THE INSIDERS: Russia's first year in the WTO - what business needs to know

By bne IntelliNews July 29, 2013

Saskia Seeger of White & Case -

Almost a year ago, on August 22, 2012, Russia, the sixth largest economy in the world, became the 156th member of the World Trade Organisation (WTO). Those who believed that Russia as a newly acceded member would enjoy some sort of grace period to get used to the system and the rules were soon proved to be wrong. Only three months later, in a meeting of the WTO Council for Trade in Goods in November 2012, the European Union, Japan and the United States formally criticized Russia for maintaining trade barriers that appeared to be inconsistent with its WTO commitments.

Similar concerns have been raised at the bilateral level and in other WTO meetings. After less than 11 months of membership, on July 9, the EU filed the first WTO case against Russia over a recycling fee for imported vehicles. Japan requested consultations on the same issue on July 24. The US is said to join the EU and Japan and to equally challenge Russia over this measure. By way of comparison, in China's case, it took over two years before the US initiated the first WTO dispute against China.

The recycling fee was introduced only nine days after Russia acceded to the WTO. The terms of accession obligated Russia to reduce import duties on cars. The fee subjects imported cars, trucks, buses and other motor vehicles to a fee which is determined on the basis of the year of production, weight and other physical characteristics that may affect the disposal costs. Domestic car manufacturers and companies that assemble cars in Russia are exempted from the fee if they commit to establish procedures in order to dispose of a vehicle at the end of its useful life. Exemptions also apply to cars imported from Kazakhstan and Belarus, which form a Customs Union with Russia. No such exemptions apply to cars imported from other countries.

Whether the fee is necessary to protect the environment, as Russia claims, or whether it serves to protect the domestic auto industry from foreign competition, as Russia's trading partners argue, is a question that will be decided by a WTO panel - unless the dispute will be settled through a mutually agreed solution. Russia has also taken first steps to revise the relevant domestic legislation. If adopted, the recycling fee would be extended to three categories of vehicles currently excluded from its scope: vehicles assembled or manufactured by entities which undertake to safely dispose them once they are no longer used, vehicles imported from member countries of the customs union, and certain vehicles that are placed under the legal regime of the Kaliningrad Special Economic Zone.

The recycling fee is just one example of Russia's trade measures that have been under close scrutiny in the WTO during the first 11 months of Russia's membership. Russia's compliance with its WTO obligations was discussed in different WTO committee meetings, including of the Council for Trade in Goods, the Committee on Sanitary and Phytosanitary Measures, the Committee on Technical Barriers to Trade, the Committee on Safeguards and the Council for Trade Related Intellectual Property Rights. The US Trade Representative recently published a Report on WTO Enforcement Actions: Russia, which lists the enforcement actions taken by the US in order to ensure Russia's full compliance with its obligations as a WTO member.

Among the measures that have repeatedly been criticized are the bans on imported meat that Russia imposes purportedly for reasons of food safety. According to some of its trading partners, these measures are lacking a science-based risk assessment, as required under WTO rules dealing with sanitary and phytosanitary measures, and operate as protectionist tools in violation of Russia's WTO obligations.

Concerns of non-compliance with WTO rules have also been raised with respect to certain technical regulations, such as the Draft Technical Regulation of the Customs Union on alcoholic products safety and certain rules regulating their storage.

Over the past year, certain imports into Russia have become subject to trade remedies. Two of the more notable cases are anti-dumping (AD) duties against light commercial vehicles from Germany, Italy and Turkey, and safeguard measures against agricultural combine harvesters. These measures were imposed by the Eurasian Economic Commission (EEC), which is the main regulatory body of the Customs Union between Russia, Kazakhstan and Belarus. WTO rules permit the imposition of AD duties against dumped imports that cause material injury or threat of such injury to domestic procedures of the like product.

A WTO member is also entitled to impose safeguard measures (eg. duties and/or quantitative restrictions) when increased imports cause serious injury or threat of serious injury. However, the relevant WTO agreements also impose substantive and procedural obligations on WTO members that seek to impose such measures. Some of Russia's trading partners have already expressed concerns about the above-mentioned trade remedy measures by the EEC. Although no complaint has been filed, trade remedy measures account for a significant portion of WTO disputes. Going forward, Russia may face increased attention to and challenge of any trade remedy proceedings.

Another area of concern when it comes to Russia's compliance with WTO rules is trade-related intellectual property rights (IPR). Despite Russia's continuing efforts to improve its IPR regime, the implementation and enforcement of IPRs has long been a concern of Russia's trading partners. Consequently, some of Russia's IPR laws have been subject to review at a meeting of the relevant council in April, at which some WTO members sought clarifications on these laws.

Door swings both ways

In the first year of WTO membership, Russia has not only been the focus of other members complaints, it has itself used the rights and possibilities under the WTO agreements to question other members' trade actions. The times where Russia had to accept illegal, trade-restrictive measures in foreign countries, without a right to recourse or complain, are over.

Most recently, Russia has formally announced that it would impose additional duties on imports of Ukrainian chocolate, glass products and coal fuel in response to safeguard duties imposed by Ukraine on imported vehicles. In May, according to the official site of the president of Russia, following a meeting with representatives from the industry, Vladimir Putin instructed the government and entrepreneurs' associations to analyze the WTO consistency of trade barriers preventing access of Russian goods to foreign markets and to prepare suggestions how to overcome such restrictions.

He also gave instructions to implement measures that will protect the domestic industry based on other WTO members' experience. With respect to dispute settlement, Russia has not yet filed its own case, but it is a third party to a number of WTO cases. Among the trade measures that Russia is reportedly considering challenging through WTO dispute settlement are the EU's alleged subsidies in the context of the EU-Mauritania Fisheries Partnership Agreement.

As all these examples demonstrate, Russia, although it is still new to the WTO system, has been treated and acts like longstanding WTO members. From a business point of view, this underlines the need for companies that are engaged in trade with Russia and for Russian companies exporting to other WTO members to be aware of the many obligations and rights that apply to Russia as a WTO member.

Saskia Seeger is senior associate, White & Case LLP

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