On a Bumpy Road to Russia: Ukrainian Railway Equipment at the WTO

Last week Ukraine lodged its first WTO complaint against the Russian Federation. While Ukraine previously considered initiation of a formal dispute settlement proceeding in October 2014 (over the Russian import ban on certain fruits and vegetables), it never actually commenced to do so. If the current dispute is not resolved in the course of mandatory consultations, Ukraine can ask for the establishment of a WTO panel.

The Ukrainian complaint relates to alleged trade restrictive regulations, introduced by Russia in 2013, which affect the import of railway equipment (particularly railroad cars and switches). According to Ukraine, Russia ceased to issue conformity assessment certificates for those products (either by suspending on-going procedures or rejecting new applications), thus de facto prohibiting them from accessing the Russian market. Ukraine argues, among other things, that such actions (and inactions) constitute a violation of the GATT rules on the most favoured nation, the national treatment principle, and the prohibition of quantitative restrictions. It should be also noted that railway equipment was an important item on the Ukrainian export list to Russia. In 2011 it amounted to USD 3.2 billion, but in 2014 dropped dramatically to USD 600 million.

This new case is yet another dispute recently initiated against Russia which the WTO is currently examining e.g., the EU complaint about the tariff treatment of certain goods in both agricultural and manufacturing sectors, or the complaint on the recycling fee on motor vehicles. Russia has also launched a number of cases e.g. a recent complaint against anti-dumping measures adopted by Ukraine on imports of ammonium nitrate. Most commentators see these litigations as a reflection of the deeper tension that exists between Russia and Western countries after the Crimea crisis.

So what are the next steps at WTO? The Parties will have now 60 days for consultations in order to find a mutually acceptable solution. If the consultations are unsuccessful, each of the Parties can request the establishment of a WTO panel. A properly formed panel will eventually issue a report, which can be appealed, again by each of the Parties, to the Appellate Body. The final report, after a formal approval by the Dispute Settlement Body, should be complied within a reasonable period of time. In case of non-compliance, a winning Party has the right to impose international trade sanctions (normally in the same sector) that would correspond to its economic loss. These measures can be kept in force until full compliance is achieved or the Parties otherwise agree on the settlement of a dispute.

It is difficult to predict what will be a strategy of the Russian Federation in the case. One may rationally expect that it will try to delay the whole process as much as possible. Consequently, most probably it will block the first request for establishment of a panel and may contest specific candidates for panelists. An appeal is also very probable. If it looses the case it can still contest what is a reasonable period of time for compliance. Overall this means at least two years for the proceedings.

As to the substance of the Russian arguments, it could reject the existence of de facto discrimination, e.g. by arguing that there was no discriminatory administrative practice in place. It may also argue that Ukrainian railway equipment has not received relevant certificates because it did not comply with relevant Russian technical requirements. Many of these arguments may circle around the relevant provisions in the WTO Agreement on Technical Barriers to Trade and applicable case law.

The request for consultation will be available in the upcoming next days in the WTO database under the number WT/DS499/1.

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