Free Trade Agreement between the Republic of Latvia and the Republic of Iceland

Preamble

The Republic of Latvia and the Republic of Iceland

Recalling the importance of the traditional links between Latvia and Iceland and the common values they share, and recognizing their wish to strengthen these links and to establish close and lasting relations,

Desiring to create favourable conditions for the development and diversification of trade between them and for the promotion of commercial and economic cooperation in areas of common interest on the basis of equality, mutual benefit and international law,

Having regard to the Agreement on Economic and Trade Cooperation between Latvia and Iceland signed on 26 August 1991, in particular to the provision contained therein that the Parties shall accord most-favoured-nation treatment to each other,

Having regard to the Declaration signed by the EFTA States and Latvia on 10 December 1991,

Reaffirming their commitment to pluralistic democracy based on the rule of law, human rights, and fundamental freedoms, and sharing the principles of the Final Act of the Helsinki Conference on Security and Co-operation in Europe, the Concluding Documents of the Madrid and Vienna meetings, the Document of the Bonn Conference on Economic Co-operation in Europe, and the Charter of Paris for a New Europe,

Having regard to the emerging process of economic liberalization taking place in Latvia aimed at the establishment of a market economy, thus facilitating the integration of Latvia into the European and world economy,

Resolved to develop further their relations in the field of trade in accordance with the principles of the General Agreement on Tariffs and Trade,

Considering that no provision of this Agreement may be interpreted as exempting the Parties from their obligations under other international agreements,

Have agreed as follows:

Article 1

Objectives

The objectives of this Agreement are:

(a) to promote, through the establishment of free trade according to the provisions of this Agreement, the harmonious development of economic relations between Iceland and Latvia, and thus to foster the expansion of reciprocal trade, the advance of economic activity, the improvement of living and employment conditions, increased productivity and financial stability;

(b) to promote fair conditions of competition in the mutual trade between Latvia and Iceland;

(c) to contribute, in this way, to European economic integration and trade liberalization and the harmonious development and expansion of world trade.

Article 2

Scope

This Agreement shall apply:

(a) to products falling within Chapters 25 to 97 of the Harmonized Commodity Description and Coding System;

(b) to products specified in Protocol A with due regard to the arrangements provided for in that Protocol;

(c) to fish and other marine products as provided for in Annex I originating in Latvia or Iceland.

Article 3

Rules of Origin

1. Protocol B lays down the rules of origin and related methods of administrative co-operation.

2. The Parties shall take appropriate measures, including reviews by the Joint Committee and arrangements for administrative co-operation, to ensure that the provisions of Articles 4, 5, 6, 7, 10, and 18, and Protocol B are effectively and harmoniously applied, and to reduce, as far as possible, the formalities imposed on trade, and to achieve mutually satisfactory solutions to any difficulties arising out of the operation of those provisions.

Article 4

Customs Duties on Imports and Charges Having Equivalent Effect

1. No new customs duty on imports or charges having equivalent effect shall be introduced in trade between Latvia and Iceland.

2. Customs duties on imports and charges having equivalent effect shall be abolished for products originating in Latvia and Iceland upon entry into force of this Agreement.

3. The provisions of this Article shall also apply to customs duties of a fiscal nature.

Article 5

Customs Duties on Exports and Charges having Equivalent Effect

1. No new customs duty on exports or charges having equivalent effect shall be introduced in trade between Latvia and Iceland.

2. Customs duties on exports and charges having equivalent effect shall be abolished upon entry into force of this Agreement, except as provided for in Annex II.

Article 6

Prohibition and Abolition of Quantitative

Restrictions on Imports and Measures Having Equivalent Effect

1. No new quantitative restrictions on imports or measures having equivalent effect shall be introduced in trade between Latvia and Iceland.

2. Quantitative restrictions on imports to Iceland and measures having equivalent effect shall be abolished on the date of entry into force of this Agreement, except as provided for in Annex III.

3. Quantitative restrictions and measures having equivalent effect on imports into Latvia shall be abolished on the date of entry into force of this Agreement.

