44 

Current and Prospective Assessment 

Latvia can be considered to be well advanced in harmonising its banking legislation to 
Community  requirements.  Of  the  White  Paper  Stage  I  measures,  Latvia  has 
implemented  the  First  Banking  Directive,  Own  Funds  Directive  and  the  Solvency 
Directive. Regarding the two other Stage I measures - a deposit guarantee scheme and 
a  money-laundering  law  -_drafts  are  currently  in  the  legislative  process.  As  a 
· consequence  of the  current  lack  of resources  in  the  financial  sector,  the  minimum 
deposit guarantee amount foreseen by Community legislation cannot be met,  but will 
be gradually increased in the  coming years  to  reach the required  level by the  end of 
1999. As for stage 11 measures, the Large Exposure Directive and the Second Banking 
directive have been fully  implemented except  for  the  single  licence principle,  whilst 
the  Consolidated  Supervision  Directive,  the  Banks'  Accounts  Directive  and  the 
Capital Adequacy Directive are due to be implemented in 1997-1998. 

Increases  in the  capital base  and bank profitability  are  early  signs  of stabilisation in 
the  banking  sector.  The  intermediation  role  of the  banking  sector  is,  however,  still 
hampered by high lending. Increased foreign direct investment and the introduction of 
legislation on collateral are assumed to help improve the situation. 

Regarding  legislation  on  Securities  the  Stage  I  directives  have  been  partially 
introduced.  The  remaining  requirements  of Stage  I  and  Stage~ II  directives  will  be 
implemented by 1 January 1998.  This will m~ full  implementation of the directives 
on insider dealing and on stock exchange listings.  Investment companies and pension 
funds  are  regulated  by  the  Law  on  Joint  Stock  companies.  A  ~aw on  investment  is 
under preparation. 

In the Insurance sector,  direct branching by EU companies is not permitted, owing to 
a  lack  of supervision  capacities.  Also,  guarantee  fund  requirements  applicable  to 
mutual associations are considered to be impossible to meet for the moment. 

On  9  December  1996,  the  annual  reports  standard  rules  of insurance  companies 
transposed  into  Latvian  legislation  the  requirements  of Directive  911674/EEC  on 
annual and consolidated accounts of insurance companies. 

New laws on insurance and insurance contracts are being prepared to  remove present 
deficiencies  in  the  Latvian  legislation  and  improve  the  degree  of  compatibility 
between  Latvian and EU legislation. 

Conclusion 

Regarding  the  legislative  aspects  of financial  services,  Latvia  is  well  advanced  and 
will in the coming years  not have any major problems in meeting the requirements of 
the main EC  directives.  The most  important remaining difficulty is  the  strengthening 
of the banking sector in order for it to  function  as  a financial  intermediary supporting 
domestic investments. 

45 

If such strengthening does  occur in the  forthcoming  years,  there  should be no  major 
problem integrating the Latvian financial  services system into  the EU in the medium 
term. 

- Free Movement of Persons 

The  free  movement  of persons  encompasses  two  concepts  with  different  logical 
implications in the Treaty.  On the one han4,  Article 7a in Part One of the Treaty on 
'Principles' mentions the concept in connection with the establishment of the internal 
market  and  implies  that persons  are  not  to  be  subject to  controls  when  crossing the 
internal  frontiers  between  the  Member  States.  On  the  other hand,  Article 8a in  Part 
Two of the Treaty on 'Citizenship of the Union'  gives every citizen of the Union the 
individual right to  move and reside freely within the territory of the Member States, 
subject  to  certain  conditions.  The  abolition  of frontier  checks  must  apply  to  all 
persons,  whatever their nationality,  if Article 7a is  not  to  be meaningless.  While  the 
rights  deriving  from  Article 8a  apply  in  all  Member  States,  those  stemming  from 
Article 7a have not yet been fully applied throughout the Union. 

(a)  Free  Movement  of  Union  Citizens.  Freedom  of  Establishment  and  Mutual 
Recognition of Diplomas and Qualifications 

The Europe Agreement provides for the non-discriminatory treatment of workers that 
are legally employed (as well as their families).  It covers the possibility of cumulating 
or  transferring  social  security  rights,  and  encourages  Member  States  to  conclude 
bilateral agreements with Latvia on access to labour markets. During the second phase 
of the  transitional  period,  the  Association  Council  will  examine  further  ways  of 
improving the movement of workers. 

The  White  Paper  considers  the  legislative  requirements  in  order  to  achieve  a 
harmonious  development  of the  labour  market,  whilst  simultaneously  preventing 
distortions of competition. 

The free  movement of workers  is  one of the  fundamental  freedoms  enshrined in the 
Treaty;  freedom  to  practise  certain  professions  (e.g.  in  the  legal  and  health  fields) 
may,  however,  be subject to  certain conditions,  such as  qualifications.  Depending on 
the case, these may be dealt with through coordination or by applying the principle of 
mutual recognition. Freedom of establishment is also guaranteed under the Treaty and 
covers the economic activity of self-employed natural persons and companies. 

The free choice of place of residence may thus be subject to minimum conditions as to 
resources and health insurance where the person does not exercise a profession in the 
country concerned. 

Descriptive Summary 

Foreign  nationals  may  have  access  to  the  Latvian  labour  market  only  after  having 
obtained  a  work  permit  and  a  limited  residence  permit  for  a  period  specified  in  the 
employment  agreement.  A  work  permit  can  be  obtained  if the  vacant  employment 

46 

position has been registered with the "local  branch of the  State  Employment  Service 
for  one month without having been filled  and provided that no  unemployed persons 
with relevant  qualifications  have  been  registered.  This  procedure  does  not  apply  to 
managers,  directors  of subdivisions,  foreign  experts  or  foreign  contractual  workers 
and specialists under certain conditions. In the case of a limited residence permit, this 
permit shall also be granted to the family members of the foreigil national or statele~s 
person. 

Regarding  mutual  recognition  of professional  qualifications,  the  existing  legislation 
concerning  the  education  and  training  of  dentists,  doctors,_  veterinary  surgeons, 
architects,  midwives  and nurses,  fulfils  the  Community provisions  only to  a  limited 
extent. Furthermore, enforcement structures have still mainly to be set up. 

Current and Prospective Assessment 

As  a number of workers of different nationalities were brought into  Latvia under the 
policy  of the.  former  Soviet  Union,  more  than  600 000  persons  are  not  citizens. 
Against  this  background,  Latvia  has  decided  at  present  to  avoid  a  large  influx  of 
immigrants and to provide for  a strict control over migration processes. As described 
above,  exceptions  are  being  made  for  foreign  nationals  representing  key  personnel. 
Such  provisions  will  have  to  be  adopted  to  similar  provisions  in  the  Europe 
Agreement, once it enters into force. 

Regarding mutual recognition of professional qualifications, cooperation with experts 
from  EU  countries  will  be  necessary  to  ensure  conformity  of  the  duration  and 
structures of the  relevant courses  and  a very sustained  and  intensive  implementation 
of reforms will be needed if the acquis is to be taken up  in the medium term. It must, 
however, be taken into  account that the reforms of specific educational structures, by 
their nature, will take several years to implement. 

Conclusion 

A number of changes will have to be introduced in order to comply with the acquis on 
free  movement  of  persons.  · As  regards  mutual  recognition  of  professional 
qualifications,  the preparation of the necessary legislative and  enforcement measures 
will  need to  be very much intensified  and  sustained  if they  are  to  be  in place in the 
mid-term perspective. 

(b)  Abolition ol Checks on Persons at Internal Frontiers 

The free movement of persons within the meaning of Article 7 a of the EC Treaty, i.e. 
the  abolition  of checks  on  all  persons,  w~atever their  nationality,  at  the  internal 
frontiers has not yet been fully implemented in the Union. Doing away with checks on 
persons  is  conditional  on  the  introduction  of  a  large  number  of  accompanying 
measures,  some of which have yet to  be  approved  and  implemented by the  Member 
States (see separate section on Justice and Home Affairs). However, that objective has 
been  achieved  by  a  limited  number  of  Member  States  in  acco_rdance  with  the 
Schengen  Convention  (seven  Member  States  already  apply  it  and  another  six  are 
working towards implementation). 

47 

The  draft  Treaty  aims  to  make  that  objective  easier to  achieve  within  the  Union by 
including  a  new  chapter  on  creating  an  area  of freedom,  security  and  justice  and 
incorporating the Schengen acquis into the EU. 

Latvia  has  stated  its  desire  and  readiness  to  fulfil  the  provisions  of the  Schengen 
acquis.  It  has  begun  preparations  to  this  end  and  has  sought  assistance  in  this 
connection  from  Member  States,  notably  in  regard  to  the  strengthening  of border 
controls. 

-

General Evaluation 

1.  Latvia' s progress in the implementation of legislation relating to the White Paper is 
summarised in annex.  The table shows that at 30 June 1997,  Latvia considered it had 
adopted national legislation giving effect to 253  of the 899 Directives and Regulations 
referred  to  in the White Paper.  The  figures,  supplied by Latvia,  refer to  Community 
directives and regulations,.referred to in the White Paper of 3 May 1995, in respect of 
which  Latvia  considers  it  has  adopted  national  implementing  regulations  or  has 
checked  for  compatibility.  The table does  not prejudge  actual  compatibility as  such, 
on which the Commission is not able at this stage to state an opinion. 

2.  Latvia has made ·some efforts towards compliance with Internal Market legislation. 
It has  in particular-achieved  a certain  degree  of alignment with  Community rules  in 
the areas of industrial property rights, conformity assessments and standards and, to  a 
certain extent, in the area of Free Movement of Services. Legislation has been adopted 
in  full  or  in  part  to  implement  most  of  the  measures  according  to  the  Latvian 
authorities' assessment, though the Commission cannot at this stage express a position 
on  its  total  compatibility  with  Community  law.  However,  there  are  still  gaps  in 
important  areas  such  as  public  procurement,  intellectual  property  and  personal  data 
protection. 

3.  A  severe problem for  further  progress  may be the  weakness  of the  Latvian public 
administration,  which  affects  not  only  the  pace· of approximation  of legislation  but 
also the quality of its enforcement. 

Similar doubts must be raised about the capacity of the various structures necessary to 
implement  internal  market  legislation,  but  since  the  legislation  is  mostly  so  recent, 
and  the  structures  themselves  have  in  some  cases  not  yet  been  set  up,  there  is 
insufficient evidence at this stage on which to base a definitive judgement. 

As  things  currently  stand,  the  Commission  cannot  yet  express  an  opinion  on  the 
capacity of companies, particularly small and medium-sized businesses, to  implement 
the acquis. 

4.  Leaving aside certain specific aspects  relating to  agriculture,  checks  at  the internal 
frontiers  of the Union can only be abolished once sufficient legislative harmonisation 
has  been  achieved.  This  calls  for  mutual  confidence,  based  in  particular  on  sound 
administration (e.g.  the importance of safety checks  on some products  at  the place of 
departure).  As  far  as  goods  are  concerned,  the  completion  of the  internal  market  on 

48 

1 January 1993 was only achieved by doing away with all  the fonnalities  and checks 
performed by the Membe~ States at the internal borders of the Union. 

In  particular  these  checks  covered  technical  points  (product  safety),  veterinary, 
animal-health  and  plant-health  matters,  economic  and  commercial  matters  (e.g. 
prevention  of counterfeiting  of goods),  security  (weapons,  etc.)  and  environmental 
aspects (waste, etc.). In most_ cases, the abolition of checks was only made possible by 
the  adoption  and  application  of  Community  measures  harmonising  the  rules  on 
movement and placement on the market (particularly as  regards product safety)  and, 
where  applicable, by shifting the place where controls  and  formalities  are  conducted 
within the Member States or  _their  markets  (in particular as  regards  V AT and excise 
duties,  veterinary  and plant-health checks,  and the collection of statistics).  A  section 
of Latvia's present borders will become the Union's external  frontier  and this  means 
border checks will need to be stepped up (see separate section on customs). 

In view of the  overall  assessment that can be made of progress achieved to  date and 
the  rate  at  which work is  advancing  in  the  various  areas  concerned,  it is  difficult  at 
present  to  put  a  time-scale  on  Latvia' s  ability  to  take  over  and  implement  all  the 
instruments required to  abolish internal border checks and to  transfer those checks to 
the Union's external frontier. 

5.  Latvia  has  already  adopted  some  elements  of the  acquis. relating  to  the  Single 
Market.  Further progress will be needed  with  regard notably to  public procurement, 
intellectual  property  and  data  protection.  .In  most  areas,  enforcement  needs  to  be 
strengthened.  Strong efforts will be necessary with regard to  the strengthening of the 
administration.  In  the  medium  term,  provided  considerable  efforts  are  undertaken, 
Latvia  should  have  adopted  and  implemented most  of the  Single  Market  legislation 
and  made the  necessary progress  on the  mechanisms  of enforcement,  in order to  be 
able to participate fully in the Internal Market. 

Competition 

European  Community  competition  policy  derives  from  Art.  3  (g)  of the  Treaty 
providing  that  the  Community  shall  have  a  system  ensuring  that  competition  in  the 
internal market is  not distorted.  The main areas of application are anti-trust and state 
aid. 

The  Europe  Agreement  provides  for  a  competition  regime  to  be  applied  in  trade 
relations between the Community and Latvia based on the criteria of Articles  85  and 
86  of the EC  Treaty (agreements between undertakings/abuses of dominant position) 
and in Article. 92  (State aid)  and  for  implementing rules in the.se  fields  to  be adopted 
within three years of the entry into  force  of the Agreement.  Furthermore, it provides 
that  Latvia  will  make  its  legislation  compatible  with  that  of the  Community  in  the 
field of competition. 

49 

The  White  Paper refers  to  the  progressive  application  of the  above  provisions  and 
those  of the  Merger Regulation  ( 4064/89)  and  of Art.  3 7  and  90  (Monopolies  and 
Special Rights). 

Descriptive Summary 

The current law on "Competition and Restriction of Monopoly" was passed in 1991, 
and  amended  in  1993.  The ·law  applies  to  all  sectors  of the  economy  and  to  both 
private and public  enterprises, but only takes  into  account  the  Community acquis  in 
the competition  field  to  a  limited degree.  A  new competition  law  has been recently 
adopted  which  represents  an  important  step  towards  achieving  the  degree  of 
approximation of legislation required. 

The enforcement of  competition legislation is controlled by the State Anti-Monopoly 
Committee which is  supervised by the Ministry of Economics.  This  Committee will 
be replaced by the Competition Council in the new law. 

The State Aid Surveillance Commission under the Ministry of Finance is responsible 
for the monitoring of state aid,  which is  about to  establish a first  aid inventory.  It is 
therefore not yet possible to  confirm that practically no  state aid  is  granted in Latvia 
(as the Latvian authorities have stated). 

Current and Prospective Assessment 

The  newly  adopted  law  complies  to  a  large  extent  with  the  acquis.  But  it  will 
nevertheless need to  be amended concerning some aspects  of the  rules  on restrictive 
agreements,  merger  control,  business  secrets,  procedural  rules,  as  well  as  the  rights 
and obligations of the Competition Council.  The necessary amendments are currently 
being worked out. 

In various  sectors  of the  industry exclusive rights,  state  monopolies  or systems for 
tile granting  of licences  exist  which need  to  be  carefully  analys·ed  in order  to  see 
whether they need to be adjusted or abolished in order to comply with the Community 
acquis.  This applies,  in particular,  to  exclusive rights  or systems  for  the  granting  of 
licenses  in the  telecommunication  sector,  the  energy sector,  in respect  of export  and 
import  and  trade  in  spirits  and  alcoholic  drinks,  the  transport  sector  and  the  postal 
sector. 

The  substantial  efforts  made  to  establish  a  state  aid  inventory  in  accordance  with 
Community  requirements  and  the  considerable progress  made  in  drafting  a  Law  on 
Public Aid and  a  Law  for  the  functioning  of the  Monitoring  Authority  on  state  aid, 
giving it the powers necessary to implement state aid control, are welcomed. 

Certain aid measures seem to be contingent upon export performance which is clearly 
not compatible with the Europe Agreement.  Moreover, an important part of state aid 
seems to  be granted through indirect forms  of state aid,  such as  tax relief,  debt write 
off and  tax  arrears.  These  aid  measures  constitute  operating  aid  which  are  only 
allowed  under  very  strict  conditions.  Due  to  the  lack  of transparency  it  is  as  yet 
unclear whether the conditions for granting operating aid are complied with. 

50 

In addition  to  the  adoption of legislation sufficiently  approximate  to  that  of the  EU, 
credible  enforcement  of  competition  law  requires  the  establishment  of  well 
functioning  anti-trust and  state aid monitoring authorities.  It requires  moreover that 
the  judicial  system,  the  public  administration  and  the  relevant  economic  operators 
have a sufficient understanding of competition law and policy. 

Conclusion 

Approximation of law in the field of anti-trust and state aid is progressing.  The new 
competition  law  and,  if adopted,  the  two  draft  laws  on  state  aid  will  represent  a 
significant step towards satisfying the requirements in this respect. 

In the field  of state aid the required transparency in the granting of state aid has  not 
been achieved so far.  A considerable effort will be necessary to  fulfil the requirements 
in the field of state aid over the medium term.  Close cooperation with the Community 
will be necessary. 

It appears, moreover, that in certain sectors exclusive or special rights exist which are 
not compatible with the Community acquis.  These problems  should be addressed in 
the near future. 

The  skills  of the  staff of the  monitoring  authority  on  state  aid  seem  appropriate  but 
both  competition  authorities  need  further  support  to  carry  out  their  activities  and  to 
ensure a wide information of the concerned operators in the market place. 

3.2 

Innovation 

Information Society 

Present Situation 

The  economic  and  social  effects  made  possible  by  the  combination  of information 
technology and telecommunications are great.  In Latvia the potential for Information 
and  Communication Technologies  (ICTs)  was  neglected before  1990  although  basic 
education  generally  was  not.  Now  the  awareness  of  their  importance  of  their 
importance is  high, and one result has been the recent creation within the Ministry of 
Transport of a Department for Informatics.  Trade data for personal computers and the 
information  technology  sector  as  a  whole  are  lacking  but  the  existence  of  host 
computers  on the  Internet  (about  1.6  per  1000  inhabitants  at  the  end  of 1996),  as  a 
relative  measure  of  development  towards  the  Information  Society,  suggests  that 
Latvia is  in line with the  average  for  the  region.  Public  support  for  computerisation 
should reach $3.5m in 1997. 

Conclusion 

its  own  departments. 

The Government is  aware of the  importance of the  Information Society and  is  active 
within 
the 
telecommunication infrastructure ought to boost the rate at which the potentialities of 
Information and  Communication Technologies  (ICT)  are  taken up  but it will  starting 
from a fairly low base. 

The  positive  approach 

to  modernising 

51 

Education, Training agd Youth 

Articles 126 and  127 of the EC Treaty provide that the Community shall contribute to 
the  development  of quality  education  and  implement  a  vocational  training  policy 
aimed at promoting the European dimension in education and at enhancing industrial 
adaptation  and  the  responsiveness  of the  labour  market  through  vocational  training 
policies. 

· 

The Europe Agreement provides for co-operation in raising the level of education and 
professional qualifications.  The White Paper includes no measures in this field. 

Descriptive Summary 

The education budget was  at  some 5.2% of GDP  in  1995, and the share  of education 
in the overall budget amounted  25% in  1996 (up from  14% in 1993). 

There are  1.100 schools, 460.000 pupils and 43.500 students in Latvia.  Latvia has  17 
state  higher education institutions,  6  of which  are  universities  and  13  private  higher 
education institutions. 

Latvia is  currently undertaking  reforms  at  all  levels  of the  systems  of education  and 
training  in  order  to  further  adapt  the  country  to  the  needs  of a  democratic  society 
based on a market economy.  This is necessary, not only to  achieve progress in regard 
to  key  economic  factors  (such  as  productivity  and  the  quality  of  production, 
competitiveness  on  the  international  markets,  development  of the  private  sector, 
labour mobility,  and  unemployment),  but  also  to  ensure  the  democratic  functions  of 
society. 

The  1991  education  law  gives  the  Ministry  of Education  authority  for  all  levels  of 
education and training. 

Latvia  is  proceeding  at  a  measured  pace  with  privatisation,  the  transfer  of 
responsibilities  for  education to  local municipalities,  and the development of Latvian 
educational and training priorities. 

Some  Latvian  youth  organisations  have  been  participating  in  European  youth 
activities  since  1995  as  a  first  step  towards  participation  in  the  Youth  for  Europe 
programme. 

The  Tempus  programme  has  contributed  to  the  achievement  of the  goals  of higher 
education reform  and  created the basis  for  cooperation with the  EU higher education 
institutions. 

Current and Prospective Assessment 

In order to  achieve a comprehensive upgrading of the education and training systems, 
considerable 
text  books, 
equipment and buildings will be needed.  Due to  the  financial  constraints, this process 
is likely to take a number of years to  achieve. 

in  curriculum-reform, 

investments 

training, 

teacher 

52 

The participation of Latvia in  the  Community programmes will  have positive effects 
on the people concerned and represent a good preparation for integration. 

Conclusion 

In the perspective of accession, no major problems should be expected in these fields. 

Research and Technological Development 

Research and Technological Development activities at Community level,  as  provided 
for  by  the  Treaty  and  in  the  Framework  Programme,  aim  at  improving  the 
competitiveness  of European  industry,  the  quality  of  life,  as  well  as  supporting 
sustainable development, environmental protection, and other common policies. 

The Europe Agreement will  provide  for  co-operation in  these  areas,  notably through 
participation  in  the  Framework  Programme.  The  White  Paper  includes  no  direct 
measures in this field. 

Descriptive Summary 

Science  and  technology  policies  are  formulated  upon  recommendations  from  the 
Ministry of Education and Science, the Ministry of Economy, and the Latvian Council 
of Science,  which,  since  its  establishment  in  1990,  has  paid  an  important  role  as  a 
semi-governmental decision-making institution.  It controls about 80  % of the science 
budget,  55  %  of which is  allocated  by  the  grant  system  to  particular projects.  The 
Academy of Science has  become an  autonomous  legal  entity,  functioning  as  a  high 
level honorary and advisory body. 

RTD expenditure currently amounts to 0.45% ofGDP (cf.  1.6% in 1990). 

Latvia currently has 25 research institutions supervised by the Ministry of Educational 
Science,  and  17  state higher  education institutions.  Except  for  a  few  small research 
centres of private industry there are no private research institutions.  The total number 
of personnel decreased from 30,000 in 1990 to  5.200 in 1994. 

The  Latvian national  science  and  technology  policy  is  oriented  towards  two  general 
to  integrate  the  national  research  potential  with  higher  education  by 
targets: 
implementing  general  and  sectoral  integration  plans  and  agreements;  and  to  reorient 
the Latvian research potential towards national priorities and to  stimulate more active 
involvement  of  researchers  in  solving  the  actual  economic,  cultural  and  social 
problems.  Among  the  subjects  to  be  prioritised  are  information  technologies, 
biotechnology and environmental protection. 

Regular  cooperation  with  the  European  Community  started  in  1992  with  the  3rd 
Research and Technology Development Framework Programme.  So  far,  cooperation 
has  been  concentrated  mainly  on  COPERNICUS 
(Specific  . Programme  for 
Cooperation  with  CECs  and  NIS)  and  remains  low  for  participation  in  the  4th 
Framework Programme. 

53 

The statistics in this sector are not yet compatible with OECD standards. 

