EU calls for tax policy changes, Tallinn seethes

The Baltic Times, TALLINN
By Kairi Kurm
Mar 14, 2002

Siim Kallas got a strong message from Brussels on his first trip there as Estonia’s prime minister: Change your corporate tax system.

European Commission President Romano Prodi told Kallas on March 7 that Estonia should change its popular policy of not taxing reinvested corporate taxes.

“It is clear that this has created problems for some member countries because it is completely outside the strategy of the European Union,? said Prodi.

Analysts say the tax strategy is one reason the Estonian economy posted strong growth and low unemployment last year, particularly in the fourth quarter, despite the souring global economy.

Estonia eliminated taxes on reinvested corporate profit in 2000.

Kallas had heated discussions about the strategy with EU Commissioner for Enlargement Guenter Verheugen and Taxation Commissioner Frits Bolkestein, Radio Free Europe reported.

He said direct taxation falls outside the realm of EU negotiations.

“In our opinion there is no need to discuss the Estonian income tax system at the accession talks, but the question keeps cropping up,? Kallas was quoted as saying. “The inclusion of the income tax issue would not be practical, as this topic could seriously delay talks. We would not be prepared to contemplate solutions to any of the other issues within the taxation chapter.?

The EU typically only monitors indirect taxes such as value added taxes and tariffs. Countries themselves are usually free to determine their own coporate taxation systems.

Prodi and the European Commission have been heavily criticized by member states in the past for trying to oversee tax policy.

But in Estonia’s case pressure is being brought on by several members, including France, Spain and Italy.

“The formal policy of the European Union has until today been that direct taxation is the sovereign right of states,? said Kallas. “The income tax of investments is formally not touched upon in the negotiations process.?

Prodi said the commission’s stand was not against Estonia but for a more harmonized tax system for the EU.

“It is obvious that it has created problems for some member states since it is different from the joint strategy of the EU,? said Prodi. “The problem is that we have to bring into agreement totally different approaches.

“I am not saying that we need to do everything the same way, I am just saying that since we have to live in a single market, we need to have common rules.?

Prodi’s comments have met with disdain not only from Kallas but elsewhere in Estonia.

Andres Kuningas, head of the international affairs department at the Ministry of Finance, said Estonia’s tax policy was approved by the International Monetary Fund and was in accordance with the EU’s “code of conduct,? under which member states were pledged not to violate honest competition in corporate taxation.

“The Estonian taxation system is a symbol of the country,? said Kuningas. “Our standpoint is that the legislation should not be changed. It does not contradict EU terms.?

The respected business newspaper Aripaev wrote in a March 11 editorial that if the EU made the country’s admission to the EU contingent on changing the corporate tax policy then it should pull out of negotiations now.

“Estonia has not created for itself unjustifiable benefits and is not requesting special treatment,? the editorial read. “It has only removed obstacles that were restricting faster growth.

“If such simple truths are not understood by Eurocrats then maybe Estonia should try to explain them more slowly.?


Quality concerns touch off Estonian sausage war

The Baltic Times, TALLINN
By Kairi Kurm
Mar 14, 2002

A bitter battle between meat packers is brewing in Estonia with companies accusing each other of using inferior ingredients and endangering public health.

The fight has become more intense as Estonia nears the summer deadline for meat producers to comply with European Union standards, which observers say will put many out of business.

Elmut Paavel, managing director of meat producer Valga Lihatoostus, started the row when he began sending competitors’ cooked sausages to a laboratory for analysis.

“Consumers should know what they are buying and what they are eating,? said Paavel.

He said the analysis showed poultry byproducts in sausages from the companies Rakvere Lihatoostus, Woro Lihakominaat and Filee Lihatoostus.

“If someone wants to eat chaff, let him do that,? said Paavel.

Paavel argues that many companies that sell discount sausages are fooling consumers using “mechanically deboned meat? rather than high-quality beef or pork.

Much of the mechanically deboned meat comes from the United States.

The meat is picked off chicken scraps at poultry plants and pressed into a paste, which is often sold abroad, and it is used to fill sausages.

“Finland, Latvia and Lithuania have restricted the import of such muck, but we accept everything,? said Maie Niit, manager of the meat company Otepaa Lihatoostus.

Silver Rambos, sales director at the meat producer Woro Kommerts, wrote to the business newspaper Aripaev that consumers should have several levels of price and quality to choose from.

“Many would like to drive Mercedes, but still there are more Opels and Fords around,? he wrote.

Paavel argues that companies which use inferior ingredients are simply fooling consumers.

“We had standards during Soviet times, when producers had to follow certain standards if they wanted to use the well-known trademarks such as Lastevorst, Lemmikvorst or Doktorivorst for example,? he said. “Now some are producing sausages of the same name but of different ingredients. The consumer dislikes it and will never buy products of the same name again, even from those producers which use quality meat.

“Opel producers would not mark their cars with a Mercedes sign,? he said.

Companies that use the paste normally sell their sausages cheaper and have fared well in the market.

Agriculture Ministry officials say sausage sold in Estonia is safe to eat and that the battle now is more a consumer rights issue than one of public health.

Rambos and others say the complaints stem from the increased competition on Estonia’s meat producing market, which will have to meet EU requirements by July.

Many producers have complained that 10 years is not enough time to revamp production standards to meet EU requirements. Preparations have been expensive and observers say that many of the country’s 250 meat producers and slaughterhouses will begin closing.

The mudslinging is a way to shake out the market in the name of consumer protection, said Peeter Grigorjev, head of the Estonian Meat Association.

“The sausage battle started because companies that have failed to compete are using all kinds of methods to survive,? he said. “They say that they stand for the well-being of customers.

“All companies need market share in order to receive a loan from banks. Banks do not lend money to the ones that don’t meet EU requirements.?

Grigorjev says many Estonian meat producers have bleak futures.

“It is obvious that many will have to close their doors by January 2003,? he said. “I believe that about 40 will survive, mostly the biggest companies and those small ones, which have found a niche market. Small companies that deal with everything from slaughtering to packaging will see hard times.?

A group of seven meat producers has called on Estonia’s Ministry of Agriculture and the Veterinary and Food Board to establish an official classification for sausages and require companies to list ingredients for packaged as well as loose sausages.

The highest quality products should contain at least 95 percent pure meat. The second level would contain 70 percent and the third 50 percent, according to the proposal.

The plan would follow European Union guidelines, which do not classify mechanically deboned meat as meat.

The same companies, which include Valga Lihatoostus, Noo Lihatoostus, Oskar, Otepaa Lihatoostus, Vastse-Kuuste Lihatoostus, Rey and Linnamae Peekon plan to leave the Estonian Meat Association, which currently represents 26 members, and establish their own trade association, which will represent companies that use local meat only.

Marje Kokk, deputy director of the Estonian Consumer Protection Board, said that current legislation requires labeling of packaged products only.

The Ministry of Agriculture is drawing up legislation that would require ingredients to be listed on shipping invoices for nonpackaged products, such as sausages bought by the kilo. Under the regulations shopkeepers would be able tell consumers what’s in the sausages if they ask.

“We didn’t actually have the regulation on our agenda for this year, but as the problem of meat content of products has become very acute we’ll try to have the labeling rules amended by the end of the first half of the year,” Kairi Ringo, head of the ministry’s food safety bureau, told the Baltic News Service.