Major International Trade Events for Russia and the Customs Union
Since joining the World Trade Organization (WTO) in 2012, the Russian Federation has become a full member of the international trade law system with the right, among other aspects, to take part in work on new international trade rules. The most important event in this area in 2013 was the approval at the Ninth WTO Ministerial Conference of the so-called Bali Package of agreements, part of the long-running Doha round of multilateral trade talks.
Section I below provides a brief analysis of the principal aspects of the agreements reached at the WTO Ministerial Conference on December 3-7, 2013 in Bali, Indonesia from the point of view of Russia and the member states of the Customs Union of Russia, Kazakhstan and Belarus (“Eurasian CU” or “CU”).
Section III reviews another important event in 2013, which may have significant impact on further developments in the international trade system. In particular, in July 2013, bilateral negotiations were opened for a total free trade zone between the United States of America and the European Union (EU) – the Transatlantic Trade and Investment Partnership (“TTIP”).
It is likely that many of the approaches to regulation of international trade and investment issues (including the respective legal structures and tools) agreed by the EU and the United States in the TTIP will be reflected in future multilateral trade agreements, including in the ongoing Doha round of WTO talks.
In 2013, the Eurasian Economic Commission (“EEC”) was less active in applying protective trade measures (special antidumping and compensatory measures). A brief analysis of the situation is also contained in section III below.
Section IV provides some initial brief comments in response to the work of the Court of the Eurasian Economic Community (“EurAsEC Court” or “Court”). In 2013, the number of new cases before the Court significantly increased, with most new proceedings relating to international trade.
In late 2013, Russia used WTO dispute resolution for the first time by opening a dispute concerning discriminatory legislation and trade restrictions on the importation of
Russian energy-intensive goods into the EU. Somewhat earlier, Russia acted as respondent for the first time in another dispute concerning complaints by the EU and Japan against the motor vehicle “recycling fee”. These disputes are reviewed in section V below.
I. Results of the Ninth WTO Ministerial Conference
The Ninth WTO Ministerial Conference was held on Bali December 3-7, 2013 and, despite unnecessary concern and gloomy forecasts for the future of the WTO, the members approved a range of new multilateral trade agreements as part of the Doha round of trade talks (“Bali Package”).
As a member of the WTO, Russia was for the first time able to fully participate in the preparation of these agreements and will be obligated to implement them. The scope and timing for implementing the obligations undertaken by Russia corresponds to the level set for economically developed countries.
The adopted package include agreements establishing specific new obligations for WTO members, and a number of declaratory statements intended to promote one of
the primary objectives of the organization – completing the Doha round of multilateral talks. The new agreements can be divided into three main groups: simplification of administrative/customs procedures, agricultural subsidies, and support for less developed countries.
Simplification of customs procedures
The first group of Bali Package agreements comprises the Agreement on Trade Facilitation, intended to make customs processing simpler, faster, more transparent and predictable.
In accordance with this agreement, the WTO members undertake to provide due and sufficient regulatory information for customs processing of goods. The key information must be published online in one of the official languages of the WTO – English, French, or
Spanish. Amendments to customs law must be published in advance and take into consideration the results of mandatory preliminary consultations with business and other WTO members. The agreement also devotes serious attention to promoting deeper cooperation among the customs authorities of various countries.
The agreement provides considerable detail on the obligations and procedures of customs authorities when adopting preliminary decisions, filing and processing of customs declarations before arrival in a customs territory, transit, administrative and judicial challenges to decisions by the authorities, release into free circulation before the adoption of decisions on duty and other payments, risk management systems, authorized customs operators and brokers, sampling procedures, holding/seizure of goods, and many other practical issues relating to the customs processing of goods.
The agreement will enter into force (expected mid 2015) after formal approval by a qualified majority of votes (2/3) of WTO members in accordance with their national procedures. Developing and least developed countries may apply transitional periods with respect to certain provisions of the agreements. Least developed countries will be provided with the necessary assistance in order for them to implement their obligations. The application of the provisions of this agreement by all WTO members will bring substantial reductions in the cost
of international trade.
