Russia Wins in WTO Arbitration

  • The original dispute is pertaining to the non-recognition in the EU of low prices for energy carriers.
  • EU applied methodology based on the Soviet System of governance.
  • EU can appeal the findings.

The World Trade Organization (WTO) issued a report on Friday regarding EU dumping methodologies and duties on Russian imports. The WTO agreed with the Kremlin’s view, that the EU principles for determining prices in anti-dumping investigations violate the organization’s rules.

The WTO  is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.

The World Trade Organization (WTO) is an intergovernmental organization that is concerned with the regulation of international trade between nations. The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the largest international economic organization in the world.

The report, titled “European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia,” can be read here. The original dispute is pertaining to the non-recognition in the EU of low prices for energy carriers (gas, heat, electricity, and so on) inside Russia when calculating the cost of Russian goods exports.

The dispute lasted close to 30 years about the alleged non-market nature of the Russian economy. It should be noted that the reasoning behind a non-market economy was based on the old Soviet Era totalitarian regime. In the Soviet Union, the market economy did not exist. Instead it was based on false collectivism.

This dispute was filed in 2015 by Russia. The Kremlin filed it in the opposition of the energy adjustments methodology that was applied. The adjustments calculations were done based on EU price structure, and not Russian structure. The Kremlin was especially upset that the exports from Ukraine were not subjected to the duties. Russian manufactures were forced to pay them.

A market economy is an economic system in which the decisions regarding investment, production and distribution are guided by the price signals created by the forces of supply and demand. The major characteristic of a market economy is the existence of factor markets that play a dominant role in the allocation of capital and the factors of production.

The WTO recognized the EU practice, which contradicts the rules of the organization, according to which the costs of Russian enterprises for the purchase of raw materials are not taken into account in anti-dumping investigations to identify deliveries of goods at an undervalued cost to the detriment of competition.

Moreover, the report recommends for the EU to bring the measures in line with its obligations under the relevant agreement. As a result of this report, EU member nations can access Russian goods with ease. It should also be noted that Russia also won a case against Ukraine last year.

Russian representatives immediately commented on the findings.  The two most affected Russian industries are metallurgy and chemical supplies. It does not mean that the WTO recommendations will be enforced in the near future. The EU can still appeal such a decision.

If, in fact the appeal will be filed by the EU, it could postpone the removal of duties indefinitely. There is also an issue with the appeal hearing. At present, due to US refusing to agree on the judicial nominations, this alone can cause even more delays.

It is a waiting game to see if the EU will file an appeal and what the outcome could be. Another option could be that the EU will accept the findings and will change the process.

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Christina Kitova

I spent most of my professional life in finance, insurance risk management litigation.

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