Nearly a year after Russia joined the World Trade Organization (WTO), the European Commission has requested formal WTO consultations over a Russian vehicle tax, which, it claims, discriminates against EU imports. As Eric Davies reports, this is the first case the EU has brought against Russia at the WTO.

When Russia joined the WTO on 22 August 2012, the EU welcomed the move. The expectation was that Russia’s accession would see a cut in the level of import duties and that EU businesses would find it easier and cheaper to access the Russian market. However, a “vehicle recycling fee” introduced by Russia on 1 September 2012 has had a significant impact on EU trade, with the cost of exporting vehicles to Russia having risen and, in some cases, becoming prohibitive.

Russia claims the fee is an environmental initiative that aims to pass on the costs of vehicle recycling to manufacturers. Levied on cars, trucks, buses and other motor vehicles, it varies according to the type and age of vehicle: new cars are charged between €420 and €2700; vehicles more than three years old attract fees ranging from €2600 to €17,200; for mining trucks, the fee can reach €147,700.

Discrimination

The fee applies to all vehicles imported to Russia from the EU. There are exceptions to the new rules for vehicles produced in Russia (which effectively exempts all vehicles made there) and for those imported from Belarus and Kazakhstan (which are part of a customs union with Russia).

Although it supports environmental measures aimed at dealing with end-of-life vehicles, the European Commission argues that the Russian legislation discriminates “arbitrarily and unjustifiably” against vehicles imported into Russia from the EU. As those vehicles are treated less favourably than vehicles from Russia, Belarus or Kazakhstan, the Commission believes the new rules breach the WTO principle of non-discrimination.

The Commission argues that it is possible to achieve Russia’s stated environmental objective without imposing the level of fees introduced under the new legislation (the EU has itself adopted legislation in this area, in the form of Directive 2000/53/EC on end-of life vehicles).

Impact

Not only is the fee applied by Russia incompatible with WTO rules prohibiting discrimination against imports, but it is having a significant impact on trade in a key sector of the EU economy. Russia is the EU's third largest trading partner and its exports primarily comprise machinery and transport equipment, chemicals and agricultural products. In 2012, the EU exported €123 billion worth of goods to Russia, of which machinery and transport equipment, including vehicles, accounted for almost 50%.

EU vehicle exports to Russia were worth more than €10 billion in 2012. Russia calculates that the fee will raise some €1.3 billion in government revenue each year.

The fee has offset reductions in import tariffs, which Russia agreed when it joined the WTO. According to the Commission, the cost of importing a vehicle into Russia is now higher than before Russia joined the WTO.

Consultations

EU Trade Commissioner Karel De Gucht said that the European Commission had tried to find a solution via bilateral diplomatic channels, but without success. The EU believes it now has no choice other than to initiate the WTO's dispute settlement procedures.

In an effort to find a solution without the need for litigation, the Commission has requested consultations at the WTO. If those talks do not result in agreement within 60 days, the EU can ask for a WTO panel to be established to rule on the legality of the new Russian rules.

Further information

Details of EU–Russia relations can be found on the DG Trade website.

Last reviewed 6 August 2013