World against Russia: Three scenarios of WTO transit dispute

Author : Natalia Mykolska

Source : 112 Ukraine

Dispute Settlement Body of World Trade Organization decided to create a group of experts that would consider Ukraine’s lawsuit against Russian Federation on transit restrictions
13:55, 23 March 2017

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March 21, Dispute Settlement Body (DSB) of World Trade Organization (WTO) decided to create a group of experts that would consider Ukraine’s lawsuit against the Russian Federation on transit restrictions.

Ukraine’s lawsuit against Russia is very important for us because we prove that the transit restrictions have no reason or explanation, and that this is part of the trading aggression against Ukraine.

This action is important not only for Ukraine; it is not just a trade dispute between the two countries.

Actions of the Russian Federation intended to harm Ukraine's relations with third countries, and these countries limit access to Ukrainian food. These were attempts not only to influence, but to destroy the traditional relations and transport corridors between European and Asian parts of the world.

Related: WTO to consider issue Ukrainian transit restrictions by Russia

This is also an attempt to oust the Ukrainian export from Kazakhstan and Kyrgyzstan, making the delivery of goods by an alternative longer and more expensive.

In such a way we are showing all the countries that Ukraine would not tolerate any restrictions on Ukrainian exports and use all possible mechanisms and instruments to address them.

What is Russia’s misconduct on transit restrictions?

Russia wants to destroy Ukraine’s traditional relations with neighboring countries, which during the centuries have been built between the European and Asian parts of the world.

Territory of Ukraine is the most convenient and natural route for the movement of goods from Europe to Asia by road and rail.

Related: Ukraine and Russia to hold the consultations on WTO

Therefore, because of artificial restrictions of transit traffic, Russia eliminates most convenient international transit routes from Ukraine to Central Asia and therefore all traffic in transit from Ukraine through Russia is experiencing undue delays and restrictions.

December 31, 2015 Russians started to stop cargo at the Ukrainian-Russian border, which had to follow from Ukraine to Kazakhstan and further to third countries through the territory of Russia.

Related: Ukraine sues Russia in WTO for limiting transit of goods to Asia

Only two checkpoints on the Belarusian-Russian border were created (one for cars and another - for rail transport). But while these points, carriers have had to wait several days for the formation caravans (limited to 10 cars in the column) and move on to Kazakhstan under the escort of the Russian traffic police.

Since July 1, 2016 transit restrictions were expanding both geographically (to Kyrgyzstan), and by content (including complete ban movement across the territory of goods, import duty rate of which is above zero). So, Russia alone has established special conditions exclusively for international transit cargo that travel to / from or through the territory of Ukraine.

The limitations concern not only Ukrainian goods, but products of any origin that previously traveled through Ukraine. In our opinion, such restrictions of Russia is an attempt to destroy the transit potential of Ukraine.

Another proof of this is that decision of Russia on transit restrictions de facto entered into force before their publication! That there was no opportunity to review the "new rules".

Related: How WTO sees Russia: First review of trade policy

Furthermore, the illegal actions of Russia to Ukraine transit restrictions are considered as the use of Russian export restrictions of Ukrainian goods to third countries. After all, objectively, most damage suffered Ukrainian exporters and transporters that have been deprived of the best, well-established and traditional routes of delivery of goods to Central Asia.

As a result, restrictions and ban of goods transit through Russia require companies to abandon partnerships with colleagues from Kazakhstan and other Central Asian countries, or invent others, much more expensive ways of delivering their products to them.

What does Ukraine contest?

Ukraine’s lawsuit is not just appealing against the actions of the Russian side. This assertion of the rights and interests of our country as in international trade and ensure stable conditions for Ukraine's economic development in general.

Related: Ukraine to sue Russia in WTO in early 2017

January 13, 2016 among WTO members were distributed communication regarding illegal actions of Russia in transit restrictions. Ukraine also filed the matter to the WTO General Council meetings (February and July 2016), the Council for Trade in Goods (April and July 2016), the Committee of the WTO.

 September 13, Ukraine sent a request for consultations with Russia concerning the transit traffic restrictions - mandatory procedural phase, which must be performed by a country that is configured to solve the dispute using the appropriate mechanism of the WTO. But, as we predicted, the problem was not resolved.

February 9 this year, Ukraine has sent to DSB a requirement for establishment of a for a hearing on transit restrictions in effect. As expected, Russia used its only chance to reject it.

But after the second announcement on March 21 Group of Experts was established despite the position of the Russian Federation.

Of course, the Russian side will use all possible means to delay the progress of the case and evade its international obligations.

Related: WTO will consider Russia’s trade sanctions on Ukraine

What is next?

There are three scenarios:

  1. Russia cancels unlawful restrictive measures, and Ukraine’s traditional trading conditions of trade with countries of Central Asia recover.
  2. Compensation. If Russia fails to fulfill recommendations of the DSB of the WTO, Ukraine will seek compensation. In addition, we are able to offer the appropriate size and format of compensation on the subject of controversy.
  3. Termination of concessions - in this embodiment, Russia does not comply with the WTO recommendations and does not provide compensation. Then Ukraine has the right to request the Dispute Settlement Body of the WTO authority for the termination of concessions or other obligations under the WTO agreements.

According to the rules, WTO member that won the dispute can take temporary measures in the form of compensation or suspension of concessions until a country that has lost does not follow WTO requirements.

Related: Ukraine asks for Canada’s support in WTO in trade conflict with Russia, - Jaresko

Related: Russia must respect its commitments in the WTO, - EU Delegation in Ukraine

Compensation is a proposal to deprive the party that does not comply with the recommendations of the benefits (e.g., reduction of duties).

However, the final requirement for the country infringer is obligatory nature of the recommendations.

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