Russian and CU customs legislation generally meets the requirements of the new WTO agreement on the simplification of international trade. However, practical difficulties with customs clearance speed, frequent
cargo inspections without reason, (phyto)sanitary control methods for certain goods, opaque risk management schemes and assessment of customs value on the basis of minimum prices, may be deemed a violation of the new WTO agreement at some point.
Three main agreements were adopted in the agricultural group of the Bali Package. In particular, paragraph
2 was added to Annex 2 of the WTO Agreement on Agriculture. This amendment expands the list of state aid (i.e., subsidy) programs for land reform and rural
security, which may be provided outside of the individual obligations of WTO members to reduce agricultural subsidies (i.e., expansion of the “green basket”). This
will mean any WTO member, including Russia, can provide unlimited financial support for the restoration of agricultural land, flood prevention, conservation of natural resources, and certain recreational activities.
Subsequently, in the Ministerial Conference’s decision and declaration on cotton and export subsidies, the WTO members emphasized their intention to end export subsidies completely and review cotton trade issues with consideration for the needs of developing and least developed countries.
The WTO members also approved a temporary ban on the use of WTO dispute resolution against state programs of developing countries to develop strategic
reserves of staple products for food security. In this way, state programs supporting production, price controls, and distribution of staple foods have effectively been exempted from the WTO requirement to comply with agricultural subsidy restrictions (i.e., from the “red basket”).
The WTO members also agreed additional rules on quota administration – the Understanding on Tariff Rate Quota Administration Provisions of Agricultural Products.
This agreement expands and clarifies the provisions of the WTO Agreement on Agriculture and the WTO
Agreement on Import Licensing Procedures with respect to requirements for the distribution and administration of tariff quotas for agricultural goods.
In accordance with the new agreement, notice of the allocation of quotas must be published at least 90 days in advance, and the application processing period must not exceed 30 days from receipt of the
application, or 60 days if all applications are considered simultaneously. The applicable requirements must be “no more administratively cumbersome than absolutely necessary”. Another important aspect of the Agreement is the requirement for prompt and objective distribution of unallocated quotas, and requirement for the redistribution of quotas that are under 65% used.
The EEC and member states of the CU will need to consider the provisions of the new WTO agreement in future rules on the allocation of tariff quotas for the import of beef, pork and poultry products.
Exports from least developed countries
Support for least developed countries during the liberalization of international trade is one of the key objectives on the agenda of the Doha round of WTO talks. An important practical mechanism for such support is the ability to apply favorable or even zero rates of import customs duties on goods imported from developing companies. These “preference tariffs” are usually provided as part of a national “General System of Preferences”.
The CU has lists of least developed countries and goods which have a zero rate of import customs duty when imported from least developed countries. However, the respective list of goods is largely limited to traditional crafts and other low value added goods.
One of the key decisions of the Bali Ministerial Conference (On duty-free and quota-free market access for least developed countries, WT/MIN(13)/44
— WT/L/919) calls on all WTO members to use all opportunities to expand the national lists of goods for duty-free and quota-free import from least developed countries. Therefore, although this decision does not obligate CU member countries to take immediate action, it would appear likely that the list of goods that can be imported into the CU from least developed countries with zero rates of customs duty will be expanded.
The CU rules on determining the country of origin for preference goods is entirely consistent with another decision of the Ministerial Conference – Preferential rules of origin for least developed countries (WT/MIN(13)/42 — WT/L/917).
Notably, Russia has no practice of providing preferences to developing or least economically developed countries with respect to trade in services. However, it is possible to do so under the WTO rules, and the Ministerial Conference’s resolution on the Operationalization of the Waiver Concerning Preferential Treatment to Services and Service Suppliers of Least-Developed Countries (WT/MIN(13)/43 — WT/L/918) calls on WTO members to play an active role in this area. It is likely that there
will be movement in this area in Russian legislation in the near future.
II. United States and EU talks on TTIP
In February 2013, the leadership of the EU and the United States announced the beginning of talks on an ambitious project to create a massive free trade zone – the TTIP agreement. The working group of leading negotiators from the EU and United States has been given a mandate to develop a broadly applicable free trade agreement, rather than merely the latest round of mutual import duty reductions.
