COMMENT: Russia’s first 4 years in WTO has been a litany of disputes. What next?

COMMENT: Russia’s first 4 years in WTO has been a litany of disputes. What next?
WTO map of members and observers.
By Iana Dreyer of Borderlex September 30, 2016

The first two World Trade Organization (WTO) dispute settlement panel rulings on Russian trade practices against European imports were recently released in Geneva. This is a good moment, almost four years into Russia’s WTO membership, to take a tour d’horizon of the seven legal disputes currently involving Russia and its main trading partner, the EU.

On September 26, Moscow lodged an appeal in Geneva against the first dispute settlement panel ruling indicting it for violating WTO rules. The ruling criticises the way Moscow handled a ban on imports of pork products from the EU for sanitary reasons, by categorically refusing to recognize European veterinary certificates and failing to properly justify its policy.

Moscow’s appeal was lodged the same day that the WTO dispute settlement body adopted another panel ruling chiding Russia for charging duties at the border above agreed maximum rates – so-called ‘bound rates’ – for imports of various food and industrial products from the EU.

Few new WTO member states as Russia have faced so much litigation in the world trade body so soon after they joined. It took Russia almost 20 years to join the world trade institution after it originally applied to the WTO’s predecessor, the GATT in 1993.

The EU was keenly waiting for the moment it could finally bring Russia to an international court over its trade policies. Russia too saw an opportunity to better defend its trade interests offered by the WTO’s famed and trusted dispute settlement system.

In November 2013, only 11 months after Russia became a WTO member, the EU disputed a recycling fee imposed by Russia on imported car parts. One month later, Russia responded with its own case against the EU over Brussels’ punitive anti-dumping duties applied to Russian exports of fertilisers (ammonium nitrates).

Anti-dumping duties are applied on imported products whose prices are deemed abnormally low and to have caused damage to local industries. The practice is not illegal under WTO law, but it is regulated by a specific Anti-dumping Agreement to avoid protectionist abuse.

In 2014, the EU launched the case regarding Russia’s bans of pork products. The ban was initially applied to the Baltics and Poland, then extended to the entire EU territory. Brussels shortly thereafter brought another case to Brussels regarding the import tariffs Russia applies to products like refrigerators, paper products or palm oil.

This was followed, in May 2014, by a fourth case against anti-dumping duties that Russia applies to German and Italian commercial vans. A ruling on this case is expected in late 2016.

Russia for its part – in the midst of the Ukraine crisis in April 2014 – launched a dispute settlement case against the EU’s so-called Third Energy Package. Russia believes some of the rules included in a package of laws introduced in 2009 to unify the EU’s gas markets and increase market competition discriminate against Gazprom as an investor. Then, in 2015, Russia initiated a new case against anti-dumping measures applied by the EU on Russian steel and chemical products.

Cases dragging

If the EU pork ban and tariff cases brought have borne fruit quite quickly, the other cases seem to be dragging.

The EU’s recycling fee case became dormant after Russia extended the fee to Belarus and Kazakh producers, which were initially exempted, although Western producers complain levels and calculations of duties on heavy commercial vehicles still discriminate against them. The case was brought under the predecessor of the current trade commissioner, Cecilia Malmström. Karel De Gucht is believed to have been more aggressive in taking on Russia at the WTO than the current European Commission team.  

Russia’s first anti-dumping WTO case fell quickly into inaction after the initial consultation phase. One lawyer familiar with the Russian government’s handling of WTO cases cited to Borderlex “the bureaucracy” as a reason for Moscow’s slow handling of the cases, despite Russia’s obvious interest in seeing EU protectionism against its key export industries tamed. Indeed, if oil and gas are Russia’s top exports, metals and chemicals are other major Russian export staples, accounting for 11.9% and 7.4% of its exports respectively, according to Rosstat.

Uncertainty over who actually handles the case – the Russian government or the Eurasian Economic Union Secretariat, which is formally in charge of anti-dumping policy – is also cited by observers as a source of delay and lack of expediency in handling Moscow’s cases.

No dumping

On anti-dumping, several lawyers believe Russia has a solid case. Russia also seems to be in a greater hurry. The recent dramatic fall in steel prices has induced the EU industry to call for greater protection against cheap imports, be they from China, Belarus, or Russia. This spring the EU introduced a temporary anti-dumping duty on cold-rolled flat steel from Russia.

The EU applies anti-dumping duties with a methodology that is increasingly contested in the WTO: its so-called ‘cost-adjustment’ methodology. That method is based on a unilateral judgment by the Directorate General for Trade of the European Commission of the policies determining the prices of inputs of raw materials needed to produce the allegedly ‘dumped’ export. If the prices are deemed too low by the anti-dumping bureaucrats, thus distorting the price of the exported good, the Commission then goes on to slap punitive import duties on the products. The Commission rarely takes into account the actual prices paid by the exporting firms, a practice that the EU’s own Court of Justice has recently criticized in recent cases, for example regarding anti-dumping duties applied to US biodiesel in 2013. 

The second case brought by Russia in November 2015, is better formulated and the legal case is better argued than the first one brought in 2014, a Geneva-based lawyer interviewed by Borderlex explained. It targets specific EU anti-dumping measures on ammonium nitrates, and on welded tubes and pipes made of iron or steel, measures that have been in place since 2008 and been prolonged.

The case explicitly puts in question the EU’s habit of using government policies regulating or affecting energy prices – such as energy subsidies or export taxes – as an important criterion to determine whether a country is dumping products on the EU market. This matter is of supreme importance to Russia, which has been in a long-running dispute with the EU over its domestic gas market policies.

The method was devised in 2004 after Russia was granted market economy treatment. This is the standard treatment given to products originating from across the world except planned economies. Non-market economy status in EU law allows it to use greater discretion in determining whether a product is inadequately priced and gives it greater leeway to apply very high duties.

The new methodology introduced by the EU after 2004 was perceived by anti-dumping critics as a disguised means to continue to discriminate against Russian products. Only through joining the WTO did Russia see an opportunity to litigate over this.

The above-mentioned ‘cost adjustment methodology’ was applied to determine anti-dumping duties on imports of biodiesel from Argentina and from Indonesia: a March WTO dispute settlement report ruled the EU was violating WTO rules with this way of proceeding with Argentinean biofuel. The EU appealed the high-profile Argentina ruling: a definitive answer from Geneva is expected early October and will give a better indication of whether Russia’s case has merit.

Law of silence

EU-Russia relations always have a share of mystery about them. And indeed, some WTO dispute settlement case are very odd.

In the case that the EU won in 2016, some critics questioned Brussels’ rationale for litigating for palm oil. The EU does not export the product.

The other mystery case is the Energy Package case over which a full law of silence prevails. Months after letting the case become dormant, Russia revived it in April 2015 by formally requesting that a dispute settlement panel be established. The timing of the WTO panel request coincided with a move by the EU’s competition authorities, led by Danish Commissioner Vestager, indicting Gazprom’s pricing policies in Central and Eastern Europe as part of an antitrust case launched in 2013.

Russia has sought to settle the matter with the Commission amicably to avoid paying fines, but the matter is still pending. Trade lawyers familiar with the Russian WTO case simply refuse to talk about the specific Third Energy Package case, while many observers suspect it is simply a political case used as a bargaining chip with the EU Commission in the Gazprom antitrust case.