Not all EU-Russia trade disputes are about politics
(Business New Europe – bne.eu – Iana Dreyer in Brussels – April 2, 2015)
It looks like part of the trade war, but it isn’t. The World Trade Organization is about to set up its fourth dispute settlement panel in two years between Brussels and Moscow. One could mistake this as a sign of the growing trade tensions amid the political crisis between Russia and Europe, but in this case recourse to the WTO is a sign that the many old trade gripes between the two sides are now finally being dealt with in a neutral, non-politicised forum.
On March 25, the WTO accepted the EU’s second request to set up a dispute settlement panel regarding the import duties that Russia applies to various paper products, palm oil and refrigerators.
The EU brought the case to the WTO last November after consultations between Brussels and Moscow failed. A first panel ruling for this dispute is not expected before 2016.
The EU alleges that Russia applies 10-15% import duty levels on various paper products such as kraft paper (a coarse paper used for packaging), light coated paper, paper rolls and paperboard, even though it had committed to a level of 5%. Brussels also accuses Moscow of applying wrong tariff levels on palm oil, refrigerators and freezers. The methodology used to determine tariff rates by the Eurasian Economic Commission – the Russian-led trade bloc that includes Armenia, Belarus and Kazkhstan – is allegedly not in line with that agreed by Russia at its accession to the WTO. This results in Russia overcharging for imports.
The EU exports about $700mn worth of paper products to Russia a year and $190mn worth of freezers. Palm oil exports dropped from $118mn in 2012 to $63mn in 2013, according to UN data.
Russia is the only country to have been a defendant in so many trade cases over such a short period of time since becoming a member of the Geneva trade body. The paper, palm oil and refrigerator case follows three previous ones concern a recycling fee on imports of cars, a ban on pork imports and anti-dumping measures on commercial vehicles. Japan has filed a separate case against Russia on certain investment measures. Russia’s import bans of EU food products as a counter-measure to Western financial sanctions last summer is undergoing a mediation procedure in the WTO.
Russia has also brought trade disputes against the EU, though not quite as many. One case concerns Brussels’ anti-dumping duties on Russian fertilizer exports, for which a dispute settlement panel will soon be established. The other concerns EU energy market regulations, which few believe will go beyond the mandatory consultation phase before formal dispute settlement panels are established.
None of these disputes has been resolved yet.
The latest dispute brought by the EU has reinforced accusations that Russia, which joined the WTO only three years ago, is not abiding by the many commitments it took in its close-to 600-page accession documents.
But technically and politically, this dispute is the least problematic of all the Russian cases handled so far by the Geneva-based trade body. “As trade disputes go, this is a garden-variety one. This is a very straightforward commercial dispute on the application of tariffs, and the application and customs duties and rules on customs valuation,” says Brendan McGivern, partner at the law firm White and Case in Geneva, explaining that this is not one of the big disputes that sometimes blow up like those involving environmental measures or national security issues.
Critics of Russian trade policy have argued that the country has become more protectionist over the last few years, but McGivern takes a nuanced view on this issue. “There’s been pent-up demand about the way Russia has conducted its trading relationship, which before were subject to negotiation and now are subject to adjudication through the dispute settlement system,” he says.
An example of such an evolution in EU-Russian disputes is the paper industry. There’s a relatively long history of trade disputes in a sector in which the EU and Russia are highly inter-dependent. Russia is among the top three export destinations for Europe’s paper producers, most of them based in Finland, Sweden, Germany, and Austria.
In 2008, Russia introduced export taxes on timber in a move to allocate resources to upgrading its wood industry as it tries to get away from exporting raw wood only to having a more sophisticated processing industry. A hike on these tariffs was averted after negotiations with the EU, which resulted in both sides agreeing to a quota. This has allowed the EU paper producers to continue to source Russian wood, a product vital to them.
Another dimension to Russia’s industrial policy in the paper sector is protection from imports. “From the very first day of WTO membership, Russia has been infringing its tariff commitments, namely those on coated graphic paper and coated carton board,” says Bernard Lombard, industrial policy director at the Brussels-based Confederation of European Paper Industries (CEPI). “The policy of Russia is to protect some of the investments they have made over the last years.”
Those investments seem to have borne fruit to some extent: Russian paper production rose 5.9% between 2010 and 2014, but this progress is minor compared with production increases in China (+16%), India (+20%) or Indonesia (+8%) over the same period.
Trade disputes involving the EU and Russia are generally very difficult to disentangle from the deteriorating political relationships between Moscow and the West over the last years.
The EU is trying to keep discussions on this trade case as technical and insulated from politics as possible, and EU industries behind this case want it to be so too.
“The healthy part of this is that before there were negotiations which went nowhere. Now you’ve got a legal framework. This tends to depoliticise disputes,” White and Case’s McGivern says. But “it does require a bit of time to allow these cases to work their way through the system.”