Current and Prospective Assessment 

The  research  system  has  undergone  major  changes,  but  at  the  same  time,  Latvian 
research  has  been  seriously  constrained  due  to  lack  of resources,  related  to  the 
economic  problems  in  general.  However,  Latvia  has  a  number  of strong  research 
branches.- Through  their  participation  in  the  European  Union  research  activities, 
Latvian scientists have demonstrated their ability to  contribute internationally.  Latvia 
has stated its interest in full association with the 5th Framework Programme. 

Latvian  science  has  already  taken  signifiCant  steps  towards  the  integration  of its 
research system with the Western European system, and the reform process continues. 
The reform  initiatives  aiming  to  modernise  and  rationalise  the  research  system must 
be given continued support by the Latvian authorities. 

Conclusion 

In  the  perspective  of  accession,  no  major  problems  are  expected  tn  this  field. 
Accession would be of mutual benefit. 

Telecommunications 

The objectives of  EC  telecommunications policy are the elimination of obstacles to 
the  effective  operation  of  the  Single  Market  in  telecommunications  equipment, 
services  and  networks,  the  opening  of foreign  markets  to  EU  companies  and  the 
achievement  of  universally  available  modem  services  for  EU  residents  and 
businesses.  These are achieved through harmonisation of the. standards and conditions 
for  service  offerings  the  liberalisation  of the  markets  for  terminals,  services  and 
networks  and  the  adoption  of necessary  regulatory  instruments.  The  Directives  and 
policies  needed  to  achieve  this  have now  been  established,  but the  liberalisation of 
public  voice  telephony  and  operation of related  infrastructure  will  be  deferred  for  a 
year or two after 1998 in certain member states. 

towards 

The  Europe  Agreement provides  for  co-operation  aimed  at  enhancing  standards  and 
practices 
telecommunication  and  postal  policies, 
standardisation,  regulatory  approaches  and  the  modernisation  of infrastructure.  The 
White  Paper  focuses  on  the  approximation  of regulation,  networks  and  services, 
followed by  further steps ensuring gradual sector liberalisation. 

levels 

EC 

in 

Descriptive Summary 

Before regaining independence, Latvia's telecommunications network was managed 
as a part of the Soviet network, which meant that, for instance, all international 
connections were routed via Russia.  The Latvian network was entirely automatic, but 
consisted largely of electro-mechanical equipment. 

54 

Since 1991, Latvia has moved swiftly to attract foreign investors through privatisation 
with strategic partners. The need for investments in infrastructure and installations 
will however rem~n very considerable in the foreseeable future. 

Current and Prospective Assessment 

De.gree q[Liberalisation 

The government has partly privatised the state owned operating company, but 
liberalisation  in the market for the provision of basic telephone services remains 
insufficient as long as the agreement on exclusive rights for Lattelekom continues. 
Other services such as mobile communications ( 4 operators), paging ( 4 operators) and 
data transmission have been liberalised at least partially but their impact is limited by 
the difficulty of obtaining commercially viable interconnection agreements with 
Lattelekom. Value added services are also liberalised but operators are obliged by law 
to use the Lattelekom infrastructure. Nevertheless, there are some 30 Internet service 
providers on the market. Private operators can offer CATV. 

Avvroximation to  EC law 

Latvia has opted for a gradual restructuring of its telecommunications sector. The 
current law (1993 Law on Telecommunications) allows for the liberalisation of some 
added value services and also for the privatisation ofLattelekom, which became a 
limited company since 1994 which is 51% State owned and 49% under foreign 
ownership (TILTS consortium with the participation of Western European Operators). 
It also gave exclusive rights for  voice telephoncy and data transmission services to 
Lattelekom for operation of the public network until2013.  The TILTS consortium 
had to sign an agreement with the Government which committed to full digitisation 
within eight years, universal service and a stipulated tariff system. It now seems that 
these conditions will not be met and the agreement is currently being renegotiated. At 
the same time the agreement on exclusive rights for Lattelekom is also being 
renegotiated.  The new Government has indicated its intention to fully liberalise 
telecommunications by 2003. 

The responsibility for setting tariffs for Lattelekom is with the Telecommunications 
Tariff Council under the supervision of the Ministry of Transport.  Services partially 
liberalised are mobile communications, paging and data transmission by  satellite. 
However, their impact is limited by the difficulty of obtaining commercially viable 
interconnection agreements with Lattelekom. Based on progress to date there is 
serious doubt that Latvia has the administrative capacity to achieve its target of 
liberalising telecommunications by 2003. 

InfrastructureBefore regaining independence, Latvia's telecommunications network, 
consisting largely of obsolete equipment, was managed as a part of the network of the 
USSR .. Latelekom had expanded the telephone penetration rate to 29 ~ 7 per 100 
inhabitants by the end of 1996 but the average growth over the past 5 years has been 
very slow.  An ambitious modernisation programme has resulted in 14% of lines 

55 

digitised in 1995 and the commitment made by TILTS of contributing to  100% 
digitisation of the network within 8 years may no longer be feasible, as the revenue of 
Lattelekom is too low to finance investments. At current PPP per capita, revenue per 
telephone line (about 128 ecu in 1995) cannot be increased enough to finance 
additional investment.  Tariff reform has been delayed by the state consumer 
protection body in the interests of maintaining affordability of local service. 

· Two  GSM networks are in operation and a third GSM operator will be soon granted a 
licence. The penetration for mobile telephones is 0. 7/100 inhabitants which is third 
among the applicant countries. ISDN services are not yet offered to business 
customers. 

The  main  State  telecommunications  equipment  company  (VEF)  faces  difficulties 
because of the obsolescence of its technologies and production techniques . 

• 

Competitiveness of the Sector 

There  is  a 
large  number  of  unsatisfied  requests  for  telephone  service  --new 
subscribers  have  to  wait  on  average  6.0  years  for  their  lines- and  at  today's  rate  of 
network expansion,  it will be twenty years  more before even basic telephone service 
will be universally available at the present  EC levels. 

The  productivity  of  the  public  network  ~perator  as  judged  by  the  number  of 
employees/1000  lines  (9.3)  is  low compared to  the  average  in the  EU (4.9)  but high 
relative  to  other  applicant  countries  (12.1).  Significant  investments  would  be 
necessary to bring about the modernisation required  by the economic integration. 

Conclusion 

Latvia will have some difficulty in meeting the acquis communautaire in the medium 
term because legislative reform is progressing slowly and existing commitments 
concerning exclusive rights for the public operator are a barrier to liberalisation. 
Greater competitiveness for the public operator must be achieved to attract the 
investment needed to modernise and face up to competition. 

Audio-visual 

The audio-visual acquis aims, in the context of the Internal Market, for the provision 
and free movement of audio-visual services within the EU as well as the promotion of 
the European programme industry.  The Television Without Frontiers Directive, 
which is applicable to all broadcasters regardless of the modes of transmission 
(terrestrial, satellite, cable) or their private or public nature, contains this acquis, 
setting down basic rules concerning transfrontier broadcasting.  The main points are: 
to ensure the free movement of television broadcasts throughout member states; to 
promote the production and distribution of European audio-visual works (by laying 
down a minimum proportion of broadcasting time for European works and those by 

56 

independent producers); to set basic standards in the field of television advertising; to 
provide for the protection of minors and to allt>w for the right of reply. 

The Europe Agreement provides for co-operation in the promotion and modernisation 
of the audio-visual industry, and the harmonisation of regulatory aspects of audio 
visual policy. 

The Television Without Frontiers Directives is a Stage I measure in the White Paper. 

Descriptive Summary 

Only limited information is available concerning the situation in this field in Latvia. 

The legal framework for the audio-visual sector is determined by the 1995 Radio and 
Television Law, the Law on the Press and Other Media, and the Acts of the National 
Board of Radio and Television. 

Current and Prospective Assessment 

The audio-visual sector in Latvia is attempting to re-establish itself after major 
upheavals in recent years, and is characterised by rapid growth and constant change. 
Its ability properly to adhere to the acquis presupposes an upgrading of the capacity of 
the programme-making industry to meet the important challenges of an adapted 
regulatory framework. 

Although full information on Latvian audio-visual legislation is lacking, the analysis 
to date reveals a number of deficiencies, including questions of freedom of reception, 
jurisdiction, promotion of European works, and advertising rules. 

A revision of the current legislation in this sector is due to begin in 1997.  The Latvian 
Government has stated that this will address all the current deficiencies. 

Conclusion 

Provided that the necessary legislative amendments are pursued with sufficient 
urgency and that they are accompanied by the necessary structural adaptation of the 
industry, Latvia should be able to meet EU requirements in the audio-visual sector in 
the medium term. 

3.3  Economic and Fiscal Affairs 

Economic and Monetary Union 

By the time of Latvia' s accession, the third stage of EMU will have commenced.  This 
will  mark  important  changes  for  all  Member  states,  including  those  that  do  not 
participate  in  the  euro  area.  All  Member  states,  including  the . new  ones,  will 
participate  fully  in the  economic  and  monetary union.  Their economic policies  will 
be  a  matter  of common  concern  and  they  will  be  involved  in  the  coordination  of 

57 

economic  policies  (national  convergence  programmes,  broad  economic  guidelines, 
multilateral  surveillance,  excessive  deficit  procedure).  They  will  be  required  to 
respect the stability and growth pact, to renounce any direct central bank financing of 
the  public  sector  deficit  and  privileged  access  of public  authorities  to  financial 
institutions, and to have completed the liberalisation of capital movements. 

Accession means closer mo~etary and exchange rate co-operation with the European 
Union.  This will require strengthening structural reforms in the area of monetary and 
exchange rate policies.  Member states not participating in the euro area will be able 
to conduct an autonomous monetary policy and participate in the European System of 
Central  Banks  (ESCB)  on  a  restricted  basis.  Their  central  banks  have  to  be 
independent and have price stability as  their primary objective.  Monetary policy has 
to  be  conducted  with  market-based  instruments  and  has  to  be  "efficient"  in 
transmitting its impulses to the real economy.  Therefore, reforms need to be pursued 
to  tackle  factors  that  hinder  the  efficiency  of monetary  policy,  such  as  the  lack  of 
competition in the banking sector,  the  lack of development of financial  markets  and 
the problem of "bad loans" in the banking sector.  Finally all Member states shall treat 
their  exchange  rate  policy  as  a  matter  of common  interest  and  be  in  a  position  to 
stabilise their exchange rates in a mechanism yet to be decided. 

As  membership  of the  European Union implies  acceptance  of the  goal  of EMU,  the 
convergence  criteria  will  have  to  fulfilled  by  Latvia,  although  not  necessarily  on 
accession.  While  the  fulfilment  of the  convergence  criteria  is  not  a  precondition  for 
EU  membership,  they  remain  ,key  points  of  reference  for  stability  oriented 
macroeconomic  policies,  and  must  in  time  be  fulfilled  by  new  member  states  on  a 
permanent basis.  Hence  the  successful  conclusion  of systematic  transformation  and 
market  oriented  structural  reforms  is  essential.  Latvia's  economic  situation  and 
progress has already been analysed in preceding chapters of this Opinion. 

Current and Prospective Assessment 

The independence of the Bank of Latvia from the government is largely guaranteed by 
the Law on the Central Bank. Price stability is the stated objective of the central bank. 
The provisions of the Law concerning state budget financing  are not  in line with the 
Treaty requirements.  This  is  because the provisions  of the  Law on the  Central  Bank 
concerning the limits of the Central Bank budget deficit financing  are  amended every 
year by an agreement between the Central Bank and the Ministry of Finance. In 1995, 
due to a sharp budget crisis, the yearly amendments to the Law were not respected. 

Monetary  policy  in  Latvia  has  been  effective  in  reducing  inflation  but  it  is  still 
hindered  by  the  relative  youth  and  lack  of depth  of financial  markets.  A  growing 
Treasury  Bill  market  (with  rates  falling  and  maturities  lengthening)  provides 
additional  support  for  the  higher  local  currency  rating  and  underpins  the  ongoing 
development of still narrow capital markets.  The  Latvian banking sector is  gradually 
recovering  from  the  1995  crisis,  and  it  is  characterised  by  a  high  degree  of 
privatisation.  In  may  1996,  75%  of the  total  share  capital  was  in  private  hands,  of 
which 40% is  accounted for by foreign ownership. The bankruptcy law for banks was 
approved  in  1996  but  it  is  still  difficult  to  enforce.  A  standard  range  of indirect 

58 

instruments are used by the Central Bank but they  are not yet fully  effective mainly 
because the money market is still very thin. 

Since February  1994,  the  Latvian exchange rate regime  is  a peg to  the  IMF  Special 
Drawing  Rights  (SDR).  It has  been  used  as  the  linchpin  of the  monetary  policy 
strategy  in  the  fight  against  inflation.  During  the  1995  banking  crisis,  the  Central 
Bank succeeded  in keeping _the  exchange  rate  stable  by tightening  monetary policy. 
Since then a sound fiscal  stance and stricter central bank supervision on the financial 
sector have helped to keep the exchange rate stable. 

Conclusion 

It is  premature  to  judge  whether  Latvia  will  be  in  a  position,  by  the  time  of its 
accession,  to  participate  in  the  euro  area;  that  will  depend  on  the  success  of its 
structural  transformation  permitting  to  attain  and  to  adhere  permanently  to  the 
convergence criteria, which are not however a condition of accession. 

Latvia's participation in the third stage of EMU as  a non-participant in the  euro  area 
poses  problems  in  the  medium  term.  The  provisions  and  the  practice  of the  central 
bank's budget deficit  financing  are  not yet fully  compatible with  EC  rules.  While 
the record of exchange rate stability and inflation reduction is encouraging, sustained 
efforts need to be continued to strengthen the banking sector whicp. is still vulnerable. 

Taxation 

The acquis in the area of direct taxation mainly concerns some aspects of corporation 
taxes  and  capital  duty.  The  four  freedoms  of the  EC  Treaty have  a wider impact on 
national tax systems. 

The indirect taxation acquis  consists primarily of harmonised  legislation in the  field 
of  Value  Added  Tax  and  excise  duties.  This  includes  the  application  of  a  non 
cumulative  general  tax  on  consumption  (V AT)  which  is  levied  on  all  stages  of 
production  and  distribution  of  goods  and  services.  This  implies  an  equal  tax 
treatment of domestic and non-domestic (import) transactions.  The V AT acquis also 
contains transitional arrangements for the taxation of transactions within the European 
Union  between  taxable  persons. 
In  the  field  of excise  duties  the  acquis  contains 
harmonised tax  structures and minimum rates of duty together with common rules on 
the holding and movement of harmonised excisable goods  (including the use of fiscal 
warehouses).  As a result of the introduction of the Single Market, all fiscal controls at 
the Community's internal frontiers were abolished in January 1993. 

The mutual assistance between member state tax authorities is  an important feature of 
administrative cooperation in the Internal Market; the respective Directive cqvers both 
direct and indirect taxation. 

The Europe Agreement contains provisions on approximation of legislation in the area 
of indirect taxation. 

59 

The  White  Paper  contains  as  Stage  I  measures  those  which  make  up  the  main 
requirements of the indirect taxation acquis (essentially, those measures applied in the 
Community  up  to  1993),  and  as  Stage  II  measures  those  which  are  in  addition 
necessary to implement the full.indirect taxation acquis. 

Descriptive Summary 

·  Direct Taxation 

The  two  company  taxation· Directives  and. the  Arbitration  Convention provide  for  a 
mechanism  which.  applies  on  the  basis  of reciprocity.  Respective  provisions  can 
therefore by definition not be expected to exist before accession. 

Indirect Ttaxation 

The overall contribution of V AT and excise duty revenue to  the Latvian state budget 
was  about  39%  and  14%  respectively  in  1995.  This  is  expected  to  continue  on  an 
upward trend. 

Value Added Tax 

The current Latvian VAT system was introduced in May  1995  replacing the previous 
Turnover Tax.  Latvia  applies  a  single  V AT  rate  of 18%  which  is  applicable  to  all 
taxable transactions, including imports. 

Certain activities are exempt from  V AT without the right to  claim the input credit on 
such  supplies.  These  exemptions  relate  mainly  to  activities  in  the  public  interest, 
financial  and  insurance  services,  property  and  lotteries  and  similar  games.  Taxable 
persons are entitled to  deduct VAT incurred on their purchases for business purposes 
of  goods  and  services.  However,  the  Latvian  V AT  Act  does  not  contain  any 
provisions  enabling  tax  to  be refunded to  taxable persons  not  established within the 
country. 

Excise 

The current  system of excise  duty in Latvia was  introduced  at  the  same  time  as  the 
V AT system.  Excise duties are levied on a wide range of products including products 
other than those subject to common excise duties within the Community (mineral oils, 
alcohol  and  alcoholic  beverages  and  manufactured  tobacco).  For  each  product 
category,  the  duty  is  specific  in  nature;  nevertheless  for  a  few  products  including 
certain categories  of tobacco,  the duty  is  ad valorem.  Tax  stamps  and  special  labels 
are used for tobacco products and alcoholic beverages. 

Mutual Assistance 

The tax  administration has  not yet had  to  develop  its  capacity  for  mutual  assistance 
with the tax  authorities of Member States,  since mutual  assistance is  a feature  which 
would only become applicable on accession: 

60 

Current and Prospective Assessment 

Value Added Tax 

The current V AT system in Latvia has been based on the main principles of the V AT 
legislation of the Community.  However, it is characterised by being very general and 
inconsistent in its application. 

The  Latvian  approach regarding  exempt transactions  deviates  to  a  large  extent  from 
that  of the  Community  legislation both  in  terms  of scope  and  substance;  legislative 
amendments  are  planned.  Since  Latvia  does  not  operate  any  atTangements  for  the 
refund  of  V AT  to  non-registered  foreign  taxable  persons,  V AT  represents  an 
increased cost to such traders. 

Latvia's membership of the European Union would require  substantial  adjustment to 
bring the  V AT  legislation into  line with the requirements  of the Community acquis, 
both in respect  to  the  general  provisions  of the  Community V AT  legislation  and  as 
regards  the  system  of taxation  necessary  in  a  Community  with  no  internal  frontier 
controls. 

The  Latvian  national  strategy  plan  for  implementing  the  recommendations  of the 
White Paper regarding V AT provides for some changes to the V ~T Act. 

Excise 

There  are  significant  discrepancies  between  the  Latvian  excise  regime  and  EU 
requirements. 

Firstly,  there  ~xists  no  ex~ise suspension  system  where  goods  can  move  between 
authorised  tax  warehouses  without payment of duty.  In  addition,  the  registration  of 
traders for excise purposes needs to be reviewed. 

Secondly,  taxation  of  certain  tobacco  products  on  an  ad  valorem  basis  is  not 
compatible with Community law.  Similarly the specific duty on cigarettes as well as 
the  tax  treatment of beer are  not in conformity with the requirements  of Community 
excise legislation. 

In  the  event  of accession,  excise  duties  on  products  not  belonging  to  the  above 
mentioned categories could continue to  apply provided, however, that they would not 
give rise to  border-crossing formalities  in  trade between member states  and that they 
complied  with  the  principles  of non-discrimination  between  national  products  and 
products originating in other member states. 

In order to  ensure a correct application of Community excise legislation it is essential 
that Latvia sets up  a warehousing system based on the Community model  a~ soon as 
possible,  strengthens  control  procedures  and  adapts  the  structure  and  level  of its 
excise rates in such a way that they comply with Community requirements. 

The Latvian national strategy plan for implementing the provisions of the White Paper 
envisages  adjustment  of Latvian  excise  legislation  in  line  with  White  Paper Stage  I 

61 

measures by 1 January  1998.  The main objectives  are  the gradual  approximation of 
excise rates  on motor fuels  towards the EU minimum rates,  and the design of a new 
excise tax system applicable to  five groups of goods,  three of which are oil products, 
alcoholic beverages and tobacco products.  As short term objectives, it is intended to 
create  a  single  licensing  authority  for  excise  traders  and  to  strengthen  control 
procedures  for  using  tax  stamps.  However  no  full  harmonisation  of legislation  is 
planned. 

Mutual Assistance 

There would also be a need, on accession, to implement the appropriate arrangements 
for administrative cooperation and mutual assistance between Member States.  These 
requirements are essential for the functioning of the Internal Market. 

Conclusion 

The acquis in respect of direct taxation should present no significant difficulties. 

As  regards  indirect  taxation,  although  some  progress  is  being  made,  a  considerable 
effort  will  be  required  if Latvia  is  to  comply  with  the  acquis  concerning  V AT  and 
excise duties in the medium term. 

It  should  be  possible  to  start  participating  in  mutual  assistance  as  the  tax 
administration develops its expertise in this respect. 

Statistics 

The  main  principles  of the  Community  acquis  relate  to  the  impartiality,  reliability, 
transparency, confidentiality (of individual information) and dissemination of official 
In  addition  there  exists  an  important  body  of principles  and  practices 
statistics. 
concerning the use of European  and  international  classifications,  systems  of national 
accounts, business registers, and various categories of statistics. 

The  Europe  Agreement  provides  for  co-operation  to  develop  effective  and  reliable 
statistics, in harmony with international standards and classifications. 

The White Paper includes no provisions in this field. 

Descriptive Summary 

The Central Statistical Bureau (CSB)  is  the central body charged with producing and 
disseminating official statistics in Latvia. 

The  legal  basis  for  Latvian  official  statistics  consists  of the  1993  Act  on  State 
Statistics. 

62 

Current and Prospective Assessment 

Amendments  which  have  been  introduced  into  the  1993  Act  represent  progress 
towards compatibility with EU standards.  Important progress is still rtquired. 

There  are  deficiencies  in  Latvian  statistics  in  sectors  such  as  the  business  register, 
business  statistics,  national  . and  agricultural  accounts,  and  the  application  .of 
classifications and nomenclature. 

Conclusion 

Latvia  will  require  a  sustained  effort  if it  is  to  comply  with  EU  requirements  for 
official statistics in the medium term. 

3.4  Sectoral Policies 

Industry 

EC industrial policy seeks to enhance competitiveness, thus achieving rising living 
standards and high rates of employment.  It aims at speeding up adjustment to 
structural change, encouraging an environment favourable to initiative, to the 
development of undertakings throughout the Community, and to industrial co 
operation, and fostering better exploitation of the industrial potential of policies of 
innovation, research and technological development.  EU industrial policy is 
horizontal by nature.  Sectoral communications aim at transposing horizontal concepts 
into specific sectors.  EU industrial policy results from an articulation of instruments 
from a number of Community policies; it includes both instruments related to the 
operation of markets (product specification and market~access, trade policy, state aids 
and competition policy) and measures related to industry's capacity to  adapt to change 
(stable macro-economic environment, technology, training etc.). 

In order to cope with competitive pressure and market forces within the Union, the 
industry of applicant countries needs to have achieved a certain level of 
competitiveness by the time of accession.  The applicant countries need to be seen as 
pursuing policies aimed at open and competitive markets along the lines set out in 
Article 130 ("Industry") of the Treaty.  Co-operation between the  EC and the 
applicant countries in the fields of industrial co-operation, investment, industrial 
standardisation and conformity assessment as provided for in the Europe Agreement 
is  also an important indicator of development in the right direction. 

Descriptive Summary 

Latvia's industrial output stood at around ECU 1.1  billion in 1995, equivalent to about 
one third of the industrial production of Luxembourg.  Industry production accounts 
for 20% of total employment.  The total number of enterprises in industry is estimated 
at around 44,000,  90% of which are small firms. 

