LITTLE MOVEMENT ON EU-RUSSIA TRADE ISSUES

C O N F I D E N T I A L MOSCOW 000365 SENSITIVE SIPDIS STATE FOR EUR/RUS STATE PLS PASS USTR (HAFNER, KLEIN) COMMERCE FOR MAC (MATT EDWARDS, JAY THOMPSON) E.O. 12958: DECL: 02/12/2019 TAGS: ETRD ECON WTO EU RS SUBJECT: LITTLE MOVEMENT ON EU-RUSSIA TRADE ISSUES REF: A. MOSCOW 101 ¶B. 08 MOSCOW 3678 ¶C. 08 MOSCOW 2878 ¶D. 08 MOSCOW 3745 ¶E. 08 MOSCOW 3311 Classified By: ECON M/C Eric T. Schultz, Reasons 1.4(b,d). -------------- SUMMARY -------------- ¶1. (C) The European Commission delegation visit to Moscow February 5-6, headed by EC President Barroso and nine EC Commissioners, made little progress on trade issues with Russia. EC Trade Commissioner Ashton and Transportation Commissioner Tajani raised with Russian Economic Development Minister Nabiullina and Transportation Minister Levitin the recent Russian duty increases on cars, harvesters and certain steel products, a new Russian tax targeted at EU trucks, and long-standing trade irritants such as the export duty on timber and the trans-Siberian overflight fees that Russia charges EU airlines. According to EU diplomats, the EC chose not to broach specific trade issues with PM Putin or President Medvedev. ¶2. (C) In her meeting with EC Trade Commissioner Ashton, Economic Development Minister Nabiullina defended recent Russian protectionist measures as justified by the global financial crisis. Transportation Minister Levitin admitted that the truck tax was discriminatory in his meeting with EC Transportation Commissioner Tajani. While it is unlikely that the tax will be repealed, the GOR may reduce the number of EU member countries that are affected by the tax. The Russian side presented a paper on creating a Russia-EU "early warning system" for protectionist measures, but EU diplomats tell us Brussels will likely reject the proposal, as Russia has ignored a similar provision in the EU-Russia Partnership and Cooperation Agreement (PCA). END SUMMARY. -------------- Meetings on Trade Issues Make Little Progress -------------- - ¶3. (C) According to our contacts at the EC Mission in Moscow, the EC delegation decided not to raise specific trade issues with PM Putin and President Medvedev, preferring instead that those meetings focus on the broader EU-Russia partnership relationship and the recent gas conflict with Ukraine. Thus, beyond noting the importance of the overall trade relationship, EC President Barroso did not discuss specific trade spats with either Putin or Medvedev. ¶4. (C) The EU diplomats tell us, however, that EC Trade Commissioner Ashton did raise a range of EU-Russia trade issues with Russian Economic Development Minister Nabiullina, but that there was little change in positions. Nabiullina made general statements about Russia's continued desire to maintain open trade relations. However, there was little progress on the proliferation of recent trade disputes between Russia and the EU. When Lady Ashton questioned the recent duty increases on cars, combine harvesters and certain steel products (Refs A, B, D),all of which have had an impact on major EU producers, Minister Nabiullina explained that these were temporary "crisis" measures. And Nabiullina made clear Russia would continue to charge trans-Siberian overflight fees and not transition to a cost-based system until the date of WTO accession. (Under the current system, EU airlines pay more than $300 million annually in overflight fees to Russia. The GOR transfers the collected fees to Aeroflot, subsidizing the airline's operations and allowing it to report a profit in its annual financial statements.) There was also no movement on timber export duties (Ref E). ¶5. (C) During her meeting with Lady Ashton, Nabiullina handed over a Russian non-paper proposing that the EU and Russia create an "early warning system" under which Russia and the EU would advise and consult in advance of any contemplated protectionist measures. Lady Ashton was noncommittal on the paper, and EU diplomats in Moscow told us they were skeptical the idea would gain much traction in Brussels, since it appeared duplicative of the PCA's consultation provision that Russia had just ignored. (N.B. In advance of the EC visit, the Russian Ministry of Economic Development had sent a letter to Brussels offering to hold consultations on recent Russian duty increases "ex post facto," an apparent sign that the Russians were aware that they had breached Article 16 of the PCA by raising duties on cars and harvesters without first consulting with the EU.) -------------- - Minister Levitin Promises Nothing on Truck Tax -------------- - ¶6. (C) In his meeting with Russian Transportation Minister Levitin, EC Transportation Commissioner Tajani urged the immediate repeal of the truck tax. Russia imposed on February 1 a tax charging EU, Swiss and Turkmenistani commercial vehicles weighing over 3.5 tons a fee to drive on Russian roads. (N.B. The fee is collected by the Customs Service at the border and is based on the amount of time that the truck will be in Russian territory, ranging from 385 rubles for 24 hours to 60,000 rubles for a one-year pass.) Minister Levitin admitted that the tax was discriminatory, but he would not commit to do anything about it. According to EU diplomats in Moscow, EU trucking industry representatives have heard that the GOR might narrow the list of EU countries to which the tax applies (because some EU member states do not in fact tax Russian trucks),but there are no plans to repeal the measure entirely. ¶7. (SBU) In advance of the EC visit, Russian officials had argued that the tax is purely a reciprocal measure, and that the countries against whom the tax is being levied charge similar fees to Russian truckers who use those countries' roads. EU officials have in turn argued that the tax is clearly discriminatory and puts EU truckers at a competitive disadvantage vis-a-vis other major users of the Russian road system, including Russian, Ukrainian and Turkish truckers. In addition, they have noted that the provision appears to be aimed at collecting revenue primarily from EU firms to finance badly needed improvements in Russia's road system. In the EU countries that charge similar fees, they assert that the charges are applied uniformly to all truckers, both domestic and foreign. -------------- No Discussion of Agriculture Trade Issues -------------- ¶8. (SBU) According to our EU contacts, despite the potential negative impact of recent GOR actions on EU agricultural trade with Russia, the topic was not raised. Apparently, Barroso's already large delegation did not include EC Agriculture and Rural Development Commissioner Mariann Fischer Boel, and therefore the EU preferred to put off discussion. Accordingly, there was no meeting with Russian Agriculture Minister Gordeyev to discuss recent Russian duty increases on certain agricultural products, Russia's protectionist sanitary-phytosanitary system, or the EU's recent introduction of export refunds to EU dairy producers. -------------- COMMENT -------------- ¶9. (C) With more than $260 billion per year in two-way trade between the EU and Russia, it is not surprising that almost every major recent protectionist measure by Russia has had some impact on EU firms, including the new tax on EU trucks and the recent spate of duty increases on cars, harvesters, and certain steel and agricultural products. We expect that the GOR will consider other duty increases in response to the crisis, and the list of thorny trade issues between the EU and Russia will likely get longer. BEYRLE