The primary objective of this project for the EU and United States is to improve the existing standards of bilateral trade liberalization in all areas to promote significant growth in multilateral trade and global trade as a whole. The EU regards these agreements as “next generation” international treaties, characterized by the
parties undertaking obligations going far beyond the standard WTO concessions. The first such agreement was concluded between the EU and South Korea in July 2011.
The TTIP should cover a wide range of bilateral trade, financial, and investment issues, many of which are not regulated in the WTO and for which reaching multilateral agreement is difficult for many reasons.
The TTIP is to reflect the common position of the EU and United States on the reduction of export restrictions in trade in raw materials and energy, potential future approaches to harmonizing technical regulation, increased regulation of the financial services market, cross-border effect of antimonopoly measures, and other aspects.
The TTIP agreement will include the following main elements:
Elimination of customs duties and quotas for the largest possible range of goods, and harmonization of the rules on determining country of origin of goods;
Greatest possible harmonization of existing technical regulations and rules on public health and phytosanitary controls, as well as the organization of deeper cooperation in the creation of new regulatory standards;
General rules on trade-related areas, such as employment rights, the environment, and socially- responsible development, as well as competition issues;
New rules on the regulation of investment, including the replacement of existing bilateral agreements between the United States and member countries of the EU with general rules and an effective system for resolving disputes between investors and the state;
Reciprocal improvements in market access through the harmonization of regulation and licensing in a number of sectors;
Liberalization of internal procedures for imported goods, including eliminating requirements for specific marking, indirect levies, and regional discrimination in state procurement, distribution rules, etc.
Once these agreements are codified in the TTIP, the document will embody the common position of the leading world economic players in many important and complex questions. Other WTO members may not have the opportunity to propose alternative solutions and formulations acceptable to all members of the
organization and included in multilateral agreements. With package approval of all multilateral agreements, the codified joint position of the EU and United States will carry a lot of weight. It is worth recalling that the key WTO agreement – the General Agreement on Tariffs and Trade of 1947 (GATT) – initially began as bilateral agreements between the United States and Caribbean countries. Other countries that joined GATT did not essentially change the international agreement.
The results of TTIP negotiations are also likely to affect negotiations on the new basic agreement on partnership and cooperation between Russia (or the CU) and the
EU, as well as future investment and trade agreements with the United States.
III. Trade protection in the CU
The EEC was less active in 2013 in initiating new investigations preceding the imposition of trade protection measures (antidumping, special protective and compensatory).
The EEC Domestic Market Protection Department (“Department”) initiated only one antidumping investigation – into steel rod imports from Ukraine – in the whole of 2013.
The two existing special protective measures (corrosion- resistant steel pipe and caramels) were also reviewed
in 2013, and a review of antidumping measures against certain kinds of steel tube from Ukraine has also begun.
Antidumping investigations into Chinese cold-worked stainless steel seamless pipe and commercial light vehicles from Germany, Italy, Poland, and Turkey begun in 2012 were also completed and measures imposed.
In 2013, special protective measures were imposed on the import of combine harvesters and modules. A special protective investigation opened in 2012 into the import into the CU of fabrics made of chemical fibers and thread was completed in 2013 without the imposition of protective measures.
Given the level of activity in 2012 (four new investigations), it was unexpected to see the Department be less active in 2013. A number of experts link this to the Department’s concerns that import restrictions proposed following investigations may not be supported by all the member states of the CU, and will not be approved by the EEC Collegium. It is also apparent that the EEC is aware
that poorly conducted investigations and the resulting measures may not withstand consideration by the WTO dispute settlement body.
The above assumption is justified, since member countries of the CU which do not produce the goods under investigation have an economic interest in lower-priced imports. The first such controversy arose during the special protective investigation of combine
harvesters and modules. In this case, the Prime Minister of Kazakhstan personally blocked the entry into force of a decision already taken by the EEC to impose protective measures. The resulting controversy was only settled
by changing the imposed measures from additional ad valorem duty to quantity restrictions, with Kazakhstan gaining a larger share. This approach is dubious in terms of CU legislation and WTO rules. Therefore, future challenges to such measures may be expected in the EurAsEC Court and the WTO Dispute Settlement Body.
