On May 19-20, 2015 Financial University under the Government of the Russian Federation hosted the international scientific and practical conference “WTO law in the legal system of the Russian Federation: problems of application and teaching.”
Together with the financial university the co-organizers of the event were the Russian Association of International Law, the Association of Russian Lawyers.
The US-Russian Foundation for Economic and Legal development (USRF) was one of the partners of the forum, having provided financial and organizational support.
Financial University programm (rev. 18.05)
Materials of the conference
Eric TRIPS and SCM Agrmt Presentation – Moscow May 2015
PPT WTO, TTIP and ISDS (Vasilka Sancin)
Jan Presentation 19 May FINAL rev 2
Steve Russian Federation
Conference on subsidies was held in the Chamber of Commerce and Industry of Kaliningrad on the 15th of May 2015
The International Forum on WTO Law is a specialized platform established in Kaliningrad in order to discuss the issues of the Kaliningrad region as a special economic zone of Russia in the context of global socio-economic problems, as well as for the exchange of knowledge and experience in the field of WTO law.
Current legislation in the Kaliningrad region The Federal Law № 16-FZ enacted on 10th January 2006 “On the Special Economic Zone in the Kaliningrad Region and on Amendments to Certain Legislative Acts of the Russian Federation” (SEZ Act) has been in force since the1st of April 2006 in Kaliningrad. Pursuant to this Legislative Act, a special economic zone (SEZ) was established on the territory of the Kaliningrad region and a particular regime to conduct certain economic, industrial, investment and other activities was set up.
Untill the 1st of April, 2016 the entrepreneurs in the Kaliningrad region can apply the regime of a free customs zone to the foreign goods, imported into the SEZ which allows to exempt the imported products from the customs duties and other charges that are usually paid during the customs clearance of imported and exported goods. According to the WTO rules, the goods exported from the SEZ to the customs territory of the mainland Russia, as well as the imported components of the goods, produced in the SEZ are subject to the generally established customs regime i.e. the customs duties and taxes are to be paid in full. WTO regulates the relations between states.
The internal taxation lies within the ambit of the Member States responsibility but only to the extent that the rules of taxation do not discriminate against and among the foreign producers. In addition, the WTO does not prohibit, but rather recognizes the right of the governments to grant subsidies to achieve different goals. However, the organization establishes certain limits and restrictions in the area of subsidies in order to prevent trade disturbance.
The Agreement on Subsidies and Countervailing Measures (ASCM) regulates the granting of subsidies. According to the ASCM, a subsidy is defined as a financial contribution by the government which confers a benefit.
The Agreement contains a list of measures that constitute a financial contribution such as grants, loans, equity infusion, loan guarantees, fiscal incentives (such as tax credits), or when a government provides goods or services other than general infrastructure, or purchases goods. In contrast, subsidies are prohibited if they aim to affect trade and most likely to cause adverse effects to other Members. In short, WTO Members may not grant or maintain the export subsidies and import substitution subsidies.
At the conference, on 15th May, 2014 the possible ways of the economic development of the Kaliningrad region were discussed, in particular, after the preferences that are guaranteed under the Federal Law on SEZ cease to exist after the1st of April 2016. One of the proposed solutions is the granting of subsidies in order to offset the high transportation costs and other expenses related to the special geographical position of the Kaliningrad Region (i.e. isolated from the mainland Russia).
The difficulty of forecasting and uncertainty about the future decisions of visa problems, freight transit to the mainland Russia – all these are urgent problems for the economic development of the region. The participants of the conference arrived at a conclusion that actionable subsidies could be granted in the Kaliningrad region. As the speakers confirmed during the conference, actionable subsidies are subject to challenge under the mechanism of the WTO dispute settlement or countervailed in the event that they cause adverse effects to the interests of other Members. The WTO legal doctrine has been developing over the decades.
The WTO case law comprises hundreds of the Panel and the Appellate Body Reports that clarify the existing provisions of the Agreements. Despite the fact that no formal rules of precedent exist, there is a continuity in the interpretation of the Agreements. The Panel in the case US-Offset Act (Byrd Amendment) clarified that a subsidy was actionable if:
- it is ‘specific’;
- it`s use causes ‘adverse effects’.
Panel Report, US-Offset Act 9Byrd Amendment), para 7.106
That is, a WTO Member whose interests are affected by the granting of subsidies in the Kaliningrad region will have to prove the existence of these two elements.