Article 7

Quantitative Restrictions on Exports and Measures having Equivalent Effect

1. No new quantitative restrictions on exports or measures having equivalent effect shall be introduced in trade between Latvia and Iceland.

2. Quantitative restrictions on exports from Iceland and measures having equivalent effect shall be abolished on the date of entry into force of this Agreement.

3. Quantitative restrictions on exports from Latvia and measures having equivalent effect shall be abolished on the date of entry into force of this Agreement.

Article 8

General Exceptions

This Agreement shall not preclude prohibitions or restrictions on imports, exports, or goods in transit, justified on grounds of public morality, public policy, or public security; protection of the health and life of humans, animals, or plants; protection of the environment; protection of national treasures possessing artistic, historic or archaeological value; protection of intellectual property; or rules relating to gold or silver. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between the Parties.

Article 9

Trade in Agricultural Products

1. The Parties undertake to foster, in so far as their agricultural policies allow, the harmonious development of trade in agricultural products.

2. In pursuance of this objective the Parties will conclude an agreement providing for measures to facilitate trade concerning agricultural products.

3. The Parties shall apply their regulations in veterinary, plant health and health matters in a non-discriminatory fashion, and shall not introduce any new measures that unduly obstruct trade.

Article 10

Internal Taxation

1. The Parties shall refrain from any measure or practice of an internal fiscal nature establishing, whether directly or indirectly, discrimination between products originating in one Party and like products originating in the other Party.

2. Products exported to the territory of one of the Parties may not benefit from repayment of internal taxation in excess of the amount of direct or indirect taxation imposed on them.

Article 11

Payments

1. Payments relating to trade in goods and the transfer of such payments to the territory of the Party where the creditor resides shall be free from any restrictions. Payments between the Parties shall be effected in freely convertible currencies, unless otherwise agreed by individual companies in individual cases.

2. The Parties shall refrain from any currency exchange restrictions or administrative restrictions on the grant, repayment, or acceptance of short and medium-term credits covering commercial transactions in which a resident participates.

Article 12

State Aid, Rules of Competition and Public Procurement

1. The Parties shall not maintain or introduce export aid as listed in Annex IV.

2. The Parties shall make best endeavours to ensure fair competition in their mutual trade. Rules between the Parties concerning competition between enterprises, other state aid than export aid, and public procurement shall be elaborated and put into effect not later than 31 December, 1995.

3. If a Party to this Agreement considers that a given practice is incompatible with paragraph 1, it may take appropriate measures under the conditions and in accordance with the procedures laid down in Article 18.

Article 13

Protection of Intellectual Property

1. The Parties shall co-operate with the aim of gradually improving the nondiscriminatory protection of intellectual property rights, including measures for the grant and enforcement of such rights. Rules between the Parties concerning the protection of intellectual property rights shall be elaborated and put into effect not later than 31 December, 1995. These rules shall ensure a level of protection similar to that prevailing in the member states of the European Communities and in the member states of the European Free Trade Association.

2. With respect to paragraph 1 of this Article, intellectual property rights shall include, in particular, protection of copyright, comprising computer programs, databases and neighbouring rights; trademarks; geographical indications; industrial designs; patents; topographies of integrated circuits; as well as undisclosed information on know-how.

Article 14

Dumping

If a Party finds that dumping is taking place in trade relations governed by this Agreement within the meaning of Article VI of the General Agreement on Tariffs and Trade, it may take the appropriate measures against that practice in accordance with Article VI of the General Agreement on Tariffs and Trade and agreements related to that Article, under the conditions and in accordance with the procedure laid down in Article 18.

Article 15

Emergency Action on Imports of Particular Products

If an increase in imports of a given product originating in Latvia or Iceland occurs in quantities or under conditions which cause, or threaten to cause:

(a) serious injury to domestic producers of like or directly competitive products in the territory of the other Party, or

(b) serious disturbances in any related sector of the economy or difficulties which could bring about serious deterioration in the economic situation of state or part of that state,

the Party concerned may take appropriate measures under the conditions and in accordance with the procedure laid down in Article 18.

