Why trade remedy is often result in deadlock in the EAEU? Introduction

The EAEU has faced numerous failures before reaching the form we know today. Now it is not mere regional integration between Russia, Kazakhstan, Belarus, Kyrgyzstan, and Armenia. Today it incorporates customs union, free trade area, and single market[1]. The EAEU, as a prudent simulation of the EU has reached considerable results in achieving 4 freedoms since its official establishment in 2015. However, in comparison with the EU, the EAEU lacks unified vision, supranationalism, and advanced dispute-settling mechanism for smooth escalation to the higher level of integration. Replicating the form of the EU institution, without an adequate level of compliance from member-states, and unequivocal legislation, does not presume the equal output of policies in the Union. Indeed, other criteria of comparison such as historical, political and cultural legacy, institutions and regime-building of two organizations differ drastically.

This essay is an attempt to analyze the trade policy progress of the Union with an emphasis on trade remedy for internal market protection, which is one of the few effective tools for the EAEU market protection. In addition to that, this essay will uncover the peculiarities of anti-dumping, countervailing, and safeguarding measures’ implementation. Moreover, the paper is going to describe how the member-states block each other’s position due to the lack of adequate dialogue within the Union, unified vision of the EAEU future and coherent legislature. The first and second parts of the essay will illustrate the phenomenon of trade remedies on paper and in reality, comparing actual implementation of trade policies in the Union. Finally, the case study will discuss a real-life example of the EAEU’s attempt to impose anti-dumping measure on herbicide exporters, which vividly illustrates the intergovernmental inclination of supranational process of trade remedy introduction.

Trade Remedy Laws: de jure.

Similarly to the EU, trade is an exclusive competence of EAEU’s Commission. Trade regulation responsibility in the EAEU is divided between three Departments: tariff and non-tariff customs regulation, internal market defense, and trade policy. The section IX of the Treaty on EAEU (the Treaty) clearly outlines the details of the Commission’s competences on trade regulation, tariff and non-tariff measures imposed vis-a-vis third country exporters. More specifically, Article 48 of section IX and annex 8 of the Treaty introduce trade remedies and discuss their implementation. More specifically, they claim that introduction, modification, termination, and investigation are the prerogatives of the EEC, in particular, the internal market defense department, and, therefore, cannot be carried out by member-states on the national level. Furthermore, Article 49 of this section defines and distinguishes anti-dumping, safeguard and countervailing measures. In essence, the anti-dumping measure is a special protective tool applied towards the exported good, which may dump the prices in the market. The countervailing measure is a type of trade remedy, which is adopted when trade investigation reveals subsidized import from third countries, and, lastly, safeguard measures are imposed on the exported good, which was exported in the excessive amount on the territory of the EAEU[2]. All of these three measures can prevent possible harm to the member-state’s industry or internal market of the Union. In other words, these specific protective measures are the important means of protection of non-diversified and underdeveloped EAEU’s internal market. In addition, the Treaty outlines how the court of the EAEU can be appealed by economic entities for the trade remedies’ enforcement disputes settling, and by foreign legal persons to consider the trade remedy decisions and their implementation.