63 

At the beginning of transition industry was the biggest employer in the economy.  The 
transition process entailed a marked decline in industrial production.  The share of 
industry in GDP stood at 33% in 1995, down from 46% in 1990 (the share of the 
service sector has instead increased from 30% to 50%).  The decrease reached -60% 
between 1991  and 1993, slowed down between 1993 and 1995 and worsened in 1995 
due to the banking crisis of May 1995.  As of today this negative trend has not yet 
fully reversed. 

· 

Latvia is characterised by a small-sized and diversified industry.  Its industrial 
tradition dates back to the 19th century, when the region was the Russian empire's 
main centre for mechanical engineering, wood craft and flax industries.  During the 
period of independence (1918~1940), industry diversified and focused on the 
manufacturing of consumer goods for the local market (tableware, cameras, radios, 
bicycles, cars).  During the Soviet era emphasis was put on the development of heavy 
industries based on imported raw materials (steel and transport equipment), while the 
output of light industry was maintained (telephones, radios, washing machines).  After 
independence  and the consequent loss ofLatvia's main outlets in Eastern European 
countries, the industrial crisis mostly affected those traditional sectors in need of 
restructuring.  As a result, the industrial structure is changing to become more similar 
to that  of its Baltic neighbours.  Industrial growth now tends to concentrate on low 
value added, labour intensive sectors, i.e., food processing industry, construction, 
forestry, and clothing, which have been successful in progressive integration into the 
EU market, while developing competitive advantages in trade with the Russian 
Federation and other CIS countries.' 

Latvian industry: main production sectors in Jan-Sept. 1996 

Sector 

Food processing 

Textiles I Clothing 

Wood processing 

Chemicals 

Transport vehicles 

Machinery &  equipment 

Non-metallic mineral products 

Printing & publishing 

Metal products 

%-share industrial 
production 

(value added) 

44 

11 

8 

8 

6 

4 

3 

2 

2 

64 

Electrical machinery & apparatus 

Furniture 

Electronic engineering 

Total of the above 

Other sectors 

Total Industry 

Industrial production as % GDP 

2 

2 

1 

93 

7 

100 

17 

Food processing is the leading sector in Latvia in tenns of both value added and 
employment.  Production h~ reoriented to meet the requirements of the local market, 
which is reflected by a consequent decrease in imports.  Growth is mainly directed to 
dairy and fish products.  Abnost 90% of exports in this sector go to the CIS. 

Wood processing is the spearhead ofLatvian industry.  It is the only sector which 
records a rise in employment.  Wood is one of the country's major national assets (it 
covers 40% of the territory).  Wood products account for one fourth ofLatvian 
exports (of which 85% go to western markets and mainly to the EU). The share of 
processed products (sawn materials as opposed to round wood) in exports is 
increasing.  Manufacturers are trying to develop this trend, by implementing 
marketing principles (identification of niche markets, collaboration with western 
designers to boost exports of furniture, etc.). 

Textiles/clothing is another dynamic se,ctor, which has successfully restructured. 
New companies have been created in the clothing sector.  The sector records the 
fastest increase in exports (50% of the exports are directed to the EU and 30% to the 
CIS). 

Construction materials industry is growing fast, which is mainly achieved through 
the repairs of the road network and exports of cement to western countries. 

Chemicals industry maintains its production levels thanks to outlets in neighbouring 
Baltic and CIS countries. 

The production of machinery and electrical devices is slightly narrowing, though 
exports to EU and Latvia are growing. 

Steel and engineering industry (such as the manufacturing of mini buses, passenger 
rail cars, radios and telephone equipment) inherited from the Soviet Union have failed 
to restructure and continue their decline. 

Acceleration of the process was achieved in 1996 through a centralisation to the 
Latvian Privatisation Agency (LP A), to which 90% of assets were transferred.  LP A 
has privatised 66% of them so far.  Small-scale privatisation is almos·t completed, 
often with significant foreign participation.  In order to encourage more foreign 

65 

participation in the privatisation process, the restrictions on purchase of land by 
foreigners were liberalised in January 1997.  The Government objective i~ to finalise 
privatisation/liquidation of state assets by mid-1998.  In 1996 the share of the non 
state sector in industrial output accounted for 42%. 

Current and Prospective Assessment 

Latvia experiences the most dramatic change in industrial structure among applicant 
countries.  It is also the only applicant country in which industry is up to now still in 
decline.  It cannot be excluded that the economic transition will lead to a certain de 
industrialisation ofthe country, coupled with a. relatively strong service sector, which 
reflects Latvia's geographic position as a transit country, as wen· as a specialisation in 
financial services. 

FDI has been relatively large considering the size of the economy: about 20% of total 
investment has been financed that way- even more in 1996-, but it appears that only 1/5 
ofFDI goes to industry.  Strong fulancial policies have undetpinned stabilisation for 
some time, so that the domestic banking system is now, after a shake-out in 1995, 
starting to provide medium to long term financing for industry.  Given this favourable 
environment, it is SUiprising that investment is still not picking up.  Once it does, as we 
expect, the growth prospects appear to be good.  But growth is likely to be uneven.  One 
could expect that Latvian industry will grow mainly in domestically orientated sectors 
(including agri-food) and a few highly focused medium-sized firms that use local 
resources (including wood from Belarus and flax from Lithuania) and sell their niche 
products on the world market. 

Conclusion on industrial competitiveness 

Latvia has managed to restructure its inherited industrial base to a considerable extent 
The most urgent need for the future is the strengthening of measures to foster 
domestic capital formation and FDI.  Nevertheless, not all industrial sectors are 
assured of their competitiveness. Provided that current positive trends continue 
regarding privatisation, enterprise restructuring, and the ability to attract further FDI, 
the Latvian economy should be able to cope with European integration in the mid 
term. 

An evaluation of the acquis specific to the free circulation of industrial goods is to be 
found in the separate section on the internal market. 

Agriculture 

The Common Agricultural Policy aims to maintain and develop a modem agricultural 
system ensuring a fair standard of living for the agricultural community and the 
supply of food at a reasonable price for consumers, and ensuring the free movement of 
goods within the  EC.  Special attention is given to the environment and rural 
development.  Common market organisations exist to administer the CAP.  These are 
complemented by regulations on veterinary health, plant health and animal nutrition 

66 

and by regulations concerning food hygiene.  Legislation also exists in the area of 
structural policy, originally developed primarily to modernise and enlarge agriculture, 
but more recently with an increasing emphasis on the environment, and the regional 
differentiation of the policy.  Since reforms in 1992, increasing contributions to farm 
support have come from direct aid payments compensating cuts in supports prices. 

The Europe Agreement provides  the  basis  for  agricultural  trade  between Latvia and 
·  the Community and aims to· promote cooperation on the modernisation, restructuring 
and privatisation ofLatvia's agriculture sector as well as the agro-industrial sector and 
phyto-sanitary standards. The White Paper covers the fields of veterinary, plant health 
arid  animal  nutrition  controls,  as  well  as  marketing  requirements  for  individual 
commodities.  The purpose of such  legislation  is  to  protect consumers,public  health 
and  the health of animals and plants. 

Descriptive Summary 

Agricultural Situation 

The value of the agricultural production in 1995  was  approximately 0.11% of that of 
the Union. 

In the years  after independence production contracted and the share of agriculture of 
GDP fell.  In 1995 agriculture and forestry contributed 9.9% of the GDP and over 18% 
of the employment.  Total  agricultural area in Latvia is  2.54 million ha of which  1. 7 
million ha are arable land (39%).  413,400 ha is used for fodder crops, 408,000 ha for 
cereals  and  75  100 ha for  potatoes.  44%  of Latvia is  covered by forests  (2.9 million 
ha)  and timber production  is  rising  steadily.  Timber occupies  26%  of Latvia's  total 
export volume. 

Since  independence  Latvia  has  pursued  a  privatisation  strategy.  At  present  large 
family farms  occupy 47% of the agricultural land (average size:  20 ha), while 32% is 
occupied by very small farms or by household plots (average size: 2-4 ha) and 17% by 
656 "statutory companies".  As a result of the land reform the state land reserve holds 
542,000  ha of unclaimed  land.  On  1 June  1996  46 500  titles  were  registered  at  the 
land registry, representing 678  100 ha. 

In  1995  Latvia produced  690 OOOt  cereals  (58%  self sufficiency),  864 OOOt  potatoes 
(167%), 250 OOOt  sugar (43%), 330 OOOt  vegetables and fruits,  937 OOOt  milk (100%), 
62 OOOt beef meat (66o/o)  and 56 OOOt pig-meat (66%). 

The share of agricultural  trade  (including  fish)  was  9.7%  for  imports  and  15.9°/o  for 
exports.  Latvia is a net importer of agricultural products.  The trade balance with the 
EU  has  deteriorated,  in  particular  because  of  increasing  imports  from  the  EU. 
However, the trade balance with the New Independent States remains positive.  Main 
exports  are  fish  (10%),  beverages  (10%)  and  dairy  products  (9.7%).  Dominant 
imports are sugar (12.5%), beverages (12.3%) and cereals (11 %). 

The processing  industry,  except  grain,  has  been privatised,  but  generally  operates  at 
15-30% of its capacity. 

67 

Agricultural Policy 

The  PSE  (Producer  Subsidy  Equivalent)  calculated  by the  OECD  was  8%  in  1995, 
compared to 49% for the EU. 

Latvia  aims  to  support  family  fanning  and  to  establish  new  agricultural  markets. 
Price support policies are in first  line  limited to  border protection after artificially set 
prices  paid  by  the  state  oW11ed  downstream  industry  had  to  be  abolished  due  to 
privatisation. 

Subsidies  have  been  used  since  1994  and  are  linked  to  the  sectoral  policies.  The 
support  policies  include  export  subsidies .(ECU  2.2  million  in  1994),  interest  rate 
subsidies and credit support (fann credits amounted to  ECU 26  million in 1994).  In 
addition a Sugar Promotion Fund and a Regional Adjustment Fund for cereals help to 
subsidise credit rates and fund projects in their respective sectors. 

Direct  payments  exist  in  the  form  of diesel  fuel  subsidies  and  promotion  of high 
quality breeds and seeds.  Altogether they account for a small proportion of subsidies. 
In  1995  State procurement through the  State Grain Bureau was  1%  of total domestic 
grain consumption; the declared target was to establish a grain reserve of up to 60% of 
total  domestic  consumption.  In  a  new  draft  law,  which  will  be  passed  within  short 
time,  this  target  has  been  reduced  to  approximately  3  %  of  total  domestic 
consumption (three months human consumption of wheat and rye). 

Agricultural  prices  are  significantly  lower  than  EC  prices  (in  1995  e.g:  wheat  and 
barley  80.5%  and  46.5%  respectively  of the  average  EC  prices,  beef:  49%,  milk: 
4 7% ),  with the exception of pig-meat (24.5%  above  EC prices).  However, milk and 
meat producer prices  are  rising  in  real  terms.  Consequently  livestock production  is 
increasingly profitable.  Market support prices similar to  CAP  intervention prices are 
not applied  in Latvia.  In  1995  Latvia spent  5.9%  of the  total  budget on agriculture,' 
which is an increase from previous years. 

Rural  development  policies  are  receiving  increasing  attention. 
The  Latvian 
Government  is  in  the  process  of implementing  a  rural  diversification  programme 
which includes financial assistance to investments in the rural areas. 

Border  protection  is  the  predominant  support  instrument  in  Latvia.  The  tariff 
structure reflects the policy of protecting domestic production. 

The Free Trade Agreement between Latvia and the European Community entered into 
force  on  1  January  1995.  Reciprocal  agricultural  concessions  are  included. 
Community concessions were improved in  1996  following  the  implementation of the 
EU and requested improvements. 

In March  1997 Latvia cancelled the quantitative sugar import restrictions  and  instead 
automatic  licences  are  granted  by  the  Ministry  of Agriculture.  Also  for  grain  and 
cereals  new  laws  eliminating  quantitative  import  restrictions  have  been  submitted to 
the Parliament and envisaged to be adopted during 1997. 

68 

During  1996 the Baltic FT A  was  extended  to  agricultural products.  This  agreement 
establishes complete free trade of all products meeting the Baltic rules of origin.  The 
Agreement entered into force by 1 January 1997 and is intended to be the first  step in 
the  formation  of a  customs  union.  Latvia  is  now  negotiating  membership  of the 
WTO. 

Latvia is beginning to introdl!ce the legislation identified in the White Paper. 

Current and Prospective Assessment 

Land  reform  and  privatisation  is  almost  complete,  whereas  the  registration  of 
entitlements  is  lagging  behind.  A  proper  land  market  has  not  yet  been  developed, 
which hampers the necessary structural adjustment.  Privatisation is  almost complete 
in  the  food  marketing  and  processing  industry.  However,  restructuring  is  relatively 
slow  and  industry  is  very  vulnerable  to  external  competition;  quality  standards  and 
efficiency levels  are low by  EC standards.  As  yet neither slaughterhouses  nor dairy 
plants  meet  EU  hygiene  standards.  The  best  plants  are  expected  to  reach  EC 
standards  in  1-2  years.  However,  as  a transitional measure,  export  of dairy products 
to the EU is possible. 

At  present  Latvia  is  not  applying  any  market  management  policies  similar  to  the 
Common Agricultural Policy. 

This  includes  key  instruments  such  as  dairy  quotas,  key  features  of the  arable  crop 
scheme  (base  area,  set-aside,  compensatory  payments,  and  premia  in  the  livestock 
sector), as well as rural and structural development programmes.  Accession to the EU 
would imply substantial changes from the current agricultural policies. 

Management  and  control  of these  measures  would  require  relatively  sophisticated 
administrative systems, including an appropriate land register and cattle identification 
and registration systems.  As  a general observation,  it is  clear that  the  administrative 
capacity would need to  be further developed in these  areas  if these measures were to 
be applied in Latvia. 

It  is  difficult  to  foresee  at  this  stage  what  will  be  the  development  of agricultural 
support prices  in Latvia in the period before accession;  this will depend on a number 
of factors  including  the  domestic  economy,  the  situation  on  export  markets,  and  the 
development of price support levels in the Union. 

Latvia is introducing the legislation identified in the White Paper. 

Latvia  intends  to  set  up  a  co-ordination  division  for  the  harmonisation  of national 
veterinary legislation with  EC requirements.  Furthermore,  it  aims  at  creating  a  unit 
to  provide  veterinary  certification  in  compliance  with  EC  requirements.  The 
government has recognised that further legislation is required and has set deadlines for 
approximating legislation ranging from  1 January 1997 to the end of 1999. 

Further  work  is  needed  on  the  establishment  of a  fully  resourced  official  veterinary 
service, including the imposition of effective controls at border inspection points,  and 
on  goods  transiting  the  country.  Certification  procedures  need  to  be  further 

69 

developed,  and  an  effective  animal  identification  system  has  to  be  introduced. 
Legislation on animal welfare will need to  be implemented.  There will be a need to 
upgrade  certain  food  processing  establishments  both  for  trade  and  for  the  national 
market.  Latvia  still  vaccinates  against  classical  swine  fever  and  progress  to  a  non 
vaccination is necessary but may be difficult to implement. 

· 

As  regards  plant  health  a  timetable  for  approximation  to  BC  legislation  has  been 
. presented.  The  Latvian  authorities  have  indicated  there  may  be  implementation 
problems concerning specific measures (e.g.  ~egistration of producers, plant passport 
system) and infrastructure (e.g. staff training, equipping of laboratories). 

Legislation  on  seeds  and  propagation  material,  and  quality  standards  of agricultural 
seed  appears  to  be  only  partially  consistent  with  EC  legislation  and  further 
approximation  will  be  necessary.Latvia  does  not  currently  enjoy  Community 
equivalence for any species. 

As  regards  animal  nutrition,  the  current  legislation  is  not  compatible  with  EC 
legislation.  Approximation of Latvian  legislation to  EC  law  is  in  an  initial  stage.  It 
appears  that  inspection  and  control  infrastructures  will  need  to  be  reorganised  and 
upgraded to  ensure adequate implementation of the acquis.  A similar situation exists 
as regards organic farming, pesticide residues and plant protection products. 

Conclusion 

Substantial sustained  efforts  of alignment to  the  acquis  are  still necessary,  although 
progress has been made in adopting the measures mentioned in the White Paper. 

Particular efforts are needed in relation to  : 

implementation  and  enforcement  of veterinary  and  phyto-sanitary  requirements, 
and  upgrading  of  establishments  to  meet  EC  standards;  this  is  particularly 
important with regard to the inspection and control arrangements for protecting the 
EU external border; 

-

strengthening  of the  administrative  structures  to  ensure  the  necessary  capacity  to 
implement and enforce the policy instruments of the CAP; 

-

further restructuring of the agro-food sector to improve its competitive capacity. 

Since  only  a  limited  number  of the  mechanisms  of the  common  agricultural  policy 
presently  exist,  fundamental  reform  of the  agricultural  policy  will  be  needed,  and  a 
substantial effort will be necessary to prepare for accession in the medium term. 

Fisheries 

The  Common  Fisheries  Policy  includes  common  market  organis~tions,  structural 
policy,  agreements  with  third  countries,  management  and  conservation  of  fish 
resources, and scientific research in support of these activities. 

70 

The Europe Agreement iJ?.cludes measures concerning trade in fisheries products with 
the  Community  and  provides  for  co-operation.  The  White  Paper  includes  no 
measures in this fi~ld. 

Descriptive Summary 

In 1995,  12 000 people were employed in the fisheries  sector which equates to  1% of 
· total  employment  - a  third  less  than  in  1990.  The  1995  catch  totalled  150 OOOt  and 
landings  were  valued  at  27  million  ECU.  Fisheries  is  one  of the  most  important 
branches of the food industry. 
· 

The high-seas fleet consisted of 17 vessels on 1 January 1996 (down from 90 in 1991) 
and in  1995  caught  91  SOOt  of mostly sardines  and horse mackerel  from  the  Central 
East  Atlantic  (Mauritania).  Before  independence,  the  annual  catch  was  500 OOOt  of 
which a large part went to the market in the Soviet Union. 

The 171-boat Baltic fleet is privately owned and fishes,  under quota,  for cod, herring 
~and sprat.  The quotas of the  latter two  species are only half-used and so  the catch is 
not sufficient for the processing branch's needs. 270 boats fish the coastal waters. The 
total catch of the Baltic amounted in 1995 to  57 OOOt.  The average age of each vessel 
in the. fleet  is  twenty years.  The number of fishing  vessels  was  reduced by 30  %  in 
recent years. 

The distant water fleet depends for 80% of its catch on an agreement with Mauritania 
and  exports  most  of  its  catch  while  the  Baltic  and  coastal  fleets  provide  more 
employment and supply the processing industry. 

All  34  enterprises  in  the  processing  industry  for  fishery  products  are  private.  Five 
major plants  (more than 500  employees)  and  the other smaller ones  produce  a wide 
range  of products.  The  total  employment  in  the  processing  industry  is  6 336  -
outstripping the number in fishing.(S  500) 

As aquaculture is concerned, there are eight state-owned farms  engaged in restocking, 
employing 200 people. Private fish farmers are few, but their number is growing. Carp 
is the traditional species, but rainbow trout is also becoming popular. The total inland 
water catch was 1 100 tons in 1995. 

As a trading partner of the Community, Latvia represents 0.06% of  EC total imports 
(independently of origin) of fisheries products and 2,4% from  candidate countries. As 
regards  EC  exports,  Latvia receives  0.16% of the  total  exports  of fisheries  products 
and 1,9 % to the candidate countries (in terms of value). 

Management of the resources in the Baltic is currently accomplished between EU and 
Latvia  in  the· framework  of a  common  body  - the  Intematio'Ital  Baltic  Sea Fishery 
Commission.  Latvia has  concluded  fisheries -agreements  with  Faraoe Islands,  Russia 
and the USA. 

71 

Current and Prospective Assessment 

Latvia's  production  and  foreign  trade,  when  compared  to  the  corresponding  EC 
figures,  are  low  and  therefore  unlikely  to  have  any  significant  impact  upon  the 
Community  as  a  whole.  According  to  the  data  available  as  regards  fisheries 
agreements  concluded and Latvia's membership  to  international  or regional  fisheries 
organisations, no major problems should be expected. 

The major ports have their own cold stores, but sanitary and hygienic conditions need 
improving as well as extensive repairs, modernisation and purchase of equipment. 

The  reduction  of the  fleet  capacity,  the  modernisation  of the  whole  sector  and  the 
determination of the necessary structural aid will become the main issues.  It will be 
necessary  for  Latvia  to  establish  a  fisheries  administration  which  is  capable  of 
implementing  the  Common  Fisheries  Policy  - in  particular,  the  management  of 
resources,  the  keeping  of a  fishing  fleet  register,  the  application  of structural  policy 
for  the  sector,  the  management  of the  market  scheme  and  the  collection  of  all 
statistical  data  - as  well  as  the  EU's  policies  on  health,  hygiene  and  environmental 
matters. 

Conclusion 

The  process  of modernisation  and  acquis  implementation  will  require  significant 
efforts.  In  the  medium  term  the  fishery  sector  does  not  appear  to  pose  any  major 
problem. 

Energy 

Main EU energy policy objectives,  as  reflected  in the  Commission White Paper "An 
energy policy for the EU" include enhancement of competitiveness, security of energy 
supplies  and  protection  of the  environment.  Key  elements  of the  energy  acquis 
comprise  of  Treaty  provisions  and  secondary  legislation  particularly  concerning 
competition and state aids,  internal energy market (including directives on electricity, 
price  transparency,  gas  and  electricity  transit,  hydrocarbons  licensing,  emergency 
response including security stock obligations,  etc.),  nuclear energy,  as  well as  energy 
efficiency  and  environmental  rules.  Development  of  Trans-European  Energy 
Networks and support for energy R&D are other important elements of energy policy. 
Ongoing  developments  include  liberalisation  of the  gas  sector,  energy  efficiency 
acquis and the Auto-oil programme. 

In the field  of nuclear energy,  the  acquis has  evolved substantially from  the original 
EAEC  Treaty  to  a  framework  of  legal  and  political  instruments, 
including 
international  agreements.  At  present,  it  addresses  issues  of  health  and  safety, 
including  radiation  protection,  safety  of  nuclear  installations,  management  of 
radioactive waste, investment including EURATOM financial  instruments, promotion 
of research, nuclear common market, supplies, safeguards, and international relations. 

The  Europe  Agreement  provides  for  co-operation  to  develop  ·the  progressive 
integration  of the  energy  markets  in  Europe  and  includes  provisions  on  assistance 

72 

within the  related  policy  areas.  The  White  Paper  preparing  CEECs  for  the  internal 
energy  market  underlines  the  need  for  full  application  of  key  internal  market 
directives  in combination with  EC ·competition  law.  As  to  the  nuclear  sector,  the 
White Paper refers to nuclear supply safeguards and shipment of radioactive waste. 

Descriptive Summary 

· Latvia depends  for  more  than  three-quarters  on energy imports,  mainly  from  Russia 
for  oil  and  gas,  but also  partly for  coal.  Some electricity is  imported  from  Estonia, 
Lithuania and Russia.  These import requirements account for an imnortant part of the 
country's  foreign  trade  deficit  (1994:  38%).  Domestic  resources  are  being  used, 
mainly  wood  chips,  hydropower  and  peat  which  together  represent  approximately 
18% of the country's energy balance. 

