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Second Defeat of Russia in the WTO: Why Is It so Important for Ukraine?

Date of publication: 16 September 2016

Olena Omelchenko, Partner, Attorney at Law, Head of International Trade Practice

Source: European Pravda

As expected, last Friday the report of the Panel of Arbitrators was published on the WTO website within the framework of dispute settlement procedure of the World Trade Organization (WTO) on ban on imports of pork from the European Union introduced by Russia.

The Panel of Arbitrators recognized that the Russian ban does not comply with the WTO rules.

The decision is very likely to become landmark and even historical for Kyiv.

The essence of the dispute

The dispute DS475 “Russian Federation – measures on imports of live pigs, pork and other products from the European Union” concerns the restrictions applied by Rosselkhoznadzor in early 2014 because of the limited number of outbreaks of African swine fever detected in Lithuania and Poland near the border with Belarus.

An important point: a little later the same cases were recorded in Ukraine and Belarus.

Brussels demanded to limit the perimeter of ban by the territories of the states, where the epizootic was detected, however, Moscow included all EU member states. The total ban is estimated by losses of about USD 1.6 bln.

On April 8, 2014, the European Union formally requested consultations with the Russian Federation on this matter in accordance with the dispute settlement procedure in the WTO.

The European Union argued that the measures are contrary to the provisions of the WTO Agreement on Sanitary and Phytosanitary Measures and the General Agreement on Tariffs and Trade 1994. During consultations, the parties could not find a mutually acceptable decision and already on June 27, 2014 the EU requested the establishment of the Panel of Arbitrators in the WTO.

Ten countries reserved the right to participate as a third party: Australia, Brazil, China, India, Japan, Republic of Korea, Norway, South Africa, Chinese Taipei and the United States.

The dispute is interesting for its case-law and grounds. It raised inter alia a number of issues connected with the requirement to conduct a risk assessment based on scientific data with regionalization, substantiation of import restrictions and concealment of restrictive measures.

An interesting turn in the case was caused by the fact that in the opinion of the EU ban on imports from Poland and Lithuania was not justified, because imports from Belarus, on the territory of which the numerous cases of outbreak of the decease were also recorded, was carried out at the same time.

The dispute was quite complicated and lasted two years. Finally, the Panel of Arbitrators concluded that Russia did not act in accordance with its commitments in the WTO, and recommended Moscow to bring its measures in compliance with the Agreement on Sanitary and Phytosanitary Measures.

The Panel of Arbitrators recognized that refusal of Russia to accept imports from the EU and adapt EU-RF import certificates is a ban that does not meet the international standards.

In turn, the European Commission considers the decision of the Panel of Arbitrators as a “serious signal to Russia and all WTO members in terms of their obligations on compliance with the international standards”.

However, the report of the Panel of Arbitrators may be appealed by one of the parties within 60 days. If it does not happen, the report will be adopted, and Russia will be forced to implement the recommendations.

The Ministry of Economic Development of the Russian Federation has already reported that the Russian party does not agree with some findings of the Panel of Arbitrators and that the expedience of applying to the WTO Appellate Body is very high. The appropriate decision will be made within the terms set by the WTO procedure – in the coming weeks.

Moscow is likely to appeal against the decision of the Panel of Arbitrators.

Firstly, because the results of settlement of the dispute will have precedential value for all trade in animal products (including Ukrainian) and, secondly, to delay the final decision.

The Rosselkhoznadzor takes measures to a wide range of products of animal origin limiting its imports from third countries, and Ukraine is not an exception.

For the first two years of membership in the WTO, the Russian Federation notified more than 40 acts on the application of sanitary and phytosanitary measures.

After the final approval of the current decision by the WTO Russia will be forced to bring its practice in the application of health bans in line with the international requirements.

Surely, if Russia wants to keep its reputation in the WTO.

The findings of the WTO have a systemic importance, will remind of the need of performance of international obligations, and that they can not be ignored.

It proves that despite all declarations on complexity of dispute resolution in the WTO, and the main thing – on duration of the procedures, application of dispute resolution procedures in the WTO remains the strongest international legal instrument which can eliminate trade barriers and increase legal certainty and predictability in trade.

The problem of “political” embargo

Even after the final resolution of dispute in the WTO in favor of Brussels, the Russian market will not be open to pork from the EU.

In fact, besides the ban in 2014, Russia has a trade embargo, which applies regardless of the disputed sanitary and phytosanitary measures and has a political implication.

If within the WTO it was possible to achieve lifting of sanitary ban due to the exclusive jurisdiction of the matter in the framework of international trade rules, lifting of the embargo imposed by Moscow in response to the sanctions is beyond the scope of international trade law.

Moreover, the regulations that introduced the food embargo on imports of goods from the EU and other countries classify it as application of certain special economic measures to ensure security of the Russian Federation. It allows Russia to refer to Article XXI of the GATT 1994 that envisages exceptions for reasons of security adopted during the emergency circumstances in international relations.

The practice of application of security exceptions in the WTO is extremely limited, difficult to predict and requires a special balanced approach.

That is why the affected countries are in no hurry to challenge the Russian food embargo in the WTO, so as not to create a complex precedent that may negatively influence international trade as a whole.

However, the dispute over pork can give the EU the additional opportunity to evaluate and forecast the likelihood of challenging the product embargo in the WTO.

Accordingly, successful resolution of this dispute may encourage the EU to challenge the political embargo of the Russian Federation.

The value of the dispute for Ukraine

Unfortunately, Ukraine did not participate in the case on ban on pork as a third party.

It would give an additional opportunity to examine all the details of the case to improve its own practice of preparing arguments in independent proceedings during challenging of the Russian measures.

For our country it is very important taking into account the lack of experience in the WTO disputes as a claimant. In addition, over the past few years, Ukraine has more often than other countries suffered from bans of Rosselkhoznadzor and Rospotrebnadzor.

The approved decision of the Panel of Arbitrators confirms that the measures taken by Russia have little to do with any real sanitary risks and confirm invalidity of the restrictions on imports. Furthermore, such measures were identified as “hidden measures of trade restrictions”.

It is a very good and clear sign to Ukraine of the need to begin as soon as possible in the WTO the previously announced case on measures related to the ban of Ukrainian agricultural exports to the Russian Federation.

Moreover, there is every opportunity to prove the relation of such bans to the Russian aggression.

The disputes initiated by Ukraine are likely to be supported by the EU, the USA and other powerful countries. Thus, it is time to start playing by own rules.