In order to impose antidumping, countervailing duties, or safeguard measures, the industry representative (sector of economy of member-states) applies to the Department for Internal Market Defense of the EEC, which has exclusive competence in trade remedies[3]. In order to apply for investigation, the applicant should provide evidence that third-country export brings serious damage to its domestic industrial development[4]. This permanent regulatory body launches an investigation with a time period of 9-12 months to reveal the facts of excessive, subsidized, or dumping import. If such violations during on-spot verifications and public hearings are proved, special anti-dumping duties, safeguard and countervailing measures are introduced[5]. According to the Annex 8 of the Treaty, these trade remedies are imposed on the goods, which were imported from third countries to the EAEU territory. Currently, 16 of such measures are adopted towards Ukraine, China, Malaysia and India, while 6 cases are under trade defense department’s investigation[6]. Even though trade remedies are under supranational regulation of the Commission, member-states formulate positions for each EEC decision, and prepare recommendations on the possible ways to enhance the legislation and implementation of protective measures[7]. Member-state which are also able to block the decisions, as each of them possess a veto power. Substantial amount of trade remedy investigations is hindered by Kazakhstan, Kyrgyzstan, Belarus, and Armenia, as the industrial capacity of these states is not sufficient to be injured by export. It is also caused by rational interest of aforementioned member-states to purchase cheap goods abroad, rather than take expensive protective measures for the small-scale production inside the Union[8]. This position is contradictory to Russia’s stance, which burns with production ambitions and seems insecure about intense competition with the third countries in the EAEU domestic market. In addition, in order to initiate an investigation, the applicant-industry should possess sufficient share in overall EAEU production[9]. So, as other members lack the production capacity, it is therefore not surprising that the majority of trade remedies are concentrated on protection of Russian industries.

As the Commission is an institution, which has a monopoly over decision-making on trade, it is important to discuss the process and dynamics between the Union institutions. The Board of Commission’s orders, decisions and recommendations are taken by a qualified majority voting or by consensus if sensitive questions are on the table[10]. It issues non-binding recommendations and binding decisions, which have a direct effect on the whole territory of the EAEU. The Commission is not dependent on the issue of trade remedies on other institution bodies, and reports on the trade remedies are not usually submitted.

Trade Remedy Laws: de facto.

Giving overall regard to the development of trade policy in the EAEU, intriguing dynamics can be observed. Even though the Commission reports active barrier removal, 450 of intra-union trade barriers, exemptions and limitations are still present. The lack of strong dispute-settling mechanism results in intra-union export tensions (“potato”, “milk” wars) and mutual distrust hinders free-flow of four freedoms within the Union’s borders. The trade relations towards third countries is even more obscure, as it differs for each member-state, which is also unusual for a customs union. Even though, it is widely known that different commitments of member-states to WTO, transitional exemptions for Kyrgyzstan and Armenia, and unilateral trade restrictions of each member slow down the process of integration, the true rationale behind the impeded trade development is an asymmetry of the economies[11]. As an example, Russia is a major member of the union as it accounts for 86% of EAEU’s economy (GDP), 80% population, and even more importantly Russia remains a main partner for each state in trade operations, whereas trade between other states within the EAEU is extremely limited.

Precising the topic of discussion, the third countries manage to benefit from the exploitation of loopholes of existing trade remedy laws. These gaps are created by inconsistency and incoherence of member-states’ positions. While member-states formulate the position for a decision, some states may overemphasize the concerns of local companies and consumers, as they will always be interested in purchasing the commodities on the lowest price, even if it damages in the long perspective. According, to Russian position supporters, the position formulation stage is always difficult, and associated with intense bargaining with the consumer and industry associations[12]. This case can be explained by Moravcsik’s liberal intergovernmentalism, which is built on Putnam’s two level game[13]. In the trade remedy cases, the states also should simultaneously negotiate with both domestic constituencies and the EAEU. Therefore, even if the members are willing to deepen the integration, domestic economic preferences also should be taken into the consideration. For example, the majority of remedies, which are imposed on exported goods, set out to protect the Russian producers, as the production of these commodities is negligible in other member-states. For other members, the inability to purchase the goods on reasonable price results in consequent inflation in the costs of local industries and consumers. In addition, as Russia is renowned for frequently taking unilateral trade decisions and disregarding the EEC’s competencies. According to statistics provided by “Russian Steel”, every 4th market protection measure is blocked by the EAEU member-state[14]. If the decisions are not blocked straight away, the investigation period is increased. As an example, the Ukrainian case was considered for 2.5 years, which is significantly longer than conventional 9-12 months[15]. Moreover, Kazakhstan is still accused of illegal prolongation of duty-free sugar import period[16]. More specifically, Russian authorities believe, that raw sugar imported from third countries price slump on this commodity in the Union, while Kazakhstani consumers and juice, confectionary industries suffer from skyrocketed price and law quality of the Union produced sugar. Thus, lack of dispute-settling mechanism hinder the potential deepening of economic integration in the Union. Moreover, constant exercising of veto power, and prolonged issue of decision can signify about the gaps in the work of the EEC on trade remedy issues. Therefore, it is reasonable to assume that if constant obstacles will be posted by member-states to the decisions, the necessity of the Union existence may be challenged. Today, in the Union each member-state prioritizes its own interest over prosperity of the whole Union, unified vision on internal market security is still absent[17]. As a result, some states unreasonably apply for trade remedy, while others continue to practice veto, blocking and neglecting the EEC attempts to develop the trade remedy that works for every member. Overall, it highlights the paradoxical nature of the trade remedy imposition: supranational de jure and intergovernmental in practice.

