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LATVIA

Price Reform: Latvia plans to free prices beginning January 1, 1992, but certain goods may remain at current levels. Energy prices were reportedly freed in late October 1991. However, the price of gasoline remained controlled.

Tax Policies: Joint ventures are subject to property taxes, land taxes and excise taxes. A property tax of 1.5 percent on assessed property values, excluding land, is levied. Agricultural properties are taxed at a lower rate, and buildings financed with currency receive a three-year tax holiday. A land tax, which ranges from 15 kopeks to 1 ruble per square meter depending on such factors as location, population density and how the land is used, is also imposed. Excise taxes, ranging from 10 to 95 percent of the sales price for producers of hard alcohol, liqueur, wine, beer, tobacco products and furs, may also apply.

Foreign Investment: Latvia passed a foreign investment law on November 5, 1991. It permits foreign investors to acquire existing businesses or create new ones under the same laws that apply to local investors.

If a business is both foreign-controlled and has assets over $1 million, the Council of Ministers must approve the investment. If the business does not fall into either of these categories, the investor must simply register the business with the government. Businesses which are at least 30 percent foreign-owned do not pay tax for the first two years, and the second two years are taxed at 50 percent. There are no other restrictions on repatriation of profits; however, it remains difficult to convert local currency into dollars.

Only Latvian citizens are permitted to own land. However, other property rights are guaranteed to foreign nationals.

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As a former republic of the Soviet Union, it is still unclear exactly how much debt Latvia will be responsible for repaying. Negotiations on this matter are in progress.

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The biggest problem for U.S. exports is not the existence of Latvian subsidies or other trade barriers, but the lack of an infrastructure for trade. Over 80 percent of Latvia's trade has been conducted with the Soviet Union, and foreign trade was handled through centralized state agencies.

As a result, control of the economy is not completely in Latvian hands. The former Soviet Union still controls part of the customs service, for example.

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Concerned about scarcities of goods, the Government of Latvia has begun to control exports.

LATVIA

7.

Protection of U.S. Intellectual Property

Under the Soviet Union, Latvia was a member of the World Intellectual Property Organization, the Universal Copyright Convention, the Paris Convention for the Protection of Industrial Property, the Madrid Agreement concerning the International Registration of Marks, the Patent Cooperation Treaty, and the Budapest Treaty on the International Recognition of the Deposit of Micro-organisms for the purpose of Patent Procedure.

No further laws on intellectual property have been passed.

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Soviet labor law and practice were generally enforced in Latvia. New Latvian legislation on trade unions and collective bargaining has been passed. Unions have the right to strike with some limitations.

b. Right to Organize and Bargain Collectively

Under Soviet law, workers in Latvia did not have the right to organize outside the official single trade union system, and free collective bargaining, as that term is understood, did not exist. Under new legislation passed after consultations with labor organizations, trade unions can now function independently of the managers of state-owned enterprises. However, collective bargaining is still in its formative stages.

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Prior to the Soviet coup attempt in August 1991, forced labor in prison camps was permitted; it has since been banned.

d.

Minimum Age for Employment of Children

The statutory minimum age for employment of children is 16. Minimum age and compulsory education laws are, by all accounts, enforced by state authorities through inspections.

Acceptable conditions of Work

e.

The Labor Code provides for a mandatory 40-hour maximum workweek, 4 weeks of annual vaction, and a program of asistance to working mothers with small children. Labor conditions in Latvia were somewhat better than in the U.S.S.R. Soviet and Latvian laws establish minimum occupational health and safety standards for the workplace. These standards seem to be frequently ignored.

Extent of u.s. Investment in Goods Producing Sectors

There is no sector by sector data available on U.S. investment in Latvia.

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Since declaring independence last year the Lithuanians have been largely preoccupied with the political climate in their emerging nation. It is only recently that attention has started to shift to economic issues facing the country.

Lithuania intends to develop a market economy and eliminate vestiges of the centrally planned Soviet system as quickly as possible. The government is eager to encourage foreign investments and open new trade ties, particularily with the west. This is hampered by the need to extricate itself from the Soviet economy.

Lithuania has embarked on a series of price liberalizations in certain areas but has been reluctant to completely abolish price controls. The government has established a central bank which it envisions playing the same role as that of the U.S. Federal Reserve. Lithuania still uses the Soviet ruble as its unit of currency and thus is tied to its problems. Lithuania has privatized some small businesses and is allowing private citizens to own land for the first time. Lithuania is seeking to liberalize its foreign investment laws.

The Lithuanian government is following a cautious, but optimistic program of economic reform in banking and monetary policies, price structure, tax laws, land ownership laws, fiscal reform and foreign trade reform.

