Russia turns to WTO over EU energy package

13 May 2014

Against a tense geopolitical landscape and rocky trade relations, Moscow is taking Brussels to the WTO over the EU's energy regulations, arguing these are discriminatory. 

Russia has filed a WTO complaint against the EU’s energy sector regulations, officials have confirmed. The move is expected to further sour the relationship between the two trading partners, who are already at odds over a series of other issues, including the crisis in Ukraine.

The consultations request, dated 30 April, Moscow claims that the EU’s energy rules require discriminatory certification requirements for third countries. The bloc’s measures concerning the production, supply, and transmission of natural gas or electricity are similarly in breach of international trade rules, Russia argues. 

Moscow has referred to the WTO’s General Agreement on Trade in Services (GATS), the General Agreement on Tariffs and Trade (GATT) 1994, as well as the Agreement on Subsidies and Countervailing Measures and the Agreement on Trade, the Agreement on Trade Related Investment Measures, and the Agreement Establishing the WTO.

The European Commission adopted its Third Energy Package – the rules in question – seven years ago, in a bid to promote a competitive EU-wide market for the sector. These policies came into effect in 2009.

Included in the bundle of legislation is a law prohibiting suppliers from owning distribution networks, such as pipelines. The policy has long been a source of frustration for Moscow, which has sought repeatedly to reach an agreement with Brussels on previous occasions, such as through a joint working group on energy.

The stakes are particularly high for Russian state-owned Gazprom, which already supplies more than a quarter of Europe’s gas via its transnational pipelines. The company has further plans to build a 2400-kilometer-long “South Stream” oil distribution route across the Black Sea, bypassing Ukraine. For some EU members – notably a number from the ex-Soviet group – Gazprom is the sole supplier of gas.

“Our goal is not to sue Brussels just for the sake of it. We want to ensure a predictable environment for exports to the EU, in accordance with WTO rules.”

EU member states remain divided over whether to green light the new pipeline. Moscow has previously warned that further economic measures by the EU, together with the Kiev’s US$3.5-billion unpaid gas bill, could result in Gazprom shutting off energy supplies to Europe via Ukraine, as it did in 2006 and 2009.

Speaking with Interfax news agency, however, Russia’s chief negotiator Maxim Medvedkov said that the WTO move was not connected with the recent Ukrainian crisis. “Our goal is not to sue Brussels just for the sake of it. We want to ensure a predictable environment for exports to the EU, in accordance with WTO rules,” he said.

In an interview with the Financial Times, Günther Oettinger, the EU’s energy commissioner, said that the Commission remained “relaxed” about the case at the global trade arbiter.

Under WTO rules, the two sides must now hold consultations for a minimum of 60 days in an effort to resolve the dispute amicably. Should these meetings not lead to a resolution, Russia may ask the WTO to establish a panel to hear the case.

Escalating trade tensions

Bilateral ties between the two sides have been severely strained over the past several months, due both to the situation in Ukraine, as well as a myriad of trade spats between the highly interconnected economies. Russia is the EU’s third largest trading partner, while the EU is Russia’s top trading partner.

Earlier in April, the EU criticised Russia at a meeting of the WTO’s Council for Trade in Goods for allegedly not meeting the global trade body’s rules.

“The overall experience with Russia as WTO member is, to our regrets, rather disappointing,” said EU Ambassador Angelos Pangratis. “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.”

Since Russia joined the WTO in August 2012, the EU has lodged two formal requests for consultations with the newly-acceded member, out of the three total complaints that have been filed.

The first of these, regarding a recycling fee for vehicles that the EU claimed favoured cars produced in Russia and its two customs union partners – Belarus and Kazakhstan – over their foreign equivalents, is now at the panel stage. A similar complaint on the same subject was also filed by Japan, although Russia has subsequently repealed the law in question.

In April, the EU filed another formal request for consultations with Russia over its blanket ban on imported pork products, in place since January of this year.

Moscow maintains that the ban is necessary to protect its porcine industry from African swine fever (ASF) due to cases found in EU member states Lithuania and Poland. EU officials saw the ban is unnecessary, given that only four ASF cases have been detected in those countries so far and the measures being taken to contain the virus.

Russia’s first complaint at the global trade arbiter was also against the EU, targeting specifically a series of anti-dumping duties that the 28-nation bloc has imposed on certain Russian imports, and the cost adjustment methodologies to determine them.

ICTSD reporting, Additional sources, AFP, FINANCIAL TIMES

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