Energy  efficiency  is,  due  to  the  heritage  of 
obsolete technologies, more than two times lower than average EU levels. 

low  prices,  inadequate  policies  and 

With  its  pipelines  and  ice-free  ports  Latvia  is  a  transit  country  for  gas  and  oil 
originating  in  Russia..  However,  to  operate  to  the  satisfaction  of final  recipients, 
Latvia  will  need  to  invest  in  appropriate  metering  systems.  Latvia  could  provide 
useful underground gas storage capacity of strategic benefit to the EU. 

Better  connection  of Latvian  energy  networks  to  the  EU  are  sought.  Although  a 
possible  future  Baltic  electricity  ring  could  contribute  to  such  a  connection  it  is 
expected  that  in  the  short/medium  term  Latvia  will  remain  linked  to  the  Russian 
power system.  The regional role,  for  the Baltic region including Kaliningrad,  of the 
Riga load dispatch centre for electricity should be noted. 

Latvia  only  operates  one  nuclear  research  reactor  in  Salaspils  and  the  government 
accepted  to  shut  this  reactor  down  in  1996.  The  decommissioning  concept  for  the 
reactor has been developed. 

Current and Prospective Assessment 

The declared 1996 energy policy of the Latvian Government, which is in line with EU 
principles,  concerns  the  restructuring  of  the  energy  sector  according  to  market 
principles,  the  security  of  energy  supply,  a  focus  on  energy  efficiency  and 
environmental protection,  as  well  as  regional  co-operation  and  co-operation with the 
EU.  Particularly  in  the  energy  sector  such  Baltic  co-operation  is  beneficial  due  to 
complementarities among the countries concerned. 

The competition  framework  in the  energy  sector does  not yet  fulfil  the  directives  of 
the  internal  energy  market  in  combination  with  the  application  of  EC  competition 
law.  The  1991  Competition law and a Law on regulation of entrepreneurial activities 
in the energy sector (establishing a regulator but needing secondary legislation)  are  a 
first  step  towards  EU compliance.  Adoption of an  energy  law  which  will  define  the 
role of major actors in the sector as well as other energy legislation should however be 
stepped up. 

73 

The  large  companies  in  the  energy  sector  are,  with  the  exception  of the  recently 
privatised  Latvijas  Gaze,  state  dominated  monopolies,  but preparations  have  started 
for  privatisation of the other  main energy companies.  Oil, gas and coal import prices 
are market related, but particularly heat,  gas and electricity prices  for households are 
not yet  at real  cost  levels.  Unpaid  energy bills  have  led  to  indebtedness  of energy 
companies but the Government has started to address these difficulties. 

· Emergency preparedness in the energy sector, including the obligation to hold ninety 
days  of oil  stocks,  does  not  comply  with ,  the  acquis,  although  preparations for 
legislation  on  the  matter have started.  With a  view to  the  needed  investments  it  is 
anticipated that only thirty days can be reached in the next few years. Existing storage 
capacity,  which  should  be  refurbished,  could  in  principle  be  sufficient  to  hold  the 
necessary oil stocks. 

Latvia will have to make efforts to comply with  the acquis on energy efficiency (e.g. 
minimum  efficiency  norms,  labelling  household  appliances)  and  environment  (e.g. 
fuel quality standards), although work on these matters has started. 

Latvia is a transit country for uranium exports from  Russia and the NIS  to  EU users, 
and for the import and re-export of uranium sent by EU users to Russia for processing. 
Fuel  for  the  research  reactor  came  from  Russia. 
If,  after  the  shut  down  and 
decommissioning of the research reactor, a last planned spent fuel  shipment to Russia 
is  not  possible,  the  fuel  will  be  stored· in  dry  casks  on  a  temporary  basis  until  a 
definitive solution is found. 

Although Latvia has  no  nuclear power programme,  it  will  need  to  comply with  the 
Euratom Treaty and related policies  in such  fields  as  radiation protection,  supply  of 
nuclear materials,  safeguards and accession to  international agreements concluded by 
Euratom.  As  there  is  no  nuclear  programme  Latvia  is  not  yet  party  to  several 
international  organisations  and  regimes  in  the  nuclear  field.  However,  national 
legislation  implementing  these  regimes  is  understood  to  be  in  place  or  under 
preparation.  Latvia also has a full-scope safeguards agreement with the IAEA, so in 
the  areas  of supply  and  nuclear  common  market,  no  major  difficulties  in  applying 
Community legislation are expected. 

Conclusion 

Provided  that  current  efforts  are  intensified,  no  major  problems  are  foreseen  to 
approximate progressively to the -acquis in the medium term.  Of specific importance 
in the pre-accession period will be the adjustment of monopolies including import and 
export issues,  access  to  networks,  energy pricing,  emergency preparedness including 
the building up of mandatory oil stocks, energy efficiency and environmental norms. 

No major difficulties are foreseen for compliance with Euratom provisions, but Latvia 
should become rapidly party to certain international nuclear regimes. 

74 

Transport 

Community transport policy consists of policies and  initiatives  in three  fundamental 
areas: 

•  Improving  quality  by  developing  integrated  and  competitive  transport  systems 
based on advanced technologies which also contribute to environmental and safety 
objectives. 

-

•  Improving  the  functioning  of the  single  market  in  order  to  promote  efficiency, 
choice and user-friendly  provision of transport services while  safeguarding  social 
standards; 

· 

•  Broadening  the  external  dimension  by  improving  transport  links  with  third 
countries and fostering the access of EU operators to other transport markets( The 
Common Transport Policy Action programme, 1995-2000) 

The  Europe  Agreement  provides  for  approximation  of legislation  with  Community 
law and co-operation aiming to restructure and modernise transport, the improvement 
of access  to  the  transport  market,  the  facilitation  of transit  and  the  achievement  of 
operating standards comparable to those in the Community.  The White Paper focuses 
on  measures  for  the  accomplishment  of Internal  Market  conditions  in  tlie  transport 
sector, including such aspects as competition,~ legislative haimonisation and standards. 

Descriptive Summary 

Latvia's  virtually  ice-free  Baltic  ports  meant  that  it  was  a  significant  transit  route  for 
trade between the  former  Soviet Union and the West.  As  a result,  its  ports  developed 
capacities for particular trades which are no longer fully exploited.  The country's role as 
a  transit  corridor between Western Europe  and  Russia,  Belarus  and  the  Central  Asian 
States is however dependent on the state of relations with Russia, which have not always 
facilitated this traffic.  The establishment of new frontiers with Russia and Estonia and 
Lithuania has also affected the competitiveness of Latvia as a-transit route.  Latvia needs 
therefore to  invest in improvements to its East-West rail network and to  improve border 
crossing  infrastructures  at  all  ~he new  borders,  as  well  as  in  its  ports.  The  Latvian 
territory  is  crossed  by  one  Pan-European  Corridor,  as  identified  at  the  Pan-European 
Transport Conference in Crete. 

The  changes  in  the  Latvian  economical  patterns  have  led  to  a  sharp  decrease  in  the 
transport  demand  since  the  opening  of the  country,  although  transport  is  taking  an 
increasing share of GDP.  At the same time there is  an increasing change in the modal 
split,  with  road  transport  of passengers  increasing  its  share,  and  railways  declining, 
losing  from  1990  to  1995  three-quarters  of its  traffic  level.  Use  of private  cars  has 
grown  very  rapidly  and  it  is  now  dominant  in  passenger  transport,  resulting  in  an 
increase  in  congestion  in  the  cities  and  around  them,  as  well  as  at  certain  border 
crossings. 

75 

Current and Prospective Assessment 

From the point of view of taking over the acquis relating to the single market, Latvia 
has  made  great efforts,  especially in the  air transport field.  The Latvian international 
transport sector already applies rules which are largely similar to  those of the Union, 
especially in the field of air transport although progress still has to be made as regards 
road  transport  of passenger~ and  goods.  The  situation  in  the  goods-by-road  sector 
·  needs  to  be  brought  into  line  with  the  Community  rules  from  the  point  of view  of 
access  to  the  profession,  driving  licence~, maximum weights  and  sizes  and road  tax. 
As regards the railways, the ·effective application of the acquis from the point of view 
of public service and the stand.ardisation of accounting procedures will have to be kept 
under review for the next few years. 

The Latvian Government has  set its  sights  on the  development of a  competitive  and 
integrated transport system and has drawn up  an  ambitious programme to  this  effect. 
The two main hurdles to be overcome in this field  are the attainment of an acceptable 
level  of transport  safety,  an  area  in  which  Latvia  has  already  made  encouraging 
progress, and of an optimum level of use of the transport system, something which the 
programme is intended to achieve. 

As  for  improved  connections ·with  the  Member  States  of the  Union  and  with  its 
neighbours,  Latvia  intends  to  invest  around  ECU  0.3  billion  of  its  own  budget 
between  1995  and  1999  in  transport  infrastructure  used  by  international  traffic, 
principally the pan-European "Baltic Highway".  This amount corresponds roughly to 
between 1.5% and 1.7% of GNP, which seems a creditable figure. 

Conclusion 

Latvia is making noteworthy progress in assimilating the acquis in the transport field, 
particular  that  of  air  transport.  Provided  efforts  (also  as  regards  the  effective 
implementation of the  acquis)  are  made  in  the  goods-by-road,  (access  to  profession, 
weights  and  sizes,  road  tax),  shipping  (safety)  and  rail  (public  service  and 
standardisation of accounting procedures) sectors, the transport industry is unlikely to 
pose  any  major  difficulties  as  regards  the  assimilation  of the  acquis  relating  to  the 
single market. 

By  contrast,  Latvia  would  be  advised  to  improve  its  administrative  structures, 
including inspection bodies such as those responsible for safety, as soon as possible. 

Small and Medium Enterprises 

EU  enterprise  policy  aims  at  encouraging  a  favourable  environment  for  the 
dev~lopment of SMEs  throughout  the  EU,  at  improving  their  competitiveness  and 
encouraging  their  Europeanisation  and  internationalisation. 
It is  characterised  by  a 
high  degree  of subsidiarity.  The  complementary  role  of the  Community  is  defined 
and  implemented  through  a  Multiannual  Programme  for  SMEs  in  the  EU.  This 
programme provides the legal and budgetary basis for the Community's specific SME 

76 

policy  actions.  The  acquis  has  so  far  been  limited  to  recommendations  on  specific 
areas,  although  legislation  in  other  sectors  also  affects  SMEs  (e.g.  competition, 
environment, company law). 

The Europe Agreement provides for co-operation to develop and strengthen SMEs, in 
particular  in  the  private  sector,  inter  alia  through  provision  of information  and 
assistance on legal,  adminis~ative and tax  conditions.  The White Paper contains no 
specific measures. 

Descriptive Summary 

As a result of the reform policy towards creating a market economy and supported by 
the privatisation process, the number of private companies has grown rapidly since the 
late  1980s.  Thus  in  1995,  small  enterprises  (0-25  empl.)  had  250 000  employees, 
medium  enterprises  (25-499  empl.)  had  645  000  employees,  while  large  enterprises 
(more than 500 empl.) had. 76 900 employees. 

The Ministry of Economy has. drafted  a National Programme for  Small and Medium 
Enterprises Development which covers the support for  entrepreneurship,  training and 
networking,  financing,  and  business  incubators.  A  network  of Business  Advisory 
Centres has been established.  Further, a regional development policy for the· support 
of entrepreneurship has been elaborated.  The Law on Company .Income Tax includes 
a 20% tax reduction for small enterprises fulfilJing specific conditions. 

Current and Prospective Assessment 

The basic structures for SMEs are in place,  but there is  a need  for  further refinement 
of  policy,  the  simplification  of  legislation  to  make  it  more  SME  friendly,  the 
strengthening of support infrastructures,  an  improvement of the tax  environment and 
the development ofSMEs' access to  financing. 

To  a  certain  degree,  the  SMEs  are  already  exposed  to  considerable  pressures  from 
international competition, even on the domestic market.  These competitive pressures 
on the  SMEs  will  become  stronger by participation in the  internal  market.  The  on 
going  effort$  to  strengthen  the  SMEs  during  the  pre-accession period  will  therefore 
need to be continued. 

Conclusion 

No  specific  problem  areas  are  expected  regarding  Latvia's  integration  into  the 
Community's SME Programmes. 

3.5 

Economic and Social Cohesion 

E1nplovmellt a11d Social Affairs 

Community social policy has been developed through a variety of instruments such as 
legal  provisions,  the  European  Social  Fund  and  actions  focused  on  specific  issues, 
including public health, poverty and the disabled.  The legal acquis covers health and 

77 

safety at work,  labour  law  and  working  conditions,  equal  opportunities  for  men  and 
women,  social  security  co-ordination  for  migrant  workers  and  tobacco  products. 
Social  legislation  in  the  Union  has  been  characterised  by  laying  down  minimum 
standards.  In addition, the social dialogue at European level is enshrined in the Treaty 
Article (118B),  and the Protocol on social policy refers  to  consultation of the  social 
partners and measures to facilitate the social dialogue. 

The  Europe  Agreement  proVides  for  approximation  of legislation  with  Community 
law  and  co-operation  on  improving  standards  of health  and  safety  at  work,  labour 
market policies  and the modernisation or the  social  security system.  It also  provides 
legally  employed  in  Latvia  to  be  treated  without 
for  Community  workers 
discrimination  on  grounds  of nationality  as  regards  their  working  conditions.  The 
White Paper provides for measures for approximation in all the areas of the acquis. 

Descriptive Summary 

The social  djalo~e has  developed with the participation of both the government,  the 
employer  and  employee  organisations. 
It normally  takes  place  between  one  major 
representative trade union which has regular contacts with the European Trade Union 
Confederation (ETUC),  and two  employers'  organisations which are not members of 
the  Union  of Industrial  and  Employers'  Confederation  of Europe  (UNICE).  The 
tripartite social dialogue appears  to  work well while bipartite negotiations need to  be 
improved. 

According  to  ILO  methodology,  the  unemployment  rate  ts  18.3%.  Regional 
disparities are  considerable. 

On  employment  policy,  Latvia has  developed  a  regionalised  employment  service  to 
conduct labour market policies.  Latvia should be encouraged to  strengthen its efforts 
to  adjust  its  labour  market  initiatives  in  order  to  develop  employment  systems 
appropriate for participation in the single European economy. 

The  new  law  on  social  security  from  1996  determines  the  main  social  rights  and 
obligations  of Latvian  citizens.  Although  social  assistance  - around  11%  of GDP  -
generally covers all residents, the official poverty level is low.  The  1996 law provides 
that  social  taxes  which  are  now  almost  exclusively  paid  by  the  employers  will 
gradually be paid equally between employers  and  employees.  Laws  on compulsory 
social  insurance  against  work  injuries,  unemployment  as  well  as  maternity  and 
sickness  benefits  are  expected  to  come. into  force  in  1997.  In  1998,  Latvia plans  to 
introduce a compulsory pension scheme which will be  financed  by contributions to  a 
fund.  Continued  efforts  are  required  to  ensure  that  measures  of social  protection  are 
developed. 

The. health system in Latvia needs to be significantly improved. 

Current and Prospective Assessment 

In  1993,  Latvia established a  legal  framework,  taking  account  of the  EU  framework 
directive, to  serve as  a basis for adopting specific health and safety legislation.  These 

78 

specific  legislative  initiatives  are  therefore  needed  before  Latvia  can  ensure 
compliance with the acquis.  The system of labour inspection appears to comply with 
ILO standards which require independent structures. 

On labour law,  Latvia is in the process of reforming its Labour Code to  bring it into 
line  with  EC  legislation.  This  is,  in particular,  needed in such fields  as  collective 
redundancies and protection of workers interests in the event of an insolvency of the 
employer, in the case of a transfer of an undertaking, information of employees ·about  . 
the  working  conditions  applicable  to  the  work  contracts  and  working  time.  The 
information and consultation of workers on company level as  requested by ~ number 
of  EC Directives need to be strengthened. 

· 

On  equal  opportunity,  the  basic  provisions  of  EC  non  discrimination  law between 
women  and  men  are  covered  by  Latvian  legislation.  But  the  non-discrimination 
principle  is  not  always  respected  in  areas  such  as  equal  pay  for  equal  work  and  in 
gender-based  advertising..  The  difference  in  pay  between  women  and  men  is 
considerable. 

Concerning the  right to  the  free  movement of workers,  there would  appear to  be no 
obstacles to  prevent Latvia from  being able to  implement the provisions of the acquis 
in  this  area.  The  introduction  of the  right  to  free  movement  will  however  require 
changes  in  the  national  law,  particularly  as  regards  access  to  employment  and  a 
treatment free from discrimination on grounds of nationality. 

In  the  field  of social  security  of mi~ant workers,  accession  does  not,  in  principle, 
pose  any  major  problems,  although  some  technical  adaptations  will  be  necessary. 
More important is the administrative capacity to  apply the detailed co-ordination rules 
in  co-operation  with  other  countries.  Latvia  needs  ~o  develop  the  administrative 
structures required to  integrate into the co-ordination system.  A great deal  of further 
planning,  preparation  and  training  will  be  necessary  in  order  to  prepare  their 
administration for the tasks of co-ordination. 

Latvia has not transposed the tobacco Directives on the warning labelling of cigarette 
packages and the maximum tar content, but legislation covering certain aspects of the 
tar  content,  tobacco  advertising  and  smoking  restrictions  was  agreed  in  December 
1996.  Latvia  is  likely  to  fully  comply  with  EC  Directives  by  2003  through  a 
progressive harmonisation. 

Conclusion 

Social  reforms  should  be  pursued,  and  the  public  health  system  need  to  be 
significantly improved. In addition, the  soci~l dialogue needs to be further developed. 
Latvia will need to make substantive efforts to ensure the realignment of its legislation 
with  EC  requirements  in  areas  such  as  health  and  safety,  labour  law  and  equal 
opportunities  and  to  continue  to  develop  the  structures  needed  to  ensure  effective 
implementation  of  legislation.  Provided  Latvia  pursues  its  efforts,  it  should  be 
possible to take on the obligations ofEU membership in the medium.term. 

79 

Regional Policy apd Cohesion 

In  accordance  with  Title  XN  of  the  Treaty,  the  Community  supports  the 
strengthening of cohesion, mainly through the  Structural Funds.  Latvia will  have to 
implement  these  instruments  effectively  whilst  respecting  the  principles,  objectives 
and procedures which will be in place at the time of its accession. 

The Europe Agreement provides for co-operation on regional development and spatial 
planning,  notably  through  the  exchange  of ·information  between  local,  regional  and 
national authorities  and  the  exchange of civil  servants  and  experts.  The White Paper 
contains no specific provisions. 

Descriptive Summary 

Latvia was  at  some  18%  of EU average  GDP  in  1995.  Its  unemployment  seems  to 
have  stabilised  around  6-7%.  Although  Latvia  is  a  relatively  small  country, 
considerable  regional  disparities  exist;  generally,  the  south-eastern  regions  are  less 
developed than central districts.  Latvia has a rather concentrated urban structure Riga, 
which is the most populated city in the Baltic States ( 40% of total population). 

Latvia has 26 district authorities and 568 local self governing units (7  cities, 70 towns 
and  491  rural  mut?-icipalities).  Latvia's  districts  are  characterised  by  a  considerable 
degree of self-government.-

The main problems are : 

low quality of infrastructure, except in the main transit corridors 

pockets of industrial decline or urban crisis 

conversion of former defence activities, in particular in coastal areas 

lack of economic development in the runil areas 

Regional policy is  implemented under the "Regional Policy development guidelines" 
ratified by the  Council of Ministers in  1995.  A new law on regional development is 
currently under  preparation;  identification  criteria  for  the  support  areas  is  envisaged 
and the regions  identified to  start assistance from  1998  for  disadvantaged areas.  The 
Regional Development Act clearly stipulates  that "regional development policy shall 
be an  integral  part of the national development policy".  Furthermore,  guidelines  for 
national land use should be established on the scale of the whole country. 

Latvia's regional development initiatives are implemented through sectoral ministries. 
While  the  Ministry of Environment  and  Regional  Development  deals  primarily with 
spatial  planning,  the  Ministry  of Economy  handles  regional  policy.  A  Regional 
Development  Council,  including  representatives  from  all  concerned  ministries, 
implementation  of  regional 
participates 
development initiatives. 

the  drafting,  co-ordination  and 

in 

80 

Latvia's regional  policy  expenditure  is  limited.  However,  the  share  of Latvia's  total 
development related expenditure which could constitute potential counterpart funds to 
the EU structuralpolicy cannot yet be determined. Therefore, Latvia's co-financement 
capacity cannot be evaluated with sufficient reliability. 

Curren·t and Prospective Assessment 

Latvia has chosen to maintain regional development within the framework of national 
development.  Nevertheless,  a process  aimed  at providing  a  legal  basis  for  regional 
policy  has  been  initiated  and  substantial  progress  has  already  been  booked.  Thus, 
within the framework of national development, Latvian authorities seem keen to grant 
regional  perspective  a  higher  priority.  However,  certain  procedures  need  to  be 
clarified. 

from 
institutional  structure  and  decision-making  process  would  gain 
The 
simplification.  The division of competencies between the involved institutions should 
be clarified,  the duplication  of powers  avoided by concentrating certain tasks  within 
~  one  single  body  and  inter-ministerial  co-ordination  improved.  Finally,  a  reform  of 

Latvia's administrative sub-divisions should be envisaged. 

Conclusion 

Latvia  manifests  a  clear  political  awareness  of the  need  to  address  rising  regional 
disparities.  Given  its  small  size,  the  decision  to  maintain  regional  policy within the 
framework  of the  national  development' strategy  seems  justified.  Clearly,  Latvia's 
needs to improve the administrative structures intended to  manage integrated regional 
development  programmes.  Yet,  its  administrative  capacity  should  be  able 'to  meet 
these  challenges.  Thus,  subject  to  the  necessary  reforms,  Latvia  should,  in  the 
medium-term, be ready to  apply Community rules and channel effectively funds  from 
the  EC structural policies. 

3.6  Quality of Life and Environment 

Environment 

The  Community's  environmental  policy,  derived  from  the  Treaty,  aims  towards 
sustainability  based  on  the  integration  of environmental  protection  into  EU  sectoral 
policies, preventive action, the polluter pays principle, fighting environmental damage 
at  the  source,  and  shared  responsibility.  The  acquis  comprises  approximately  200 
legal  acts  covering  a  wide  range  of matters,  including  water  and  air  pollution, 
management of waste and chemicals, biotechnology, radiation protection,  and nature 
protection.  Member  states  are  required  to  ensure  that  an  environmental  impact 
assessment is carried out before development consent is granted for certain public and 
private projects. 

The  Europe  Agreement  stipulates  that  Latvian development  policies  shall  be guided 
incorporate 
by 

the  principle  of  sustainable  development  and  should  fully 

81 

environmental  considerations.  It also  identifies  environment  as  an  area  for  bilateral 
co-operation, as well as for approximation of legislation to that of the Community. 

The  White  Paper  covers  only  a  small  part  of the  environmental  acquis,  namely 
product-related legislation, which is directly related to the free circulation of goods. 

Descriptive Summary 

The  scale  of environmental  problems  in  Latvia  is  less  severe  than  elsewhere  in  the 
region,  because  most  are  concentrated  in  so-called  hot  spots  and  only  a  limited 
number  of problems  is  manifested  country-wide.  Nevertheless,  it  remains  a  real 
challenge to bring Latvian environmental standards up to those of the EU. 