Article 16

Re-export and Serious Shortage

Where compliance with the provisions of Articles 4 and 5 leads to:

(a) re-export towards a third country against which the exporting Party maintains, for the product concerned, quantitative export restrictions, export duties or measures or charges having equivalent effect; or

(b) a serious shortage, or threat thereof, of a product essential to the exporting Party;

and where the situations referred to above give rise or are likely to give rise to major difficulties for the exporting Party, that Party may take the appropriate measures under the conditions and in accordance with the procedures laid down in Article 18.

Article 17

Balance of Payments Difficulties

1. Notwithstanding the provisions of this Agreement, a Party may, consistently with its other international obligations, introduce restrictive measures on trade if it is in serious balance of payments difficulties or under imminent threat thereof. Such measures shall be of a temporary nature and may not go beyond what is necessary to remedy the balance of payments situation.

2. Measures taken in accordance with paragraph 1 of this Article shall be notified to the Joint Committee, if possible, prior to their introduction. The Joint Committee shall, upon the request of the other Party, examine the need for maintaining the measures taken.

Article 18

Procedure for the Application of Safeguard Measures

1. Before initiating the procedure for the application of safeguard measures set out in this Article, the Parties shall endeavour to solve any differences between them through direct consultation.

2. Without prejudice to paragraph 5 of this Article, a Party which considers resorting to safeguard measures shall promptly notify the Joint Committee thereof and supply all relevant information. Consultations shall take place without delay in the Joint Committee with a view to finding a mutually acceptable solution.

(a) As regards Article 12, the Party concerned shall give to the Joint Committee all the assistance required for the examination of the case and shall, where appropriate, eliminate the practice objected to. If the Party in question fails to put an end to the practice objected to within the period fixed by the Joint Committee or if the Joint Committee fails to reach an agreement within three months of the matter being referred to it, the Party concerned may adopt the appropriate measures to deal with the difficulties resulting from the practice in question.

(b) As regards Articles 14, 15, and 16, the Joint Committee shall examine the situation and may take any decision needed to put an end to the difficulties notified by the Party concerned. In the absence of such decision within thirty days of the matter being referred to the Joint Committee, the Party concerned may adopt measures necessary to remedy the situation.

(c) As regards Article 22, the Party concerned may take appropriate measures after the consultations have been concluded or a period of three months has elapsed from the date of notification.

3. The safeguard measures taken shall be notified immediately to the Joint Committee. They shall be restricted with regard to their extent and to their duration to what is strictly necessary in order to rectify the situation giving rise to their application and shall not be in excess of the injury caused by the practice or the difficulty in question. Priority shall be given to such measures as will least disturb the functioning of the Agreement.

4. The safeguard measures taken shall be the object of regular consultations within the Joint Committee with a view to their relaxation, substitution or abolition as soon as possible.

5. Where exceptional circumstances requiring immediate action make prior examination impossible, the Party concerned may, in the cases of Articles 12, 14, 15 and 16, apply forthwith the precautionary measures strictly necessary to remedy the situation. The measures shall be notified without delay, and consultations between the Parties shall take place as soon as possible within the Joint Committee.

Article 19

Security Exceptions

Nothing in this Agreement shall prevent a Party from taking any measures which it considers necessary:

(a) to prevent the disclosure of information contrary to its essential security interests;

(b) for the protection of its essential security interests or for the implementation of international obligations or national policies

(i) relating to the traffic in arms, ammunition, and implements of war, provided that such measures do not impair the conditions of competition in respect of products not intended for specifically military purposes, and to such traffic in other goods, materials, and services as is carried on directly or indirectly for the purpose of supplying a military establishment; or

(ii) relating to the non-proliferation of biological and chemical weapons, nuclear weapons, or other nuclear explosive devices; or

(iii) taken in time of war or other serious international tension.

