"The effects of the developments in the Eurasian Customs Union upon its main trading partners, mostly WTO member countries, and the interplay of those developments with Russia’s WTO commitments and present and future WTO disputes involving Russia, are reminiscent of a multiplayer strategy computer game, where each player needs to think ahead, act on several different aspects and deploy multiple resources."
The first anniversary of Russia’s membership in the World Trade Organization (WTO) in August 2013 was marked by the ongoing efforts of the Customs Union of Russia with Belarus and Kazakhstan (Eurasian Customs Union) aimed at the strengthening and expanding its external borders. Interestingly, Kazakhstan, still negotiating its terms of WTO accession, and Belarus, a long way away from WTO membership, are two non-WTO member countries.
However, due to Russia’s membership in the WTO and obligations under international public law, Kazakhstan and Belarus are effectively bound by Russian WTO commitments, including in tariff and non-tariff trade measures. The international Agreement on the Functioning of the Customs Union in the framework of the multilateral trading system of 19 May 2011, to which Russia, Kazakhstan and Belarus are parties, effectively requires that, once Russia accedes to the WTO, WTO rules and Russian WTO commitments shall become an integral part of the legal order of the Eurasian Customs Union. The same Agreement also requires that the WTO legal order shall prevail over the legal order of the Eurasian Customs Union insofar as the latter is in conflict with WTO rules.
The effects of the developments in the Eurasian Customs Union upon its main trading partners, mostly WTO member countries, and the interplay of those developments with Russia’s WTO commitments and present and future WTO disputes involving Russia, are reminiscent of a multiplayer strategy computer game, where each player needs to think ahead, act on several different aspects and deploy multiple resources.
When Russia joined the WTO in August 2012, it took specific commitments covering not only Russia’s own trade-related policies, but also Customs Union’s policy in trade defence measures (trade remedies) and other areas covered by the WTO Agreements. In parallel, the Customs Union develops regulations and acts in multiple areas, which may go beyond Russia’s scope of WTO commitments, despite all “safety nets” provided in those commitments.
During the first year of Russia’s WTO membership, the Customs Union has intensified its trade defence practice, began judicial reviews of trade defence measures at the Eurasian Customs Union level and made substantial progress in building a common non-tariff regulatory framework. Notably, this includes technical regulations, food regulation measures and redesigned public support programmes. One of Russia’s recent regulatory measures, namely a “recycling fee” affecting imported motor vehicles, and hardly applicable to the other member states of the Eurasian Customs Union, triggered the first ever WTO dispute against Russia as the respondent.
Trade defence actions (trade remedies)
On 1 July 2012, shortly before the accession of Russia to the WTO, the competence to investigate and, to a large extent, impose anti-dumping, anti-subsidy and safeguard measures was transferred from the member states of the Eurasian Customs Union to the Eurasian Economic Commission (EEC). The EEC is the permanent supranational executive body of the Customs Union. During the past year the EEC completed seven new trade defence investigations, including three safeguard and four anti-dumping investigations. One safeguard investigation is still pending. The EEC has also been engaged in numerous review investigations.
Among those, noteworthy are the safeguard and anti-dumping investigations concerning imports of graphite electrodes. In August 2012, the safeguard investigation was terminated without imposition of measures based mostly on competition law and policy considerations. The EEC thoroughly considered the oligopoly structure of the market of the Customs Union and potential anti-competitive behaviour by the complaining Customs Union producers. The complainants could find themselves in breach of their behavioural commitments accepted in the context of a merger control clearance by Russia’s competition authority, the Federal Antimonopoly Service (FAS). In the anti-dumping investigation, the EEC established dumping by imports of graphite electrodes from India, and the investigation ended up with high anti-dumping duties. To date, India has not yet brought a case over the anti-dumping duties against Russia to the WTO. However, India has the right to do so, and may challenge the anti-dumping duties as WTO-inconsistent even though they were imposed by the Customs Union, not Russia, for the reasons noted at the beginning of this article.
