COMMENT: Russia tests waters of WTO dispute settlement with EU complaints

By bne IntelliNews May 27, 2014

Jennifer Freedman of Borderlex -


Less than two years after becoming a member of the World Trade Organization (WTO), Russia has filed two complaints with the dispute settlement body in Geneva that target the EU, Russia's main trading partner. These complaints concern antidumping duties and a package of EU laws that govern the bloc's gas and electricity markets. While some observers say the challenges were tit-for-tat after the EU became the first WTO member to haul Moscow before the trade body, others say they are based on legitimate commercial concerns and will probably go before a WTO panel if the two governments fail to resolve their differences during consultations.

Russia lodged its first-ever WTO complaint against European antidumping duties in December, five months after the EU challenged a Russian car-recycling tax imposed on imported vehicles. Moscow's second complaint targeting the EU's "Third Energy Package" came on April 30, just three weeks after Europe filed a challenge over Russian curbs on pig and pork imports.

The complaints soured ties that were already strained over the crisis in Ukraine The stakes are high: the EU is Russia's top trading partner, while Russia is the EU's third-biggest.

Both complaints stem from legitimate trade concerns, says Natalia Shpilkovskaya, a Quebec-based international trade lawyer. It's not unusual for such important partners to have trade concerns, she says, and Russia's decision to complain didn't disrupt the WTO system any more than a challenge by any other government. "It's not political," Shpilkovskaya told Borderlex. "Each dispute was initiated in the WTO because of trade and commercial interests of exporters. Russia's motivation is to improve the current conditions for trade with the EU, to improve market access, and to make the EU's measures non-discriminatory and predictable."

Moscow tried for several years to resolve the issue bilaterally with the EU, notes Shpilkovskaya, who is also managing editor of the International Centre for Trade and Sustainable Development's Russian trade periodical, Mosty. "I guess they reached a point where their trade concern could only be addressed in the WTO."

Russia's first complaint targeted antidumping duties on Russia ammonium nitrate fertilizer and certain tubes and pipes, as well as the cost-adjustment methodologies to determine them.

The EU has applied "energy adjustments" since 2002 to punish Russian companies for selling their products in the bloc at unfairly low prices. Europe says Moscow provides cheap gas to energy-intensive industries in Russia through state-owned gas giant Gazprom, while selling it for considerably more to foreign competitors.

Russia says Brussels is breaching the 1994 Partnership and Cooperation Agreement (PCA) under which the EU was to apply antidumping measures in line with the General Agreement on Trade and Tariffs (GATT), and to take Russia's natural competitive advantages – including access to cheap feedstock – into consideration.

The EU initiated 17 antidumping cases against Russia between 1995 and 2012, according to Russia's Economic Development Ministry.

Moscow says the energy adjustments are unfair, and make it impossible for Russian steel manufacturers and fertiliser producers to export to EU markets. The levies cost Russian companies hundreds of millions of dollars annually, argues Russia, which accuses the EU of failing to take into account prices on the domestic market, as required by international trade law.

Market economy

"Russia's motivation is to improve the current conditions for trade with the EU, to improve market access, and to make the EU's measures non- discriminatory and predictable," ICTSD's Shpilkovskaya says.

The hitch, says a trade lawyer in Washington, is that "the classic model of antidumping is based on a market economy, where prices are determined by the market, and aren't internally distorted".

While Russia was designated a market economy in 2002, Moscow says the European Commission decided that dumping had occurred by wrongly comparing the price of Russian exports with prices on the domestic markets in third countries. "The WTO's Agreement on antidumping allows a government to reject prices of inputs in the country of origin in 'particular market situations' – and this would seem to be one," the Washington-based lawyer said. "It is going to be very interesting to see how the WTO sorts this out."

Russian authorities have said they'll ask for a panel to rule if the dispute isn't hammered out during consultations. It is widely believed that Moscow will proceed with a request to the WTO's Dispute Settlement Body if the EU doesn't back down on the energy adjustments.

The ruling would set a precedent for how Russia would have to treat its own antidumping measures on Chinese imports.

Challenging EU energy-market regulations

Moscow is also expected to move ahead on its challenge of the EU's Third Energy Package, which prevents a single company from both owning and operating a gas pipeline and contains rules on third-party access to the natural-gas transportation grid. The package, which entered into force in September 2009, was designed to crack open the EU's gas and electricity markets.

The rule prohibiting gas suppliers from owning distribution networks has long irritated Moscow, which has tried unsuccessfully on several occasions to resolve the issue.

Still, it's "much too early to speculate on whether it will go to a panel", says an international trade consultant in Geneva, noting that "often complaints never make it to the panel stage". He calls Russia's decision to lodge a complaint against the energy package a "routine event".

But the stakes are high, particularly high for Gazprom, which supplies more than third Europe's gas and is planning to build a 2,400-kilometre oil-distribution route across the Black Sea, bypassing Ukraine. Gazprom is the sole supplier of gas to some EU members – notably several from the ex-Soviet group. "Gazprom is really concerned" about the Third Energy Package "because it will change everything in its practice", ICTDS's Shpilkovskaya says.

The EU accuses Russia, which joined the WTO in August 2012, of routinely violating global rules – for instance, banning European exports such as potatoes, meat, live animals and dairy products.

"The overall experience with Russia as WTO member is, to our regrets, rather disappointing," EU Ambassador Angelos Pangratis told the WTO's Council for Trade in Goods on April 9. "Russia has not shown willingness to put its trade measures in line with basic WTO obligations and has continued raising a number of trade obstacles inconsistent with its WTO obligations."

A version of this story first appeared in Borderlex.


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