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European Union bringing its first complaint against Russia within WTO

July 10, 2013, 10:39 UTC+3

“The fee is incompatible with the WTO’s most basic rule prohibiting discrimination against and among imports,” EU Trade Commissioner Karel De Gucht said

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Russia will face its first complaint for violating the rules of the World Trade Organization, where its membership lasts less than a year. The European Union may launch a trial concerning Russia’s recycling fee on foreign cars. This may cost Russia’s budget multibillion fines and at the same time the Russian market will be flooded with cheap second hand cars from Europe.

The fee introduced to protect domestic car makers after Russia’s WTO accession should bring around 54 billion roubles to the budget a year, the Kommersant business daily reported. EU protests have already yielded results - payments will embrace Russian car manufacturers as well, but such a law will be adopted only in autumn. Brussels may address a court “to encourage” Russia to hurry up.

The European Union has started consultations within the framework of the WTO on incompliance of Russia’s recycling fee on imported cars with the organization’s norms, the European Commission said on Tuesday. The EU has repeatedly voiced its concerns regarding the “recycling fee” in bilateral discussions with Russia and used all diplomatic channels, but all this yielded no concrete solution, the statement read. The EU has no choice but to challenge this fee.

“The fee is incompatible with the WTO’s most basic rule prohibiting discrimination against and among imports,” EU Trade Commissioner Karel De Gucht said in a statement.

Under the WTO rules 60 days are given for holding these consultations, Kommersant cited Alexei Portansky, Professor at Higher School of Economics, as saying. “Moreover, Russia should give its consent to request for participation in the consultations within 10 days, but this is more like formalities, because it was known about the EU claims regarding the fee long ago,” he said. After this the consultations should start in no less than 30 days. “The WTO practice shows that disputes are rather often settled at such consultations, but if this does not happen, the dispute will be considered by the WTO quasi-judicial dispute settlement body, where independent experts take a decision,” Portansky said.

A source in the Russian Economic Development Ministry did not conceal that a recycling fee was introduced to smoothen effects from the WTO accession on domestic car makers, the RBK Daily wrote. “According to our estimates, the volume of a recycling fee exceeds 4.2 billion roubles per month,” said Pavel Gagarin, chairman of the board of directors of JSC Gradient Alpha Investments Group. “According to the Finance Ministry, the losses from the reduction of customs duties in 2013 will total almost 190 billion roubles, i.e. 15.7 billion roubles per month. Taking into account the fact that losses from cars imports make only a part of this figure, we can conclude that a recycling fee is quite comparable to losses from the reduction of duties on foreign cars.”

If a recycling fee is cancelled, Russia’s car making industry will face collapse, car market expert Oleg Datskiv was cited by Novye Izvestia as saying. It will be disadvantageous to produce new cars inside the country, people will start buying European second hand cars, rather reliable and of high quality. “The situation like that at the end of the 1990s may repeat. Then the market consisted of approximately 1.5 million cars and around 700,000 of them were second hand foreign cars. A similar number was manufactured by AvtoVAZ,” the expert said.

Under the WTO rules bilateral consultations will be held within 60 days. But Russian negotiators will be unable to do anything, as the State Duma closed for a summer recess, if only the Russian government does not cancel this scandalous fee at all, Moskovsky Komsomolets wrote. If negotiators do not come to agreement on friendly terms, there will be a hard way to go. In September documents will be taken to the WTO Arbitration Panel and then Russia will face multibillion fines - at least all it gets from a recycling fee.

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