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U.S. Questions Russian Commitment to Trade Liberalization, Rule of Law, Transparency

Thursday, June 25, 2015
Sandler, Travis & Rosenberg Trade Report

The U.S. is increasingly concerned about Russia’s implementation of its commitments as a member of the World Trade Organization and its dedication to WTO goals, according to the Office of the U.S. Trade Representative’s third annual report on Russia’s compliance with its WTO obligations. The report asserts that Russia’s membership in the WTO remains a benefit to the world trading system and that much of Russia’s trade regime remains WTO consistent. However, the U.S. worries that Russia may be moving away from WTO principles of trade liberalization, rule of law and transparency and is prepared to use “all appropriate means,” including WTO dispute settlement procedures, to resolve these concerns.

Import Substitution/Localization Policies. Russia is increasingly reliant on “buy Russia” policies in government procurement and has banned government purchases of imported automobiles, metal products and heavy machinery from countries that are not members of the Eurasian Economic Community (EAEU, which comprises Russia, Belarus, Kazakhstan and Armenia). It has also imposed measures that exclude non-EAEU produced medical devices from eligibility for state and municipal government procurement tenders if a comparable device is made by two or more producers in the EAEU. Most recently there has been a proposal that appears to extend “buy Russia” requirements, which to date have been limited to procurements by government entities, to state-owned enterprises, some of which engage in commercial activities and hence are subject to the national treatment disciplines of the WTO.

Other developments highlighted in the report include a leasing program established by a state-owned company that appears to provide farmers with favorable terms for agricultural equipment manufactured in Russia and new financial support programs offered to Russian automobile manufacturers who participated in Russia’s automotive assembly programs that might be contingent on the use of domestic content.

Sanitary and Phytosanitary Measures. Russia has not yet provided risk assessments conducted consistently with international standards, guidelines and recommendations to support the more stringent requirements that it maintains with respect to the presence of microorganisms and veterinary drug residues (e.g., tetracycline and ractopamine) in imported products. Russia also continues to prohibit the importation of dairy and pet food except from production facilities included on a list of approved establishments.

Alcoholic Beverages. To obtain a wholesale license for alcohol sales, an importer or distributor must satisfy detailed requirements that remain stringent and overly burdensome, particularly the conditions for the storage of alcoholic beverages (e.g., the requirements that different spirits and wines be stored at different temperatures and that different types of spirits be kept on different pallets). There are also concerns with Russia’s treatment of specific distilling techniques, such as different practices for the aging of whiskey, and the requirement for an expiration date on certain alcoholic beverages (which is not in keeping with international standards).

Transparency. Russia has notified to the WTO a significant number of laws, decisions, regulations, resolutions and other measures related to its foreign trade regime and its implementation of WTO commitments. However, efforts to press Russia on transparency in other areas have met more challenges. For example, only four of nine safeguard investigations undertaken by the EAEU have been notified to the WTO and Russia has not notified or provided to the WTO the required basic information regarding Gazprom.

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