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At present Lithuania's currency is still the Soviet ruble. The government periodically adjusts the official exchange rate. There are plans to introduce a national currency, which may be tied to a foreign currency. Meanwhile any licensed person may buy or sell hard currency at free market prices. Both the official and free market exchange rates have been falling rapidly.

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Patterns of Industrial Ownership: Lithuania recently embarked on a program of privatization, currently limited to small scale enterprises like shops and restaurants. Lithuania's privatization program includes a voucher program which will involve all citizens. Private ownership of land is permitted, but only for Lithuanian citizens. All large manufacturing enterprises are still state owned. The government has published a limited list of companies which are open to foreign investment.

Price Reform: The Lithuanian government has begun a cautious dismantling of the centralized price control mechanism formerly imposed by Moscow. Prices on most foodstuffs and manufactured goods have already been liberalized. However, prices on energy, housing, transportation and communications will remain fixed. This is

LITHUANIA

an effort to avoid spiraling inflation which could erode public confidence in the new government.

Tax Policies: Lithuania has begun to reform its entire tax system. The law on taxes on profits of legal entities of Lithuania, adopted July 31, 1990, established the taxable entities and regulations for taxable profits, tax rates and tax deductions, taxes due and payment rules, and the liability for proper taxation and payment of taxes. The tax rate for legal entities is 29% of the taxable profit.

Profit taxes of joint ventures are determined by the amount of foreign investment in the authorized capital and its type of activity (industrial and commercial activity). The minimum rate of profit taxes is 20 percent and the maximum is 35 percent.

Foreign Investment: The Law on Foreign Investments was adopted on December 29, 1990. This law allowed for three forms of foreign investment: ownership interests in a joint venture; firms with foreign capital; and other securities. The intent was to encourage foreign investment mainly through joint ventures with Lithuanian companies.

Joint ventures are exempt from profit tax for a term of three years from the date of the receipt of the profit. Dividends to foreign investors received in Lithuania are exempt from taxes. Income received legally by foreign investors and upon which a profit tax has been paid may be repatriated without any additional tax.

The Law on Prohibited and Limited Spheres for Foreign Investment adopted on May 2, 1991, determines the areas of economic activities where foreign investment is prohibited or limited. Foreign investment is prohibited in areas of defense and security. Foreign investment is also prohibited in state enterprises holding a monopoly in the Lithuanian market. These are defined as enterprises producing more than 50 percent of their goods in the Lithuanian market. Enterprises which exploit existing communications, electricity delivery, gas, oil and water supply, heating and sewage systems are also considered to be monopolistic.

The law also provides for the right to seek international arbitration and appears to permit 100 percent foreign ownership. Foreign representations are not legal persons and thus not foreign investors. The law gives foreign investors the right to lease land for 25 years, but implies that foreigners cannot own the land. The Lithuanian government is working to liberalize the laws affecting foreign investment and has sought guidance from the OECD in this regard.

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As a former republic of the Soviet Union it is still unclear exactly how much debt Lithuania will be responsible for repaying. Negotiations on this matter are in progress.

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The objective of Lithu ian trade policy is to move toward European and world markets. The current task is to change the trade structure which is oriented to the Soviet market and to try to raise the quality and competitiveness of Lithuanian goods. There are few direct barriers to western imports.

Lithuania has high overall levels of trade, which is a result of the centralized planning process which led to extreme specialization. A factor of overiding importance has been the dependence of Lithuania on the Soviet Union. Due to existing quality differentials between Lithuanian consumer goods and world class products, as well as transport costs and market familiarity factors, the natural market will initially remain the countries of the Commonwealth of Independent States (CIS).

A significant barrier to U.S. exports is the continued use of the Soviet ruble as the Lithuanian currency. Since this is not convertible it restricts the ability of Lithuania to buy foreign goods. Another barrier is the absence of a solid infrastructure for trade, such as telecommunications and banking facilities.

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Lithuania has become concerned about maintaining sufficient scarce goods. Therefore, the government has begun placing greater controls on exports.

7.

Protection of U.S. Intellectual Property

As Lithuania was a former republic of the Soviet Union, it was a member of the World Intellectual Property Organization, the Universal Copyright Convention, the Paris Convention for the Protection of Industrial Property, the Madrid Agreement Concerning the International Registration of Marks, the Patent Cooperation Treaty and the Budapest Treaty on the International Recognition of the Deposit of Micro-organisms for the Purpose of Patent Procedure.

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While under Soviet control there were no western style trade unions operating in Lithuania. There was little interest in the creation of safe and clean working conditions.

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Prior to the August 1991 coup attempt, Lithuanian workers remained largely subject to Soviet labor law which did not permit the right to associate freely in practice. Since the coup, Lithuania has adopted legislation reconfirming the rights of workers to form independent unions and, with certain restrictions, to strike. On October 4, Lithuania was formally readmitted to the International Labor Organization.

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