The Russian Federation’s Compliance With WTO Obligations — The Recent USTR Report

The Russian Federation became the 156th Member of the WTO on August 22, 2012. Since the accession of the Russian Federation, eight other countries have acceded, the last on July 29, 2016 with 23 additional countries in the queue at the WTO. Like other WTO Members, the Russian Federation goes through periodic Trade Policy Reviews (“TPR”) as part of the WTO’s effort to ensure transparency in Member policies and to permit Members to raise questions on policies and practices of each other. The first TPR for the Russian Federation was conducted in 2016. See TRADE POLICY REVIEW, REPORT BY THE SECRETARIAT, RUSSIAN FEDERATION, 24 August 2016, WT/TPR/S/345; TRADE POLICY REVIEW, REPORT BY

RUSSIAN FEDERATION, 24 August 2016, WT/TPR/G/345; TRADE POLICY REVIEW, REPORT BY THE SECRETARIAT, RUSSIAN FEDERATION Revision, 6 December 2016, WT/TPR/S/345/Rev.1; TRADE POLICY REVIEW, RUSSIAN FEDERATION, MINUTES OF THE MEETING, 25 November 2016, WT/TPR/M/345; TRADE POLICY REVIEW, RUSSIAN FEDERATION, MINUTES OF THE MEETING, Addendum (written questions and replies), 19 December 2016, WT/TPR/M/345/Add.1; TRADE POLICY REVIEW: RUSSIAN FEDERATION,

28 AND 30 SEPTEMBER 2016, Concluding remarks by the Chairperson, https://www.wto.org/english/tratop_e/tpr_e/tp445_crc_e.htm.

The second TPR was conducted in 2021 with the two day meeting with Members happening on October 27 and 29, 2021. See TRADE POLICY REVIEW, REPORT BY THE SECRETARIAT, RUSSIAN FEDERATION, 22 September 2021, WT/TPR/S/416; TRADE POLICY REVIEW, REPORT BY RUSSIAN FEDERATION, 22 September 2021, WT/TPR/G/416; TRADE POLICY REVIEW MECHANISM, COMMUNICATION FROM THE CHAIRPERSON OF THE TRADE POLICY REVIEW BODY, RUSSIAN FEDERATION, Arrangements for Review Meeting, 6 October 2021, WT/TPR/466; TRADE POLICY REVIEW: RUSSIAN FEDERATION, Concluding remarks by the Chairperson, 27 and 29 October 2021, https://www.wto.org/english/tratop_e/tpr_e/tp516_crc_e.htm; EU Statement at the Trade Policy Review of the Russian Federation, 27 October 2021, https://eeas.europa.eu/delegations/world-trade-organization- wto/106279/eu-statement-trade-policy-review-russian-federation-27-october-2021_en; Statement by H.E. Ambassador LI Chenggang at the 2nd Trade Policy Review of Russia, http://wto.mofcom.gov.cn/article/meetingsandstatements/202111/20211103214021.shtml.

While the Russian Federation is not an important trading partner of the United States, because of the geopolitical relationship for the last many decades, the U.S. Congress has required an annual report on the Russian Federation’s compliance with WTO obligations since Russia’s accession in 2012. The ninth such report was released by the Office of the U.S. Trade Representative on December 21, 2021. See USTR Press Release, USTR Announces 2021 Report on the Implementation and Enforcement of Russia’s WTO Commitments, December 21, 2021, https://ustr.gov/about-us/policy-offices/press-office/press- releases/2021/december/ustr-announces-2021-report-implementation-and-enforcement-russias-wto- commitments; United States Trade Representative, 2021 Report on the Implementation and Enforcement of Russia’s WTO Commitments, December 2021, https://ustr.gov/sites/default/files/enforcement/WTO/2021%20Report%20on%20Russia’s%20WTO%20Comp liance.pdf.

Today’s post reviews some of the USTR findings but starts with some background information on the Russian Federation and a look at the recent Trade Policy Review for the country.

