Chapter 11. Increases in Customs Duties on Automobiles, etc.

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1 Chapter 11 RUSSIAN FEDERATION The Russian Federation is acceding to the WTO; however, this report points out the following measures because they were introduced during the accession negotiation, are not consistent with principle of the WTO agreements, and have trade distorting effects. INCREASES IN CUSTOMS DUTIES Increases in Customs Duties on Automobiles, etc. <Outline of the measure> The Russian government in January 2009 increased tariffs on automobiles and trucks. Among the measures implemented were tariff increases on foreign-make automobiles manufactured within the previous five years and imported by corporations from the present 25% to 30%, 35% or a tariff amount determined by engine capacity, as well as tariff increases on vehicles manufactured more than five years ago by engine capacity. In February 2009, the Russian government applied increased tariffs to some steel products and agricultural machines for a period of nine months, and extended them for some steel products for an additional nine months starting in December. In addition, in November, the Russian government imposed a safeguard duty on corrosion-resistant pipes with external diameter of 426 mm or less for a period of three years. 275

2 Furthermore, for liquid crystal and plasma televisions, the Russian government applied increased tariffs for the period of nine months starting in May In addition to the above, the Russian government increased tariffs on washing machines, rice, wheat, lumber (export tax), etc <Problems under international rules> As mentioned earlier, confronting Russia on these issues by citing international trade rules is difficult because Russia has not yet acceded to the WTO. However, the G20 countries, including Japan and Russia, held a Summit on Financial Markets and the World Economy in November 2008 in Washington, DC, and in London in The Summit declared that for 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing WTO inconsistent measures to stimulate exports. In addition, at the Summit on Financial Markets and the World Economy held in Pittsburg, the United States in September 2009, all the summit countries confirmed that they would stand together to oppose protectionism. Russia s recent introduction of tariff increases is clearly in violation of this accord and contravenes the spirit of the WTO that Russia wishes to join. <Recent Developments> Since the Russian government s Government Committee on Trade Protection Measures and Tariff Policy recommended in November 2008 that the Russian government raise import tariffs on foreign-made automobiles, Japan has on several occasions submitted requests to the Russian government, including an appeal made by the Japanese Embassy in Russia, that tariff increases not be implemented; Minister of Economy, Trade and Industry Nikai also sent letters to Russia s Minister of Economy and Development and to its Industry and Trade Minister requesting that the tariff increases be repealed. Prime Minister Aso used the opportunity of the February 2009 Japan-Russia summit meeting to mention to Russian President Medvedev that the international community must be on the alert against the emergence of protectionism in the midst of a worldwide economic slowdown and to express concerns about measures taken by Russia to raise some of its tariffs. In addition, at the meeting on the occasion of President Putin s visit to Japan in May, Prime Minister Aso made a request to President Putin for Russia s cooperation in overcoming the crisis, stating that Russia has 276

3 repeatedly taken measures to increase tariffs despite the commitments it made at the Summit on Financial Markets and the World Economy, and that the emergence of protectionism should not be allowed. Also at the meeting of Minister of Economy, Trade and Industry Naoshima and Minister for Economic Development and Trade Nabiullina, on the occasion of the APEC Ministerial Meeting held in November, Mr. Naoshima made a request to Mr. Nabiullina for the review of measures to increase tariffs on automobiles and other products. Japan will continue as appropriate to encourage Russia to repeal these tariff increases. SAFEGUARDS Safeguard Measure against Large-Diameter Circular Steel Pipes <Outline of the measure> On February 3, 2005, the Russian Ministry of Economic Development and Trade initiated an investigation concerning a safeguard measure against imports of largediameter circular steel pipes in response to a complaint from the Russian steel industry. The complainants requested (1) an increase in the tariff rate to 20% as a provisional measure and (2) the imposition of an import quota for five years as a final measure. On occasions such as public hearings, bilateral consultations and various ministerial meetings, Japan has repeatedly contended that the Russian government should not apply a safeguard measure in this case, as the move might violate Russian Federal law, and that it would be undesirable for Russia to implement a measure inconsistent with the WTO agreements prior to its accession to the WTO. <Problems under international rules> The conditions for applying safeguard measures are: (1) unforeseen developments; (2) a rapid increase in imports; (3) serious injury to domestic industry or threat of serious injury; and (4) a causal link between increased imports and injury. The findings of the investigation report published by Russia in November 2005 include conflicts with the WTO agreements. First, during the investigation period, there were increases in domestic production and sales by Russian steel pipe manufacturers, gross exports, the production capacity utilization ratio and the number of employees engaged 277

