EU Launches First-Ever WTO Dispute Against Russia

11 July 2013

The EU has formally lodged a WTO complaint against Russia, in what marks Moscow's first dispute at the global trade body since it joined in August 2012. At issue in the case (DS462) is a vehicle recycling fee, which Brussels claims discriminates unfairly between imports and their domestic equivalents.

"The European Commission has pursued every diplomatic channel for almost one year now to find a solution with our Russian partners on this matter, but to no avail," EU Trade Commissioner Karel De Gucht said on Tuesday in announcing the move.

"It is severely hampering trade in a sector which is key for the European economy," De Gucht added. EU vehicle exports to Russia - the bloc's third biggest trading partner - reached over €10 billion in 2012, according to the European Commission statistics. The EU, for its part, is Russia's largest trading partner.

The controversial recycling fee entered into force in September of last year, shortly after Russia's WTO accession. The fee ranges from €420 to €2700 for new cars, and a €2600 to €17,200 fee for cars older than three years. Other vehicles, such as certain mining trucks, face fees up to €147,700, the EU says.

Russian vehicles, along with those from customs union partners Belarus and Kazakhstan, are exempted from the fee if they meet certain conditions. The EU, however, is not eligible for exemptions. The 28-country bloc argues that this distinction discriminates between foreign goods and their domestic counterparts, and is therefore in violation of WTO rules.

The EU's move to challenge the measure makes good on a promise Brussels made earlier this year to launch a WTO dispute should Moscow not remove its recycling fee by 1 July. (See Bridges Weekly, 6 June 2013)

Revisions to recycling fee could be in the works, Russia says

While Russia has submitted legislation to the State Duma that would - once passed - change the law in order to remove the distinction, the bill has yet to be passed, with the legislative body now on its summer recess.

"That is why, with regard to the EU decision, we'll act within the WTO's formal dispute settlement procedure," Ekaterina Mayorova, deputy head of the department for trade negotiations at the Russian Ministry of Economic Development, told RIA Novosti newspaper.

If passed by the Duma, the proposed solution would apply the fee indiscriminately towards domestic and foreign manufacturers. The explanatory note attached to the legislation says that the bill is designed to bring domestic law in line with Russia's international commitments, given the potential for a WTO challenge.

The Duma is reportedly set to review it in October after returning in late September, according to the Wall Street Journal.

Accession less than a year old

Moscow formally became a WTO member just under a year ago, following nearly two decades of negotiations with current members. However, since joining, some of its trading partners - including the US and EU - have raised questions in forums such as the organisation's Goods Council over whether Russia is implementing its WTO commitments quickly enough. (See Bridges Weekly, 28 November 2012)

More recently, European Commission President José Manuel Barroso and other top EU officials raised these concerns at a summit with Russian President Vladimir Putin this past June, with the two sides pledging to work together in the hopes of resolving their disagreements involving trade - such as the recycling fee - and other areas.

Meanwhile, US domestic law requires the regular publication of "WTO compliance reports" for Russia, which the Office of the US Trade Representative must submit to Congress. The first of these reports was published less than a month ago, and outlined areas of concern for Washington with regard to Moscow's compliance with WTO rules - including the recycling fee now being challenged by Brussels. (See Bridges Weekly, 27 June 2013)

The EU, US, and Japan are slated to raise the issue of Russia's adherence to WTO commitments at today's meeting of the Goods Council, according to a proposed agenda available on the organisation's website.

With this being Russia's first case at the global trade arbiter - either as a complainant or a respondent - many in the trade community are likely to watch closely to see how the country adapts to the WTO dispute settlement system. Moscow may itself be lodging a complaint in the coming days against Brussels on anti-dumping duties being imposed on Russian fertiliser, according to the Financial Times.

Under WTO rules, the two sides must now conduct consultations for at least a 60-day period, in an effort to reach a mutually agreed solution. If they are unable to resolve their differences in that timeframe, however, the EU can then request that the WTO establish a dispute panel to review the case.

ICTSD reporting; "EU ready to sue Russia in first WTO dispute," RIA NOVOSTI, 9 July 2013; "Russia, EU to Seek Compromise on Mutual Trade Claims - Putin," RIA NOVOSTI, 4 June 2013; "Europe Takes Russia to WTO Over Car Fee," WALL STREET JOURNAL, 9 July 2013; EU takes Russia to WTO over vehicle recycling fee," FINANCIAL TIMES, 9 July 2013.

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