Russia agreement on trade in parts and components of motor vehicles

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Summary: Russia will join the WTO in August 2012, and has agreed to decrease duty rates for imports of automotive goods and to begin a gradual change of its automotive industry investment regime.

Russia is set to become the WTO's 156th member on 22 August 2012, following the signature of the ratification bill by Russian President Vladimir Putin on 21 July 2012 and the approval of the WTO Accession Protocol by the Russian Federal Council and the Duma earlier this year.

In relation to the automotive sector, Russia has agreed to decrease duty rates for imports of automotive goods gradually within a transitional period and has committed to applying an average duty rate of 12% only after full implementation of its obligations in 2019.

Russia has also agreed to begin a gradual change of its automotive industry investment regime, which currently allows for duty-free entry of auto parts used in production of vehicles containing a certain level of Russian content. Such "local content use" requirements are inconsistent with the WTO Agreement on Trade-Related Investment Measures (TRIMs) and Russia has committed to eliminating those elements of its investment regime which are inconsistent with TRIMs by July 2018.

EU - Russia automotive sector-specific trade agreement

In response to EU concerns regarding the impact of the Russian investment regime on the EU car parts industry, a bilateral agreement on trade in parts and components of motor vehicles was signed on 24 July 2012, entering into force on 22 August and remaining in effect until July 2018 (or until the date at which Russia has eliminated all WTO inconsistencies of its investment regime in the automotive sector).

The Agreement establishes a “compensation mechanism”. If the annual value of EU exports of engines and other parts and components decreases below a fixed “threshold level”, Russia will apply even lower import duties (between 0-15% depending on the tariff line) to a pre-determined quantity of imports of these products, the so-called "compensation quota". The first calendar year to be monitored is 2012.

Thresholds triggering the compensation mechanism

More specifically, the compensation mechanism could be triggered when the value of EU exports of covered products during a calendar year falls, by more than 3%, below one or both of the following thresholds:

  • $896.1 million US dollars of exports of engines; or
  • $8,253.2 million US dollars of exports of parts and components of motor vehicles.

Compensation Quota

The Agreement stipulates that each compensation quota should equal the difference between the applicable threshold level referred to above and the value of EU exports of covered products (in USD$) and apply for a minimum of 12 months. Any compensation quota granted should be reviewed annually by both countries in light of the evolution of the EU exports.

Exceptional circumstances that could limit the compensation quota

The parties have agreed to limit the quota if there is a significant decrease in annual sales of new cars in Russia and, more specifically:

  • if the decrease is at least 25% compared to the previous year, the compensation quota will be equally reduced by 25%;
  • if the decrease is greater than 25%, then, for each 1% of further decline, the quota will be reduced by 3,75%;
  • if the downturn in sales reaches a 45% decline, the quota will be reduced to zero.

Practical aspects

The compensation quota will be administered by Russian authorities through an import licensing system. Finally, the Agreement also provides for a specific dispute settlement mechanism.

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