4 in production, making it unlikely that the Russian industry suffered serious injury. Secondly, there was no objective examination based on positive evidence of a causal link between the increased imports and serious injury. Furthermore, Japanese-made, large-diameter circular steel pipes targeted by this safeguard measure are not like products or directly competitive to Russian-made ones in terms of product features, end uses and evaluation by the market. For these reasons, it is inappropriate for Russia to apply the safeguard measure. <Recent Developments> Although Japan repeatedly raised this issue and complained that the safeguard measure would be inappropriate, the Russian Ministry of Economic Development and Trade on July 21, 2006 submitted its investigation report to the Russian government, which on November 18, 2006 announced its decision to apply the safeguard measure against imported large-diameter circular steel pipes. As a result, a special duty of 8% was imposed on large-diameter circular steel pipes from Japan and other countries, effective for three years from December 21, As Russia was not a member of the WTO when the safeguard measure was imposed, it is impossible to seek a solution to this issue through the WTO dispute settlement system. On December 21, 2007, Japan demanded the termination of the safeguard measure which had been announced in the government decree made by the Russian President on November 18, This decree also stipulated the implementation of annual reviews for the measure following its imposition. Despite Japan s demand for the revocation of the measure, it was continued thereafter. The term of the measure expired on December 21, However, the Ministry of Industry and Trade recommended that the measure be extended for three years (up to December 21, 2012) based on the results of an investigation on the extension of the measure that was started in September In response to this, it seems that the Russian Government Commission on Protective Measures in Foreign Trade and Customs and Tariff Policy made a decision to the effect that it is appropriate to extend the current measure for one year. However, the federal government had yet to make a formal decision as of March Japan needs to continue considering appropriate responses toward preventing the extension of the measure and its revocation if the measure is extended. INCREASE ON LOG EXPORT TAXES <Outline of the measure> On 7 February 2007, the Russian Government announced an increase in export taxes for forest products as an additional measure to the Forest Code of the Russian Federation, which went into effect in December According to the announcement, 278

5 1 July 2007 will mark the first increase in export taxes for softwood, hardwood, and poplar logs, in a phased increase that could continue to as late as 1 January In the case of softwood logs, which are exported in great number to Japan, the 6.5% export rate that had been levied on the materials was increased to 20% as of 1 July 2007, and will be increased again to 80% as of 1 January In addition, while export taxes on logs and other materials will be increased, the export tax on paper, pulp, and other lumber products is to be lowered and measures to abolish some of these taxes will be introduced. However, this group of measures carries the objective of developing Russia s domestic wood processing industry and is aimed at promoting investment from other countries into the industry. The grace period before prior explanation and implementation of these measures was insufficient, and issues are arising such as discrepancies in views between local and central governments regarding taxation methods and delinquency in handling inquiries. <Problems under international rules> Russia has not entered the WTO and it is difficult to raise issues surrounding this measure, as WTO agreements do not contain regulations on export taxes. Nevertheless, there is concern that the measures will profoundly impact the global lumber market due to such factors as 1) the measures being implemented by Russia, which is the world s largest log exporter (accounting for 35% of log exports worldwide), 2) the danger of effects equivalent to a ban on log exports in the event that the measure s final tax rate was enforced, and 3) the increase in export taxes taking place in an extremely short timeframe and the inability of growth in Russia s domestic wood processing industry to match that pace. <Recent Developments> Importers of Russian logs, including Japan and the EU (Sweden, Finland, and the three Baltic states), consider these measures to be very serious. Japan has taken various opportunities to communicate concerns about the measures to the Russian government. However, the Russian government has asserted that these measures are essential for promoting the domestic lumber processing industry. Nonetheless, the Russian government on December 24, 2008 announced a decision that, in consideration of the global financial and economic crisis, export tax increases on logs and certain other 279

6 products would be postponed for one year. Furthermore, the Russian government postponed the export tax increases again for one year through a decision dated December 23, 2009, and the export tax rate for Russian softwood logs was left unchanged at 25%. Incidentally, the rate is scheduled to be increased to 80% on January 1,