Background information on the Russian Federation

The CIA World Factbook provides a lot of information on countries. The entry for the Russian Federation was last updated on December 17, 2021. See CIA, World Factbook, Russia, https://www.cia.gov/the-world- factbook/countries/russia/. According to the CIA World Factbook, the Russian Federation:

o is the largest country by land area (and roughly 1.8 times as large as the USA);

o has borders with fourteen countries (Azerbaijan, Belarus, China, Estonia, Finland, Georgia, Kazakhstan, North Korea, Latvia, Lithuania, Mongolia, Norway, Poland and Ukraine);

o has a coastline of 3,653 km;

o has the ninth largest population in the world (142,320,790 as of July 2021 est.);

o had a negative population growth rate in 2021 (-0.2%, placing it 207th on population growth);

o has a low birth rate (9.71 births per 1000 population, or 193rd in the world)

o has a high literacy rate (99.7% of those 15 years of age or older);

o had relatively low GDP growth in 2017-2019 (1.34% – 2.54%) or 160th in the world

o has low public debt (15.5% of GDP in 2017);

o has large foreign exchange reserves and gold (6th largest);

o is the world’s second largest producer and exporter of crude oil;

o is the world’s 3rd largest producer of refined petroleum products and 2nd largest exporter;

o is the world’s 2nd largest natural gas producer and largest exporter.

The CIA World Factbook has a great deal more information but the above are some examples of data on the Russian Federation.

Despite the Russian Federation’s high levels of education and abundant natural resources, the country in 2022 is rated by the World Bank as only an upper middle-income country (2020 GNI per capita of between $4,096 and $12,695). See World Bank Country and Lending Groups, Country Classification, July 1, 2021, https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups. Russia in 2020 had a per capita GNI in current U.S. dollars of $10,690 which ranked the Russian Federation 74th. See World Bank, GNI per capita, Atlas method (current US$) – Russian Federation, https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=RU

Because so much of the economy is driven by the gas and oil sectors, increasing prices for both in 2021 led to strong growth in GDP in the Russian Federation, although growth is expected to moderate in 2022 and 2023. See World Bank, Amidst Strong Economic Rebound in Russia, Risks Stemming from COVID-19 and Inflation Build, Says World Bank Report, December 1, 2021,https://www.worldbank.org/en/news/press- release/2021/12/01/amidst-strong-economic-rebound-in-russia-risks-stemming-from-covid-19-and-inflation- build-says-world-bank-report.

The World Trade Organization provides useful information on each Member in various publications including its annual Trade Profiles. The 2021 publication shows that in 2020, the Russian Federation accounted for 1.89% of world merchandise exports and 1.35% of world merchandise imports. Total Russian Federation exports were $332.227 billion and its total imports were $240.380 billion. Its five largest export markets were the European Union (41.3%), China (13.4%), Belarus (5.1%), Turkey (5%) and the Republic of Korea (3.8%). The Russian Federation’s five largest trading partners for imports into the Russian Federation were the European Union (34.2%), China (21.9%), Belarus (5.5%), the United States (5.4%) and Japan (3.6%).

As noted, fuels and mining products are the largest exports — 59.1% of total Russian exports in 2020 with petoleum oils (crude and refined) accounting for$189.176 billion (49.49%). Coal ($15.987 billion) and natural gas ($9.501 billion) are the next largest export products.

The Russian Federation accounts for a smaller shares of the export trade in commercial services — 0.95% of global exports and a slightly larger share of imports of commercial services, 1.38%. The European Union accounts for the largest share of commercial service exports from the Russian Federation (35.9%) and 47.5% of the Russian Federation’s imports of commercial services. The U.S. accounts for 6.5% of Russia’s exports of commercial services and 4% of imports of such services into the Russian Federation. China is the third largest importer of Russian commercial services (6.2% of Russia’s exports) and 3.7% of Russia’s imports.

See World Trade Organization Trade Profiles 2021 at 298-299, October 2021,https://www.wto.org/english/res_e/booksp_e/trade_profiles21_e.pdf.

WTO Trade Policy Review of the Russian Federation in 2021

While the minutes to the 2021 TPR of the Russian Federation and the written questions and replies are not yet available, the Secretariat review along with the Russian Federation write-up are available as is the concluding statement of the chairman of the review on the Russian Federation. Both the EU and China’s statements on October 27 at the review are also available.

For brevity, the Chair’s concluding comments and the statement of the European Union (as the largest trading partner for the Russian Federation) are copied below. Both follow norms for the WTO by identifying areas where the Member being reviewed has made contributions to the system and then follows with particular concerns of some other Members. First the concluding remarks by the Chairperson on 29 October 2021. TRADE POLICY REVIEW: RUSSIAN FEDERATION, Concluding remarks by the Chairperson, 27 and 29 October 2021, https://www.wto.org/english/tratop_e/tpr_e/tp516_crc_e.htm

“Concluding remarks by the Chairperson

“The second Trade Policy Review of the Russian Federation has allowed us to better understand and discuss recent developments regarding trade, economic, and investment policies in the Russian Federation. 57 delegations took the floor, which demonstrates the importance Members attach to the review of the policies and practices of the Russian Federation. 1,017 advance written questions were submitted by Members, with additional questions submitted during and following the first day of our meeting.

