Russia facing growing pressure in first WTO spat

By bne IntelliNews July 25, 2013

bne -

Russia is on the cusp of an expanded trade war after the World Trade Organization said on July 23 that Japan is set to join Brussels - and potentially a host of other states - in lodging a complaint against a car recycling fee unveiled by Moscow shortly after joining the international trade club.

Russia spent close to 20 years trying to join the WTO, finally achieving that objective in August 2012. Under the terms of membership, states are obliged to open their markets to imports, however Russia almost immediately slapped a new fee on the lucrative car import business in a bid to protect its domestic producers.

Introduced after WTO membership removed the stiff tariffs Russia used to implement on car imports, the charge can range from approximately €420 to €2,700 for "new" vehicles, and from about €2,600 to €17,200 for vehicles older than three years. Russia says the fee is a measure to protect the environment, however, it only applies to cars imported from outside the Customs Union - which groups Russia with Belarus and Kazakhstan.

The action started by Brussels is the first dispute since Russia joined the WTO. According to unnamed sources, Japan is joining a growing list of countries that are preparing official objections. Last week the US also said that it may act, although it has yet to formally notify the WTO of a complaint, according to Reuters.

"Besides Japan, we have received complaints from China, the US, Turkey, and Ukraine, which also notified the secretariat of the WTO that they are joining the consultations, initiated by the EU," a source close to negotiations told Prime.

Under WTO rules Russia has 60 days after a formal complaint has been filed to negotiate a solution with the counterparty, after which there are mechanisms to punish the abuser. The EU filed its complaint on July 9, so Russia has until early September to find a compromise. Moscow risks being told by the WTO to change its rules or face trade sanctions.

However, under the terms of its accession deal with the WTO, Russia will not fully liberalise access to its car market until 2020. The issue is a big one for both sides as Russia is on course to become the biggest car market in Europe as soon as 2016, according to a recent report from the Boston Consulting Group.

In February, the Russian Economic Development Ministry said local producers will be also obliged to provide clean production guarantees, but a corresponding law has not been adopted yet.

The US has told the WTO that between September 2012 and May 2013, the fee was levied on $1.25bn of exports, more than 10% of total US exports to Russia, reports Reuters. The EU has said €10bn of its exports are affected annually.

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