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TWN
Info Service on WTO and Trade Issues (Dec21/01) Geneva, 30 Nov (Kanaga Raja) – A request for the establishment of a dispute panel by the European Union over certain measures imposed by the Russian Federation allegedly favouring domestic products and services provided by Russian entities over imported products and services provided by foreign entities was blocked by Russia at a meeting of the WTO Dispute Settlement Body (DSB) on 29 November. This was a first-time request and panel establishment will be automatic when the request comes up again before the DSB. In other actions, a request for panel establishment by Costa Rica to examine anti-dumping measures imposed by the Dominican Republic on imports of corrugated steel bars from Costa Rica was blocked by the Dominican Republic at the DSB meeting. This was also a first-time request and panel establishment will be automatic when the request comes up again before the DSB. Meanwhile, under a separate agenda item, the United States, for the forty-eighth time, blocked a joint proposal by 122 WTO members calling for the start of the selection process to fill seven vacancies on the Appellate Body (AB). (Cambodia became the latest co-sponsor of the joint proposal.) The US said that it was still not in a position to agree to the joint proposal, introduced by Mexico on behalf of the 122 WTO members, that called for the simultaneous launch of the selection process to fill the vacancies as soon as possible. The US said that it is not in a position to support the proposed decision, adding that it continues to have systemic concerns with the Appellate Body. “The United States believes that Members must undertake fundamental reform if the system is to remain viable and credible. The dispute settlement system can and should better support the WTO’s negotiating and monitoring functions,” it said. The US said that it looks forward to further discussions with Members on these important issues. According to a Geneva trade official, the chair of the DSB, Ambassador Didier Chambovey from Switzerland, said that resolving the impasse over the Appellate Body will require the political engagement of all the WTO members. Despite the postponement of the WTO’s 12th Ministerial Conference (MC12), which was scheduled to begin on 30 November, the chair hoped that members will be able to find, as soon as possible, a solution to the current impasse at the Appellate Body. EU-RUSSIA DISPUTE In its communication to the DSB (WT/DS604/2) concerning its dispute with Russia, the EU said that consultations were held with Russia virtually on 13 September 2021 with a view to reaching a satisfactory settlement of the matter. Unfortunately, the consultations failed to settle the dispute, it added. According to the EU, the Russian Federation has adopted several measures which form part of a broader import substitution programme aiming to replace, through a mix of restrictions and incentives, imported goods or services provided by foreign entities with domestic goods or services provided by Russian entities with respect to the procurement of goods and services for non-governmental purposes by certain State-related entities that are not governmental agencies, including enterprises fully or partially owned by the State, State-trading enterprises and legal entities implementing investment projects with State support. The basic Russian legal acts governing import substitution with respect to procurement include Federal Law of 18 July 2011 No. 223-FZ on procurement of goods, works and services by certain types of legal entities (Law 223) which regulates the procurement of certain entities, including State-owned enterprises and State-trading enterprises and Federal Law No 488-FZ of 31 December 2014 on industrial policy (Law 488) which sets out the Russian Federation’s import substitution policy for industrial products and covered by Law 223, it said. According to the EU communication, the measures at issue are as follows: a. Price preference granted to procurement by State-related entities favouring Russian origin products and services from Russian entities The Russian Federation is granting preference to goods of Russian origin and services supplied by Russian entities over goods originating in a foreign country and services performed or supplied by foreign entities in the framework of procurement by certain State-related entities. This price preference is set out inter alia in Law 223, in particular Article 3(8.1) and in Governmental Decree No. 925 on granting preference to goods of Russian origin and works and services performed or supplied by Russian entities over goods originating in a foreign country and works and services performed or supplied by foreign entities of 16 September 2016 (Decree 925). The measure provides for the application of a price preference of up to 30% for three different types of competitive tenders and auctions for the procurement of goods and services, by a wide range of State-related entities. The European Union challenges this measure insofar as it applies to non-governmental purchases by State-related entities that are not governmental agencies. The European Union challenges this measure as such and also the instances of application as applied, notably the application of Decree 925 by the relevant State-related entities and by relevant authorities such as the Russian Federal Antimonopoly Service. * Concerning tender procedures (or other method), Decree 925 provides that tender offers for Russian-origin goods and services provided by Russian entities are assessed by reducing by 15% (or by 30% for radio-electronic products and software) their purchase price offer, while imported goods and services provided by foreign entities are assessed on the basis of their