Having learned this lesson, the Department would appear to be avoiding protective investigations with the potential to create a conflict of interests between the various member states of the CU. For example, a special protective investigation into fabrics made from chemical fibers and threads was ended without the imposition of any measures. Despite significant growth in imports and serious harm to the sector in the CU, the Department decided that the production of certain fabrics in the
CU was insignificant and ended the investigation. As Kazakhstan has had no production of such fabrics since 2009, it was highly likely that Kazakhstan would apply its veto again. At the same time, a special protective investigation of china plate found comparable levels of imports and harm. But, as these goods are not strategic and there was no conflict of interest between the
member states of the CU, the Department completed the investigation without hesitation and recommended the introduction of special protective measures.
The lawfulness of the Department taking on this “filter” function is cause for serious concern. The main task of the body carrying out the investigations is to perform the investigation properly and determine whether there are legal grounds for imposing any protective
measures. Political decisions on the introduction or non- introduction of certain measures (for example, because of “state interests”) have been delegated by law to the EEC Collegium and Council. These question could also be considered by the EurAsEC Court.
In practice, this expansion of the Department’s powers has had an immediate effect on the number and quality of new investigations. Many experts believe that the mechanisms for trade protection in the CU are ineffective and inadequate to deal with today’s threats.
IV. Practice of the EurAsEC Court
The EurAsEC Court in Minsk (“Court”) opened in 2012. In 2013, the Court formally completed the consideration (including appeals) of two cases brought by private companies, and responded to two inquiries from authorities in the member states of the CU concerning the interpretation of certain provisions of CU agreements. In 2013, the court accepted three new cases in which legal
entities are challenging decisions of the Eurasian Economic Community Commission, including two challenging antidumping measures. Thus, the results of the Court’s activities in 2013 allow us to draw some initial conclusions.
The greatest practical interest is in the cases brought by legal entities (economic undertakings) challenging decisions of the EEC.1
The regulatory acts governing the work of the court do not contain clear and detailed rules and procedures. Therefore, decisions are taken by the Court highly unexpectedly in the course of a case after discussions between the judges and parties (i.e., on an ad hoc basis). The judges have considerable discretion in procedural matters, and the procedures and details may vary from case to case.
At this stage, the Court is having to deal with numerous fundamental issues relating to the interaction of CU/EurAsEC rules and those of the WTO and other international agreements, as well as the national law
of certain CU member countries. Certain aspects of challenging regulatory acts of the EEC, or acts/omissions of its departments, also require greater elaboration. The answers to many of these questions are unclear, and sometimes may significantly distract the Court from the actual facts of a case. It would appear that it will take some time develop legally impeccable concepts.
However, it must be noted that the Court has endeavored and taken steps to ensure the independent and impartial consideration of any case. For example, the parties
have been given broad scope to present evidence and argumentation, as well as involving witnesses/experts on any matters at practically any stage of the process. The Court appears to be willing to study all aspects of a case in detail and to rule on the lawfulness of acts/ omissions of the EEC on the basis of both substantive and procedural law, as well as factual errors.
Many believe that excessive freedom to present new arguments and evidence (i.e., not limited to the materials the EEC used in making the disputed decision) during the course of proceedings is a mistake, and that this approach is not necessarily in the interests of the claimants
– legal entities or individuals.
In any case, at this stage, when preparing a case for consideration in the Court the parties need to pay particular attention to technical issues, preparation of expert opinions, and engaging experts and witnesses. Absent the possibility in legislation of third party participation in disputes, this role can to a certain degree be played
by witnesses whose interests are in some way dependent on the outcome of the case. The Court’s approach in
this area is also not without detractors, but this practice (for example, the EEC bringing in employees of companies interested in retaining the disputed measures) is
On the one hand, this impartial approach to examining all the circumstances of the case creates a significant workload for judges and inevitably affects the length of cases. There are already precedents for suspending
proceedings to enable the Court to gather and consider additional evidence, as well as extended breaks in court hearings. It would appear that in the medium term the prospects for complying with the three-month period established by the court’s rules for consideration of cases involving private companies will not be observed. With time, these terms will need to be reviewed at a legislative level in parallel with an increase in the internal resources of the Court.
It is possible that after some time certain specialized courts may become necessary. For example, trade protection cases require special training in international trade law, accounting, economics and finance. Judges cannot only rely on specialists or outside experts, who often have links to the parties or insufficient qualifications.
