Thursday, September 6, 2012

Will Russia be challenged at the WTO? Recycling fee, automobiles and discrimination

In what could be the first WTO dispute against Russia since its recent entry into the multilateral trading body, the Russian legislation imposing a "recycling fee" on automobiles is causing considerable disquiet with its trading partners. The move has irked Ukraine and the EU and the possibility of a trade dispute has been reported here and here.Russia's entry into the WTO led to the reduction of import tariffs on automobiles considerably. This, critics say, has led to the imposition of this "recycling fee" in an apparent bid to "protect" domestic production of automobiles. An analysis of the impact WTO entry would have on Russia is found here.

What does the Russian measure entail? Though I could not lay my hands on the actual legislation, a newsletter provided me with sufficient details. The Russian law in question is the Federal Law of the Russian Federation No. 128-FZ “On Amending the Federal Law “On Production and Consumption Wastes” and the "Recycling Duties Regulation" that essentially came into effect on September 1st, 2012. This law provides for establishing recycling duties which are payable in respect of cars "imported" into or "manufactured" in Russia.

As the newsletter explains:
According to the Draft the duty shall be payable for wheeled vehicles of categories “M” and “N” in respect of which vehicle registration certificates are issued. 
The following persons shall be recognized as payers of the duty:
  • the persons importing vehicles to Russia;
  • the persons manufacturing (producing) vehicles in Russia;
  • the persons acquired vehicles in Russia from those persons who did not pay the recycling duties on the grounds specified in the law or the persons failed to pay such duties in breach of the established procedure."
Thus, the recycling duty is applicable to both "imported" goods as well as "locally manufactured" goods. However the draft rules also provide that the duty would not be need to be paid in cases, inter alia, where it is "manufactured (produced) by the organizations voluntarily undertook to ensure safe recycling of the manufactured vehicles". The duties shall also not be paid in cases where the automobiles are "imported to Russia from the territories of the Customs Union member states and enjoying status of goods manufactured in the Customs Union: (i) released in the Republic of Belarus (further, the “RB”) or in the Republic of Kazakhstan (further, the “RK”) for domestic consumption with duties payable at the rates that differ from those established by the Common Customs Tariff, or (ii) manufactured in the RB or RK if manufacturing organizations assume obligations similar to those recycling obligations that were assumed by Russian manufacturers".

Do these exceptions bring into play the national treatment and Most favored Nation principles of the GATT? Are they violated? Are domestic manufacturers of automobiles favored here? Are imported vehicles treated "less favorably" than locally produced automobiles? If local manufacturers voluntarily undertake to recycle as per the regulations they are exempt from paying the recycling duty. Does this discriminate against imported products? WIll the measure be protected under the general exception clause of Article XX GATT as it has the objective of protecting the environment?

Whether this would erupt into Russia's first full blown WTO dispute is anybody's guess. It signifies that entry into the multilateral trading system has a cost - one's domestic legislation is open to scrutiny for being discriminatory and protectionist. What Russia could do a few months back in terms of protecting its local manufacturers with higher import tariffs or additional duties is no longer existent if it violates the principles and commitments under GATT. One would have to wait and see how Ukraine and EU proceed on this matter.

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