Article 20

The Joint Committee

1. The implementation of this Agreement shall be supervised and ministered by a Joint Committee.

2. The Joint Committee shall consist of representatives of Iceland and Latvia. It shall act by mutual agreement and shall meet whenever necessary but at least once a year. Each Party may request that a meeting be held.

3. The Committee has the power to amend the Annexes and the Protocols to this Agreement.

4. The Joint Committee may decide to set up such subcommittees and working parties as it considers necessary to assist it in accomplishing its tasks.

Article 21

Evolutionary Clause

The Parties undertake to examine, in the light of any relevant factor, the possibility of further developing and deepening the co-operation under this Agreement and to extend it to areas not covered therein.

Article 22

Fulfillment of Obligations

1. The Parties shall take all necessary measures to ensure the achievement of the objectives of the Agreement and the fulfillment of their obligations under the Agreement.

2. If either Party considers that the other Party has failed to fulfill an obligation under this Agreement, the Party concerned may take the appropriate measures under the conditions and in accordance with the procedures laid down in Article 18.

Article 23

Annexes and Protocols

The Annexes and the Protocols to this Agreement are an integral part of it.

Article 24

Entry into Force

This Agreement shall enter into force on the first day of the month following the day on which the Parties have notified each other through diplomatic channels that their constitutional requirements for the entry into force of this Agreement have been fulfilled.

Article 25

Denunciation

Either Party may denounce this Agreement by means of a written notification to the other Party. The Agreement shall cease to be in force six months after the date on which the notification was received by the other Party.

Done at Colding on 30 August,1995 in two originals each in the Icelandic, Latvian and English languages, all three texts being equally authentic. In the case of disputes the English text of the Agreement shall prevail.

 

For the Republic of Latvia

For the Republic of Iceland

 

Annex I

Referred to in Sub-paragraph (c) of Article 2

 

Article 1

1. Unless otherwise provided for in this Annex, fish and other marine products, as specified below, are covered by the provisions of the Agreement.

2. Upon the date of entry into force of the Agreement all customs duties on imports and charges having equivalent effect shall be abolished for these products originating in Iceland, unless otherwise specified below.