Other Customs Union trade defence investigations ended with safeguard measures on imports of caramel, certain steel tubes and pipes as well as combine harvesters. The case concerning combine harvesters faced strong opposition from all sides. On the one hand, strong concerns came from the EU and the US as the main world suppliers of agricultural machinery. On the other hand, the EEC faced opposition from within the Eurasian Customs Union – by some of the member states that do not have national production of such machinery. The product scope became a stumbling block between importers and domestic producers in this investigation. This was expected to become the major issue, including for a potential WTO dispute. However, Kazakhstan opposed to the proposal for definitive imposition of safeguard measures. Kazakhstan used its right to block the decision expressing an interest to maintain lower-priced imports of combine harvesters from China in light of expected growing demand for agricultural machinery and very limited Eurasian Customs Union production. As a result, the measures were put on hold. The final decision is expected soon at the political level through negotiations between the governments of the Eurasian Customs Union member states. Most likely a compromise will be reached in the form of a generous tariff quota instead of prohibitively high safeguard duty.
Judicial review of trade defence decisions of the EEC is ensured by the Court of the Eurasian Economic Community (the Court), based in Minsk, Belarus. The Court became operative on 1 January 2012, and recently delivered its first judgment on a trade defence case. More trade defence decisions are currently being reviewed by the Court.
Technical regulation and its implementation
Over the last year the Customs Union progressed substantially in the area of technical regulations thus replacing predominantly outdated requirements maintained by its member states. The new regulatory requirements covered various types of machinery, childcare goods, food items, packaging and other. The method of their implementation drew serious criticism among several main trade partners, namely the EU and the US.
One regulatory measure, namely “recycling fees” on imported motor vehicles, gave rise to the first WTO dispute settlement proceedings against Russia launched by the EU, followed by Japan and joined by several other WTO members.
Imposed on 1 September 2012, the motor vehicle “recycling fees” became applicable to imported cars while in most cases domestic producers in the Eurasian Customs Union, including Russia were exempt from the fee, thus the measure appeared to be discriminatory as regards imported vehicles and thus was seen as WTO-incompatible. Russia claimed that the fee was justified on environmental grounds and thus consistent with the WTO legal framework. The WTO case was initially taken up by EU based on assumption that “recycling fees” actually served the purpose to compensate for import tariff decreases made upon Russia’s accession to the WTO.
Enhanced public support programmes
Russia’s accession to the WTO had a strong impact on rules and principles of state support programmes in force in the Eurasian Customs Union for domestic industrial and agricultural producers. Such changes were aimed to make subsidies non-discriminatory and WTO-compatible while precluding any attempts to use them as protectionist tools favouring certain producers.
Nevertheless, in the short term the system of public support in the Eurasian Customs Union was restructured by way of introducing indirect tax exemptions for individual companies and/or groups. Since 1 January 2012, WTO-compatible rules on subsidies were aligned among Eurasian Customs Union member states by enforcement of common rules for provision of industrial subsidies and state support of agriculture. In the near future this may have the effect of reducing the scope for state support common particularly in Belarus and Kazakhstan.
Russia and the Customs Union alike appear to have chosen a visibly defensive strategy to date since Russia’s accession to the WTO. Numerous trade protection actions combined with strengthened technical regulations and more rigid Eurasian Customs Union border controls provide grounds to support this view. Russia has even seen its first WTO dispute as a respondent within just the first year of its WTO membership. This may have impact on the future Eurasian Customs Union trade and customs policies.
There are, however, prospects for Russia to take a strategy for the promotion of interests of Russian and other Eurasian Customs Union exporters in foreign markets using the WTO dispute settlement mechanism. For instance, Russian authorities are known to be concerned by cost adjustment methodologies used by the European Union in anti-dumping investigations against Russian imports. Such adjustments affect the calculation of alleged dumping by energy-intensive industrial goods, the Russian exports of which are competitive in foreign markets. Such adjustments lead to higher dumping margins/duties and may affect also exports from other Customs Union member states. Russia may decide to take the issue to the WTO.
There is also little if any chance to step back in the process of trade liberalisation launched by Russia’s WTO accession, as it often happens in multiplayer strategy games. As Customs Union member states completely abolished customs controls at the internal borders of the Eurasian Customs Union, any concessions made by Kazakhstan or Belarus on their way to WTO accession will be extended to the entire territory of the Eurasian Customs Union, including Russia. This is a challenge that Russia and its main trading partners face in light of Russia’s WTO membership and the ongoing process of Eurasian Customs Union development. Just like in a multiplayer strategy computer game.