Russia’s first anniversary of WTO membership: winners and losers
The results of Russia’s first anniversary of WTO membership are hardly surprising, experts said.
The automotive industry, agricultural machinery and mining are the only sectors that were affected by WTO membership, said Vladimir Tchikine, a partner in charge of customs and international trade at Goltsblat BLP, the Moscow branch of the law firm Berwin Leighton Paisner.
Car producers – first victims of WTO membership
For the newly formed Russian car industry, Russia’s accession to the WTO was an ‘expected trouble’, said Tchikine. He emphasised that the car industry in Russia was re-established recently through agreements on industrial assembly.
The essence of these agreements was that in return for the establishment of industrial production (investment) in Russia, investors got the right to assemble cars in Russia and sell them in Russia and the Customs Union for no more than eight years from the date when a relevant investment agreement comes into force, without having to pay any import duty, Tchikine explained. From 1 January, 2010, the Customs Union granted investors the right to charge no import duty on components, he added. Foreign investors expected the same legal conditions during the whole period of their agreements on industrial assembly, Tchikine noted. The possibility of signing such agreements existed between 2005 and 2011. Major players entered the market at the end of this period, he added.
All those who decided to invest in Russia (the largest car producers) made plans based on the rate of 30% import duty on cars. However, on 23 August 2012 the duty was lowered to 25%. The lowering of duty has increased the payback period for these investors. Russia has also agreed to apply measures that contradict TRIMs no later than 1 July 2018 in general, and in the automotive industry particularly. TRIMs is a WTO agreement on trade-related investment measures which applies only to measures that affect trade in goods. It states that no Member shall apply a measure that is prohibited by the provisions of GATT Article III (national treatment) or Article XI (quantitative restrictions).
In other words, as a result of accession to the WTO, Russia was not able to ensure the stability of economic conditions for investors in the auto industry, said Vladimir Tchikine. However, it is important to point out that in order to tackle this problem, Russia has introduced a recycling fee, a controversial yet understandable measure that allows Russia to stick to contracts with foreign investors, he added.
PaRR has previously reported on the recycling fee
The recycling fee is set in the Federal Law 28.07.2012 N 128-FZ from 1 September, 2012. It is in relation to imported and domestically produced motor vehicles. However, the same law provides for an exemption for vehicles that are produced by organizations [domestic manufacturers], which have agreed to ensure safe handling of waste generated as a result of the loss of consumer qualities of the vehicles in question.
Russia chose to fulfill its obligations to specific investors rather than to an abstract international community, said Vladimir Tchikine. However, an abstract international community as represented by the European Commission (EC), has filed a complaint to WTO in regards to the recycling fee. Later, Japan joined this complaint.
While the decision on the complaint is pending, the Russian car industry is only potentially affected by WTO membership. But, given that a possible solution to the problem of the recycling fee is to impose obligations not only on importers, but on domestic car producers as well (in this case, the representatives of the world’s largest car producers), the economic situation of the Russian auto sector in Russia will worsen by another 5% after Russia’s accession to WTO, Tchikine predicted.
Other cases can be initiated in regards to anti-dumping measures imposed by the Customs Union, two members of which, Russia and Kazakhstan, are members of the WTO, said Tchikine. Kazakakhstan's accession to the WTO is planned in September 2013.
Mining companies & WTO membership
Russian mining companies, to which anti-dumping measures are applied worldwide, can and are likely to initiate complaints at the WTO, said Tchikine. PaRR has previously reported on the plans of the Russian government to support Russian mining companies.
Currently, mining firms are experiencing problems because the volumes of steel consumption are decreasing, Victor Drozdov, a sector analyst from VTB Capital, has previously told PaRR. Consequently selling prices are low, he added. The financial results of mining companies in 2013 are expected to be at the same level as in 2009, when they reached their lowest results ever, Drozdov said.
However, as PaRR previously reported, the fact that Russia is a member of the WTO and the Customs Union make it less flexible in applying protectionist measures: the Customs Union doesn't allow retrospective measures, whilst the WTO does not allow preliminary measures.
Russia no longer has competence in the area of anti-dumping, because these powers have been delegated to the Customs Union (between Russia, Belarus and Kazakhstan) and are exercised by the Eurasian Economic Commission (EEC). The EEC member states adopt definitive decisions in similar way to the EU, according to Edward Borovikov, a Partner at Dentons in Brussels and head of the firm’s Europe trade team.
by Natalia Lapotko in London
If you would like to receive our legal alerts and updates highlighting current legal issues relevant to your areas of interest and providing expert commentary by our lawyers, please click on "Sign Up" and fill out the form.