Speech After WTO Accession: Reform and EU-Russia Trade Relations

Karel De Gucht — European Commissioner for Trade

Seminar of the Alliance of Liberals and Democrats for Europe / Brussels

Brussels, 6-12-2012 — /europawire.eu/ — Ladies and gentlemen,

This year has been an important year for EU-Russia trade relations.

For 19 years – since 1993 – the same issue remained at the top of our agenda: Russia’s accession to the World Trade Organisation.

But this year we finally reached that milestone, thanks to the hard work of many – in Russia, the European Union, other WTO members and, of course, Pascal Lamy and his team.

Joining the WTO is not just the end of a negotiation, it is the beginning of a process of reform.

Signing an agreement on paper is very different from putting it into practice. Russia made many specific commitments to its fellow WTO members as part of that agreement. It now has to abide by the whole complex body of WTO law – like all other WTO members.

Accession is just the beginning also because trade liberalisation alone will not fix all the troubles that ail any economy.

Russia’s economy has many strong points but it also faces many challenges.

At the crux is the need to shift the economy’s centre of gravity away from resource extraction and into higher-technology manufacturing and services. This is essential to broadening the base of prosperity and is already high on the agenda of Russia’s leaders.

Implementing Russia’s WTO commitments will help with this effort:

by improving the quality of regulation,
by increasing competition – and therefore productivity – in important industries, and
by providing new market access abroad for Russian companies in sectors like steel, chemicals and food and drink.

But these changes will not be enough on their own. The modernisation project requires Russia to go further – addressing weaknesses in the rule of law, strengthening the financial system, promoting innovation, building infrastructure and attracting more foreign investment.

In short, I believe that Russia needs to embrace the spirit of open, competitive markets as well as the letter of WTO law: Only that way can dependence on the roulette wheel of global commodity prices be reduced. Only that way can Russia position itself for the highly competitive century ahead.

That is why I said in September that Russia faces a choice:

Between a high road of effective reform and the prospect of continued economic success,

And a low road where little changes and the future is more uncertain.

At the conference in Helsinki where I made those remarks, Russia’s chief negotiator confirmed his country’s intention to take the high road.

Three months have now passed and I must say that the picture is if anything less promising than it was then.

I do accept that there are some positive signs about the intentions of the Russian government:

Most encouraging is the very ambitious blueprint for modernisation that President Putin outlined earlier in the year:

25 million new jobs in high-tech industries by 2020,
Increasing labour productivity by 50% in six years,
And taking Russia to the 20th position on the World Bank’s Doing Business ranking over the same period.

This type of plan is just what Russia needs. And Europe is ready to do its part to help Russia go down that road. That is why we want to conclude an ambitious new agreement to govern our relations that would help Russia develop world class rules and improve its business environment. It is also why we are supporters of Russia’s bid to join the OECD.

At the same time, we have also seen several examples of recent action by the government that present a less encouraging outlook. In these areas – far from using its new membership of the WTO as a tool for broader reform – Russia is not even meeting its commitments.

Four issues are of particular concern:

First, the decree on fees for recycling cars. Europe understands that there is an environmental need to encourage car recycling. We have effective legislation in this area ourselves, though it does not involve fees on this scale or as the main way to achieve its goal.

Nonetheless, we have very grave concerns about the fact that the Russian legislation levies fees on imported vehicles alone. This discriminates against European producers and clashes with the most basic WTO rules. It also means cars imported from Europe are paying higher duties to the Russian government than before WTO accession. This situation is clearly unacceptable.

Second, the import ban on live animals from Europe is a clear-cut breach, in our mind. The regulatory measure is designed to protect Russian producers, not consumers. The ban on live animals is highly disproportionate to the risks it claims to address.

And, while Russia often criticises others for overly stringent food safety legislation, this ban is the only one of its kind in existence anywhere in the world.

The ban on slaughter pigs is even more so – resting on small irregularities and lacking any valid scientific basis. This type of issue is particularly important for the European Union as almost 10% of our total agricultural exports go to Russia.

Third, Russia has decided on its own to raise the level of tariff it applies to hundreds of imported products. This would again appear to breach one of the core elements of the WTO, to make a legally binding commitment to keep duties at or below agreed levels.

Fourth, the agreement we reached with Russia on wood exports was central to the accession deal. Creating market conditions for international raw materials trade is also a core objective of EU commercial policy. However, while the agreed system is operating, the procedure to export wood at lower duties is very burdensome – much more burdensome than procedures for selling wood on the domestic market. This creates incentives for producers to discriminate against sales to exporters. These incentives need to be removed.

These are just some of the areas where we have questions about Russia’s implementation of its WTO commitments. We are looking closely into all the issues to see if Europe’s rights or interests are affected.

Now: The European Union understands that all countries have policy objectives they wish to pursue. Europe also wants to protect the environment and ensure high standards of food safety, for example.

But the law of the WTO is clear that government action should be proportional.

It should seek to solve problems, not create new ones.

Government policies should therefore be streamlined: They should not impede the flow of trade and investment any more than is strictly necessary.

Getting that right is important for Russia’s future economic prospects.

It is also very important for the European Union.

Because Russia – as you are all aware – is a crucial trading partner and a crucial destination for our foreign investment.

Trade in goods between us comes to over 300 billion euros and trade in services to almost 40 billion euros. Europe holds 120 billion in investment stocks in Russia, accounting for nearly three quarters of foreign investment in the economy, and Russia has more than 40 billion here.

This means Europe needs Russia to succeed in the long term: For example, a more predictable regulatory environment will help the many European companies who trade with, and have invested in Russia.

But it also means we are severely affected in the short term if Russia chooses a path of restriction.

That is why we want to see these problems resolved as soon as possible.

We would prefer to negotiate our way to a solution. That is the quickest and most cost effective way to resolve things.

However, if that does not prove possible we are most certainly prepared to use all the legal avenues at our disposal. And since Russia’s accession, that includes dispute settlement at the WTO.

We have been delivering this message to our counterparts in the Russian side for several months now.

We are negotiating with them on all of these issues.

Some of those negotiations have made limited progress.

But every day we do not have a solution is a day our companies lose money, putting jobs at risk for European people, at a time when we absolutely cannot afford to lose them.

So the European Union will not wait forever to reach agreement. And the clock is ticking.

Ladies and gentlemen,

As two global scale markets on each other’s doorsteps, Russia and the European Union are pulled together by economic gravity. Even when we have differences we will always be close partners.

That is why Europe’s interest – as well as our desire – is for the closest economic ties possible with a dynamic and successful Russia.

That is also why I am looking forward to the next EU-Russia summit on December 21st, which will give us a chance to move ahead on a whole range of issues and at the same time address the challenges which still separate us.

As I said at the outset, this has been a good year for relations between Moscow and Brussels.

With a little work – and with the right spirit on both sides – 2013 can be an even better one.

Thank you very much for your attention.

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