Alcohol and Arbitrage

When Lithuania joined the EU, it had to accept some of the protectionist barriers of the EU. Of course, if the resulting price differential is large enough, there is a strong incentive for smuggling, a form of arbitrage. That's exactly what happened in Lithuania (see here and here), where border guards unearthed a three-kilometre-long pipeline used to pipe vodka from Belarus (where its price is 4 Euros) to Lithuania (where its price is 16 Euros).
Makes one wonder what kind of policies the EU has that the price differental would be so large, doesn't it? It also makes one wonder why competition among Lithuanian producers doesn't keep the price down.
[thanks to John C for the links!]