“I would like to thank the delegation of the Russian Federation, headed by Ms Ekaterina MAYOROVA, Director of the Department of Trade Negotiations, Ministry of Economic Development, for their constructive participation in this exercise.

“I would like to express my gratitude to our discussant, His Excellency Ambassador Didier CHAMBOVEY of Switzerland, for his insightful remarks touching on macroeconomic and other developments, remaining trade and trade-related challenges, and the role the TPRM can play in overcoming these.

“I would like to thank the delegations that took the floor for their valuable contributions to this Review. Members commended the Russian Federation for its stable and resilient economic performance since the previous Review in 2016, including measures taken to stabilize the banking sector. They particularly stressed the effective macroeconomic and monetary policies undertaken, and the demonstrated resilience to the economic consequences of the COVID-19 pandemic, as well as to volatile energy markets. Some Members commented on policies aimed at diversifying the economy and addressing structural impediments to economic growth.

“Members also positively noted a number of policy reforms undertaken by the Russian Federation affecting, among others, trade facilitation, import tariffs and export duties, competition policy, protection of IPRs, and supporting MSMEs. Regarding trade facilitation, Members highlighted reforms to improve customs procedures and requirements in areas such as risk management, automation, electronic documents, and reducing clearance times.

“While Members appreciated the overall reduction in MFN tariffs, they nevertheless encouraged the Russian Federation to further simplify the tariff structure. Members expressed the hope that the
Russian Federation would continue to deepen the reforms and to ensure that any new policies, regulations, and reforms would be in line with its WTO commitments.

“Many Members stressed the Russian Federation’s strong involvement in, and support of, the multilateral trading system. They highlighted the constructive engagement of the Russian Federation in the discussions around WTO reform, preparations for MC12, fisheries subsidies negotiations, the four Joint Statement Initiatives, and trade and gender.

“Regarding the JSI on Services Domestic Regulations, some Members encouraged the Russian Federation to swiftly submit its draft schedule of commitments. Members also encouraged the Russian Federation to complete its process of accession to the Agreement on Government Procurement in the near future.

“Members expressed their desire for the Russian Federation to continue its leadership role at the WTO. In this regard, they welcomed the stated commitment by the Russian Federation to the rules-based multilateral trading system with the WTO at its core.

“Some Members also commended the Russian Federation for its support to developing countries, for example, through the delivery of COVID-19 vaccines. In this regard, Members also emphasized the importance of trade preferences under the Generalized System of Preferences.

“Import substitution, localization policies, and local content requirements, especially in the context of public procurement, were issues raised by many Members. They were particularly interested in the impact such policies can have on trade, FDI, productivity, and the integration of the Russian Federation into global value chains. Members encouraged the Russian Federation to review such policies in light of WTO principles and the process of its accession to the Agreement on Government Procurement. For some Members, these policies were representative of a broader set of policies that they perceived as discriminatory and reducing predictability, transparency, and competition.

“Members commended the Russian Federation for the reforms undertaken to improve the business and investment environment, for example, the introduction of a “regulatory guillotine” mechanism, and the establishment of key conditions for electronic commerce. Members also expressed concerns regarding the remaining challenges in this area.

“Thus, in addition to the recent increase in restrictions on FDI, Members identified several factors as potentially having a negative effect on the conditions of doing business in the Russian Federation. These include governance and other rule-of-law issues, the dominant position of the State in key sectors of the economy and the lack of transparency regarding state-owned enterprises, the existence of a high degree of concentration in certain sectors, and the use of various subsidies in favour of domestic firms. Concerns were voiced in relation to developments in specific services sectors, including financial services and maritime transport.

“While many Members expressed appreciation for the numerous notifications submitted, they nevertheless encouraged the Russian Federation to further improve the timeliness and completeness of its notification record, mentioning in particular notifications related to state trading enterprises, licensing procedures, agriculture, and technical regulations applied at the national level.

