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Russia Was Reminded of Its Commitments: What Did the US Trade Report Show

Date of publication: 6 February 2019

Olena Omelchenko, Partner, Head of International Trade Practice

Source: European Pravda

In the first days of February the US Trade Representative (hereinafter referred to as the USTR) issued another annual Report on the Implementation and Enforcement of Russia’s WTO Commitments for 2018. This Report is the sixth in a row and has been published since 2013 pursuant to section 201 (a) of Magnitsky Act (Russia and Moldova Jackson-Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act of 2012).

In other words, this analysis is aimed to shape the course of US relations with the Russian Federation in the field of trade. And should the WTO rules be violated, it shall invoke the development of Washington’s counteractions.

It is important that the findings of this Report may be useful for Ukraine as well, since it is Ukrainian export that suffers from the WTO rules violation by the Russian Federation in the first place. That is why we should analyze the Report, focusing on certain trade problems and conclusions of the USTR, which may be of use for Ukraine.

First of all, the United States still closely monitors the implementation of tariff commitments and notes that last year Russia continued to implement the scheduled tariff reductions as prescribed by its WTO commitments.

However, exporting goods to Russia still remains challenging for American business, which in 2018 experienced difficulties because of non-tariff barriers and non-transparent import licensing. In particular, the USTR talks about limited ability of US exporters to export large quantities of consumer electronic products.

The United States intends to continue to press Russia to address these problems, yet noting that its meeting requests are often left unanswered.

The gross violations in the agricultural sector related to the import ban on products from a number of countries (the so-called “food embargo”), which was extended till the end of 2019, still have place. However, the list of products was not expanded. Russia claims that the current restriction is applied for reasons of national security. However, the United States intends to ask Russia to provide a justification for such quantitative restrictions.

Following pressure from the United States, Russia has finally lifted the transit ban on poultry products. However, the goods were still not allowed to cross the customs border referencing obscure railway requirements and dubious sanitary and phytosanitary requirements. At the same time, the USTR drew attention to the fact that Russia took a step towards transparency by notifying the WTO Committee on the application of measures, although this is clearly not enough to meet the basic WTO principles and commitments.

Thus, according to the Report in 2018 a number of unreasonable sanitary and phytosanitary requirements (not norms, but practice) were applied, which did not meet the international standards, as well as technical regulations that do not comply and do not tend to comply with the GRP, in particular as regards the alcoholic beverages.

In addition, the exports to Russia are hampered by non-transparent customs and legal regime, and the situation has become even more complicated as a result of Russia’s failure to fulfill its commitments under the WTO Trade Facilitation Agreement.

The United States has raised concerns about Russia’s industrial policies, in particular, about certain discriminatory measures adopted against the US high-tech manufacturers (with reference to national security), including the application of recycling fee, copyright levy and its administration mechanism, as well as VAT on the distribution of movies.

The United States is concerned about the possible subsidization of the state industry through non-market energy prices.

The United States has also sought information from Russia about its pricing policies on natural gas and railway tariffs to ensure that Russia is not using subsidies to protect its national market.

In 2018 Russia restricted the export of ferrous scrap by permitting its export from nine Far Eastern ports only, although some of them are not open year-round. Moreover, Russia plans to introduce an export quota on birch logs during the first half of 2019 and considers the possibility to ban export of conifers and pine for industrial processing. The United States is concerned about possible export restriction trends and plans to monitor the situation further.

The United States, together with other WTO members, has repeatedly questioned the extension of Russia’s import substitution policies, as it is not contributing to the market-opening principles of the GPA.

The import substitution is realized not only at the expense of the state orders and requirements to companies with state shareholding, but also through coercion of the private sector of economy.

According to USTR, Russia’s localization policy has not been limited to goods and is beginning to impact exports of services. The United States has raised question about localization and limits on foreign ownership in the audio-visual and media service sectors. There are restrictions on foreign shareholding in the media (in accordance with the Federal Law on Mass Media, the shareholding of foreign citizens and companies in the Russian media shall not exceed 25%).

The protection of intellectual property in Russia has long been a concern for the United States. It is noted that there has been progress in the implementation of TRIPS, except for the patent law and data storage regulations. The security requirements for imported products containing cryptographic encryption elements are growing. However, the rules on collective copyright, as before, do not meet the international standards.

What can this Report change? One should not expect that the Report will prompt the rapid changes in the situation.

The procedure is that the Report is submitted to the Committee on Finance of the US Senate and the Committee on Ways and Means of the US House of Representatives, which assess the extent to which Russia is implementing its obligations to the US under the WTO. Given that the Report does not contain information on any new grave violations of the US interests, we should not expect any drastic actions on the part of Washington against Russia.

As before, the US plans to force Russia to improve the conditions for the access of goods and services to its market by expressing concern and reminding Russia of its obligations to the WTO member states.

However, it is possible that the reaction of the House of Representatives to this Report will be more strident, since the Report lists numerous violations of the Russian Federation in respect of which there has been no progress for many years in a row. And, accordingly, the Report may become the basis for increasing US pressure on the Russian Federation – now in the field of trade.