Trade Remedy Laws: Case

One of the vivid examples of distributive conflict between member-states on the trade remedy issue is Russia’s initiation of an anti-dumping investigation on EU exported herbicides, which has found its logical conclusion in beginning of 5 years antidumping measure period, which started from May 2018[18], until vetoed by Kazakhstan. In essence, the issue has high priority, as the EAEU states are focused on horticulture export, and annual herbicide need only in Kazakhstan exceeds 30 mln litres. Kazakhstan’s herbicides market is divided by shares between China, the EAEU (literally Russia as it accounts for 69% of EAEU total production), and the EU. In fact, the EAEU member-states are hardly capable to satisfy the needed amount, and renowned for quality, which is significantly lower than one of the EU’s producers. Nevertheless, Russia has applied for Department for Internal Market Defense to investigate the case of dumping of EU trade-marks “Syngenta”, “Basf”, “Monsanto”, “Bayer”, «Arysta Lifescience», «Adama», «Dow Agrosciences», «Dupont», «Nufarm», «Cheminova», «Ciech», «Isk Biosciences» and others. Finally, an investigation concluded that antidumping duties, which vary from 27,47 % to 52,23 % of the custom value, will be imposed on aforementioned companies. This measure has led to several consequences both positive and adverse. In particular, it led to immediate 72% increase in costs of the Union produced herbicides and a proportionate increase in the profitability of Russia’s largest herbicides producers “Avgust” and “Schelkovo Agrohim”[19]. However, Kazakhstan and Belarus, being the states with a primordial agrarian inclination of production, were highly concerned with lower quality and higher price of Russian weedkillers, and continuously voiced their opposing positions. For Kazakhstan and Belarus, the effectiveness of the EU chemicals was worth of its price, and in their opinion no dumping was taking place, as the high price of the EU producer is explained by the implementation of the costly latest technologies. Vice-minister of agriculture of RK, Gulmira Isayeva, stated that as Kazakhstan gradually increases the exported amount of horticultures to the EU, it is crucial to follow the requirements set out by the European side[20]. In particular, the EU requires the constant check of the residual amount of herbicides, which will be difficult while using the EAEU produced herbicides. Another critical point is the rise of agricultural product’s cost. The EEC asserts that for Kazakh farmers the price will increase only by 2.4%. However, according to the chairman of potato and vegetable farmers’ association, even if prices will rise by 1-2%, the profitability of Kazakhstani agriculture industry can drop by 7%[21]. The confrontation between the EAEU industries and Kazakhstani agriculture is understandable. Kazakhstan does not have big herbicides manufacture volume, and its only critical interest is to protect the local agrarians in the face of Kazakhstan Grain Union and Union of Kazakhstani Farmers [22]. Less effective and costly herbicides inevitably increase the cost of agriproducts, which in its turn undermine the competitiveness of Kazakhstani agrarians in domestic and the EAEU market, as well as challenge the development of their export potential to third countries. According to paragraph 272 of Protocol on trade remedies, if one state’s interests are injured because of possible anti-dumping duties on export, the duty is not imposed[23]. In general, local farmer unions ask to leave them a right to choose whether to utilize cheap Chinese and Russian chemicals or effective but expensive EU herbicides. Through the exercise of the veto power, Kazakhstan once more confirmed its position on anti-dumping measures towards EU exported protective chemicals.

