Ukraine, tariff and domestic policy space

I have blogged about Ukraine's tryst with the world trading system in the context of the Australian Tobacco Plain Packaging legislation challenge here. KyivPost recently reported that the Ukrainian Parliament has decided to raise the import tariffs to the maximum level of bound tariffs under the multilateral trade rules.

"The Ukrainian parliament is to increase the import duty rates for around 100 commodities to the maximum level agreed by Ukraine and the World Trade Organization (WTO) from January 1, 2013."

Ukraine has also been in the news for the use of GATT Article XXVIII tariff renegotiation. Is this latest step of increasing tariff rates to the bound levels a sign of protectionism or exercise of domestic policy space? 

Tobacco Plain packaging panel established at the WTO

(bbc.co.uk)

The dispute panel with respect to the Australian Tobacco Plain packaging legislation is finally constituted at the WTO. I have blogged about it earlier here, here and here.. Ukraine, Honduras and the Dominican Republic are pitted against Australia. The dispute raises intricate questions about issues of public health, domestic regulatory space, intellectual property, international trade and protectionism.

Ukraine raised these primary issues in the complaint:

"In its request for the establishment of a panel, Ukraine said that Australia’s measures “erode the protection of intellectual property rights” and “impose severe restrictions on the use of validly registered trademarks”. Ukraine’s statement also said that “Ukraine considers that governments should pursue legitimate health policies through effective measures without unnecessarily restricting international trade and without nullifying intellectual property rights as guaranteed by international trade and investment rules”. Ukraine also considers that the measures “are clearly more restrictive than necessary to achieve the stated health objectives” and thus violate the Agreement on Technical Barriers to Trade as an “unnecessary obstacle to trade”."

Australia defended the move thus:

"Australia showed surprise and disappointment that Ukraine decided to challenge Australia’s tobacco plain packaging measures since this step “is at odds with the policies being pursued within Ukraine to comply with the WHO Framework Convention on Tobacco Control”. Australia mentioned that Ukraine has also taken many measures in accordance with this Convention and said that the tobacco plain packaging “is a sound, well-considered measure designed to achieve a legitimate objective — the protection of public health”, which the WTO recognizes as a fundamental right of its members. Australia added that the measure is “clearly non-discriminatory”, “nor is [it] more restrictive than necessary to fulfil its legitimate objective”."

Interesting support for Ukraine from Zimbabwe, Honduras, Dominican Republic, Nicaragua and Indonesia.

" Zimbabwe said that 200,000 farmers and their families in the country depend on tobacco for their livelihood. Honduras said that the WHO Framework Convention is indicative and non-binding. Nicaragua said that tobacco is one of the most important items in the country’s exports."

Diverse interests and issues coalescing here:

1. Intellectual property rights of tobacco product manufacturers

2. Public health concerns

3. Domestic policy space to regulate in relation to public health

4. Restrictions on international trade

5. Right to trade in tobacco products

6. Relationship between international conventions relating to health and the multilateral trading system

7. Livelihood and employment issues

8. National business interest vis a vis public health 

With New Zealand announcing its intention of introducing plain packaging legislation, and a number of third party members, including India, Indonesia, United States,Turkey, Oman, Japan, European Union and Argentina in this dispute, it sure promises to be keenly contested dispute. Not surprisingly, Ukraine seems to have abandoned the violation of "national treatment" principle argument, unless it remains in the detailed submission. Atleast prima facie, there seems to be no less favorable treatment to imported tobacco products as compared to locally made tobacco products. Both will have to follow the plain packaging requirement.

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:

"Scope 

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.

Australia's Tobacco Plain Packaging row - Whose interests really?

The International Business Times had an interesting piece on Australia's position on the Tobacco Plain Packaging row. I have blogged about it here, here, here and here.

"The Australian government vowed to repeal efforts by giant tobacco firms to frustrate its aim of further limiting the flow of cigarette products in the country.

These efforts, according to Health Secretary Jane Halton, include the deployment of lawyers by tobacco companies to give out legal assistance to Honduras and Ukraine, two countries that had apparently launched legal challenges on Australia's soon-to-be implemented cigarette plain packaging law."

Two interesting issues come out in this position:

1. Subsidisation: It is apparent that interests of large Tobacco Companies are at stake here and their business interests have propelled the disputes at the WTO. Is it alright for national teams to comprise of lawyers from these tobacco companies? Is this an example of multiple interests being accommodated in the national position - Government lawyers, trade specialists, industry lawyers and lawyers of companies directly affected by the measure. Ukraine and Honduras seem to have adopted this approach. Who foots the bill for this dispute? Would it be legitimate for Ukraine and Honduras to take assistance from the Tobacco companies in this regard?

2. Trade interests: Ukraine and Honduras do not have extensive trade relations with Australia. Why did they initiate the dispute then? Are tobacco exports from these two countries substantial to justify this action? As per the Observatory of Economic Complexity, Ukraine exports 1.1% of world cigarette exports. While Australia imports substantially from China (20%), Ukraine does not figure in the list of countries engaged in exporting to Australia.

This brings us to the question - What motivated Ukraine to file a WTO complaint against Australia which it does not significantly export to? Was it prospects of a future market? Was it about taking  a stand against plain packaging which may affect it"s trade interests if larger trading partners adopted the same measure? Or were "national" interests and "business" interests of large tobacco companies coalescing? Should private parties be allowed directly to initiate disputes at the WTO at their own cost? Though this is not permitted by the present legal framework, would it in effect obliterate the need for seeking "national" interests to pursue purely business interests? What is at stake for the people of Ukraine and Honduras in this dispute?