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).

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SUMMARY
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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that the tax will be repealed, the GOR may reduce the number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.

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Meetings on Trade Issues Make Little Progress
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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.)

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Minister Levitin Promises Nothing on Truck Tax
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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.

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No Discussion of Agriculture Trade Issues
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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.

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COMMENT
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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