Latvian HS heading No	Description of products	Respective Icelandic HS heading No
0208	Other meat and edible meat offal, fresh, chilled or frozen	0208
ex 020820	-Other	ex 020820
	--of whale
Chapter 03		03
0301	Live fish and fish, excluding those of paragraph 3 of Annex	0301
0302	Fish, fresh or chilled, excluding fish fillets and other fish meat of heading No 0304 and fish products of paragraph 3 of Annex 1	0302
0303	Fish, frozen, excluding fish fillets and other fish meat of heading No 0304 and fish products as provided for in paragraph 3 of Annex 1	0303
0304	Fish fillets and other fish meat, fresh, chilled or frozen	0304
ex 0304
20340	Redfish	03041016, 03042016, 03042017, 03042056, 03042057
20600	Dogfish, tongues, cheeks, tongues with cheeks, unsplit and waste (incl. wings)	03042012, 03042013, 03042052, 03042053, 03042055, 03042015, 03049021, 03049022, 03049023, 03049024
ex 0304
20710	Plaice and other flat fish (incl. halibut and Greenland halibut)	03042003, 03042004, 03042005, 03042006, 03042007, 03042008, 03042009, 03042011, 03042043, 03042044, 03042045, 03042046, 03042047, 03042048, 03042049, 03041021, 03041022, 03041029, 03042051
ex 0304	--other (fillet of capelin)
20970		03041015, 03042002, 03042042
ex 0304	---other	03042023, 03042024
90990	----skate	03042063, 03042064
0305	Fish, dried, salted or in brine; smoked fish; fish flour, fit for human consumption:	0305
ex 0305	-Fish flour, fit for human consumption	03051000
10000
ex 0305	-Livers and roes, dried, smoked, salted or in brine	03052001-03052009
20000
ex 0305	Cod, dried, unsalted; cod heads, dried	03055101, 03055102, 03055109
51000
ex 0305	Herring, salted 200 tons annually	03056101, 03056102, 03056109
61000
0306	Crustaceans, whether in shell or not, live, fresh, chilled, frozen, dried, salted or in brine; crustaceans, in shell, cooked by steaming or by boiling in water, whether or not chilled, frozen, dried, salted or in brine	0306
0307	Molluscs, whether in shell or not, live, fresh, chilled, frozen, dried, salted or in brine; aquatic invertebrates other than crustaceans and molluscs, live, fresh, chilled, frozen, dried, salted or in brine; flours, meals and pellets of aquatic invertebrates other than crustaceans, fit for human consumption	0307
1504	Fats and oils and their fractions from fish or mammals, whether or not refined	1504
1516	Animal or vegetable fats and oils, their fractions, partly or wholly hydrogenated, inter-esterified, re-esterified or elaidinised, whether or not refined, but not further prepared	1516
1603	Extracts and juices of meat, fish or crustaceans, molluscs and other invertebrates	1603
ex 1603	- Extracts and juices of meat, fish or crustaceans, molluscs or other aquatic invertebrates	ex 1603
1604	Prepared or preserved fish:	1604
ex 160403	-Caviar and caviar substitutes	16043001-16043009
1605	Crustaceans, molluscs and other aquatic invertebrates, prepared or preserved	1605
2301	Flours, meals and pellets of meat or meat offal, of fish or of crustaceans, molluscs or other aquatic invertebrates, unfit for human consumption	2301
ex 230110	-Flours, meals and pellets, of meat or meat offal; greaves:	ex 2301, 1001
	-whale meal
	-Flours, meals and pellets of fish or crustaceans, molluscs or other aquatic invertebrates Flours, meals and pellets of fish or crustaceans, molluscs or other aquatic invertebrates	23012011-230120029
2309	Preparation of a kind used in animal feeding	2309
ex 230990	-Other	ex 2309.9009
	-- Fish solubles

 

3. Customs duties on imports and charges having equivalent effect for these products originating in Iceland shall be decreased by 1/3 after 2 years, by 1/3 after 3 years and abolished after 4 years.

 

HS heading     No Description of products

Chapter 03 F    ish and crustaceans, molluscs and other aquatic invertebrates:

ex 030199110     -Atlantic salmon (Salmo salar)

ex 030210000     -Salmonidae, excluding livers and roes

ex 030261900     -Sprat (Sprattus sprattus)

ex 030322000     -Atlantic salmon (Salmo salar)

ex 030371900     -Sprat (Sprattus sprattus)

ex 0304     Fish fillets and other fish meet, fresh, chilled or frozen, excluding 0304 20340, 0304 20600, 0304 20710, 0304 20970, 0304 90990

ex 0305     Fish, dried, salted or in brine; smoked fish; fish flour, fit for human consumption, excluding 0305 10000, 0305 20000, 0305 51000

1604     Prepared or preserved fish

 

4. Upon the date of entry into force of the Agreement all customs duties on imports and charges having equivalent effect shall be abolished for these products originating in Latvia.

HS heading No     Description of products

Chapter 03     Fish and crustaceans, molluscs and other aquatic invertebrates

1504     Fats and oils and their fractions, of fish or marine mammals, whether or not refined, but not chemically modified

1516     Animal or vegetable fats and oils and their fractions, partly or wholly hydrogenated, inter-esterified, re-esterified, or elaidinised, whether or not refined, but not further prepared:

ex 151610     -Animal fats and oils and their fractions:

    -Obtained entirely from fish or marine mammals

1603     Extracts and juices of meat, fish or crustaceans, molluscs or other aquatic invertebrates:

ex 160300     -Extracts and juices of whale meat, fish or crustaceans, molluscs or other aquatic invertebrates

1604     Prepared or preserved fish; caviar and caviar substitutes prepared from fish eggs

1605     Crustaceans, molluscs and other aquatic invertebrates, prepared or preserved

2301     Flours, meals and pellets of meat or meat offal, of fish or crustaceans, molluscs and other aquatic invertebrates, unfit for human consumption

ex 230120     -Flours, meals and pellets of fish or of crustaceans, molluscs or other aquatic invertebrates

2309     Preparations of a kind used in animal feeding:

ex 230990     -Other

    -Fish solubles

Article 2

1. Unless otherwise mentioned in paragraphs 2 to 4, after 31 December 1995 aid measures to the fishing sector shall fall under the disciplines of Article 12 of the Agreement and its interpretation in Annex V.