“Sanitary and phytosanitary measures and technical regulations have also received much attention in this Review. Thus, for example, several Members raised issues regarding inspection procedures for meat imports and the ‘Track and Trace’ regime. Some Members expressed concerns regarding the application of measures that they consider were not based on international standards, unsupported by scientific evidence, and without adequate transparency. Some Members stressed the need for more clarity regarding the relationship between EAEU rules and rules applied at the national level.

“Other issues of interest for some Members included the introduction of export bans on agricultural and wood products, the imposition of temporary export restrictions and the increased use of export tariff rate quotas since the beginning of the pandemic, and measures relating to transit.

“This Trade Policy Review was characterized by open and constructive discussions around the
Russian Federation’s trade and trade-related policies. As highlighted by the Russian Head of Delegation, the discussant, and many Members, the TPRM represents an opportunity to improve policies going forward.

“I therefore hope that the authorities will find the questions, comments, and experiences shared during this Review useful in their efforts to review and design their policies. Members look forward to receiving the answers to outstanding questions from the Russian Federation within one month, at which point the Review will be successfully concluded.”

A number of the concerns raised were also raised in the 2016 review, indicating limited if any improvement on important issues (e.g., import substitution, localization policies, and local content requirements). Others reflect actions by the Russian Federation following the start of the pandemic (“the introduction of export bans on agricultural and wood products, the imposition of temporary export restrictions and the increased use of export tariff rate quotas since the beginning of the pandemic, and measures relating to transit.”).

The European Union raised many of these same issues in its statement at the TPR meeting on October 27, 2021. As the largest trading partner of the Russian Federation, the concerns raised likely reflect the broadest understanding of problems with the Russian Federation’s compliance with WTO obligations. EU Statement at the Trade Policy Review of the Russian Federation, 27 October 2021, https://eeas.europa.eu/delegations/world-trade-organization-wto/106279/eu-statement-trade-policy-review- russian-federation-27-october-2021_en

“Statement delivered by Ambassador João Aguiar Machado

“The EU welcomes this second Trade Policy Review of the Russian Federation, almost a decade since itsaccession to the WTO. We welcome the delegation of Russia, led by Ms. Ekaterina Mayorova (Director of theDepartment of trade negotiations, Ministry of Economic Development) and thank the Discussant, Ambassadorof Switzerland H.E. Didier Chambovey, for his remarks.

“The EU is the main trade partner of the Russian Federation, both for goods and for services, and its main source of foreign direct investment, with some 75% of total inward FDI. Bilateral trade in 2020 represented some 4.8%of EU foreign trade in goods, down from 6% at the time of the previous TPR.

“Back in 2016, at its first Trade Policy Review, the EU had emphasized that Russia’s WTO accession represented an opportunity for its modernisation. A chance to diversify its economy and reduce its reliance on raw materials and commodities, but equally to adjust its judicial and legal framework to bring in a more dynamic and responsive market. The European Union continues to hold that belief.

“Over the last few years, Russia’s efforts to play a constructive role in various areas in the WTO have not gone unnoticed – be it in its involvement in the Joint Statement Initiatives, or in its general support to achieve a meaningful MC12 including through its openness towards WTO reform in order for the organization to remain strong and credible. The EU looks forward in making progress in the different Joint Statement Initiatives, and in particular concluding the Domestic Regulation JSI in the margins of MC12. We hope that Russia will be in the position to submit their schedule of specific commitments as soon as possible, noting that the schedules of all participants are an essential component for a successful conclusion of this negotiation.

“However, the Russian Federation needs to redouble its commitment to the WTO. Today, we regret to
note that since its accession the Russian authorities have expanded, rather than reduced, the scope of its import substitution policy without any realistic furthering their pretended aim of localisation. This not only has a negative effect on trade with the EU but is done in most cases to the direct detriment of Russian consumers.

“In addition, the arguments used by the Russian authorities to justify protectionist policies namely that they are a direct consequence of the sanctions of individual economies on the Russian Federation – are questionable in our view. These Russian policies started immediately after Russia’s WTO accession and predate the political tensions that Russia highlights.

“Some of the specific questions tabled by the EU better explain the underlying concerns that we have. Allow me to highlight some:

“Several questions target the contradiction between the aspiration of the Russian Federation to become a member of the Government Procurement Agreement, and the reality of its practice. The ability of foreign bidders to participate in government procurement has been obstructed or effectively denied through
a growing body of regulations granting advantages to domestic products via price preferences, quotas, or exclusion of foreign goods and services.