Quality of surface waters, especially as a result of urban wastes, is still a problem, but 
the situation has improved considerably since 1990 with new waste water facilities  in 
Riga  and  other  cities.  Apart  from  traffic  related  pollution  in  the  Riga  area,  the 
situation with regard to  air pollution is  generally good.  Waste management faces  the 
challenges  of cleaning  up  old  hazardous  waste  dumps  and  of handling  increasing 
amounts  of municipal  waste.  Latvia  possesses  areas  of great  natural  value,  which 
would represent an asset to the environment of an enlarged Union 

Since  1990,  substantial  progress  has  been  achieved  in  environmental  policy:  a  new 
framework  law  (the Environmental Protection Act in  1991)  as  well  as  national  long 
term plans (the National Environmental Policy Plan, the Environmental Health Action 
Plan  and  the  very  detailed  Environmental'  Action  Plan,  in  1995-96)  have  been 
adopted. 

Other legislation has been proceeding more slowly.  Supporting regulations have been 
adopted  (e.g.  in  waste)  or  are  in  the  process  of being  drafted.  A  national  resources 
utilisation tax  law  has  been  in  place  since  1996  and  functions  well,  with  the  yield 
earmarked for environmental improvements. There are plans to  develop further public 
participation and economic instruments.  However, much of the subsidiary legislation 
is  still  old,  and  greater  progress  is  needed  in  implementation  and  enforcement  of 
environmental  policy  measures,  especially  by  strengthening  monitoring  and 
supervision structures.  Public spending in environment is relatively low, compared to 
EU levels. 

Latvia has ratified both the 197 4 and the 1992 Helsinki Conventions on the protection 
of the Baltic sea, and has shown commitment to cleaning up Baltic Sea "hot spots". 

Current and Prospective Assessment 

All new environmental legislation is intended to  comply with the Community acquis. 
A  special  working  group  on  environment  has  been  set  up  under  the  "European 
Integration  Bureau"  to  ensure  compatibility  with  EC  legislation.  All  White  Paper 
legislation  is  scheduled  to  be  transposed  in  the  next  two  to  three  years.  For  the 
remaining legislation an accession strategy is to be developed by early  1998.  Latvia' s 
target  is  full  compliance  to  the  acquis  by  the  year  2005.  In  order  to  achieve  this, 
drafting  of harmonised  legislation  and  its  enforcement  are  needed  in  air  pollution, 

82 

chemicals  and nature protection.  In radiation protection there  is  generally  a  lack  of 
safety  culture.  Latvia  is  now  preparing  legislation  on  water  quality  objectives. 
Particular attention should be given to the quick transposition of framework directives 
dealing  with  air,  waste,  water  and  the  Integrated  Pollution  Prevention  and  Control 
(IPPC) directive, as well as the establishment of financing  strategies for legislation in 
the water, air and waste sectors requiring major investments. 

On the  basis  of current plaris  and  performance,  major  progress  in  the  field  of legal 
compliance is likely to be made in the next few years. 

Concerning effective compliance to the  EC environmental acquis, the main long-term 
problems  are  the  need  for  investment  in  infrastructure,  especially  in  the  water  and 
waste water sectors outside the big cities, and the enforcement of legislation.  A key 
concern  is  the  severe  lack  of  human  and  financial  resources  to  conduct  the 
approximation process.  An important bottleneck which  needs  to  be  addressed  is  the 
lack  of human  resources  with  expertise  to  conduct  the  approximation  process.  The 
country's environmental accession strategy should include implementation timetables 
EC  environmental  acquis,  starting  amongst  others  with 
for  meeting 
implementation of the framework and IPPC directives mentioned above. 

the 

Conclusion 

With  the  current  pattern  and  speed  of reforms  in  Latvia,  full  transposition  of the 
environmental  acquis  should  be  achieved  in  the  medium  term.  However,  effective 
compliance with a number of pieces of legislation (e.g.  urban waste water treatment, 
drinking  water,  aspects  of waste management  and  air  pollution  legislation)  could be 
achieved only in the long term and will require a significant increase in environmental 
investment, as well as a major effort to reinforce the administrative capacity. 

Consumer Protection 

The  Community  acquis  covers  protection  of  economic  interests  of  consumers 
(including  control  of misleading  advertising,  indication  of prices,  consumer  credit, 
unfair  contract  terms,  distance  selling,  package  travel,  sales  away  from  business 
premises  and  timeshare  property)  as  well  as  the  general  safety  of goods  and  the 
specific sectors of cosmetics, textile names and toys. 

The  Europe  Agreement  provides  for  approximation  of legislation  with  Community 
law and co-operation with a view to  achieving full  compatibility between the systems 
of consumer protection in Latvia and the Community.  Stage I measures of the White 
Paper focus  on improving product safety,  including cosmetics,  textiles  and  toys,  and 
on  the  protection  of  the  economic  interests  of consumers,  notably  measures  on 
misleading  advertising,  consumer  credit,  unfair  contract  terms  and  indication  of 
prices.  Stage II measures relate to package travel,  sales  away from business premises 
and  time-share  property.  New  EC  legislation  which  has  been  ~dopted  recently 
(distance selling) or will  be  adopted  soon  (comparative  advertising,  price  indication) 
will also need to be taken into account. 

83 

Descriptive Summary 

The law on the Protection of Consumers was agreed in 1992 and sets out the rights of 
consumers  and  the  obligations  of  manufacturers,  sellers  and  serv~ce providers  in 
ensuring quality, correct advertising, and safety of goods.  The Act further establishes 
the  responsibility  for  violation  of  consumer  rights,  and  defines  the  role  of non 
governmental organisations ~orking in the field of consumer protection.  The role of 
such organisations is limited by the lack of resources. 

In  order  to  improve  the  quality  and  safety  of products  and  services  as  well  as  to 
develop  and  carry  out  the  protection  of consumer rights,  the  government  adopted  a 
"Consumer Rights Protection Programme""' in June 1995. 

The  overall  responsibility  for  consumer  affairs  lies  with  the  Ministry  of Economy, 
although  its  role  is  not  defined  in  the  Consumer  Protection  Act.  Other  bodies 
involved in consumer protection are the Trade  Supervision Committee and the  Anti 
Monopoly Committee. 

Current and Prospective Assessment 

Despite considerable progress,  the  existing  legislation  for  consumer policy in Latvia 
only  to  a  limited  extent  complies  with  the  acquis.  Concerning  the  protection  of 
economic  interests  of consumers,  there  appear  to  be  no  laws  regulating  sales  away 
from  business  premises,  distance  selling,  timeshare  property  and  consumer  credit. 
Amendments  are  required  in  the  area  of misleading  advertising  and  unfair  contract 
terms  while  new  draft  legislation  is  under  prep~ation  for  package  travel  and 
indication of prices. 

A new law was  agreed in late  1996 on the general safety of products and services and 
on product and services liability.  Although this law largely·implements the Directive 
on  general  product  safety,  some  additional  amendments  are  required  to  ensure  full 
compatibility  with  EC  standards,  mainly  because' the  law  fails  to  give  adequate 
powers to the public authorities.  Concerning the specific sectors, a framework law on 
the labelling of consumer products is under preparation.  Once agreed, a law on textile 
labelling  will  be  put  forward.  There  appears  to  be  draft  legislation  underway  on 
cosmetics  and  the  safety  of toys  which would  amend  existing  laws  and  bring  them 
into line with  EC requirements. 

The  development  of a  strong  and  independent  consumer  movement,  sustained  by 
public authorities, will need to accompany the introduction of the acquis. 

Conclusion 

Latvia  will  need  to  continue  reform  in  the  field  of consumer  protection  since  the 
existing  legislation needs  to  be substantially adjusted,  or new  laws  brought  forward, 
before Latvia satisfies  EC requirements on consuming There is  also  a need for more 
efficient institutional structures to  ensure the application of legislation.  But, taking on 
the  consumer protection  acquis  in  the  medium-term  is  not  expected  to  cause  major 
problems for Latvia. 

84 

3.7 

Justice and Home Affairs 

The Present Provisions 

The Justice and Home Affairs  (JIL\) acquis principally derives  from  the  framework 
· for  co-operation  set  out  in  Title  VI  (Article  K)  of the  Treaty  on  European  Union 
(TEU),  "the  third  pillar",  although  certain  "first  pillar"  (EC  Treaty)  provisions  and 
legislative measures are also closely linked. 

The  EU  JHA  framework  primarily  covers:  asylum;  control  of external  borders  and 
immigration;  customs  co-operation  and  police  co-operation  against  serious  crime, 
including  drug  trafficking;  and  judicial  co-operation  on  criminal  and  civil  matters. 
The TEU stipulates key principles upon which such co-.operation is based, notably the 
European  Convention  on .Human  Rights  and  the  1951  Geneva  Convention  on  the 
Status of Refugees.  It is also based implicitly on a range of international conventions 
concerning its  fields  of interest,  notably  those  of the  Council  of Europe,  the  United 
Nations  and the  Hague  Conference.  The  legislative  content  of third pillar acquis  is 
different  from  the  first  pillar;  it consists  of conventions, joint actions, joint positions 
and  resolutions,  (including  the  agreed  elements  of draft  instruments  which  are  in 
negotiation).  A  number of EU conventions  (including the  1990 Dublin Convention, 
and  conventions  relating  to  extradition,  fraud  and  EUROPOL)  have  been  agreed  by 
the Council and are now in the process of ratification by national Parliaments; several 
other  conventions,  including  one  on  external  frontiers  are  in  various  stages  of 
negotiation in the  Council.  The  JHA acquis  involves  a high  degree  of practical  co 
operation, as well as legislation and its effective implementation. 

The New Treaty 

For many of the  above matters,  the  entry  into  force  of the  Treaty resulting  from  the 
Amsterdam  Inter-Governmental  Conference  will  mark  the  end  of  the  current 
cooperation framework. 

Reiterating the objective of developing the Union into  an "area of  freedom,  security 
and justice",  the  new  Treaty  brings  these  matters,  including  the  free  movement  of 
persons, asylum and immigration, into the Community's sphere of competence. 

On  the  free  movement  of persons  in  particular,  the  new  Treaty  provides  for  the 
incorporation of the  Schengen acquis into the  framework of the European Union and 
binds any candidate for EU membership to accept that acquis in full. 

With regard to matters remaining within the cooperation framework,  i.e.  policing and 
criminal  justice,  the  new  Treaty  provides  for  the  reinforcement  of the  cooperation 
system. 

The Europe Agreement and the White Paper 

.  85 

The  Europe  Agreement includes provision  for  co-operation  in  the  fight  against  drug 
abuse and money laundering. 

The  White  Paper  does  not  deal  directly  with  third  pillar  subjects,  but  reference  is 
made  to  first  pillar matters  such  as  money  laundering  and  freedom  of movement  of 
persons  which  are  closely  related  to  Justice  and  Home  Affairs  considerations. 
Reference is also made to the Brussels and Rome conventions. 

Descriptive Summary 

General Preconditions for JHA  Co-operation 

.. 
Latvia joined  the  Council  of Europe  in  1995  and  has  ratified  the  European  Human 
Rights Convention.  The Constitution provides for an independent judiciary according 
to  the  rule  of law.  Latvia  has  not  yet  ratified  the  1990  data  protection  convention. 
(See also separate section on Single Market).  Progress has been made in institutional 
reform of JHA institutions,  but in general  terms  Latvian JHA  institutions  still  suffer 
from  significant  deficiencies  in  personnel,  finance  and  management  systems.  The 
Government  has  recently  set  up  a  Third  Pillar integration  coordination  group  under 
the Prime Minister to address these issues. 

Asvlum 

Latvia  ratified  the  1951  Geneva  Convention  in  June  1997  and  has  adopted  a  law 
concerning asylum seekers.  A new reception centre for asylum seekers and refugees, 
in Mucenieki, is under development, designed and su~ported by UNDP and UNHCR. 

Immigration/Border Control 

Latvia has visa-free  agreements with the UK.,  Ireland, Denmark and Iceland, and such 
arrangements  are about to  come into force with Norway,  Sweden and Finland.  Visa 
free  arrangements  also  exist with  a number of central  European countries,  and with 
Lithuania  and  Estonia,  with  which  it  operates  a  visa-free  travel  zone.  Latvia  has 
adopted  the  EU  third  country  list  for  which  visas  are  required.  Latvia' s  admission 
policy  is  strict.  A  new  population registration  system  is  now  in  place,  also  for  the 
issuing  of new  passports  for  Latvian  citizens  and  resident  non citizens.  Latvia  has 
readmission  agreements  with  Estonia,  Lithuania,  Denmark,  Sweden,  Finland  and 
Iceland,  and  is  preparing  such  agreements  with  Italy,  Norway,  France,  Portugal  and 
others. 

There  is  no  formal  bilateral  agreement  with  Russia  on  readmission.  Border 
management  systems  on  the  Eastern  frontier  are  ineffective  and  need  substantial 
upgrading  of  the  human  resource  and  technical  resources.  The  Government 
transferred  responsibility  for  the  border  guard  from  the  Defence  to  the  Interior 
Ministry in January 1997, resulting in significant improvements. 

Police Cooveration 

Organised  crime  exists  in  Latvia  in  the  fields  of drug  trafficking,  trafficking  in 
women,  prostitution,  and  smuggling;  violence  and  extortion  are  used.  The  Police 

86 

Bureau, working closely with the security police, has been set up  to  tackle organised 
crime  more  effectively.  New  laws  are  being  planned  to  protect  witnesses,  tackle 
financial  crime  and  money laundering.  A major training  effort  is  underway  for  the 
police forces.  Latvia is preparing the necessary domestic  legislation for accession to 
the  1990_money laundering convention,  important parts  of which have  already been 
implemented through other legislation.  (See also  separate section on Single Market). 
_ There is no threat from terrorism. 

Latvia is a minor -transit corlntry for drug trafficking.  Drug seizures were insignificant 
in  1996,  but  the  resources  devoted  to  the  task  were  very  limited.  Domestic  use  is 
growing  and  there  is  now  a  domestic  production  of synthetic  drugs.  Latvia  has 
ratified the main international conventions  on drugs  (except money  laundering - see 
above)  and  has  put  in  place  domestic  legislation  on  narcotic  drugs  and  precursors. 
Latvia has set up a Narcotics Control Committee, which is developing a policy in line 
with  the  programmes  of the  UN  and  the  WHO.  The  police  have  set  up  a  special 
progra.nuile for combating drugs. 

Juriicia/Ccoopgration 

The Latvian judiciary has  significant problems  relating  to  in~xperience and resource 
constraints.  Nevertheless the Government has  begun to  prepare the judiciary for  EU 
membership.  Latvia has recently ratified tile main criminal conventions (Extradition, 
Mutual  Assistance,  Transfer  of Sentenced  Persons)  and  has  ratified  a  number  of 
Hague Conventions.  Latvia has  also begun a reform of the court system, aimed at its 
development  and technical provision,  and  improvements  in the  training  and position 
of the  judiciary.  Latvia's  participation  in  international  co-operation  is  focused  on 
Interpol and the neighbouring states conventions. 

Current and Prospective Assessment 

Important  gaps  still  have  to  be  filled  in  Latvia's  legislation  and  implementation 
systems;  progress  has  been  significant  but  uneven.  Measures  are  being  taken  to 
improve  border  management,  asylum  policy  and  measures  against  organised  and 
financial crime. 

The  main  institutional  problems  lie  in  the  field  of resource  constraints  and  lack  of 
experienced  personnel,  as  well  as  management  weaknesses  leading  to  inefficiencies 
and  some  corruption.  The  border  management  systems  are  a  matter  of particular 
concern.  More  Latvian  officials  need  to  have  experience  of practical  co-operation 
with EU JHA counterparts.  The Government is working to prepare the institutions for 
participation in the JHA process. 

Conclusion 

Latvia is starting from a low base in the JHA field and faces considerable institutional 
problems  in preparing itself for  effective co-operation with EU JHA  institutions.  A 

87 

major,  sustained effort will be required if Latvia is  to  have the possibility of meeting 
the justice and home affairs acquis (present and future) in the medium term. 

3.8  External Policies 

· Trade and International ECopbmic Relations 

The acquis  in this  field  is  made  up  principally  of the  Community's  multilateral  and 
bilateral  commercial  policy  commitments,  and  its  autonomous  commercial  defence 
instruments. 

The Europe Agreement includes provisions in several areas requiring parties to  act in 
accordance with  WTO/ GATT principles, or other relevant international obligations. 

The White Paper includes no provisions in this field. 

Descriptive Summary 

Latvia has developed an open, trading economy and is expected to become a member 
of the  World  Trade  Organisation  (WTO)  by  the  end  of 1997.  Latvia  has  observer 
status in the Government Procurement Agreement and,  upon accession would have to 
comply  with  the  obligations  of  the  plurilateral  WTO  agreements  to  which  the 
Community is a party. 

At present Latvia does not maintain quantitative restrictions on any textile or clothing 
products.  On accession the  Community textiles policy would be  extended to  Latvia; 
any  Community  restrictions  still  maintained  at  the  date  of accession  would  require 
adjustment by an appropriate amount to take account of Latvian accession. 

Current and Prospective Assessment 

On accession Latvia would have to  apply the  Community's Common Customs Tariff, 
and  the  external  trade  provisions  of the  Common  Agricultural  Policy.  The  post 
Uruguay Round weighted average level  of most favoured  nation  duties  for industrial 
products  will  be  3.6%  for  the  Community.  The  level  for  Latvia  is  expected  to  be 
closely aligned to the  Community Common Customs Tariff. 

In its  relations  with international  organisations  Latvia  should  ensure  that  its  actions 
and commitments respect the Europe Agreement and ensure a harmonious adoption of 
its future obligations as a member of the  Community. 

On  accession  Latvia would  become  party  to  the  Community's  various  preferential 
agreements.  Preferential  agreements  between  Latvia  and  third  countries  would,  in 
general, have to be terminated on accession. 

In  the  area  of trade  in  services  and  establishment,  Latvia  has  so.ught  to  keep  its 
multilateral commitments under GATS  as  consistent with those of the Community as 

88 

possible during its negotiations to join the WTO.  It should be possible to resolve any 
remaining, significant inconsistencies. 

• 

On  accession  Latvia  would  have  to  repeal  national  legislation  in  the  field  of 
commercial defence instruments, and EC legislation would become applicable there. 

Experience  from  previous  accessions  has  shown  that  the  automatic  extension  of 
.  existing anti-dumping measUres to new member states prompts third countries to raise 
problems  in  terms  of  the  compatibility  of  this  approach  with  relevant  WTO 
provisions.  It has  also  shown  that  accession  creates  a  potential. for  circumventing 
measures  adopted  by  the  Community  under  the  commercial  defence  instruments. 
This happens when, prior to accession, substantial quantities of the products subject to 
measures  are  exported to  the  territory  of the  future  member  state  and,  on accession, 
are automatically released for free circulation in the enlarged customs territory.  These 
two problems would have to be addressed during Latvia's pre-accession phase. 

Latvia  is  not  a  member  of any  non-proliferation  regime,  although  it  has  expressed 
interest  in  membership.  The  Latvian  control  list  of  dual-use  items  is  a  direct 
translation  of the  Community  control  list.  Arms  export  is  also  controlled.  There 
appears  to  be no  obstacle in principle to  Latvia applying  Community  legislation in 
this field. 

Conclusion 

Latvia is well placed to be able to meet  Community requirements in this field within 
the next few years. 

Development 

The acquis in the development sector is made up principally of the Lome Convention, 
which runs until early 2000. 

Neither the Europe Agreement or the White Paper include provisions in this field. 

Descriptive Summary 

Latvia has  a  number of trade  agreements  with Least Developed  Countries,  based  on 
Most Favoured Nation treatment.  No GSP  schemes apply in Latvia, and no duty free 
access is granted. 

Latvia has no budget for development aid. 

Current and Prospective Assessment 

On accession, Latvia should apply its preferential trade regime to  the ACP States and 
participate,  together  with  the  other  member  states,  in  financing  the  European 
Development Fund (EDF), which provides financial aid under the Lome Convention. 

89 

Applying the  Lome trade regime  should not generally be  a source  of difficulties  for 
Latvia. 

Normally, new member states accede to the Lome Convention by means of a protocol 
on the date of their accession to the EU. 

Conclusion 

Latvia should be able to meet EU requirements in this field in the next few years. 

Customs 

The  acquis  in  this  sector  is  the  Community  Customs  Code  and  its  implementing 
provisions;  the 
EC's  Combined  Nomenclature;  the  Common  Customs  Tariff 
including  trade  preferences,  tariff quotas  and  tariff suspensions;  and  other  customs 
related legislation outside the scope of the customs code. 

The  Europe  Agreement  covers  the  establishment  of  a  free  trade  area  with  the 
Community  and  the  progressive  removal  of customs  duties  on  a  wide  range  of 
products, according to  cl~ar timetables starting from the date of entry. into force of the 
agreement. 

. 

The White Paper includes in Stage I,  measures to  consolidate and  streamline the  free 
trade established under the Europe Agreement,  including  legislation compatible with 
the  Customs  Code,  Combined Nomenclature,  etc.  Stage 11  concerns  the  adoption of 
the  full  Community  legislation,  with  a  view  to  joining  the  customs  union  upon 
access1on. 

Descriptive Summary 

On  accession  the  Latvian  customs  authorities  would  be  required  to  assume  all  the 
responsibilities  necessary  for  the  protection  and  control  of their  part  of the  EU's 
external  border.  Besides  the  provisions  on  indirect  taxation,  they  would  be 
responsible  for  the  implementation  and  enforcement  at  the  external  border  of the 
Community's  common  commercial  policy,  the  common  agricultural  policy,  the 
common fisheries policy etc. 

Latvia's  capacity  fully  to  apply  the  acquis  presupposes  the  possibility  to  adopt  and 
implement  the  Community  legislation;  and  the  existence  of an  adequate  level  of 
infrastructure  and  equipment, 
in  particular  in  terms  of  computerisation  and 
investigation means and the establishment of an efficient customs organisation with a 
sufficient number of qualified and motivated staff showing a high degree of integrity. 

The legislation in force  as  well as  the customs-related legislation outside the scope of 
the  customs  code  has  not  been  EC  compatible.  But  with  the  support  of technical 
assistance  provided  by  customs  programmes,  Latvia  has  prepared. a  customs  code 
harmonised with the Community's customs code and its implementing provisions. 

90 

Latvia  has  almost  aligned  its  national  goods  nomenclature  to  the  Community's 
Combined Nomenclature.  However, at his stage the Latvian administration does  not 
have an integrated tariff,  which will make  the comparison of the  Latvian tariff rates 
with the Common Customs Tariff rates difficult.  In addition,  Latvia will have to be 
familiarised  with the methodology of the Binding Tariff information system used in 
theEC. 

Latvia  adopted  on  1  April  1997  the  new  system  of cumulation  of origin  between 
European countries. 

Latvia has  applied to  become. a contracting party to  the ECIEFT A  Common Transit 
Convention  and  the  Single  Administrative  Document  Convention.  A  Community 
Task Force is assisting Latvia in this field, but development is hindered by difficulties 
in the area of guarantees.  Accession to the Transit Convention will require a period of 
considerable further preparation. 

Current and Prospective Assessment 

Latvia  would  need  to  adapt  its  national  procedures  to  the  Community  legislation 
regarding  suspensive  arrangements  and  customs  procedures  with  economic. impact. 
At  the  moment  of accession,  some  technical  transitional  arrangements,  would  be 
needed,  notably  for  operations beginning before the  date  of aceession but which  are 
concluded after that date. 