2. The following aid measures to the fishing sector are considered normally not to be in accordance with the Agreement:

- General aid measures concerning the sector as a whole and which are not fully directed towards structural measures in accordance with the provisions of Annex V; paragraph (c) (ii);

- tax concessions other than those that directly offset cost disadvantages clearly linked to special conditions prevailing in the fishing sector;

- social measures if the subsidy element of such measures exceeds what is generally applied in other sectors, taking into account the special conditions prevailing in the fishing sector.

3. The following aid measures shall normally be considered to be in accordance with the provisions of Article 12 of the Agreement:

- Aid measures in the form of lowest permitted domestic first hand sales prices for fish and the purchase of surpluses that are applied in order to offset serious market disturbances;

- regional aid measures to the extent that they are necessary for maintaining fishing activities in regions that are to an above-average degree dependent on such activities and where income from fishing is clearly below the national average in the fishing sector. Such regional measures shall not more than offset cost disadvantages in relation to other locations for fisheries. States Parties to the Agreement introducing or maintaining such measures shall, in accordance with the provisions of Annex V provide sufficient information on the regional situation leading to the introduction or maintenance of such measures.

4. The following aid measures are considered not to be in accordance with the Agreement: Aid in accordance with paragraph (c) (vi) of Annex V as concerns the fishing sector. Aid in accordance with paragraph (c) (viii) of Annex V as concerns fishing activities.

Annex II

Referred to in Paragraph 2 of the Article 5

(Custom Duties on Exports and Charges Having Equivalent Effect)

Latvia may maintain export duties for the products specified bellow.

HS heading No.	Description of products	Duty
2520	Gypsum; anhydride; plasters (consisting of calcined gypsum or calcium sulphate) whether or not coloured, with or without small quantities of accelerators or retarders	5%
2521	Limestone flux; limestone and other calcareous stone, of a kind 5% used for the manufacture of lime or cement	5%
4403	Wood in the rough, whether or not stepped of bark or sapwood, or roughly squared:
4403.20000	Other, coniferous
4403.20001	Length over 2m, diameter 14-24cm	6 Ls
4403.20002	Length exceeding 2m, diameter over 26m	6 Ls
4403.91001	Oak, length exceeding 1m, diameter 14cm and over	50Ls
4403.92001	beech, length exceeding 1m, diameter 14cm and over	60Ls
4403.99900	Other, non-coniferous, m	16Ls
4403.99901	Length exceeding 1,6m, diameter 16-24cm (playwood, matchwood and A - quality sawlogs)	20Ls
4403.99902	Length exceeding 1,6m, diameter 26cm and over (playwood, matchwood and A-quality sawlogs)
4403.99903	Length exceeding 1,6m, diameter 16-24cm (except playwood, matchwood and A-quality sawlogs)	2 Ls
4403.99904	Length exceeding 1,6m, diameter 26cm and over (except playwood, matchwood and A-quality sawlogs)	2 Ls
4403.99909	Ash, elm, maple and other, length exceeding 1m, diameter 14cm and over	50Ls
7204.00000	Ferrous waste and scrap; remelting scrap ignots of iron or steel	100%
7404.00000	Copper waste and scrap	20%
7503.00000	Nickel waste and scrap	20%
7602.00000	Aluminium waste and scrap	20% Ls per dense m3

Annex III

Referred to in Paragraph 2 of the Article 6

(Prohibition and Abolition of Quuantitative Restrictions)