The number of cases challenging acts/omissions of the EEC in international trade (including trade protection
or technical barriers) will inevitably grow into 2014. This is also connected to EurAsEC serving as a kind of filter before formal disputes with Russia/CU trade partners in the WTO. The Court’s decisions in this area must be impeccable. Otherwise there will be a strong risk of inconsistency between the Court’s decisions and the WTO Dispute Resolution Body, which may result in the Court being discredited.
1. Dentons lawyers handled one of the first cases challenging CU antidumping measures before the EurAsEC court.
The formation in 2013 of the Court’s permanent Panel
for consideration of competition violations is a step in the right direction.
It is clear that the ability to take action in the EurAsEC Court has already become an effective legal instrument for private companies to defend their interests both in the CU as a whole, and in the individual member countries. The work of the Court in 2013 is confirmation of this.
V. Russia in WTO Disputes
In 2013 Russia acted for the first time as respondent and claimant in formal dispute resolution proceedings at
the WTO. Russia had previously been involved in eight disputes, but only as a third party.
In the Russia – Recycling Fee on Motor Vehicles dispute brought on complaints from the EU (WT/DS462 – July 9, 2013) and Japan (WT/DS463 – July 24, 2013), Russia acted for the first time as respondent. This dispute concerned the size and rules on application of the “recycling fee” (i.e., an additional tax) on certain types of cars released into free circulation in Russia. The application of this fee to imported motor vehicles only with the simultaneous exemption of domestic industry is a restriction of international trade contrary to the principles of the WTO.
Following amendments to legislation effective January 1, 2014, the recycling fee is also payable by Russian carmakers. Nevertheless, the WTO dispute formally continues, since the EU and Japan consider the disposal charges for certain motor vehicle types to be unjustifiably
high. At the same time, in terms of WTO rules the outcome of the dispute is far from obvious. Naturally, a strong legal position and economic justification for the charges would significantly enhance Russia’s chances of winning.
On December 23, 2013, Russia formally initiated the WTO dispute resolution procedure against the methodology of disregarding Russian domestic energy prices used by the EU in antidumping investigations (EU – Cost adjustment methodologies and certain antidumping measures on imports from Russia, WT/DS474). In this dispute, Russia
is rightly contesting the compliance of EU legislation and a whole range of antidumping measures introduced using the disputed methodology with WTO rules. A few
days before the Russian complaint, Argentina brought similar claims against the EU in a dispute concerning antidumping measures introduced by the EU on biodiesel (WT/DS473).
The dispute with the EU is a landmark for Russia, since the disputed EU methodology has been in use for a long time (some of the disputed measures have been in place since the end of the 1990s) to effectively close the EU market to some of Russia’s most competitive energy and commodities intensive goods (such as nitrogen fertilizers, steel pipe, non-ferrous metals, etc.). The subject of this dispute is also of important legal significance for the
long-term development of international practices in trade protection. It could have an impact on imports from countries applying duties and other restrictions on the export of commodities and energy resources. When calculating dumping prices for processed goods (such as fertilizers), the authorities were able to ignore the actual value of materials (for example, natural gas) in the country of production. The unlawful application in such circumstances of “substitute” prices from other countries inevitably leads to a significant increase in the dumping margin and the opportunity to impose prohibitive antidumping duties. A similar approach is currently applied with respect to imports from China, which when it joined the WTO voluntarily accepted the application
of this methodology to its imports until 2016.
The resolution of these two disputes involving Russia could take from several months to several years. In 2014 Russia will continue to become more involved in the WTO dispute resolution procedures. Although it would be premature to talk of large-scale trade wars, the United States and EU have already floated the idea of new complaints against Russia in the WTO, and Russia has also threatened its main trade partner, the EU.
In this way, the leading players of the WTO demonstrated once more in 2013 that they will not permit flagrant violations of the WTO agreements and the obligations Russian undertook when joining the organization. Russia, for its part, has clearly shown its willingness to defend itself in the WTO, including in seeking to eliminate disputed trade barriers. This position is evidence of Russia’s willingness to play an active role in regulation of the international trade system and to take part in developing new multilateral rules.