OPINION | Overzealous interpretation of sanctions could cost Latvia a whole economic sector

Opinion piece – Ilona Bērziņa, BNN
The drop of Russian freight caused by various geopolitical factors at Latvian sea ports in the first half-year of 2023 indicates that the country is in dire need of solutions to help preserve its transit sector’s competitiveness. Freight from Central Asia plays a very big role in all this. The Latvian government – in the form of the Ministry of Transport – is doing all it can to enhance existing cooperation, but…
In an ironic turn of events, shortly after the visit of representatives of those countries’ transport ministries to Latvia, VAS Latvian Railways suddenly decided to cease the transit of freight on the Belarusian railway, thereby blocking transports of Central Asian and Asian countries’ freight.
It was not the intention of Latvian Railway to shoot itself in the foot like that. Simply – some Latvian state official decided – if the head of Belarusian Railway Vladimir Morozov is mentioned in the 11th package of personal sanctions imposed by the European Union, it means there is no way Latvian Railways cal cooperate with its Belarusian counterpart.

After that, however, the European Commission explained

that personal sanctions against Morozovs do not in any way limit Latvian Railways’ rights to cooperate with Belarusian Railways, which answers to the Belarusian Ministry of Transport, not the sanctioned person.
The result of this overzealous action was the loss of reputation and money
One would ask – what’s the deal with interpretations of sanctions? Especially considering that, according to what various media reports, with imports and exports through Belarus halting entirely, the losses to Latvia’s state budget could reach EUR 750 million even without unemployment benefits, subsidies for infrastructure and other costs [estimate from Latvian Stevedoring Company Association (LSA)]. Even now, though smaller than that, there are definite losses. And this is not just about money, there is also the matter of lost partners.
Meanwhile, Poland and Lithuania, for example, do not engage in excessive interpretations of sanctions still continue carrying freight using the railway networks of the two sanctioned countries. The transit of containers from China through Belarus over Germany’s and Austria’s railway networks still continues as well.
And because of the overzealous interpretation of sanctions

Latvia also suffers problems with grain transports from Central Asia,

and in many cases grain freight is diverted towards Latvia’s neighbours. It is possible this is half the problem, but because Lithuanian and Polish sea ports lack the capacity to handle all the freight, it is entirely possible Central Asian countries could divert some of their freight towards Russian sea ports as well. This, on the other hand, would mean that with its excessive interpretation of sanctions Latvia will have indirectly supported Russia’s economy.
Currently it is unknown why Latvian Railways decided to rush with its decision before waiting for European Commission’s explanation. But now it is clear that these twenty days have cost Latvia both freight and reputation, because the country has demonstrated itself as an unpredictable business partner.
The public opinion from LSA indicates that the unique interpretation of sanctions on Latvia’s part risks undermining the reputation of Latvian sea ports in the eyes of its international partners.
This once again indicates how important it is to coordinate implementation of sanctions with EU partners and their sanction systems.
Why are we helping the aggressor?
For example, last year a transition period for EU’s embargo on Russian petrol products was established. After this period it will be permitted to transport these products to third countries under strict conditions. Latvian authorities, on the other hand, decided it would be safer to simply ban transports of this products entirely.
But EU-registered ships continue carrying those products, because the EC explains that carrying Russian petrol products to third countries is permitted. The EC also admits that all ancillary operations for transshipment and transfer of petroleum products may be carried out under price ceilings.
There is talk of Russian sea ports charging outrageous amounts for freight-handling services. Western European businesses that are engaged in petrol product handling grind their teeth and pay, because it is thanks to our country’s interpretation of sanctions they have been forced to leave Latvian sea ports.
This is another indirect way Latvia assists the aggressor country’s economy even though the point of sanctions was doing the opposite. However, if EU sanctions allowed as an exclusion the transportation of freight to third countries through Latvia, this source of income would be cut off for Russia.
Cooperation with Central Asia and Ukraine
The Central Asian countries received the odd surprise in the form of closure of routes to and from Belarus a mere ten days after the signing of Latvia’s and Central Asian countries announcement and the statement from the Ministry of Transport that Latvia meets all conditions to become these countries’ strategic partner in the European Union.
Latvia is not the only country thinking about tighter economic ties with Kazakhstan and other Central Asian countries. During his visit to Kazakhsta, US Secretary of State Antony Blinken announced his country has plans to deepen ties with this country. Just recently there was talk of the EU and US-supported new transit corridor connecting Central Asian countries with Baltic States’ sea ports through Belarus, as well as attraction of new freight and creation of new services.
Only thing that’s left is hoping that overzealous interpretation of sanctions does not become an obstacle to continue cooperation.
Why should we be worried? If Central Asian partners decide cooperation with Lithuania is more predictable, the consequences will ring for the entire transit sector. Latvia’s biggest sea ports would experience enormous problems with operations, possible insolvencies among businesses, countless people could lose their jobs. This would result in an enormous increase of unemployment benefits, as well as a dramatic decline of freight.

The latter means the state will have to pay multi-million grants to Latvian Railways.

In the current geopolitical situation Latvia needs to think about reaching out to new partners and use every opportunity in its favour, similarly to Lithuania and Estonia. For example, Russia quitting the Black Sea “Grain Deal” means Latvia could offer its own corridor to help transport Ukraine’s grains. This would also assist Ukraine. The idea for this possible cooperation is nothing new. It was a topic discussed by Latvian Railways representatives during their visits to Ukraine a couple of years ago.
Because Polish farmers are not too happy about the possible exports of Ukrainian grain through sea ports of their country, the opportunity is massive. Let’s not forget the week-long protests by Polish farmers in spring against imports of Ukrainian grain. The Polish Minister of Agriculture even stepped down because of this reason… This is an opportunity for Latvia and Lithuania. For it to happen, we need a strong position from the state and investors’ readiness to invest in, say, construction of grain storage facilities at sea ports.
Also read: Estonian farmers predict a poor crop harvest