The abolition of quantitative restrictions on imports and measures having equivalent effect shall not apply to Iceland with regard to brooms and brushes as enumerated below:

HS heading No.	Description of products
96.03	Brooms and brushes including brushes constituting parts of machines, appliances or vehicles, hand-operated mechanical floor sweepers, not motorized, mops and feather dusters; prepared knots and tufts for broom or brush making; paint pads and rollers; squeegees (other than roller squeegees);
ex 96.03	Brooms and brushes excluding brushes of a kind used as parts of machines, paint rollers, squeegees, mops, artist's brushes and tooth brushes.

     

Annex IV

Referred to in Article 12

(Export aid prohibited by this Agreement)

(a) Currency retention schemes or any similar practices which involve a bonus on exports or re-exports.

(b)The provision by governments of direct subsidies to exporters.

(c)The remission, calculated in relation to exports, of direct taxes or social welfare charges on industrial or commercial enterprises.

(d) The exemption, in respect of exported goods, from charges or taxes, other than charges in connection with importation or indirect taxes levied at one or several stages on the same goods if sold for internal consumption, or the payment, in respect of exported goods, of amounts exceeding those effectively levied at one or several stages on these goods in the form of indirect taxes or of charges in connection with importation or in both forms.

(e) In respect of deliveries by governments or governmental agencies of imported raw materials for export business on different terms than for domestic business, the charging of prices below world prices.

(f) In respect of government export credit guarantees, the charging of premiums at rates which are manifestly inadequate to cover the long-term operating costs and losses of the credit insurance institutions.

(g) The grant by governments (or special institutions controlled by governments) of export credits at rates below those which they have to pay in order to obtain the funds so employed.

(h) The government bearing all or part of the costs incurred by exporters in obtaining credit.

Annex V

On the Interpretation of Article 12

Latvia and Iceland agree that the application of Article 12 shall be guided by the following criteria:

(a) Only those measures can be classified as State aid which result in a net transfer of funds from State sources to the recipient through tax concession; aid granted under schemes which are fully paid for by the beneficiaries are not State aid in the sense of Article 12; when assessing effects of State aid, the cumulative effects of all types of aid measures awarded to recipients are to be taken into consideration.

(b) The following measures, in general, fall outside the scope of Article 12;

(c) credits and loans from State sources or agencies, if the interest and capital repayments are in accordance with current market conditions;

(ii) guarantees gives by States or State's agencies, if the premiums cover the long - term cost of the scheme;

(iii) equity injections by States or State's agencies if the rate of return on such investments can reasonable be expected to be at least equal to the of State borrowing;

(iv) tax measures including social security charges that are part of the general national income norm for fax purposes, available to all enterprises, and uniformly applied in a country;

(c) The following measures are examples of types of aid normally consistent with the provisions of Article 12;

(i) aid to research, development and innovation, provided it is clearly intended for the stimulation of such activities and that such activities are a pre- competitive level; the pre- competitive level is understood to include applied research and development up to and including the development of a first prototype; such aid may be awarded up to a rate of 50% of projects costs or at differentiated tax rates of equivalent effect; basic research may be aided to a greater extent; the closer to the market place a project is, the lower the degree of subsidization should be;

(ii) aid given to sectors with problems of over capacity to rationalize the structure of industry by ensuring an orderly downs calling of production and employment; such measures should strictly be limited in duration and be accompanied by an adjustment program; when evaluating problems of over capacity the international situation as a whole and not merely in the country in question is to be taken into account;

(iii) general aid to export promotion, such as national weeks, store promotion, industrial fairs, provided that such aid is not company-specific;

(iv) regional development aid to the extent that it does not interfere with conditions of fair competition; its purpose must be to put industries in regional development are on an equal economic footing with industries in other parts of the country and not to increase capacity in sectors already suffering from problems of over capacity; the definition of regional development areas, including areas in industrial decline, lies within the sole competence of the Parties to this Agreement, which may be requested to furnish statistics detailing the reasons for the designation of such areas;