actual (non-reduced) price offers, thus significantly increasing the chances of Russian providers to win the tender. Russian-origin goods and services supplied by Russian entities are effectively paid at the offered price, i.e. up to 30% more than the price used for assessing the offers. * In relation to auctions (or other method) in which the winner is determined by reducing the initial (maximum) contract price specified in the notification of procurement by the value of the “step” referred to the procurement documentation, if a provider of goods originating in foreign countries or a foreign provider of services wins the auction, the contract is concluded at a price 15% (or 30% for radio-electronic products and software) below the proposed contract price. This price reduction is not applied to Russian bidders. * In relation to auctions (or other method) in which the winner is determined by reducing the initial (maximum) contract price specified in the notification of procurement by the value of the “step” referred to in the procurement documentation, if a provider of goods originating in foreign countries or a foreign provider of services wins the auction with a bid in which the contract price is reduced to zero and which leads to the right to conclude a contract, the contract is concluded at a price 15% (or 30% for radio-electronic products and software) above the proposed contract price which is not the case for Russian providers of the respective goods or services. b. Requirement to obtain prior authorisation for the purchase of certain engineering products The purchase by certain State-related entities of certain products outside the territory of Russia is made subject by the Russian Federation on obtaining non-automatic and arbitrary authorisation by a government body (the “Government Commission on Import Substitution”). This measure applies to purchases for certain investment projects with state support (including private companies with no or limited State participation). The investment projects with State support concerned by this measure are defined by a minimum financial size and a minimum financial State support. The procedure for granting an authorisation to purchase imported products is composed of inter alia: * the obligation for the entities covered by the measure to draw up and submit lists of investment projects to the Russian government which includes these investment projects in a specific registry; * the obligation to indicate in the lists certain engineering products which are required for the project; * the examination of the investment projects in this registry and the granting of the authorisation to purchase certain engineering products outside the territory of Russia necessary for these investment projects by the Government Import Substitution Commission without any clear, transparent, objective criteria apart from the apparent objective to substitute engineering products purchased outside the territory of Russia with domestic like-products. The European Union challenges this measure as such and also the instances of application by the Government Commission on Import Substitution and by any other relevant authority as applied. c. Minimum quotas for domestic products in procurement procedures of certain State-related entities favouring Russian origin products The Russian Federation has adopted quotas reserved for Russian-origin products in the context of the procurement of goods by certain State-related entities. In particular, this measure requires for minimum shares of Russian-origin products as a percentage of the volume of the total purchased products on a yearly basis per client in a given year. The minimum share ranges between 1% and 90% of the purchases depending on the specific products and for many products these percentages will increase in 2022 and for the years “2023 and beyond” with 2021 being the base year. The Russian Federation currently applies these quotas on around 250 products. The European Union challenges this measure insofar as it applies to non-governmental purchases by State-related entities that are not governmental agencies. The European Union challenges this measure as such and also the instances of application as applied, notably the application of the minimum quotas by the relevant State-related entities and by relevant authorities. According to the EU, the various measures described above appear to be inconsistent with Russia’s obligations under the covered agreements, in particular: a. Price preference rules for State-related entities * Paragraph 2 of the Protocol on the Accession of the Russian Federation (WT/MIN(11)/24 WT/L/839) in conjunction with the Report of the Working Party on the accession of the Russian Federation to the WTO (WT/ACC/RUS/70, WT/MIN(11)/2), and in particular paragraphs 98, 99 and 1450 because, with this Russian measure, State-owned, State-controlled enterprises and enterprises with exclusive or special privileges that conduct commercial activity do not make purchases (not intended for governmental use) in accordance with commercial considerations, including inter alia price, and enterprises of other WTO Members are not afforded adequate opportunity in conformity with customary business practice, to compete for participation in such purchases. * Article III:4 of the GATT 1994 read in conjunction with Article III:8(a) of the GATT 1994, because by providing for a price preference to goods of Russian origin in competitive tenders and auctions for the procurement of goods for commercial purposes, by a wide range of State-related entities that are not governmental agencies, the Russian measure accords to imported products a treatment less favourable than that accorded to like products of national origin in respect of laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. * Article