For more than two years, Latvia's timber industry has been living with a question that few expected to reach the country's highest legal institutions: can a government order its state forestry company to sell timber below market prices in order to support domestic manufacturers? Latvia's Prosecutor General's Office now believes the answer is no.

In a move that could reshape one of Europe's most important forest industries, prosecutors have formally challenged the government's decisions that introduced discounted timber pricing at state-owned Latvijas Valsts Meži (LVM). If the Cabinet refuses to withdraw those decisions, the dispute could move to the Constitutional Court. If prosecutors ultimately prevail, companies that purchased timber under the preferential pricing system could be required to repay the financial advantage they received.

What initially appeared to be an emergency industrial support measure has evolved into one of the largest corruption investigations ever to affect Latvia's forestry sector.