Introduction
Developments in 2013
Russia – a special case
Comment


Introduction

On March 20 2014 the European Commission presented the fourth edition of the Trade and Investment Barriers Report(1) in which it reported on the progress towards eliminating trade and investment barriers in certain third countries that prevent or hinder EU companies from entering these markets.

The report is part of a broader EU trade enforcement strategy – the EU Market Access Strategy. It has been presented every spring since 2011 and focuses on six strategic economic partners:

  • China
  • India;
  • Japan;
  • Mercosur (Brazil/Argentina);
  • Russia; and
  • the United States.

Together these account for more than 40% of EU exports of goods, services and outward flow of foreign direct investment. The Trade and Investment Barriers Report complements the Report on Potentially Trade-Restrictive Measures that the commission has been publishing annually for the past 10 years.(2)

Under the EU Market Access Strategy, European companies faced with obstacles in accessing third markets can petition the commission to help them to reach a solution either through negotiations or World Trade Organisation (WTO) dispute settlement proceedings.(3) To date, the commission has received 24 complaints, seven of which have resulted in formal WTO proceedings.

Developments in 2013

In the report the commission noted that substantial progress has been made on a number of trade restrictive measures, including the following:

  • China implemented the January 31 2012 ruling of the WTO Appellate Body condemning China's use of restraints on the exportation of certain raw materials (ie, bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc). China also removed certain discriminatory customs and taxation measures affecting the logistics and shipping industries, which prohibited the deduction of certain cost items and mandated the payment of local surcharges.
  • India suspended certain preferential procurement policies for domestically manufactured electronic goods and telecommunications products and postponed mandatory testing and certification requirements for telecommunications network elements, adopted on the basis of security considerations. India also opened up for the possibility of 100% foreign ownership in the telecommunications sector.
  • Brazil terminated the 100 temporary exemptions to the Common External Tariff and did not adopt a new list of exemptions. The European Union requested consultations with Brazil in the WTO regarding the tax benefits granted to producers of automobiles and electronic products that satisfy local content requirements.
  • Argentina eliminated almost all non-automatic licences, but maintains other import restrictions that are being challenged by the European Union and other WTO countries. Restrictions on transfer of currencies, dividends and royalties remain in place.
  • The United States has lifted some sanitary and phytosanitary measures that should allow the resumption of exports of beef to the United States, but measures and processing delays limit EU exports of agricultural products. EU authorities have been advocating that the European Union should be treated as a single entity and market, but the United States continues to treat EU member states individually.
  • Japan has been discussing the removal of non-tariff barriers with the European Union within the framework of the EU-Japan Free Trade Agreement negotiations that were initiated in April 2013.

Despite some successes, important market access barriers still persist for European companies. Many of the more significant barriers concern local content requirements, which mandate that a certain percentage of input from local sources must be used in a production process or must be used to be eligible for government support, such as in renewable energy projects. It is reported that these measures are most common in emerging countries (eg, China, India and Brazil). The commission states that these will be "forcefully" addressed with the respective trading partners.

Russia – a special case

In the 2014 report, the commission gave special attention to market access problems faced by European companies in Russia. Many of the barriers stem from Russia's alleged failure to implement fully its WTO commitments (to which it acceded in August 2012). For example, the commission notes that:

  • Russia has incorrectly implemented its WTO-bound import tariffs on more than 150 products – including meat, garments, refrigerators, used vehicles, car bodies, paper and international technology products.
  • Russia levies a recycling fee on imported motor vehicles, but not on domestically produced cars. In this regard, in July 2013 the European Union instituted a WTO dispute settlement procedure against Russia.
  • Russia maintains sanitary and phytosanitary measures on animal and agricultural imports that are non-transparent, discriminatory and disproportionately restrictive.
  • Russia maintains technical regulations that establish overly burdensome certification, notification and labelling requirements on a range of products (eg, consumer goods, clothing and footwear).

Comment

The report highlights some significant trade barriers that persist in its strategic partners. An interesting development is the report's particular focus on Russia. Even though this report was prepared before recent events in Ukraine, the tense diplomatic relations which led the European Union to impose targeted economic sanctions on March 17 2014 may lead EU and member state authorities to exert additional economic and political pressure. The European Union did just that on April 8 2014 when it challenged the pork import ban maintained by Russia at the WTO. The report provides the foundation for initiating additional WTO dispute settlement proceedings against Russia. The recent agreements concerning trade remedy actions regarding EU and Chinese exports may also free internal capacity within the commission to scrutinise even further the trade-restrictive measures maintained by Russia.

For further information on this topic please contact Charles Julien or Marcus Sohlberg at King & Spalding LLP by telephone (+41 22 591 0800), fax (+41 22 591 0880) or email (cjulien@kslaw.com or msohlberg@kslaw.com). The King & Spalding LLP website can be accessed at www.kslaw.com.

Endnotes

(1) Trade and Investment Barriers Report, Report from the Commission to the European Council, 12/3/2014, COM(2014), 153 final. See http://trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152272.pdf.

(2) The 10th version of the Report on Potentially Trade-Restrictive Measures, covering May 2012 to May 2013, is available at http://trade.ec.europa.eu/doclib/docs/2013/september/tradoc_151703.pdf.

(3) Article 3 of Council Regulation 3286/94, December 22 1994, lays down Community procedures in the field of the common commercial policy in order to ensure the exercise of the Community's rights under international trade rules, in particular those established under the auspices of the WTO, OJ L 349, 31.12.1994, Page 71.