' 

Presently,  Latvia does not operate a system of tariff suspension~.  This raises  serious 
concern  in  relation  to  its  capacity  to  cope  with  the  complexity  of the  Community 
mechanism in these domains. 

It will be important that the Latvian customs authorities can participate appropriately 
in the  various  computerised  systems  necessary  for  the  management,  in the  customs 
union/internal  market,  of the  customs  and  indirect  tax  provisions,  as  well  as  the 
computerised  systems  for  mutual  administrative  assistance  in  customs,  agricultural 
and  indirect  tax  matters.  Computerisation  is  at  a  very  preliminary  stage  of 
development in Latvia. 

Latvia would need on accession to  dismantle customs controls at the borders with EU 
member  states  and  with  other  acceding  countries.  The  resources  needed  for  the 
reinforcement  of the  border  posts  along  its  frontiers  with  non-EU  member  states 
should be taken into account in its strategic planning. 

Conclusion 

Latvia  will  need  to  continue  major  efforts  to  align  its  legislation,  organisation  and 
staff to the duties that have to be carried out by a modem customs administration.  If it 
does so it may be able to meet  EC requirements in the medium term. 

91 

Common Foreign and Security Policy 

Since  regaining  its  independence  in  1991,  Latvia  has  orientated  its  foreign  and 
security policy towards the EU and NATO.  Successive government declarations have 
confirmed membership  of Euro · and  Euro-Atlantic  structures  as  the  principal  aim  of 
Latvian  foreign  policy.  Latvia  has  been  an  active  participant  in  the  dialogue 
arrangements  provided for  ~der the  Union's  Common Foreign  and  Security Policy 
and whenever invited has supported EU actions within that framework. 

Latvia  is  a  member  of  the  UN,  OSCE,  Council  of  Europe  and  many  other 
international  organisations. 
It is  an  associate  partner  of WEU,  participates  in  the 
NACC,  the PfP  and has made clear its  desire to  become  a member of the  WEU  and 
NATO  as  soon as  possible.  It has  sent troops  to  participate in IFORJSFOR.  Latvia 
strives to contribute to regional stability through active co-operation in the Baltic Sea 
region,  in  particular  in  the  work  of the  Council  of the  Baltic  Sea  States  and  in 
organisations  for  Baltic-Nordic  co-operation. 
It  is  considering  applying  for 
membership of CEFT A. 

There are  no  territorial disputes  between Latvia and  any member state  of the Union. 
Neither  does  it  have  any  major  disputes  with  neighbouring  associated  countries, 
although  an  agreement  concerning  the  maritime  border  with  Lithuania  remains 
outstanding. 

The maintenance  and  development of good relations  with Russia is  one  of the  main 
foreign policy priorities of Latvia.  An important achievement was  the withdrawal of 
Russian troops  from Latvia, with the exception of the  limited  force  which will  guard 
the Skrunda radar station until 1998, under OSCE monitors..  An important remaining 
issue between  Latvia and  Russia is  the  absence  of a border agreement,  but progress 
was  made  in  negotiations  following  the  Latvian  decision  not  to  insist  on  Russian 
recogilition of the validity of the  1920 Peace Treaty.  Since March  1997 there is  draft 
agreement  on  a  frontier  line  which  follows  the  existing  control  line.  The  Latvian 
government  has  expressed  its  readiness  to  sign  the  agreement  as  soon  as  Russia  is 
ready to do so. 

The border agreement between Latvia and Belarus  has  been  signed but the  physical 
demarcation of the frontier remains to be completed. 

Latvia has a new and small diplomatic service with limited experience and resources. 
In due  course,  it  should  nevertheless  be  able  to  play  a  full  role  as  a  member  of the 
Union.  It maintains 26 representations abroad and employs 226 diplomatic staff. 

Latvia supports non-proliferation of nuclear, biological and chemical weapons and is a 
signatory, or candidate member, to  all relevant international arms control agreements. 
It does  not manufacture  or export weapons.  The  small  Latvian armed  forces,  which 
are  being  brought  under  democratic  control,  are  being  reorganised  to  meet  NATO 
requirements.  Latvia participates  in  the  Baltic  peacekeeping  battalion  (BAL TBAT) 
and  played  host  to  a major  PfP  exercise  (Baltic  Challenge)  in  1996.  Latvia  has  no 
defence industrial base. 

92 

In  the  statement  accompanying  its  application  for  membership  of the  Union,  Latvia 
confirmed that it was ready and able to participate fully  and actively in the Common 
Foreign and Security Policy. 

The assessment of Latvian foreign and security policy to date leads to the expectation 
that as a member it could fulfil its obligations in this field. 

3.9 

Financial Questions 

Financial Control 

The  implementation  of  Community  policies,  especially  for  agriculture  and  the 
Structural  Funds,  requires  efficient  management  and  control  systems  for  public 
expenditure, with provisions to  fight fraud.  Approximation of legislation is moreover 
needed  to  allow  the  system  of "own  resources"  to  be  introduced,  with  satisfactory 
provision for accounting. 

The  Europe  Agreement  provides  for  cooperation  in  audit  and  financial  control, 
including technical assistance from the Community as  appropriate.  The White Paper 
includes no  measures in this field. 

Descriptive Summary 

As  provided  for  by  the  State  Audit  Act  of  1993,  the  Stat~  Audit  Office  is  an 
independent,  collegiate  institution  controlling  the  collection  and  expenditure  of the 
State  and  local  government budgets  as  well  as  special  budget  resources.  The  Office 
presents its cbservations and recommendations to the Parliament. 

The  State  Audit  Office  is  a  member  of the  International  Organisation  of Supreme 
Audit  Institutions  as  well  as 
the  European  Organisation  of  Supreme  Audit 
Organisations. 

The  Management  Audit  Council  supervises  the  internal  audit  systems  in  all  public 
institutions.  Several  Ministries  (such  as  Transport  and  Agriculture)  have  their  own 
internal audit systems. 

Budgetary  control  is  provided  by  the  Ministry  of  Finance  and  State  Treasury 
Department. 

The  State Revenue  Service,  under the  Ministry of Finance,  secures  the  collection of 
taxes, duties and other fees. 

Current and Prospective Assessment 

Given that the EU agricultural expenditures, Structural Funds and "own resources" are 
quite  different  from  current  systems  in  Latvia,  the  establishment  _of  the  necessary 
management and control mechanisms will require considerable preparation. 

93 

With  respect  to  "own resources",  particular  attention  will  need  to  be given  to  such 
fields  as  levies duties,  time  limits  for  the incurrence of customs  debt,  notification of 
the debtor, and the accounting procedure. 

Conclusion 

Substantial  preparations  will  be  needed  to  establish  the  necessary  management  and 
· control  mechanisms  to  cope  with  EU  requirements.  However,  if  the  necessary 
initiatives can be taken in this respect, this  field does not appear to represent a major 
obstacle, in the medium term, for Latvia's accession. 

Budgetary Implicatjops 

The communication entitled "Agenda2000"  sets  out the  overall  financial  framework 
which  should  accommodate  the  budget  impact  of any  future  enlargements  in  the 
medium  term.  This  is  to  ensure  that  any  enlargement  is  compatible  with  proposed 
Community policy guidelines within reasonable budget limits. 

As things stand, it would be difficult, not to say premature, to attempt precise country 
by-country evaluations of the budgetary implications of each of the applicants joining 
the Union.  Exactly what the impact would be may vary considerably depending on a 
whole series of factors: 

the date on which the applicant country joins; 

developments in Community policies between now and then,  in particular the 
decisions to be taken on further reform of the common agricultural policy and 
new guidelines for structural measures; 

the  progress  made  by  the  applicant  countries  in  terms  of growth,  increasing 
their competitiveness and productivity and their ability to absorb the acquis; 

the transitional measures that will come out of the negotiations. 

Only a few  orders of magnitude for certain budget categories and an overall estimate 
can be given, purely as a guide. 

Expenditure 

If the common  agricultural  policy were  to  be  reformed  along  the  lines  suggested by 
the  Commission,  once  the  reforms  were  fully  up  and  running  and ·in  terms  only  of 
market  intervention  measures,  Latvia's  accession  would  give  rise  to  only  marginal 
additional expenditure in relation to  likely expenditure on the present fifteen Member 
States. 

After a phasing-in period, allocations for structural measures in Latv~a would account 
for no more than around 4% of its GNP. 

94 

Application  of the  other internal  Community  policies  in  the  new  member countries 
would be likely to involve additional expendihrre probably in excess of their relative 
proportion of Union GNP, since for certain policies the additional implementing costs 
also depend on the target population,  the geographical area covered or the number of 
Member States involved in the coordination and hannonisation measures. The GNP of 
Latvia is currently less than 0.1% of total Union GNP. 

By contrast,  Latvia' s  accession should not involve significant additional  expenditure · 
as far as Union external action is concerned. 

It  should  not  be  forgotten  t~at when  an  applicant  country  joins,  the  Community 
budget  will  no  longer have  to  bear the  costs  of grants  the  country  was  eligible  for 
under the various pre-accession programmes, such as PHARE. 

In the light of the above, the estimated costs in the three areas mentioned arising from 
Latvia's  accession  should  fall  within  the  range  of,  annually,  ECU 0.4 billion  to 
ECU 0.5 billion in 2005-06 (at constant 1997 prices). 

Revenue 

Assuming  full  application  of  the  own  resources  system,  the  new  members' 
contributions  to  the  Community  budget  should,  in  terms  of total  GNP  and  V AT 
resources  (taking  account  of the  capping  rules  applying  to  V AT),  be  close  to  the 
proportion of the  Union's GNP  they account  for,  which in Latvia's  case is  less  than 
0.1 %.  Latvia's portion of traditional own resources will depend on the structure of its 
trade flows at the time of accession. 

To  ensure  that  the  own resources  are  established,  mo~tored and  made  available  in 
line  with  Community  regulations,  Latvia  will  have  to  overhaul  its  current  customs 
system.  In  addition,  for  the  purposes  of accurately  calculating  the  GNP  resource 
considerable  improvements  will  have  to  be made  to  the  national  accounts  to  ensure 
that they are reliable, homogeneous and complete. Improving the statistics will also be 
essential  for  drawing  up  the  V AT  own  resources  base,  which  will  mean  bringing 
Latvia's VAT system fully into line with the Community directives. 

95 

4 

Administrative Capacity to Apply the Acquis 

The European Council in Madrid in December 1995 concluded that the harmonious 
integration into the EU of the central and eastern European applicant states would, in 
particular, require the adjustment of their administrative structures.  This chapter 
examines the current state o( the public administration in Latvia, including relevant 
aspects of the judicial system, and assesses the current and prospective ability to carry 
out the functions required of it in a modem, aemocratic state, with a particular  focus 
on the need to administer matters related to the acquis. 

4.1  Administrative Structures 

A  description  of Latvian  constitutional  structures,  their  powers  and  responsibilities, 
including those of regional and local gov~mment, is given in Chapter 1. 

At the central level there are  12 ministries,  the Prime Minister's state chancellery and 
a number of bodies of equivalent importance such as the European Integration 
Council which coordinates matters related to EU accession. 

A Civil Service Law was enacted in 1994.  It determines the status, rights and 
responsibilities of civil servants. 

The principle of political indepen4ence of the civil service is recognised in Latvia, 
although senior positions are not always free of party political influence. 

There are approximately 13,600 civil servants employed in Latvia (including 4,200 
customs staff). Salaries available in the private sector are far higher than in the public 
sector.  Many civil servants supplement their incomes from other employment. 

Administrative reform gained momentum after the national election in 1993.  A Civil 
Service Administration Unit, and Latvian School of Public Administration were 
established in December 1993 in order to implement the Civil Service Law as well as 
an Ethics Council for solving ethical issues and conflicts of interests affecting state 
officials. In July 1995 the central government reform function was transferred to the 
State Reform Department of the State Chancellery. The issue of reform of local and 
regional administration was referred to the Ministry of Regional Development and 
Environmental Protection. 

Latvia has established a special institutional framework for handling European 
integration issues, comprising the European Integration Council on a ministerial level. 
(See also the section of the Introduction concerning relations between the European 
Union and Latvia). 

· 

96 

4.2  Administrative and Judicial Capacity 

Latvia was part of the Soviet Union until 1991  and administered under central 
planning until then. The communist system rejected the primacy of the rule of law and 
subjugated the law and the administration to the implementation of Party policy. 
Against this background, both the administration and the rule of law itself 
increasingly came to be seen. by the public as instruments of political control. 

The public administration requires further structural reform.  A systematic programme 
has been in place since 1993.  At central government level the structure is broadly 
modelled on Nordic/ western ~uropean systems. 

The planned Public Administration Bureau should have a useful role to play. 

The efficiency and cohesion of ministries varies widely, from good to very poor. 
Lack of able and experienced staff presents a major problem for all ministries. 

T4e legal basis for the civil service is adequate.  But it will be important for Latvia's 
longer term development that a genuine tradition and practice of political 
independence in the civil service develops. 

Both under- and over-staffing exist in the public administration.  But the problems lie 
not so much in that aspect as in lack of experience.  There is a problem of "brain 
drain" to the private sector, but this is not as great as might have been expected given 
the difference in salary levels. 

Public confidence in the civil ,service is not assured, especially at the local government 
and town council level.  Part of this is due to public concern at the incidence of 
corruption. The Government is conscious of a significant and widespread problem of 
corruption in the public administration.  An anti-corrilption programme \Vas 
established in 1993.  A Law on Prevention of Corruption has been in force for a year. 
Several cases have been brought. 

The wide-ranging training initiatives put in place by the Government will need to be 
considerably reinforced to meet the needs of Latvia in the context of its progress 
toward EU accession, and more generally the continued successful development of the 
Latvian state.  Training needs exist both at the central and local levels, notably in 
management and human resources.  Various bodies have been set up through which 
these goals could be pursued. 

The European Integration Council has created a functioning structure for decision 
making on EU matters.  The EIB is well organised and has reinforced its staff in 1997. 
There is a good case for the coordinating function of the EIB to be strengthened to 
give it greater authority over sectoral ministries.  The scarcity of experts is a problem; 
for example, in some cases the same lawyers who have drafted laws for individual 
ministries are then responsible for scrutinising the drafts in the working groups. 

97 

Key Areas for Implementation ofthe Acquis 

The  unifonn  application  of  EC  law:  The  effective  application  of  the  acquis 
presupposes  that  the  judicial  authorities  of member  states  are  able  to  apply  the 
provisions of the Treaty dealing with ensuring the unity and application of the acquis, 
and  are  able  to  ensure the  proper functioning  of the  Single Market  and  Community 
policies  in  general.  A  high  quality  and  well  trained  and  resourced  judiciary  is 
· necessary for the application by the courts of EC law, including cases of direct effect, 
and cases of referral to the European Court of Justice under the terms  of Article  177 
EC. 

The  judicial  system  in  Latvia  suffers  has  important  weaknesses,  particularly 
concerning  resources,  and  relevant  expertise.  Given  this  situation,  the  Commission 
has  significant  doubts  about  the  ability  of  the  system  to  ensure  the  effective 
application of the acquis. 

Sinfde market:  The ability of Latvia to ensure the correct application of Community 
requirements in the Single Market, particularly concerning the free movement of 
goods and services presupposes the existence of highly developed and effective 
regulatory, standardisation, certification and supervisory authorities, able to act fully 
in accordance with EC rules.  An analysis of these points is made in Chapter 3.1 
(under "The Four Freedoms"). 

Concerning the administrative capacity in respect of free movement of goods the 
situation in Latvia is not yet satisfactory.  Despite good efforts made in the fields of 
standardisation and conformity assessment, the regulatory agencies suffer from 
serious under staffing problems.  The Centre for Standardisation and Metrology has 
only 152 staff, and other agencies considerably less.  Concerning the free movement 
of services the situation is much improved following the strengthening of the 
supervisory capacity of the Latvian Central Bank (700 staff).  An Insurance 
Supervisory Committee (20 staff) is in the Ministry  of Finance.  A Securities Market 
Commission ( 12 staff) has also been created. 

In order to meet  EC requirements in this area all regulatory bodies need improved 
staffing and training. 

Competition:  As explained in Chapter 3.1  (under "Competition") enforcement of 
competition law requires the establishment of anti-trust and state aid monitoring 
authorities, and that the judicial system, the public administration and the relevant 
economic operators have a sufficient understanding of competition law and policy. 

In Latvia the central authority is the State Anti-Monopoly Committee which has 88 
staff; this is adequate.  The level of expertise is appropriate.  Nonetheless, the ability 
effectively to implement  EC requirements in this field will require the full 
independence of the competition authority, and some further investment in human 
resources. 

98 

Telecommunications:  In order to formulate and implement the many liberalisation 
regulations contained in the acquis in this field it is necessary to have a regulatory and 
policy making -body that is effectively separated from any operating company. 

In Latvia two independent regulatory bodies exist; the Department of 
Communications of the Ministry of Transport (telecommunications and postal 
services) and the Telecomm~cations Tariff Council (5 staff).  In 1966 a new 

·  regulatory department, the Department oflnformatics, was established at the Ministry 
of Transport to deal with information society matters.  Both bodies are independent 
organisations, separated from the public telecommunications operator and are 
financed by the state budget.  ~owever, it is to be doubted whether sufficient 
administrative capacity exists. 

Indirect taxation:  The effective administration of the indirect taxation acquis 
presupposes structures capable of implementing the EC legislation concerning the 
harmonisation of Valued Added Tax and excise duties in an environment in which 
fiscal controls at internal EU frontiers have been abolished; and the excise system is 
based on the tax warehouses, duty being payable at the local rate in the member state 
at the time the goods are consumed.  This requires a highly developed and well trained 
and resourced service, with a high degree of integrity. 

In Latvia the relevant authority is the Ministry of Finance. The total number of staff in 
the State Revenue (Income) Service is 4  100.  Due to a large turnover of staff, 
resulting partly from trained staff being recruited by the private sector, it is difficult to 
estimate the capacity of existing staff. In order to ensure the effective administration 
of the acquis in this area it will be necessary to consolidate and improve the overall 
professional standards of the staff, including training measures and improvements in 
pay. 

A~culture: The administrative requirements in the agricultural area primarily 
concern veterinary and phyto-sanitary control, to protect public health and ensure the 
free movement of agricultural goods; and the ability to administer the mechanisms 
and requirements of the CAP, including high standards of financial control and 
official statistics.  These points are dealt with in Chapter 3.4 (under "Agriculture"); 
general standards in the statistical field are examined in Chapter 3.3  (under 
"Statistics"). 

Concerning the administrative capacity in respect of veterinary and phyto-sanitary 
controls, further work is required in Latvia on the establishment of a fully resourced 
official veterinary service, including the imposition of effective controls at border 
inspection points, and on goods transiting the country.  There are 26 district veterinary 
offices, each with between 3 and 8 inspectors.  There are about 80 full-time food 
inspectors.  Concerning the administration of general CAP requirements, a substantial 
adaptation of the current administrative structure will be necessary. 

In order to meet  EC requirements in this area considerable improvements will be 
required. 

99 

Transport:  The application of the  EC Internal Market and competition requirements 
to the transport sector, the development of relevant infrastructure products, and other 
aspects of the transport acquis will present administrative challenges to new member 
states. 

The responsible government authority in Latvia is the Ministry of Transport with a 
total of95 staff. Within the qverall institutional reorganisation of the transport sector, 
priority is being given to the introduction of modem management and budget 
practices. There is, however, a shortage of qualified staff. This raises particular 
concerns with regard to the enforcement of safety controls. 

Employment and social policy:  A central adriiinistrative requirement in respect of the 
acquis in this area is adequate inspection capacity, particularly concerning health and 
safety at work. 

In Latvia the labour inspectorate has about 60 staff, and requires considerable 
reinforcement of staff resources and expertise. 

Regional policy and cohesion:  The main administrative requirements in this area are 
the existence of appropriate and effective administrative bodies, and in particular a 
high degree of competence and integrity in the administration of Community funds. 

In Latvia regional development is handled by the Ministry of the Economy. The 
number of staff employed is not currently available to the Commission. (The Ministry 
of Environment and Regional Development (70 staff) deals with spatial planning). 
These arrangements can be considered. generally approp~ate. The situation concerning 
financial control is not yet satisfactory (see the section, below, on "Financial 
control"). The effective administration of the acquis in this area will require some 
administrative reforms. 

Environment:  Because  EC environmental policy involves the integration of 
environmental protection into  EC sectoral policies, the administrative requirement is 
potentially very wide, affecting many bodies not normally associated  with 
environmental protection.  However, the main responsibility lies with environment 
ministries and various subsidiary bodies. 

In Latvia the Environment Ministry employs  120 staff. Monitoring is carried out by 
the Environmental Consulting and Monitoring Centre, enforcement by the Ministry 
and 9 regional committees. These arrangements are adequate. The effective 
administration of the acquis in this area will require greater financial and human 
resources, especially as legislation is progressively approximated. 

Consumer protection:  In this area, the effective administration of the acquis requires 
the allocation of overall responsibility to a specific State body through which the 
formulation, implementation and enforcement of consumer policy and consumer 
protection legislation can be undertaken. 

In Latvia the governmental Department of Quality Management and Structural 
Development has been given full  authority to  develop and implement consumer 

100 

protection policy. As regards non-governmental consumer bodies these remain far too 
weak. There remains confusion about the exact scope and objectives of consumer 
policy. This in part explains difficulties in the effective enforcement of consumer 
laws; however, other factors which need to be addressed include a lack of expert staff, 
organisational deficits, and a lack of sensitivity to consumer questions among the 
judiciary. 

. Justice and home affairs:  Oversight of justice and home affairs questions falls to the 
justice and interior ministries.  The administrative structures need to be able to deal 
effectively with asylum and migration questions, border management, police 
cooperation and judicial coop~ration.  There is an overriding need for sufficient and 
properly trained staff with a high degree of integrity. 

In Latvia the justice and interior ministries are adequately staffed. The capacity to 
handle asylum and migration is not yet assured. Border management systems on the 
eastern frontiers are ineffective and need substantial human and financial resources. 
Specialised police units have been created, and a major training effort is underway. 
Reform of the court system has begun; judicial cooperation is currently focused on 
neighbouring states. The effective administration of the acquis in this area will require 
further investment in technical and human resources, improved management, steps to 
combat corruption, and greater experience of practical JHA cooperation with EU 
counterparts. 

Customs:  Applying the acquis in this area requires  an adequate level of infrastructure 
and equipment, including computerisation and investigation resources, and the 
establishment of an efficient customs organisation with a sufficient number of 
qualified and motivated staff showing a high degree of integrity. 

In Latvia the customs service employs 1 675  staff. Due to a high turnover of staff, it is 
difficult to estimate their efficiency, and therefore the adequacy of staffing levels. T4e 
effective administration of the acquis in this area will require the retention of 
experienced and qualified staff, computerisation of the customs administration, and 
refmements to the  organisational structure. 

Financial control:  The protection of the Community's financial interests requires the 
development of anti-fraud services, training of specialised staff (investigators, 
magistrates) and the reinforcement of systems of specific cooperation. The 
implementation of Community policies, especially for agriculture and the Structural 
Funds, requires efficient management and control systems for public expenditure, 
with provisions to fight fraud.  Administratively it is essential to have a clear 
separation between external and internal control.  Police and judicial authorities need 
to be able effectively to handle complex transnational financial crime (including 
fraud,  corruption and money laundering) which could affect the Community's. 
financial interests. 