“A large part of the Russian state’s presence in the economy – up to 20% of Russian GDP — corresponds to state-owned enterprises providing products and services in a commercial context. Despite the applicable WTO rules in this area, the Russian Federation has introduced such a growing body of restrictions as to make the participation of foreign bidders in tenders uneconomic, or a practical impossibility.

“As to export restrictions – under the rationale of preventing illegal logging and supporting domestic forest- based industries – the Russian Federation has announced a ban on the export of unprocessed wood from 2022. It remains unclear how the Russian Federation intends to reconcile these measures
with the schedule of its concessions, which include export tariff-rate quotas in some of the categories of wood covered by the announced ban.

“One primary mission of the WTO is to facilitate transparency. For this, a reliable notification practice is imperative. The Russian Federation’s performance in this area leaves much to be desired. For example, Russian Federation notifications in the area of technical barriers to trade have concerned only
Eurasian Economic Union-level measures. A number of Russian Federation national measures falling within the scope of the TBT Agreement entered into force without any notification whatsoever to the WTO, including those regarding the wines and spirits sector. Not a single measure adopted at the national level has been notified to the WTO.

“The same can be said about the exclusive rights in the area of foreign trade granted to certain entities
in the Russian Federation including, for example, for the export of natural gas. The Russian Federation
has failed, since its accession, to notify a single state-trading enterprise to the WTO. At the same time, around 50% of the EU’s imports from the Russian Federation are sold by a single export monopoly of natural gas. Let me also remark that, beyond its non-notification, this fact sits uneasily with the overall principles of the WTO, and in our view also with the long-term interests of Russia.

“To conclude, the EU welcomes the Russian Federation’s commitment in its report to an open, non- discriminatory and transparent multilateral trading system, and for a reform aimed at preserving the WTO’s role in maintaining and developing new trade rules. We commend this as a good foundation for the necessary efforts that Russia should undertake to abide by the spirit and the letter of its WTO commitments, and to build a more open, transparent and non-discriminatory business environment.

“Thank you.”

USTR’s 9th Report to Congress on the Russian Federation’s Compliance with WTO obligations

USTR Katherine Tai’s press release on the latest USTR report on the Russian Federation’s compliance with WTO obligations summarizes concerns that the U.S. has more than nine years after the Russian Federation became a WTO Member.

“USTR Announces 2021 Report on the Implementation and Enforcement of Russia’s WTO Commitments “December 21, 2021

“WASHINGTON – The Office of the United States Trade Representative today released its ‘2021 Report on the Implementation and Enforcement of Russia’s World Trade Organization (WTO) Commitments.’

“‘This Report provides an overview of Russia’s continued departure from the guiding principles of the World Trade Organization, such as non-discriminatory practices, more open trade, predictability, transparency, and fair competition,’ said Ambassador Katherine Tai. ‘Failure to follow WTO norms, rules, and commitments puts American workers and businesses at an economic disadvantage and prevents them from competing on a level playing field. USTR will continue to work with like-minded partners and use the tools of the WTO to hold Russia accountable for its behavior in the multilateral trading system.’

“The Report highlights areas in which USTR has raised concerns about Russia’s compliance with its WTO commitments, including:

“‘Russia continues to adopt and implement localization measures to provide preferential treatment to both domestically produced goods and services.’

“‘In the agriculture sector, Russia maintains non-science-based import restrictions and refuses to recognize other countries’ guarantees on exporting facilities.’

“‘Russia’s import substitution strategies for the IT sector, such as the ‘Digital Economy of the Russian Federation,’ also raise additional national treatment and import substitution concerns.’

“‘As economies around the world were forced to retract and retrench in response to the COVID-19 pandemic, the government of Russia exacerbated those trends by extending its control over the Russian economy and tightening restrictions on trade.’

“Background

“This report was prepared pursuant to section 201 of the Russia and Moldova Jackson-Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act of 2012 (P.L. 112-208), which requires the U.S. Trade Representative to submit a report to the Committee on Finance of the U.S. Senate and the Committee on Ways and Means of the U.S. House of Representatives describing the commitments that Russia made upon entering the World Trade Organization on August 12, 2012, and assessing the extent to which Russia has implemented those commitments after 9 years of WTO membership.”

The USTR report is 62 pages in length and reviews an array of areas where the Russian Federation undertook commitments on acceding to the WTO and provides the USTR evaluation of whether there has been implementation to date. See 2021 Report on the Implementation and Enforcement of Russia’s WTO Commitments, December 2021,