Japan joins the Russian roulette

I have blogged about the first case Russia is facing on recycling fee on automobile imports at the WTO here, here and here. Now Japan seems to have joined the Russian roulette. Japan filed a WTO case against Russia details of which are found here.

"According to Japan, Russia’s measures appear to be inconsistent with its obligations under several articles of the GATT 1994, the Agreement on Trade Related Investment Measures (TRIMs) and the Agreement on Technical Barriers to Trade (TBT).

Japan claims that through the measures at issue, Russia imposes a recycling fee on each vehicle imported into Russia or produced/manufactured on the territory of Russia. Russia exempts from the recycling fee the vehicles manufactured or produced by companies that have committed to ensure subsequent safe handling of waste. However, this exemption is only available to vehicles manufactured by companies which are legal entities registered in Russia and which have undertaken to produce their vehicles in Russia according to one of the modes involving certain specific manufacturing operations in the territory of Russia, Belarus or Kazakhstan. Therefore, the measures at issue, through these conditions, either taken together or separately, discriminate between imported vehicles and the “like” domestic products."

It would be interesting to see Russia's response, it's legal team, preparation as well as next steps. Will it amend its domestic legislation or will it defend its measure as being consistent with WTO law. Or will it just not comply with an adverse WTO panel ruling, if it so happens! 

All three are distinct possibilities.

EU takes on Russia in the automobile recycling fee case

I was expecting this soon but did not think it would happen this soon. I have blogged about the Russia recycling fee issue here, here and here. The BBC reported it here.

Reports from the WTO indicate that the EU has decided to file a WTO complaint (DS462) against the fee. This would be the first case in which Russia is facing the dispute settlement mechanism after it joined the WTO in 2012.

"The European Union notified the WTO Secretariat on 9 July 2013 of a request for consultations with the Russian Federation on measures imposed by Russia relating to a charge, the so called “recycling fee”, imposed on motor vehicles. According to the European Union, these measures adversely affect exports of motor vehicles from the European Union to Russia. The EU claims that Russia subjects imported vehicles to the payment of a “recycling fee”.  In contrast, domestic vehicles are exempted from that payment under certain conditions. An exemption is also available to vehicles imported from certain countries, such as Belarus and Kazakhstan. However, there is no exemption for vehicles imported from the European Union.  As a result, vehicles imported into Russia from the European Union are treated less favourably than domestic vehicles, or vehicles imported from Belarus and Kazakhstan. The EU also claims that the structure of the “recycling fee” also appears to afford protection to domestic production."

Well, the dispute was anticipated but the complainant and timing was uncertain. Russia's time to defend or amend? There was news about some amendment to the legislation that addressed the alleged discrimination. One will have to see what the Russian response to this is.

Change by July 1st or else...

Could this be Russia's first WTO dispute as a respondent? Reports indicate that EU is contemplating a dispute against Russia with respect to its automobile recycling fee which it asserts discriminates imported cars from domestically manufactured cars. I had blogged about this months ago here, here and here.

A proposed Bill to amend the law to make it "WTO compliant" is under consideration - that is making it applicable to both imported as well as domestically manufactured cars.A detailed paper on the present law is found here. I am not sure what the amended proposal is - perhaps removing the exceptions relating to domestic manufacturing since the earlier law applied to domestic manufacturing too.

All eyes on July 1st - the deadline given for initiation of a dispute. This case also vividly shows how domestic legislation and policy making is impacted by multilateral trade rules. Russia, after entering into the WTO last year after 18 years of tough negotiations, would have to, inevitably face the realities of the multilateral trade body membership - dispute settlement.

How will Russia engage with the multilateral system?

Strong opposition to trade policies and measures not only get expressed by filing of trade disputes at the dispute settlement mechanism of the WTO. The Councils at the WTO also provide important platforms for countries to express their reservations against measures they see as discriminatory or incompatible with the WTO. How much of this leads to a resolution of the dispute is debatable, but the Councils do act as platforms where all members can align and realign their positions.

The recently held   Council on Trade in Goods saw such an expression of opposition to Russia's measures after it entered the WTO. I had earlier blogged about Russia's recycling fee as a possible violation of WTO rules here and here. Several members including Japan, EU and the US raised concern on the recycling fee as unfairly impacting imported vehicles while not impacting locally made automobiles.

"The EU expressed concern over what it described as a surge of protectionist measures taken recently by the Russian Federation. It criticized two measures in particular: the ban on importation of live animals, especially slaughtered pigs; and the recycling fee for automobiles, which imposes fees on imported cars but gives a choice of non-payment to domestic cars. The EU said it is consulting with Russia on these measures. 

Japan also expressed concern that the recycling fee discriminates against foreign car companies. The US shared the concern about the recycling fee. In addition, it urged Russia to take the final step to join the WTO’s Information Technology Agreement (ITA), and to notify its Customs Union to the WTO. Norway expressed concern over Russia’s system of permits subject to veterinary control. 

Russia requested all comments in writing so it could respond in writing."

Russia's entry into the WTO will expose it to various kinds of challenges which it must be prepared for. WHile it was not a WTO member such domestic measures were hardly questioned. Now they become the centre of every trading country which has an interest. How will Russia respond?  How will it equip itself with the legal and technical capacity to fight these cases? It will need multidisciplinary teams of trade policy analysts, legal experts, lawyers, economists and domain specialists to take on a slew of dispute settlement cases. It will have to take on the might of the USTR and EU Trade Commissioner. How Russia will fare will become increasingly clear in the coming days as disputes will be filed against it at the dispute settlement mechanism. Russia would have to recognize that it is part and parcel of being a multilateral member rather than an "assault" on its sovereignty. Will it have to carefully and creatively engage the multilateral system like, perhaps, China did? Early times for Russia still.

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.