Noteworthy, before the trade investigation on herbicides was terminated, public chamber of the Russian Federation in 2017, concluded that it is unnecessary to introduce antidumping measures, as Russian herbicide producers are already profiting from the current situation[24]. Let’s remind that trade remedies are applied only in the situation when the member-states industry is harmed or is menaced to be harmed. Furthermore, the public hearings, which were conducted by the public chamber are adamantly opposed the duty due to three major drawbacks. Firstly, the trade remedy will inevitably lead to a sharp rise in the price of chemical preventives in the EAEU market. The average 34% duty, which was planned to result in at least 34% price rise, is going to bring additional spending of $245 billiards of Russian farmers, only[25]. Secondly, currently, herbicide producing companies are technically unable to replace imported chemicals and replicate active components in the short term. And the third crucial disadvantage is the distortion of fair competition by artificially limiting the farmers and creating a monopoly in the EAEU herbicide market[26]. Summing up the absence of harm to Russian herbicide production industries, and expected damage to agrarians, the public chamber of the RF recommended not to implement the trade remedy, given its inexpediency. Nonetheless, Russia had persistently inclined the EEC to issue the decision, which shortly was followed by Kazakhstan’s veto. On February 6, President Putin asserted that the Russian side is going to circumvent Kazakhstan’s veto by applying the anti-dumping duty independently. Finally, this order puts the end to 2-year-old contentious deal[27]. That means this trade remedy will be active only on Russia’s own territory. However, officially the case is hold back until the EEC or the Supreme Council will not settle the challenge[28]. In spite of this, it can be concluded that Kazakhstan could defend its interest.

Conclusion

The EAEU is an attempt to follow the best practices of the EU integration. However, not all the practices are accepted by member-states, who repeatedly exercise veto power. The gaps and inconsistencies of the law damage the already difficult process of integration. In addition, it will impossible to reach the level of the EU integration, until clear and unified strategy of development will not be considered. As the case has explicitly demonstrated how easy a member-state can disregard the interest of another member-state, without careful examination of situation, and prioritize own interests above everyone else’s. Noteworthy, the EU is more than a union, it became an identity, a new citizenship for the inhabitants of the region. For the EAEU to truly replicate this blueprint of the EU, the consolidated strategy for development, clear legislation, and mutual understanding should be at the top of the agenda.

Reference:

Bache, I., S. George and S. Bulmer. (2011). Theories of European Integration. In Id. Politics in the European Union (pp. 3-19). Oxford: Oxford University Press.

Department for Internal Market Defense. 2019. Description of investigation process [PDF file]. Retrieved from http://trade.ec.europa.eu/doclib/docs/2010/september/tradoc_146663.pdf

Dragneva R. & Wolczuk K. (2017). The Eurasian Economic Union Deals, Rules and the Exercise of Power. (Report No. 1). Retrieved from https://www.chathamhouse.org/sites/default/files/publications/research/2017-05-02-eurasian-economic-union-dragneva-wolczuk.pdf

Eurasian anti-dumping or creation of artificial deficiency of herbicides in the EAEC. (November 2, 2017). National Chamber of Entrepreneurs of the Republic of Kazakhstan "Atameken". Retrieved from http://atameken.kz

Eurasian Economic Commission. (2018). On the anti-dumping duties imposition on herbicides, which originates from the EU and imported on the territory of the EAEU. Retrieved from http://www.eurasiancommission.org/ru/act/trade/podm/investigations/PublicDocuments/AD23_decision_90.pdf

