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Russia opens Pandora's box: Threat of lawsuit against Ukraine in WTO

Author : Olena Omelchenko

23:21, 23 May 2017
Russia opens Pandora's box: Threat of lawsuit against Ukraine in WTO

Author : Olena Omelchenko

Proceeding from the press release of the Ministry of Economic Development of Russian Federation, it is presumed that Russia will try to dispute all the Ukrainian restrictions that have been introduced since 2014 with respect to trade and access to the market

23:21, 23 May 2017

Read original article at eurointegration.com.ua

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The Russian government announced filing of a comprehensive lawsuit against Ukraine to the World Trade Organization (WTO) in connection with the imposed restrictions and prohibitions against the Russian Federation. Already now it can be said that this dispute promises to become one of the most ambitious and complex in the history of the WTO.

There is no official information on the WTO website yet, but from the statements of the Russian Minister of Economic Development Maksim Oreshkin it is clear that the request for consultations was coordinated at the bilateral meeting of the minister with the head of the WTO Roberto Azevedo.

During the meeting, the minister focused Azevedo's attention on the fact that Russia has serious grounds to assume that Ukraine is taking measures in violation of its obligations to the WTO. This approach to the case shows the importance and special attention to this issue from Russia.

What can Russia dispute about?

Proceeding from the press release of the Ministry of Economic Development of the Russian Federation, it is presumed that Russia will try to dispute all the Ukrainian restrictions that have been introduced since 2014 with respect to trade and access to the market.

First, it may be a ban on the import of goods originating in the Russian Federation to the customs territory of Ukraine, introduced by Cabinet of Ministers’ Decree No. 1147 of December 30, 2015, with subsequent amendments.

According to the decision of the Cabinet, the ban concerns only the importation of goods from Russia, and it was applied in response to the Russian food embargo and entered into force 10 days later. Presumably, Ukraine will annually renew the above ban until the Russian Federation, for its part, abolishes the food embargo.

As we know, the Ukrainian ban covers meat, dairy, fish and some vegetable products, confectionery, tea, beer and spirits, cigarettes, railway and tram equipment, diesel electric locomotives, potassium chloride, detergents, some agricultural chemicals, etc. These goods were specified in the press release.

Secondly, it can be personal special economic and other restrictive measures (sanctions) listed by the decision of the National Security and Defense Council of Ukraine on April 28, 2017 and introduced by the decree of the President of Ukraine of May 15, 2017 No. 133/2017.

The Law of Ukraine "On Sanctions" provides 25 types of such restrictions: in particular, restriction of trade operations; blocking assets; restriction and suspension of transit of resources, flight and transportation; cancellation of licenses and other types of permits; limitation and suspension of telecommunications services and use of public telecommunications networks; prohibition of participation in privatization; introduction of additional measures in the sphere of economic, veterinary, sanitary, phytosanitary and veterinary control. Potentially, part of these sanctions could be included in the list of those which Russian Federation considers incompatible with WTO norms.

Moreover, it is possible that in the request for consultations, may be listed dome special sanctions for foreign trade activities, applied in accordance with Art. 37 of the Law of Ukraine "On Foreign Economic Activities", or restrictions on individuals and legal entities of the Russian Federation to participate in privatization, established by the Law of Ukraine of February 16, 2016 No. 1005.

Related: Russia demanded WTO consultations because of Ukrainian sanctions


Undoubtedly, the application will be subject to restrictions in the banking and financial sectors. For example, such as prohibiting credit institutions from making bank payments and transfers, as well as restricting the issuance of licenses for currency transactions.

Also, judging by the press release, Russia will raise the issue of the legality of introducing a special taxation regime applied when importing second-hand Russian cars. The Law of Ukraine "On Amendments to Section 5 Subsection 5 of the Transitional Provisions of the Tax Code of Ukraine for the Promotion of the Development of the Market for Used Vehicles" of May 31, 2016 No. 1389-VIII provides for a reduction in excise rates for used cars until December 31, 2018 .

Undoubtedly, during the consultations restrictions in the banking and financial sectors will be considered.  For example, such as prohibiting credit institutions conducting bank payments and transfers, as well as restricting the issuance of licenses for currency transactions.