XVII:1 of the GATS, read in conjunction with Article XIII of the GATS, because by providing for a price preference to domestic services and service suppliers for the procurement of services for non-governmental purposes by State-related entities that are not governmental agencies, the Russian measure accords to foreign services and service suppliers a less favourable treatment than that accorded to its own like services and service suppliers. * Article XVII:1(c) of the GATT 1994, read in conjunction with Article XVII:2 of the GATT 1994 because by providing that a wide range of State-related entities apply a price preference in favour of domestic goods for non-governmental use, this Russian measure prevents such entities from acting in a manner consistent with the general principles of non-discriminatory treatment prescribed by the GATT. b. Import Substitution Government Commission procedure for foreign products * Paragraph 2 of the Protocol on the Accession of the Russian Federation (WT/MIN(11)/24 WT/L/839) in conjunction with the Report of the Working Party on the accession of the Russian Federation to the WTO (WT/ACC/RUS/70, WT/MIN(11)/2), and in particular paragraphs 98, 99 and 1450 because, with this Russian measure, State-owned and State-controlled enterprises that conduct commercial activity do not make purchases which are not intended for governmental use in accordance with commercial considerations, including price, quality, availability, marketability, and transportation, and would not afford enterprises of other WTO Members adequate opportunity in conformity with customary business practice, to compete for participation in such purchases. * Article III:4 of the GATT 1994, read in conjunction with Article III:8(a) of the GATT 1994, because the requirement to notify purchases of certain foreign engineering products outside the territory of Russia and to obtain prior authorization of such purchases by the Government Import Substitution Commission for non-governmental purposes, the measure accords to imported products a treatment less favourable than that accorded to like products of national origin in respect of laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. * Article XI of the GATT 1994, because by imposing a requirement of prior approval by the Government Import Government Commission for the purchase of certain goods outside the territory of Russia, this Russian measure provides for a restriction on the importation of certain foreign products into its territory. * Article XVII:1(c) of the GATT 1994, read in conjunction with Article XVII:2 of the GATT 1994 because by providing that purchases of certain engineering products for non-governmental use of a wide range of State-related entities outside the territory of Russia depend on the authorisation of the Government Import Substitution Commission, this Russian measure prevents such entities from acting in a manner consistent with the general principles of non-discriminatory treatment prescribed by the GATT. c. Minimum quotas for domestic products in procurement procedures * Paragraph 2 of the Protocol on the Accession of the Russian Federation (WT/MIN(11)/24 WT/L/839) in conjunction with the Report of the Working Party on the accession of the Russian Federation to the WTO (WT/ACC/RUS/70, WT/MIN(11)/2), and in particular paragraphs 98, 99 and 1450 because, with this Russian measure, State-owned and State-controlled enterprises that conduct commercial activity do not make purchases (not intended for governmental use) in accordance with commercial considerations, including availability, and enterprises of other WTO Members are not afforded adequate opportunity in conformity with customary business practice, to compete for participation in such purchases. * Article III:4 of the GATT 1994, read in conjunction with Article III:8 of the GATT 1994, because, by requiring Russian State-related entities that are not governmental agencies, for the procurement of goods for non-governmental purposes, to purchase certain quantities of products of Russian origin in their procurement activities, the measure accords to imported products a treatment less favourable than that accorded to like products of national origin in respect of laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. * Article XVII:1(c) of the GATT 1994, read in conjunction with Article XVII:2 of the GATT 1994, because by requiring State-related entities to purchase certain quantities of products of Russian origin for the procurement of goods for non-governmental purposes, the Russian measure provides for a discriminatory treatment of goods of foreign origin compared to goods of Russian origin. According to the EU, the various measures by the Russian Federation relating to procurement practices of State- related entities identified in its request appear to nullify or impair the benefits accruing to the European Union directly or indirectly under the covered agreements. According to a Geneva trade official, at the DSB meeting, the EU said for several years, the Russian Federation had instituted several measures that have seriously disadvantaged companies from the EU that are selling goods and services to Russian state-related enterprises, and other entities through procurement for commercial purposes. The EU said that the value of published tenders by Russian state-owned enterprises in 2019 came to 23.5 trillion roubles. This was approximately 290 billion euros, or equivalent to around 20% of the GDP of the Russian Federation, it said. According to a Geneva trade official, the Russian Federation expressed regret over the request for the establishment of a panel by the EU, saying that it is confident that its measures are in full compliance with its WTO obligations.
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