Eurasian Economic Commission. (2019a). Trade Defence Investigations in the EAEU. Retrieved from http://www.eurasiancommission.org/en/act/trade/podm/rassledovaniya/Pages/default.aspx?Paged=TRUE&p_Created=20140131%2010%3a12%3a40&p_ID=16&PageFirstRow=31&&View={90F37315-3520-4B40-BDD7-637D0714362D}

Eurasian Economic Commission. (2019b). General information on measures to protect the domestic market. Retrieved from http://www.eurasiancommission.org/ru/act/trade/podm/info/Pages/default.aspx

Medvedeva, A. (March 7, 2019). Dumping and anti-dumping in the EAEU: why defense mechanisms work “with a squeak”. Agroproxxi. Retrieved from https://www.agroxxi.ru/

Ministry of Foreign Affairs of Republic of Belarus. (2015). Eurasian Economic Union in brief: 40 frequently asked questions [DOC file]. Retrieved from http://mfa.gov.by/EAEU-eng-broshura.doc

Ramazanov O. (January 23, 2019). Russia called the extension of the duty-free import of sugar to Kazakhstan illegal. Informburo. Retrieved from https://informburo.kz/novosti/rossiya-nazvala-nepravomernym-prodlenie-besposhlinnogo-vvoza-sahara-v-kazahstan.html

Surganov V. (November 22, 2018). Kazakhstan managed to defend its interests in the EAEU. Kapital. Retrieved from https://kapital.kz/

Surganov V. (November 22, 2018). How Russia lobbies for the introduction of protective duties on pesticides. Kapital. Retrieved from https://kapital.kz/

Sidorov A. (July 2, 2018). Systematic problems of protecting the domestic market of the Eurasian Economic Union. Moscow State Institute of International Relations. Retrieved from https://mgimo.ru/

Treaty on the Eurasian Economic Union (Astana Treaty), opened for signature 29 May 2014, The Republic of Belarus-the Republic of Kazakhstan- Russian Federation. Retrieved from https://www.wto.org/english/thewto_e/acc_e/kaz_e/WTACCKAZ85_LEG_1.pdf

Public Chamber of Russian Federation. (2017). Recommendations based on the conclusions of public hearing on “The results of the anti-dumping investigation of the Eurasian Economic Commission (EEC) on the supply of plant protection products” [DOC file]. Retrieved from

https://www.oprf.ru/files/1_2017dok/rekomen_zashita_rasteniy30112017.doc

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[1] Dragneva R. & Wolczuk K, 2017

[2] Treaty on the Eurasian Economic Union, 2014

[3] Treaty on the Eurasian Economic Union, 2014

[4] Eurasian Economic Commission, 2019b

[5] Department for Internal Market Defense, 2019

[6] Eurasian Economic Commission, 2019a

[7] Medvedeva, 2019

[8] Medvedeva, 2019

[9] Treaty on the Eurasian Economic Union, 2014

[10] Ministry of Foreign Affairs of Republic of Belarus, 2015

[11] Medvedeva, 2019

[12] Sidorov, 2018

[13] Bache, George and Bulmer, 2011

[14] Surganov, 2018

[15] Surganov, 2018

[16] Ramazanov, 2019

[17] Medvedeva, 2019

[18] Eurasian Economic Commission, 2018

[19] Eurasian anti-dumping or creation of artificial deficiency of herbicides in the EAEC,” 2017

[20] Surganov, 2018

[21] Surganov, 2018

[22] Eurasian anti-dumping or creation of artificial deficiency of herbicides in the EAEC,” 2017

[23] Treaty on the Eurasian Economic Union, 2014

[24] Public Chamber of Russian Federation, 2017

[25] Public Chamber of Russian Federation, 2017

[26] Public Chamber of Russian Federation, 2017

[27] Putin orders to introduce anti-dumping measures against European suppliers of herbicides, 2019

[28] Sidorov, 2018