Also, judging by the press release, Russia will raise the issue of the legality of introducing a special taxation regime applied when importing second-hand Russian cars. The Law of Ukraine "On Amendments to Section 5 Subsection 5 of the Transitional Provisions of the Tax Code of Ukraine for the Promotion of the Development of Used Vehicles’ Market " of May 31, 2016 No. 1389-VIII provides the  reduction in excise rates for used cars until December 31, 2018.

Excise tax rates established by this paragraph are not applied to cars if they originate from a country recognized the occupying state under the law of Ukraine and / or recognized the aggressor state in relation to Ukraine under the law; or imported from the territory of such an occupying (aggressor) state and / or from the occupied territory of Ukraine, determined in accordance with the law of Ukraine.

Thirdly, we should not expect that Russia will miss the opportunity to try to dispute the ban on the distribution and demonstration of Russian movies and TV shows, introduced in the current version of the law of Ukraine "On Cinematography", as well as on restricting access to foreign printed products with anti-Ukrainian content, from introduced in the law of Ukraine from December 8, 2016 № 1780-VIII, or on restriction of journalistic activities, stipulated in the resolution of the Verkhovna Rada of Ukraine on February 12, 2015, No. 185-VIII "On temporary suspending the accreditation of journalists and representatives of certain Russian media in the bodies of state power of Ukraine. "

Most likely, all the above points will be mentioned.

Russian side will point out the lack of access to the market, the violation of the principle of "non-discrimination", the lack of transparency and predictability, and the failure to comment on the decision.

Among other things, it may be possible to refer to the violation of Articles I, II, III, X, XI of the General Agreement on Tariffs and Trade 1994 and Articles II, III, XI, XVI, XVII of the General Agreement on Trade in Services, as well as some articles of the Agreement on the Application of Sanitary and Phytosanitary Measures, the Agreement on Technical Barriers to Trade and the Agreement on Import Licensing Procedures.

Presumptive position of Ukraine

Undoubtedly, Ukraine's position will be based on the fact that the Verkhovna Rada of Ukraine has recognized Russia as an aggressor country, and therefore believes that all trade restrictions fall under the exceptions to WTO rules in connection with national security.

Art. XXI of the General Agreement on Tariffs and Trade is one of the key rules that allow the introduction of restraint trade measures as an exception and provide the maximum freedom for countries to independently identify and take any measures they deem necessary to protect the "essential interests of their security" if they are taken in time of war or other emergency in international relations.

Related: World against Russia: Three scenarios of WTO transit dispute

Considering that Ukraine did not determine the existence of wartime at the legislative level, it is most likely that it will argue the existence of extraordinary circumstances in international relations.

Among other things, in the course of the case Ukraine will have to argue that the above restrictions were applied in defense of its legitimate national security interests, the threat of which was real and legitimate, and the measures applied were commensurate with the existing danger and / or threat. Moreover, it will be necessary to justify the link between the threat to the essential interests of its security and the proportionality of the measures applied.

However, the Art. XXI was rarely used and had not previously been officially interpreted by the WTO Dispute Settlement Body, so there is no case law that would determine the legitimacy of national security interests on the subjective decision of individual WTO member countries, and which would determine the elements that affect the order, conditions and circumstances of using the Art. XXI of the General Agreement on Tariffs and Trade.

This dispute between Ukraine and Russia may be the first precedent for the interpretation of Art. XX, which will affect the understanding of the legality of its use.

Moreover, until now this article was considered a kind of Pandora's box, the opening of which can "ruin" the current system of commercial law. That is why the EU, the US, Canada, Australia did not hurry to appeal to this article even after introducing of Russian food embargo against them.

And besides, these same countries, according to unofficial information, kept Ukraine from challenging Russian sanctions in the WTO.

Now this box of Pandora was opened by Russia. And this means that the dispute between Russia and Ukraine promises to become an event of a global scale. That is why many WTO member countries will closely monitor developments in this case, since case-law will become mandatory for them.

And this means that a Russian lawsuit can open doors to similar lawsuits - already against the Russian Federation itself.

However, there is an opinion of some experts that the Dispute Settlement Body will continue to refrain from creating a detailed precedent of Article XXI interpretation in order to ensure balance and non-infringement of sovereign rights.

Related: WTO to consider issue Ukrainian transit restrictions by Russia

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

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

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