In  Latvia  the  main  external  control  body  is  the  State  Audit  Office  employing  160 
staff. This figure may be adequate, however the effective administration of the acquis 
in  this  area  will  require  substantial  preparations 
to  establish  the  necessary 
management and control mechanisms. 

101 

4.3  General Evaluation 

Latvia's  administrative  structures will  require  a major,  reinforced  effort of reform  if 
there is to  be an  adequate capacity in the medium  term effectively to  administer the 
acquis. 

Concerning the judicial capacity effectively to apply Community law, a definite 
evaluation at this stage is difficult. 

102 

C.  ~"PMMARY AND CONCLUSIONS 

Latvia submitted its application for membership of the European Union on 27 October 
1995.  Its request is part of a  historic  process  of ending  the  division of Europe  an~· 
consolidating the establishm~nt of democracy across the continent. 

In accordance with the provisions of Article 0  of the Treaty, the Commission has, at 
the request of the Council, prepared an Opinion on Latvia's request  for membership. 

. 

( 

Latvia' s preparation for membership is going forward notably on the basis of the Free 
Trade Agreement which entered into force on 1 January 1995.  The European Union 
and  Latvia  signed  a  Europe  Agreement  on  12  June  1995.  Once  the  ratification 
procedures  are  complete  and  it  enters  into  force,  it  will  supersede  the  Free  Trade 
Agreement.  Implementation of the White Paper of May 1995 on the Internal Market, 
another essential element of the pre-accession strategy, is going ahead on the basis of 
~a  National  .Programme  adopted  by  the  government  in  December  1996.  The 
government has  put in place the  necessary mechanisms  to  coordinate  its  policies  for 
European integration. 

In preparing its Opinion, the Commission has  applied the criteria established at the 
Copenhagen  European  Council  of June  1993.  The  Conclusions  of this  Council 
stated  that those candidate countries of Central and Eastern Europe who wish to do so 
shall become members of the Union if they meet the following conditions: 

- stability of institutions guaranteeing democracy, the rule of law, human rights and 

respect for and protection of minorities; 

-the existence of a functioning market economy, as well as the ability to cope with 

competitive pressures and market forces within the Union; 

- the ability to take on the obligations of membership, including adherence to the 

aims of political, economic and monetary union. 

A judgment on these  three groups of criteria- political,  economic,  and  the  ability to 
take on the acquis  -depends also  on the  capacity of a  country's  administrative  and 
legal systems  to  put into  effect the principles of democracy and the market economy 
and to apply and enforce the acquis in practice. 

The method followed in preparing these Opinions has been to  analyse the situation in 
each  candidate  country,  looking  forward  to  the  medium  te~ prospects,  and  taking 
into account progress accomplished and reforms already under way.  For the political 
criteria,  the  Commission  has  analysed  the  current  situation,  going  beyond  a  formal 
account of the institutions to  examine how  democracy and the  rule of law operate in 
practice. 

103 

1.  Political Criteria 

Latvia's political  institutions  function  properly  and  in conditions  of stability.  They 
respect the  limits  on their competences  and  cooperate with each other.  Elections  in 
1992  and  1995  were  free  and  fair,  and  in each  case  permitted  the  establishment  of 
coalition  governments.  The  Opposition plays  a  normal  part  in the  operation  of the 
. institutions.  Efforts to  improve the  operation of the judicial system  and to  intensify 

the fight against corruption need to be sustained. 

There are no major problems over respect for fundamental rights.  But Latvia needs to 
take measures to  accelerate naturalisation procedures to  enable the Russian  speaking 
non-citizens to become better integrated into Latvian society.  It should also pursue its 
efforts to ensure equality of treatment for non-citizens and minorities, in particular for 
access to professions and participation in the democratic process. 

Latvia  demonstrates  the  ·characteristics  of  a  democracy,  with  stable  institutions 
guaranteeing the rule of law and human rights. 

2.  Economic Criteria 

In  the  first  three  years  after  independence  Latvia's  output  declined  by  50%.  First 
signs  of recovery  in  1994  were  undermined  by  a  banking  and  budget  crisis  the 
following  year;  but  growth  turned  positive  again  in  1996  (2.8%).  Since  1995  the 
current  government has  conducted  a tight  fiscal  policy,  though revenue  collection  is 
still a problem.  The foreign debt ratio remains low, but Latvia has a high trade deficit. 
Inflation rates have declined over recent years, but still stood at  17.6% in  1996.  GDP 
per  head  is  about  18%  of the  EU  average,  for  a  population  of 2.5  million.  The 
agricultural  sector employs  18%  of the  labour force,  and accounts  for  9.9% of Gross 
Value Added.  45% of Latvia' s exports qre directed to the EU,  and 50% of its imports 
originate in the EU. 

On  the  basis  of its  analysis,  the  Commission's  judgment  as  to  Latvia's  ability  to 
meet the economic criteria established at Copenhagen  is as follows: 

Latvia  has  made  considerable  progress  in  creating  a  market  economy.  Trade  and 
prices have largely been liberalised.  Much headway has been made in stabilising the 
economy.  While  there  has  been  significant  progress  in  establishing  the  legislative 
framework,  effective  implementation  is  lagging  behind.  Also,  not  all  the  necessary 
regulatory bodies are in place or working properly.  Privatisation is not complete;  the 
remaining  state-owned companies  are  generally in poor financial  condition and there 
is a shortage of investors. 

Latvia would face serious difficulties to  cope with competitive pressure and market 
forces within the Union in the medium term.  The Latvian economy is relatively open 
and labour costs are low.  However, exports consist mainly of low value-added goods. 
Industrial  restructuring,  as  well  as  enterprise  restructuring,  is  still  needed.  The 

104 

banking  sector  ts  underdeveloped  and  weak  in  parts.  Agriculture  needs  to  be 
modernised. 

3.  Capacity to take on the obligations of membership 

Latvia's  ability  to  take  on  the  acquis  has  been  evaluated  according  to  several 
indicators: 

. 

- the obligations  set out in the Europe  Agreement (even though this  has  not yet 

entered into force for Latvia), particularly those relating to the right of establishment, 
national  treatment,  free  circulation  of  goods,  intellectual  property  and  public 
procurement; 

- implementation  of. the  measures  set  out  in  the  White  Paper  as  essential  for 

establishing the single market; 

-progressive transposition of the other parts of the acquis. 

Even before the Europe Agreement has entered into force,  Latvia has made significant 
efforts  to  comply with  some  of the  obligations  which  will  come  into  effect  with  it. 
Latvia is  meeting  its  obligations  under the  Free Trade  Agreement,  and  according  to 
the  timetable  for  implementation  set  out  in  it.  No  serious  bilateral  problems  have 
Latvia  has  also  made  some  efforts  towards  compliance  with  the  essential 
arisen. 
single  market legislation.  It has  made  progress  in  the  areas  of banking,  industrial 
property  rights,  conformity  assessment  and  standards  and  commercial  law.  But 
further work needs to be done on intellectual property rights, public markets, personal 
data, competition (especially the transparency of state aids), taxation  and other areas. 

A  problem  for  further  progress  may  be  the  weakness  of  the  Latvian  public 
administration,  which  affects  not  only  the  pace  of approximation  of legislation  but 
also the quality of its implementation and enforcement. 

As  for the other parts of the acquis,  Latvia should not have significant difficulty in 
applying it in the medium term in the following fields:  education, training and youth; 
research  and 
telecommunications;  audio-visual; 
fisheries;  small and medium enterprises;  trade and  international  economic relations; 
and  development. 

technological  development; 

By contrast, substantial efforts will be needed in the fields of statistics and customs. 

Provided that Latvia maintains current positive trends towards industrial restructuring, 
its  industry  should  be  able  to  cope  with  integration  into  the  single  market  in  the 
medium term. 

For  the  environment,  very  substantial  efforts  will  be  needed,  including  massive 
investment  and  strengthening  of administrative  capacity  to  enforce  legislation.  Full 

105 

compliance with the acquis could only be expected in the long tenn and would require 
increased levels of public expenditure. 

Latvia  has  made  real  progress  in  the  field  of transport,  especially  air  transport. 
Provided efforts are made in road transport, rail and sea transport, no major problems 
are  to  be  expected  in  applying  the  acquis  relating  to  the  single  market.  But 
. investment will be needed to  extend the  European transport network so  as to  ensure 

that the single market functions well. 

It should be possible for Latvia to achieve the employment and social affairs acquis 
in  the  medium  tenn,  provided  that  Latvia  makes  substantial  efforts  to  adapt  its 
legislation to EU requirements in fields such as health and safety and labour law. 

Latvia has  opted to  pursue  its  regional  policy  within  the  framework  of its  national 
development strategy.  Given the necessary administrative reforms, and establishment 
in parallel of effective systems of financial control, Latvia should become  able to use 
the Union's regional and structural funds for its development effectively. 

The  agriculture  sector  needs  restructuring,  and  only  a  limited  number  of  the 
mechanisms  of the  common  agricultural  policy  currently  exist.  A  substantial  and 
sustained effort will be reguired to prepare for accession in the medium term. 

In the  energy field,  Latvia has no  nuclear power programme,  and no  difficulties  are 
foreseen  for  Latvian compliance with Euratom provisions.  But work will be needed 
to  prepare  to  meet  the  acquis  in  the  fields  of energy  pricing,  access  to  networks, 
energy efficiency and environmental norms. 

On the  basis  of the  analysis  of Latvia's  capacity  to  apply  the  acquis,  it  is  not  yet 
possible  to  be  sure  when  it  could  become  able  to  take  and  implement  the  measures 
necessary to remove the controls at borders between Latvia and member states of the 
Union. 

Latvia' s  participation  in  the  third  stage  of economic  and  monetary  union,  which 
implies  coordination  of  economic  policy  and  complete  liberalisation  of  capital 
It  is  premature  to  judge 
movements,  still  poses  problems  in  the  medium  term. 
whether Latvia will be in a position, by the time of its accession, to participate in the 
Euro  area.  That will  depend  on how  far  the  success  of its  structural  transformation 
enables  it  to  achieve  and  sustain  permanently  the  convergence  criteria.  These  are, 
however, not a condition for membership. 

In the field of  justice and home affairs, Latvia is  starting from  a low base and faces 
considerable  difficulties  in  preparing  itself.  A  major  and  sustained  effort  will  be 
needed if Latvia is to be ready to meet the acquis in the medium term. 

Latvia should be able to  fulfil  its  obligations in respect of the  common foreign  and 
security policy. 

106 

In  addition,  Latvia  has  no  major  territorial  disputes  with  any  Member  State  or 
candidate  country.  Latvia  has  set  development  of good  relations  with  Russia  as  a 
major priority of its foreign policy, and has achieved important progress. 

4.  Administrative and legal capacity 

For Latvia to have in the medium term the administrative structures necessary for the 
essential work of applying and enforcing the acquis effectively, there will need to be a 
major, reinforced effort of reform. 

The same applies to Latvia's judicial system,  which has  an equally important role to 
play. 

CONCLUSION 

In the light of these considerations, the Commission concludes that: 

- Latvia  presents  the  characteristics  of a  democracy,  with  stable  institutions, 
guaranteeing  the  rule  of  law,  human  rights  and  respect  for  and  protection  of 
minorities.  But measures  need  to  be taken  to  accelerate  the  rat6  of naturalisation  of 
Russian-speaking non-citizens to enable them .. to become better. integrated into Latvian 
society; 

· 

- Latvia has made considerable progress in the creation of a market economy, but it 
would  face  serious  difficulties  to  cope  with  competitive  pressure· and  market  forces 
within the Union in the medium term; 

- Latvia  has  made  some  progress  in  transposing  and  implementing  the  acquis 
relating particularly to  the  single market.  With  considerable  further  effort  it  should 
become able to participate fully  in the  single market in the medium term.  Particular 
efforts, including investment, will be needed to  apply the acquis fully  in sectors such 
as  environment  and  agriculture.  Strengthening  of the  administrative  structure  is 
indispensable  if Latvia  is  to  have  the  structures  to  apply  and  enforce  the  acquis 
effectively. 

In  the  light  of these  considerations,  the  Commission  considers  that  negotiations  for 
accession to the European Union should be opened with Latvia as  soon as it has made 
sufficient  progress  in  satisfying  the  conditions  of  membership  defined  by  the 
European Council in Copenhagen. 

The reinforced pre-accession strategy will help  Latvia to  prepare itself better to  meet 
the  obligations  of membership,  and  to  take  action  to  improve  the  shortcomings 
identified in this Opinion.  The Commission will present a report no  later than the end 
of 1998 on the progress Latvia has achieved. 

107 

ANNEX 

COMPOSITION OF PARLIAMENT 

RESULTS OF LAST GENERAL ELECTIONS (1995) 

Political parties 

Seats 

Democratic Party Saimnieks 

Latvian Way 

Peoples' Movement for Latvia 

Fatherland and Freedom 

Conservative Party 

Farmers' Union 

Harmony Party 

Unity Party 

Socialist Party 

Nation and Justice Party 

20 

17 

10 

14 

8 

8 

4 

8 

5 

6 

SINGLE MARKET:  WHITE PAPER MEASURES 

This table is based on information provided by the Latvian authorities and confirmed by them as correct as at the end of June  1997. lt does not 
indicate the Commission's agreement with their analysis.  The table includes directives and  regulations cited in the White Paper which total 899. 
These have been listed in accordance with the categorization used in  the White Paper and in  relation to the policy areas covered.  The table 
shows the number of measures for whic~t the Latvian authorities have notified the existence of adopted legislation having some degree of 
compatibility with the corresponding White Paper measures. 

White Paper chapters 

Directives 

Regulations 

Total 

l.Free Movement of Capital 

Latvia 

l.FM and Safety of Industrial Products 

3.Competition 

4.Social policy and action 

5.Agriculture 

6. Transport 

7 .Audiovisual 

8.Environment 

9.Telecommunication 

10.Direct Taxation 

ll.Free movement of goods 

1i.Public Procurement 

13.Financial services 

14.Protection of personal data 

15.Company Law 

16.Accountancy 

17 .Civil law 

18.Mutual rec. of pro f.  Qual. 

19.Intellectual property 

20.Energy 

21.Customs law 

22.Indirect Taxation 

23.Consumer Protection 

Total 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper ~easures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White  Paper measures 
Latvia 

Number of White  Paper measures 
Latvia 

Number of White  Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White Paper measures 
Latvia 

Number of White  Paper measures 

,. 

7_ 

I 

I 

·o 

0 
0 
7 
1 

111111 
1 
I 
8 
104 
0 
0 
12 
15 
13 
46 
6 
15 

Stage  Stage  Stage  Stage 
IIIIII 
0 
0 
0 
I 
0 
0 
0 
2 
0 
2 
4 
13 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
I 
0 
0 
0 
0 
0 
0 
1 
3 
0 
0 
3 
184 
0 
6 
0 
0 
8 
212 

2 
3 
36 
56 
3 
3 
3 
12 
26 
93 
12 
19 
1 
I 
4 
31 
5 
9 
0 
2 
0 
0 
5 
5 
9 
13 
0 
0 
2 
2 
2 
3 
1 
I 
2 
2 
4 
5 
4 
10 
0 
2 
12 
15 
6 
8 
139 
295 

0 
0 
1 
4 
1 
I 
0 
0 
7 
62 
2 
8 
0 
0 
2 
7 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
3 
13 
14 
0 
0 
0 
0 
26 
99 

0 
2 
0 
0 
2 
I 
5 
8 
0 
2 
3 
3 
1 
2 
0 
I 
12 
16 
1 
3 
0 
2 
0 
I 
15 
54 
0 
'3 
80 
293 

3 
4 
45 
165 
4 
4 
15 
29 
46 
203 
24 
55 
1 
I 
6 
45 
6 
16 
0 
4 
0 
0 
7 
6 
14 
21 
0 
2 
5 
6 
3 
5 
1 
2 
14 
18 
6 
11 
4 
15 
16 
201 
27 
75 
6 
11 
253 
899 

STATISTICAL DATA 

If not explicitly stated otherwise, data contained in this annex are collected from ,  Central Statistical Bureau 
of  Latvia  (LA TVIJAS  REPUBLIKAS  V ALSTS  STA TISTIKAS  KOMITEJA)"  with  whom  Eurostat  and 
Member  States'  statistical  offices  are  co-operating  since  several  years  in  the  framework  of  the  Phare 
programme.  Regular data  collection  and  dissemination  are  part of this  co-operation  process  with  the  aim  to 
enable the application of EU laws and practices in statistics. Data correspond to the infonnation available as of 
May 1997. The data presented below have b.een compiled as  far as possible using EU definitions and standards 
which in some cases differ from  nation~l practices.  This may occasionally give rise to differences between the 
data  presented  here  and· those  shown  elsewhere  in  the  opinion,  which  are  generally  based  on  the  individual 
applicant countries'  updated replies to  the questionnaire  sent to  them  in  April  1996.  The exact compatibility 
with  EU  standards  on  statistics  and  thus  the  comparability  with  EU  figures  can  still  not  be  guaranteed, 
particularly those statistics  that have  not been supplied through  Eurostat  but have been  delivered directly  by 
the  countries  concerned.  Wherever  available,  methodological  notes  are  given  describing  content  and 
particularities of statistical data presented in this annex. Data correspond to the infonnation available as of May 
1997. 

BASIC DATA 

Total Area 

Population ( end of the period) 

-Total 

-Females 

-Males 

Population density 

Urban Population 

Deaths rate 

Births rate 

Income and GDP per capita 

-Average monthly wage and salary per employee 

-GDP per capita 

Structure of production: share of branch GVA 

-agriculture 

-industry 

-construction 

-services 

1990 

1993 

1994 

1995 

1996 

I 000 hectares 

6458.9 

6458.9 

6458.9 

6458.9 

2565.8 

1375.1 

1190.7 

in  1000 

2529.5 

1357.5 

1172.0 

per  I km2 

in % of total population 

per I 000 of population 

15.2 

10.3 

16.4 

9.5 

European Currency Unit 

in% of Total Gross Value Added 

2501.7 

1343.2 

1158.5 

2479.9 

1332.2 

1147.7 

38.7 

38.4 

69.0 

68.9 

13.8 

7.9 

15.5 

8.6 

130 

1366 

9.9 

25.3 

7.7 

57.1 

41.3 

69.2 

21.9 

36.4 

9.7 

32.0 

share ofbranch GVA in 1990 

share ofbranch GVA in 1995 

.0.0 

• 

-agriculture 

13 
0 

13 
• 

-industry 

-construction 

-services 

-Others 

[J 57.1 

-agriculture 

• 
m  -industry 
0 

-construction 

0 
• 

-services 

-Others 

NATIONAL ACCOUNTS 

Gross Domestic Product (Current Prices) 

62.44 

143.3 

1004.6 

~  1467.0 

2042.6 

2360.7 

1990 

1991 

1992 

1993 

1994 

1995 

in Millions of National Currency 

Gross Domestic Product (Current Prices) 

Gross Domestic Product 

Gross Domestic Product 

Final consumption expenditure 

-of households and NPISH 

-of general government 

Gross fixed  capital formation 

Exports of goods and services 

Imports of goods and services 

Final consumption expenditure 

-ofhouseholds and NPISH 

-of general government 

Gross fixed  capital formation 

Exports of goods and services 

Imports of goods and services 

in Billions of ECU 

1.1 

1.9 

3.1 

3.4 

in Purchasing Power Standard-per capita 

2867.3 

3044".5 

3159.4 

% change over the previous year 

-10.4 

-23.1 

-26.0 

-4.9 

-63.9 

-32.2 

-43.9 

56.5 

46.2 

10.3 

6.2 

35.2 

25.5 

61.2 

52.7 

8.6 

23.0 

47.7 

49.0 

-34.9 

-14.9 

-35.0  .  -4.9 

-43.3 

5.6 

-28.7 

14.9 

8.0 

-7.4  . 

1.6 

-15.8 

-22.4 

-39.8 

in % of Gross Domestic Product 

51.9 

39.4 

12.5 

11.2 

79.9 

73.1 

74.6 

52.5 

22.1 
13.8 

73.2 

57.0 

0.6 

2.0 

3.2 

-0.9 

0.8 

-8.4 

-0.7 

78.8 

58.7 

20.1 

14.9 

46.5 

44.4 

-1.6 

3.7 

3.9 

3.1 

12.6 

-3.4 

-2.8 

80.1 

59.4 

.  20.7 

16.6 

47.1 

49.1 

GDP (0/o Change owr the previous year) 

5.0 

0.0 

-5.0 

-10.0 

-15.0 

-20.0 

-25.0 

-30.0 

-35.0 

MAIN ECONOMIC INDICATORS 

Inflation rate 

10.5 

172.2 

951.2 

109.2 

35.9 

25 

17.6 

1990 

1991 

1994 
1993 
1992 
perc:cntage change over the previous year 

1995 

1996 

Industrial production volume indices 

Gross agricultural production volume indices 

Unemployment rate (ILO methodology) 

-Total 

- less then 25 years 

- 25  years and more 

Gross Foreign ~ebt 

Balance of payments 

-Exports of goods 

-Imports of goods 

-Trade balance 

-Services, net 

-Income, net 

-Current account balance 

-Capital and fin.  acc.(excl.  reserves) 

-Reserve assets 

previous year •  I 00 

67.9 

78 

90.1 

80 

in %  labour force 

96.3 

94 

18.9 

30.1 

17 

101.4 

90 

18.3 

29 

16.6 

in Billions of USD 

0.057 

0.2·24 

0.386 

0.4034 

0.4088 

in  millions of USD 

800 

-840 

-40 

134 

I 

191 

-75 

-73 

1054 

-1051 

3 

329 

7 

417 

140 

-371 

1022 

-1322 

-300 

361 

9 

201 

410 

-103 

1368 

-1947 

-579 

474 

19 

-19 

692 

35 

1502 

-2429 

-927 

344 

I 

-495 

325 

-186 

Inflation  rate: Percentage change of yearly average over the  previous year- all  items  index  (data are  based  on  national  CPis which  are 

not strictly comparable) 

Unemployment rate (by ILO methodology):- Percentage oftheunemployed in  tabor force.  This rate  is  derived  from  LFSS (Labor Force 

Survey) observing the following ILO definitions and recommendations: 
Labor force  employed and unemployed persons in the sense of the ILO definitions stated below. 
Tlte  employed 
all  persons  aged  15+,  who  during  the  reference  period  worked  at  least  one  hour  for  wage  or  salary  or  other 
remuneration as  employees, entrepreneurs,  members of cooperatives or contributing family  workers.  Members  of armed  forces  and 
women on child-care leave are included. 
The u11employed  all  persons aged  15+, who concurrently meet all  three conditions of the  ILO  definition  for  being classified as  the 
unemployed: (i) have no work, (ii) are actively seeking ajob and (iii) are  ready to take up  a job within a fortnight.  Data for  1995  and 
1996 refer to November 1995 and November 1996. 
Data  from  November  1995  LFSS  monitors  the  population  aged  15-69.  Data  from  May  and  November  1996  LFSS  monitors  the 
population  aged  15  years  and  over.  LFSS  excludes  persons  on  compulsory  military  service  and  persons  living  in  nonprivate 
households.  Employees on maternity leave and child care until  3 months are  included. 

Gross foreign debt:  Debt is extracted form the OECD's External Debt Statistics. 