(v) the aid in form of general public services to trade and industry on terms and conditions not favoring certain sectors and enterprises;

(vi) general aid for the creation of new employment opportunities provided such jobs are not in sectors already suffering from over capacity;

(vii) environmental aid, under the general principle that the polluter- pays- principle is observed; investment specially designated to reduce pollution may be aided up to a rate of 25% or at differentiated tax rates of equivalent effect; recognizing the existence of different qualities of legislation or standards in other countries and their potential impact on trade and competition, the degree of subsidization for specific industries shall be kept under constant review;

(viii) aid to small and medium- sized enterprises if intended to offset disadvantages directly linked to the size of the firm in question, such enterprises being understood as employing not more than 100 people and having an annual turnover of less than 10 million ECUs.

(d) The following measures are examples of types of aid normally not consistent with Article 12:

(i) aid to set against operating losses of enterprises, either directly or through the foregoing of payment due to public authorities;

(ii) the injection of equity capital in firms if it has the same effect as to set aid against operating losses;

(iii) aid to production in problem sectors suffering from structural over capacity or to enterprises in difficulties if not accompanied by an adjustment program and strictly limited in duration;

(iv) aid given as a rescue measures to specific firms if not given merely to provide time for the development of long- term solutions and avoid acute social problems;

(v) aid measures, including indirect taxes, that are applied in such a way as discriminate in favor of domestically- produced goods and against like goods produced in another Party to this Agreement;

(vi) the forms of aid to exports of goods to other Party to this Agreement as described in the Annex IV.

Protocol A

Concerning Products Referred to in Subparagraph (b) of Article 2

Article 1

The provisions of the Agreement shall apply to the products listed in Table I.

Article 2

1. In order to take account of differences in the cost of the agricultural raw materials incorporated in the goods specified in the Tables referred to in this Article, the Agreement does not preclude:

(i) the levying, upon import, of a variable component or fixed amount, or the application of internal price compensation measures;

(ii) the application of measures adopted upon export.

2. The price compensation measures shall not exceed the differences between the domestic price and the world market price of the agricultural raw materials incorporated into the goods concerned. If, however, the domestic price of an agricultural raw material in the country of origin is lower than the world market price, the importing country may take this fact into account when calculating the compensatory amounts.

3. The treatment to be accorded by Iceland is laid down in Table II. The customs duties are indicated in List 1 and the duties of a fiscal nature in List 2 of the Table. Iceland may, however, replace these duties with other price compensation measures in accordance with paragraphs 1 and 2 of this Article but any such action shall not result in a treatment less favourable for Latvia than that accorded by Iceland to the European Union.

4. Latvia shall inform Iceland at an early stage of any decision to introduce a system of price compensation.

Article 3

1. Latvia shall notify Iceland and Iceland shall notify Latvia of all price compensation measures applied under Article 2 of this Protocol.

2. Latvia and Iceland shall inform each other of all changes in the treatment accorded to the European Union.

Article 4

Latvia and Iceland shall review at two-year intervals the development of their trade in products covered by this protocol. A first review shall be held before the end of 1995. In the light of these reviews and taking into account the arrangements between the Parties and the European Union in this field, Latvia and Iceland shall decide on possible changes to the product coverage of this Protocol as well as on a possible development of the rules concerning price compensation systems.

Table I to Protocol A

HS Heading No.	Description of products
14.04	Vegetable products not elsewhere specified or included:
1404.20	- Cotton linters
15.16	Animal or vegetable fats and oils and their fractions, partly or wholly hydrogenated, inter-esterified, re-esterified or elaidinised, whether or not refined, but not further prepared:
ex 1516.20	- Vegetable fats and oils and their fractions:
	- - Hydrogenated castor oil, so called "opal-wax"
15.18	Animal or vegetable fats and oils and their fractions, boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading No. 1516; inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this Chapter, not elsewhere specified or included:
ex 1518.00	- Linoxyn