March 27, 2014

 

Latvia to request EU compensation for damage over sanctions against Russia

 

 

Due to the effect on its economy primarily to its food and meat production industries, Latvia will appeal to the European Commission (EC) requesting to compensate the damage as a result of sanctions against Russia.

 

Local politicians raised concerns when Russia suspended imports of food products through Klaipeda seaport, Lithuania's largest port. Russia did not say formally that this step was related to the sanctions, but the local business community considers it to be an attempt at political pressure from Moscow, since more than half of all meat exports from Latvia are sent through this port.

 

Also Klaipeda seaport accounts for a significant portion of meat products transiting from other countries. According to official statistics, Klaipeda's port supplies Russia with one million tonnes of goods, of which about 30-40% are meat and meat products from different parts of the EU.

 

"Russia has hit the Lithuanian economy by limiting transportation of cargo through the port of Klaipeda, which probably means a ban on imports of Lithuanian meat to Russia," said Agne Bilotayte, a member of the Lithuanian Seimas, the country's Parliament.

 

Meat producers can redirect supplies via the different routes, but this would mean a significant rise in logistic costs and local businesses consider these steps as senseless, expecting that Russia will soon completely stop any food and meat imports.

 

Given this situation, the EC should fully compensate all the damage that EU member states suffer as a result of sanctions against Russia, say the authorities in Riga.

 

"Agreeing with the general sanctions against Russia, it is important for the EU to reach agreement on compensation for those member countries, that may be negatively affected by these sanctions as well," said Latvia's Finance Minister Andris Vilks.

 

He believes compensation should be granted from the EU Solidarity Fund, with the amount covering any losses to the country's economy.

 

Latvian Prime Minister Laimdota Straujuma believed total losses from sanctions could amount to several hundred million euros.

 

Direct losses in the meat industry, which is already suffering serious problems due to the Customs Union ban on pork products following African swine fever fears, could reach €20-30 million (US$ during the coming months, according to preliminary estimates.

 

Analysts agree that several sectors in the Baltic countries are extremely dependent on Russia, and the meat industry may face deep recession if political tensions between the EU and Russia do not ease.

 

"All three Baltic countries are very vulnerable to economic sanctions," agreed Nerijus Machulis, chief economist of the Lithuanian branch of Swedbank. "Lithuania may face a deep recession, if the EU and Russia limit their trade."