Balance of payments:  Data  is  derived  from  IMF database,  their comparability  with  respective  EU  statistics  can  not  be  guaranteed,  but 
balance  of payments  is  compiled  mainly  in  accordance  to  IMF  standards.  1996  figures  are  preliminary.  Balance  in  trade  of 
goods  in  accordance  with  balance  of payments  principles.  Exports  and  imports  are  both  in  f.o.b.  values.  Net  income  includes 
direct,  portfolio  and  other  investment  income,  compensation  of employees.  Current account balance  by  definition  of IMF  5th 
Manual,  capital  transfers  are  excluded.  Reserve  assets:  it  means  changes  in  reserve  assets  during  the  year;  (+)  signifies  an 
increase,(-) a decrease  in  reserve assets. 

/J/1?.. 

FOREIGN TRADE 

Imports and exports (current prices) 

-Imports 

-Exports 

- Balance of trade 

External trade volume indices 

-Imports 

-Exports 

Structure of Import by SITC (current prices) 

- (0+ 1)  food  and  live animals, beverage and tobacco 

- 2 crude materials, inedible 

' 

- 3 mineral fuels and lubricants 

- 4 animal and vegetable oils etc. 
- 5 chemicals and related products 

- 6 manufactured goods classified chiefly by material 

- 7 machinery and transport equip.ment 

- 8 miscellaneous manufactured articles 

Structure of export by SITC (current prices)· 

. 

- (0+ 1) food  and live animals, beverage and tobacco 

- 2 crude materials, inedible 

- 3 mineral fuels  and lubricants 

- 4 animal and vegetable oils etc. 
- 5 chemicals and related products 
- 6 manufaciured goods classified chiefly by material 

- 7 machinery and transport equipment 

- 8 miscellaneous manufactured articles 

External trade price indices 

-Imports 

-Exports 

1993 

1994 

1995 

1996 

in millions of USD 

947 

1000.9 

53.9 

1240.4 

988.2 

-252.1 

1817.4 

1303.8 

-513.6 

2320 

1443.2 

-876.6 

previo•JS year •  100 

67.8 

113.7 

i!ll% of tc;tallmport 

9.9 

1.6 

29 

0.3 

1 Ll 

1L.8 

12.8 

9.7 

in % of total Export 

12.3 

17.8 

1.8 

0.1 

7.9 

23.9 

20.4 

13.2 

9.7 

2.4 

21.2 

0.6 

12.7 

17.1 

25.4 

11.1 

15.9 

23.8 

1.8 

0.1 

6.9 

22.9 

16.3 

12.2 

5.8 

1.5 

45.3 

0.3 

7.9 

10.1 

19.3 

5.7 

13.9 

8.7 

14 

0.3 

7.2 

20:4 

20.8 

12 

108 

11.9 

2.6 

21.6 

0.8 

12.3 

17.6 

22.6 

10.5 

16.7 

20.1 

2 

0.1 

6.7 

24.4 

14 

15.9 

previous year=  100 

115.2 

116.1 

106.2 

Imports  and  exports  (current  prices),  External  trade volume  indices  and  Structure of external  trade  by  SITC (current  prices): 
Trade data exclud~! direct re-exports,  trade in services and  trade with customs free  zones  as  well  as  licenses, know-how and  patents. 
The data are  based upon  the  special  trade  system and  are  regularly  updated.  The customs 'statistics  is  utilized  for  monitoring of 
foreign  trade  data.  Eurostat  has  converted  National  Currencies  to  the  US  dollar  by  applying  the  International  Monetary  Fund 
annual average exchange rates. 

· 

FOREIGN TRADE 

Structure oflmports by main countries (current prices) 

1st partner 

2nd partner 

3rd partner 

4th partner 

Sth partner 

others 

--

Structure of uports by main countries (current prices) 

1st partner 

2nd partner 

3rd partner 

4th partner 

Sth partner 

others 

1993 

1994 

1995 

1996 

RU 
DE 
LT 
SE 
Fl 

RU 
NL 
DE 

SE 
UA 

28.5  RU 
10  DE 
Fl 
9.6 
5.3 
SE 
4.2  LT 
42.4 

29.6  RU 
8.2  DE 
6.6  GB 
6.5 
SE 
5.9  UA 
43.2 

in % or total  impona 
23.6  RU 
13.5  DE 
8.5 
Fl 
6.4 
SE 
5.9  LT 
42.1 

in % or tolal ex pons 

28.1  RU 
10.5  DE 
9.7 

SE 
6.9  GB 
5.9  LT 
--
38.9 

RU 
DE 
Fl 
SE 
LT 

RU 
DE 

GB 
LT 
SE 

21.7 

15.4 

10.4 
8 
5.5 

39 

25.3 

13.6 

9.3 

9.1 
5.5 
37.2 

20.2 

13.8 

9.2 

7.9 

6.3 
42.6 

22.8-

13.8 

11.1 

7.4 

6.6 

38.3 

Structure ofexport by main partners 
in 1996 

RU 

DE 
13.8% 

Structure of import by main partners  . 
in 1996 

RU 
20.2% 

42.6% 

DE 
13.8% 

6.6% 

LT 
7.4% 

ll.l~'e 

LT 

6.3~'. 

SE 
7.9% 

9.2~~ 

DE 
Fl 
GB 
LT 

Germany 
Finland 
United Kingdom 
Lithuania 

NL 
RU 
SE 
UA 

Netherlands 
Russian  Federation 
Sweden 
Ukraine 

SOCIAL INDICATORS 

Population on 1 January 

.. 

: 

1991 

1991 

1993 
lhousand 

1994 

1995 

2667.87 

2656.96 

2606.18 

2565.8 

2529.5 

Proportion of population by age (I January 1995) 

ift% of lOCal populatioa 

y0_14 
ytS_24 
y.2S_44 
y4S_64 
y6S_max 

Live births 
Deaths 
Infant deaths 

- Less than 1 year 
- Still birth 

Marriages 
Divorces 

Crude marriage rate 
Crude divorce rate 
Natural growth rate 
Net migration rate 
Total population growth rate 
Total fertility rate 
lnfant mortality rate 
Late foetal  mortality rate 
Life expectancy 

-Males 
- Fem.ales 
Life expectancy 

-Males 
·-Females 

34633 
34749 

545 
315 
22337 
11070 

8.39 
4,16 

-0.04 
-4.05 
-4.1 
1.86 
15.74 
9.01 

24256 
41757 

381 
244 
11572 
8416 

4.5 
3.3 
-6.8 
-7.38 
-14.25 
1.39 
15.5 
9.96 

total number  · 

26759 
39197 

434 
276 
14595  ~-
10278 

31569 
35420 

551 
340 
18906 
14553 

per 1000 of population 

7.18 
5.53 
-1.46 
-17.6 
-19.1 
1.73 
17.64 
10:66 

5.64 
3.97 
-4.81 
-10.7 
-15.5 
1.51 
15.9 
10.21 

atbinh 

at6S yean 

20.7 
13.5 
28.4 
24.1 
13.4 

4.4 

3.1 

18.5 

60.8 
73.1 

11.7 
15.8 

LABOUR MARKET 

Economic Activity Rate (ILO methodology) 

Average employment 

Unempioyment rate (ILO methodology) 

-Total 
- less then 25  years 
- 25 years and more 

Registered unemployment (end of period) 

Average paid employment indices by NACE classes 

- Agriculture, hunting, forestry and fishing 
- Mining and quarrying 
-Manufacturing 
- Production and distribution of electricity, gas and water 
- Construction 
- Transport, storage and communication 

Monthly wages and salaries indices 

-real 
-nominal 

1993 

1994 
1995 
in % of population age +IS 

1996 

67.6 

59.8 

in thousand 

792.1 

694.9 

687.3 

693.1 

in % of labour force 

18.9 
30.1 
17 

in %of economically active population 

5.8 

6.5 

6.6 

18.3 
29 
16.6 

7.2 

1993 

1994 

1995 

1996 

previous year •  I 00 

62.7 
74 
71.5 
115 
63 
86.2 

105 
219.7 

53.7 
100.9 
84.3 
111.7 
88.6 
92.7 

112 
152.2 

81.8 
90.7 
93.8 
102.1 
95.9 
96.1 

99.6 
124.5 

82.4 
101.1 
99.1 
105.5 
92.9 
100.4 

93.8 
110.3 

Economic activity  rate (ILO Methodology) - percentage of labor force  in  the  total  population  aged  15+.  This  rate  is  derivated  of LFSS 

(Labor Force Survey) observing the following ILO definitions and  recommendations: 
Labor force  employed and unemployed persons in the sense of the ILO definitions stated below. 
The  employed 
all  persons  aged  15+,  who  during  the  reference  period  worked  at  least  one  hour  for  wage  or  salary  or  other 
remuneration as  employees, entrepreneurs,  members of cooperatives or contributing family  workers.  Members  of armed  forces  and 
women on child-care leave are included . 

.  The unemployed  all  persons aged  15+, who concurrently meet all  three conditions of the ILO  definition  for  being classified as  the 

unemployed: (i) have no work, (ii) are actively seeking a job and (iii) are ready to take up ajob within a fortnight. 
Data for  1995 and  1996 refer to November 1995  and November 1996. 

Unemployment rate (by ILO methodology):- Percentage of the unemployed  in  labor force.  This rate  is  derived from  LFSS  (Labor Force 

Survey) observing the ILO definitions and recommendations (see ILO definitions above). 
Data from  November  1995  LFSS  monitors  the  population  aged  15-69.  Data  from  May  and  November  1996  LFSS  monitors  the 
population  aged  15  years  and  over.  LFSS  excludes  persons  on  compulsory  military  service  and  persons  living  in  nonprivate 
househoh!s. Employees on maternity leave and child care until 3 months are included. 

Average  employment  and  Average  paid  employment  indices  by  NACE  classes: 

The  data  for  entrepreneurial  sphere  cover  in 
enterprises and other organisations under all kinds of ownership.  The data cover all  budgetary organisations. Persons in compulsory 
military service and employees on childcare leaves are excluded. 

Registered  unemployment  (end  of  period):  Registered  unemployment  in  per  cent  - percentage  of unemployed  registered  in  civil 
economically  active  population,  based  on  Labour  force  sample  survey  (LFSS).  Registered  unemployment  data  are  based  on  the 
monthly data from State Employment Board. 

Monthly wages  and salaries indices:  The data for  entrepreneurial  sphere  cover in  enterprises  and  other organisations  under  all  kinds  of 
ownership.  The data cover all  budgetary organisations.  Persons  in  compulsory  military  service  and employees on  childcare  leaves 
Index  numbers  of monthly  real wages  and  salaries  is  derived  from  index  numbers  of gross  nominal  wages  and 
are  excluded. 
salaries divided by consumer price index numbers. 

PUBLIC FINANCE 

Government budget 

; 

-Consolidated central government revenue 
-Grants 
-Consolidated central government expenditure 
-Consolidated general government expenditure 
-Consolidated central government deficitfsurplus 
-General government deficitfsurplus 

1990 
• 

1991 

1992 

1993 

1994 

1995 

in  millions or national Q.lrrency 

~ 

523.62 
2.66 
564.17 
712.33 
-37.89 
-92.83 

27.6 
36.3 
-1.9 
-4.5 

686.5 

756.39 
975.51 
-69.89 
-121.37 

32.0 
41.3 
-3.0 
-5.1 

Government budget 

in % of Gross Domestic Product 

-Consolidated central government expenditure 
-Consolidated general government expenditure 
-Consolidated central government deficitfsurplus 
-General government deficitfsurplus 

. 

Government  budget:  These  data  relate  to  central  and  general  government  as  published  in  tl-te  IMF's  Government  Finance  Statistics 

Yearbook (1996)  (GFSY);  included also  is the country's presentation in the GFSY. 

Because the GFSY does not present statistics  for  general  government,  but for  individual  levels of government separately,  the 
consolidated series  presented  here were obtained from  central  and  local  government data and  adjusted  in  consolidation  for  the 
identified intergovernmental transfers. 

Even though the statistics cover the central  and  local  government pt1'Jlished  in  GFSY,  the  coverage may  not be exhaustive if 
some central  or local  government units  are  not included  in  that coverage.  A measure of the exhaustiveness of the coverage can 
be obtained by comparing in the GFSY the note on the coverage of data for  individual countries with the list of central and local 
government units provided. 

It  should  be  noted  that  the  deficitfsurplus  used  here  is  equal  to  revenue  and  grants  minus  expenditure,  and  does  not  take 

lending minus repayments into account (see further below). 

The  netting  of inter-government  transfers  carried-out  in  the  attached  tables  is  limited  to  the  current  and  capital  transfers 
consisting  of the  identified  grants  and  current  and  capital  subsidies  b~tween  the  levels  of government.  Other  types  of 
transactions occurring between  government  levels,  such  as  the  payments of taxes  and  employers'  social  security contributions, 
and  the  reciprocal  purchases  of goods  and  services  are  not  normally  classified  as  inter-governmental  transfers  have  not  been 
eliminated  in  the  consolidation  process.  Finally,  whether  the  absence  of data  for  current  and  capital  transfers  should  be 
attributed  to  the  absence  of transfer or to  lack  of data  is  unclear;  in  all  cases  absence  of information  on  transfers  have  been 
deemed to represent zero-transfers. 

a.  Government expenditure consists  of general  government  cash  expenditures  on  current  and  capital  goods  and 

services, interest payments and current and capital transfers but excludes non-cash transactions. 

b.  Deficit/surplus equals cash revenue and cash grants minus cash expenditure.  This measure of the deficitfsurplus 
differs  from  that  used  in  GFS  which  equals  cash  revenue  and  cash  grants,  minus  cash  expenditure,  minus  net  lending.  This 
exclusion  of net  lending(consisting,  in  the  GFS methodology,  of operations  in  financial  assets  and  liabilities  carried  out  for 
specific policy purposes, rather than for  liquidity purposes) brings the measure of the deficitfsurplus  presented here closer to  the 
national  accounts concept of net borrowing/net lending.  Also, as a result of this exclusion, receipts from  privatisation (classified 
as  repayments  in  the GFS methodology) do  not enter in  the  determination of the deficitfsurplus  presented  in  the  attached  tables 
(and therefore do not reduce the deficit). 

1990 

1991 

\ 

FINANCIAL SECTOR 

Monetary aggregates 

• Monetary aggregate M I 
·Quasi money 

Total reserves ( gold excluded, end of period) 

. . 

Average short term interest rates 

- lending rate 
-deposit rate 

Official discount rate (end of period) 

USD exchange rates 

Average of period 

End of period 

ECU exchange rates 

Average of period 

End of period 

1992 

1993 
Billions (10"9) of US Dollars 

1994 

1995 

1996 

0.35 
0.43 

0.62 
0.63 

Millions (10"6) of US Dollars 

0.62 
0.35 

0.73 
0.40 

431.55 

545.18 

SOS.? 

654.06 

%per annum 

86.36 
34.78 
27 
I USD• ... LVL 

0.675 
0.595 

I ECU• ... LVL 

0.790 

0.664 

0.736 

0.835 

0.955 
1.011 

55.86 
31.68 
25 

0.56 

0.548 

0.666 

0.674 

34.56 
14.79 
24 

0.528 

0.537. 

0.691 

0.706 

25.78 
11.71 
9.5 

0.551 

0.556 

0.706 

0.697 

Monetary aggregates (end  of period):  Money (1\fl) 

time,  savings  and  foreign  currency  deposits. 
International Monetary Fund annual end of period exchange rates. 

Includes demand deposits and  currency outside  banks.  Quasi nwney 
Include 
Eurostat  has  converted  National  Currencies  to  the  US  dollar  by  applying  the 

Average short term interest rates:  Data are extracted from  the  IMF's monthly International  Financial Statistics {IFS).  Average short-tenn 
lending  and  deposit  rates  relate  to  period  averages.  Letrding  rates  generally  consist of the  average  interest rate  charged  on  loans 
granted by  reporting banks. Deposit rates relate to average demand  and time deposit rates or average time deposit rates.  These rates 
may  not  be  strictly  comparable  across  countries  to  the  extent  the  representative  value  of the  reporting  banks  and  the  weighting 
schemes vary. 

Total  reserves  (gold  excluded,  end  of  period):  The  statistics  on  official  foreign  reserves  are  extracted  from  the  IMF's  monthly 
International  Financial  Statistics  (IFS).  Total  reserves  (gold  excluded)  are  defined  as  the  sum of central  bank  holdings  of foreign 
currencies and  other (gross) claims  on  non-residents;  this  definition  excludes  claims on  residents  denominated  in  foreign  currency. 
According  to  the  definition; official  foreign  reserves  are  calculated  at  market exchange  rates  and  prices  in  force  at  the  end  of the 
period  under consideration.  Total  reserves  (gold  excluded)  published  in  IFS  may  differ  from  the  figures  published  by  the  national 
authorities.  Some  factors  contributing to  possible  differences  are  the  valuation  of the  reserve  position  in  the  Fund,  and  a  different 
treatment of claims in non-convertible currencies. 

USD  exchange  rates: 

International  Monetary  Fund  exchange  rates  as  present  in  the  publication:  "Statistiques  Financieres 

lnternationales". 

INFLATION (12 months changes) 
Percentage change of the CPis with the current month compared with the corresponding month of the previous year (t/t-12) 

Jan  1 

Feb  I  Mar  .l  Apr  I  May  r Jun  I  Jul  I  Aug  1 

112.0 

79.1 

Sep 

.J 
63.4 

Oct  1  Nov  1  Dec 
~  31.7 

35.5 

34.8 

. 

1993 
1994 
199S 

19~6 

120.0 

100.0 

80.0 

60.0 

40.0 

20.0 

0.0 

34.3 
26.0 
23.2 

35.0 
25.6 
21.4 

34.2 
26.6 
20.2 

37.2 
25.7 
18.6 

38.1 
27.2 
17.4 

37.7 
26.5 
17.6 

38.1 
25.3 
17.7 

43.1 
22.8 
17.4 

41.7 
23.6 

16.1 

38.2 
24.1 
15.7 

29.5 
23.9 
14.4 

26.2 
23.2 
13.2 

Inflation(%  change ofCPJ) 

> c 
z 

c. 
u 
V) 

;:. 

c z 

'3 .., 

> c z 

Inflation  (12  months  changes): 

Inflation  rates  (12  months  changes)  are  percentage  changes  of the  CPis  with  the  current  month 
compared with  the corresponding month of the  previous year. 
Inflation  rates  are  based  on  national  CPis which  are  not strictly 
comparable  between  candidate  countries  or  with  those  based  on  EU  HICPs ·(different  methods,  concepts,  practices  in  the 
calculation ofCPis). 

INDUSTRY 

Structure of GDP by economic activities (NACE, current prices) 

- Mining and quarrying 
- Manufacturing 
-Production and distribution of electricity, gas and water 

Industrial production volume indices by NACE classes 

-Total 
- Mining and quarrying 
- Manufacturing 
-Production and distribution of electricity, gas and water 

1993 

1994 

1995 

1996 

in % of Gross Domestic Produd 

0.2 
23.1 
7.5 

67.9 
67.1 
65.1 
80.2 

0.2 
19.9 
5.2 

previous year •  I 00 

90.1 
122.5 
88 
98 

0.2 
22.4 
5.5 

96.3 
83.2 
95.5 
99.8 

0.2 
22 
5.6 

101.4 
153.6 
100.8 
102.::: 

Industrial  production  volume  indices  by  NACE  classes: 

Industrial  production  covers  mining  and  quarrying,  manufacturing  and 

electricity, gas and water supply (according to the NACE Class_ification Sections C,D,E). 

INFRASTRUCTURE 

Railway network 

Length of motorways 

Number of inhabitants per passenger car 

19ss  1  199o  1  1995  1  1996 
in Km  per  1000 Km2 

36.91 

I 

121 

37.q 
Kilometre 

I 

inhabita.nts 
9j 

37.4T 

37.4 

I 

SI 

7 

AGRICULTURE 

Land area by land-use categories 

-total 
- agricultural  land 

-forest 

- arable land 
- permanent meadows and pastures 

Agricultural land by legal status 

- state enterprise 
- Cooperatives 
-others 

Share ofGDP 

1992 

1993 

1994 
in  I 000 Hectares 

1995 

1996 

2567.8 

1689.1 
843.4 

6458.9 
2541.6 

2829.7 

1691.9 

6458.9 
2537.8 

2839.2 
1710.5 

6458.9 
2540.3 
2869.7 
1710.1 

825.1 

803.4 

800.5 

in •;. of agricultural  land 

6458.9 
2541,2 

2881.2 
1712.6 
798.1 

2.6 
64.6 

32.8 

2 
30.8 
67.2 

1.9 
16.9 
81.2 

1.3 
11.4 
87.3 

1992 

1994 
1995 
1993 
in % of Gross Domestic Product 

1996 

-Agriculture, hunting, forestry  and fishing (Nace A+B) 

11.8 

9.5 

9.9 

Previous year =  I 00 

Gross agricultural production volume indices 

78 

80 

94 

90 

Main crops by area 

-Cereals 
- ofwhich: wheat 
-Potatoes 

-Sugar beet 

- Fodder beet 

Main crops by yield 

-Cereals 
- ofwhich: wheat 
-Potatoes 
-Sugar beet 
- Fodder beet 

Sales or procurement of animal for slaughter 

- pigs 
- cattle 
-poultry 

696.7 
128.6 

97 
25 

37 

16.4 
25.9 
120.5 
186.5 
247.0 

1992 

in  I 000 Hectares 

693.6 
169.1 
88 
12 

30 

486.3 
94.6 

80 
12 

26 

in  I 00 kgfHectares 

17.7 
20.0 
145.0 

246.3 
290.2 

18.4 
2l.l 
130.0 

190.2 
262.2 

408.4 
109.6 
75 
10 

20 

16.9 
22.2 
114.7 
263.2 
218.5 

1993 

1994 
in  1000 tons of live weight 

1995 

446.2 
149.2 
79 
10 

17 

21.5 
24.0 
137.5 

257.8 
230.7 

1996 

L;vestock breeding intensity (end of period) 

heads per  J 000 Ha of agricultural  land 

- cattle 
- ofwhich: cows 

- sheep 

- pigs 

267 
138 
45 

217 
123 
34 

211 
115 
28 

200 
109 
22 

heads per  J 000 Ha of arable land 

285.4 

292.3 

323.8 

268.6 

t 

__ .. ________  ------~ 

-·-··--· ---.--- .......... -----.,--

------,.-----

-

---------

LaMa 
1995 

RUSSIA 

Legend: 

ESTONIA  q 

N 
N 

Country boundary 
Region boundary 

COUNTRY NAME 
REGION NAME 
CITY NAME 

Selected major settlements: 
(1  000 Inhabitants) 
200·  260 
250- 600 

0 
• 

• 
• 

500·1000 
>1000 

General Information about the country: 
Age groups (In years): 

CJ  <15 
. .  15· 66 
. .  >65 

LMngatandard (In 1993): ECU 740 
(ClOP per Olpll) 

Area: 84 589 km• 
Admlntatratlve regions:· 
Population: 2 629 600 

louroe: Oentrllae.lllllall ..... ofLIIMa 
~-........ lnrwmllon m.tlllllmlftt <11800 

o 

H 

"7ilan 

~ 

LITHUANIA 

BELARUS 

ISSN 0254-1475 

COM(97) 2005  final 

DOCUMENTS· 

EN 

11  01  06 

Catalogue  number  CB-C0-97-385-EN-C 

ISBN  92-78-22983-0 

Office for Official Publications of the European Communities 

L-2985  Luxetnbourg