If both of these elements will not be proven, the country does not have a right to impose a countervailing duty. Art. 5(a) to (c) of the ASCM distinguishes between three types of ‘adverse effects’ on the interests of other Members:
- injury to the domestic industry of another Member;
- nullification or impairment of benefits accruing directly or indirectly to other Members under GATT 1994 in particular the benefits of concessions bound under Article II of GATT 1994;
- serious prejudice to the interests of another Member.
In order to cause injury to the domestic industry of another Member of the WTO, first of all, there should be the subsidized imports of goods on the territory of a Member. This does not apply to the Kaliningrad region since the subsidies are granted in order to compensate the high railway tariffs when exporting goods from the region to the mainland Russia. Despite the existence of a regional specificity under Article 2.2 ASCM, however, the granting of subsidies does not cause injury to the domestic industry of another Member and, moreover, is provided to the disadvantaged region pursuant to Art.8.2 (b) (ii) on the basis of neutral and objective criteria, indicating that the region’s difficulties arise out of more than temporary circumstances.
The participants of the conference also considered the grounds for the imposition of the countervailing duties. Art. VI of the GATT 1994 and Articles 10 to 23 of the SCM Agreement concern the manner the WTO Members may respond to subsidies trade which causes injury to the domestic industry.
Countervailing duties may be imposed when it is properly established that
- there are subsidized imports, i.e. imports from the producers who have benefited from a specific subsidy within the meaning of Article 1, 2 and 14 of the Agreement;
- there is injury to the domestic industry of the WTO Member which produces the like product in the sense of Art. 15 and 16 of the Agreement;
- there is a causal link between the subsidized imports and the injury to the domestic industry of the importing Member since the injury caused by other factors is not attributed to the subsidized imports.
As the case law demonstrates, the test to prove the existence of a subsidy is rather strict and a country that believes its interests are affected by the granting of a subsidy by another WTO Member will have to prove the existence of all three factors, only then the dispute will be considered by the WTO Dispute Settlement Body.
Also, though the rules applicable to consultations and adjudication are those of DSU, Article 5 of the ASCM sets out special or additional rules which prevail over DSU rules in cases of conflict. The most notable difference is the time frames that are half as long as the time-frames provided for under the DSU. One of the speakers at the conference Elena Kumashova, a lawyer in the Brussels office of the law firm Holman Fenwick Willan LLP analysed the case law under the ASCM and recalled that to date there are only two categories of subsidies, as by virtue of the operation of Art. 31 of the ASCM, the specific provisions on non-actionable subsidies listed in Article 8.2 have lapsed and to date there are only two types of subsidy – prohibited and actionable ones. Agreement on Technical Barriers to Trade Also, participants of the conference considered the technical barriers to trade.
The technical regulations and product standards may vary widely in different countries. If the regulations are set up without sufficient grounds, they can be used as an excuse for protectionism. The requirements contained in the technical regulations and standards are the instruments of the trade policy and need to facilitate the international trade.
According to Art. 2.2 of the Agreement on Technical Barriers to Trade, “Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade. For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create”.
“Neutral and objective criteria” means criteria which do not favour certain regions beyond what is appropriate for the elimination or reduction of regional disparities within the framework of the regional development policy. In this regard, regional subsidy programmes shall include ceilings on the amount of assistance which can be granted to each subsidized project. Such ceilings must be differentiated according to the different levels of development of assisted regions and must be expressed in terms of investment costs or cost of job creation. Within such ceilings, the distribution of assistance shall be sufficiently broad and even to avoid the predominant use of a subsidy by, or the granting of disproportionately large amounts of subsidy to, certain enterprises as provided for in Article 2.
One of the speakers Fernando Gonzalez (WTO legal department) analyzed the definition of a technical regulation contained in Annex 1.1 of the Agreement on Technical Barriers to Trade. The question arose as to what extent this definition covers methods of production of goods that do not affect the characteristics of a final product.
The expert of a special project of the Center of International Trade “Russia in the WTO,” Irina Grigorieva made a presentation on “the reform of the Russian system of accreditation in terms of the WTO”. Vladimir Talanov, a senior attorney of the law firm “Egorov, Puginsky, Afanasiev & Partners” (Moscow) analyzed the application of article 2.2 of the TBT Agreement highlighting the new possibilities for the Russian companies in the area of trade policy and technical regulations within the WTO and conducted a simulated case study.
Presentations of the conference:
Презентация для Калининграда 12.05.14.
TBT Topics-Fernando Gonzalez (Kaliningrad)
Euromonitor export — май 2014 г
Субсидии, дающие основания для принятия мер
Кейсы ВТО по субсидиям на русском языке