EU’s Russian Antidumping Case Has Geopolitical Roots

MILAN – The European Union’s launch of a disputes proceeding at the World Trade Organization over Russian anti-dumping duties on German and Italian van exports might seem like diplomatic overkill.

But experts say there are good geopolitical reasons behind the case brought by the EU’s executive branch, the European Commission.

The duties were imposed on exports of light-commercial vehicles, mainly vans, up to 3.9 tons (3.5 t) in May 2013, by the Eurasian Economic Commission, the executive of the new Russian-dominated Eurasian Economic Union, which also includes Belarus and Kazakhstan. Imports of German vans are taxed at 29.6%, Italian vans at 23%.

The Commission has not been happy and has found a series of procedural problems with these duties it claims break WTO anti-dumping rules, which Russia, as a WTO member since 2012, must follow. Kazakhstan and Belarus remain outside the WTO.

In 2013, just 8,000 vans between 3.1 and 3.9 tons (2.8 and 3.5 t) were exported from Germany to Russia, Belarus and Kazakhstan, according to the VDA, the German automakers group. And an official at the Italian embassy in Moscow tells WardsAuto there were fewer than 1,000 vans exported from Italy annually.

Experts say the EU is pushing for a formal hearing because it needs to draw a line in the sand over Russian breaches of WTO rules. The country is too important a market to allow it to flout trade treaties already accepted. And – with Russia in the diplomatic doghouse over its annexation of Crimea – the EU is in no mood to turn a blind eye to international trade law transgressions.

“Everyone thinks the Russian market will gain in importance,” says Ferdinand Dudenhöffer, co-founder and director of the Centre for Automotive Research at Germany’s University of Duisburg-Essen, noting Russia already is the fifth most important destination country for German car plants.

He believes Russia imposed the dumping duties to encourage the EU van manufacturers to open assembly plants in Russia.

“This idea is not very popular with all carmakers, because you have additional risks and additional investments,” he says. German van makers include Volkswagen, Daimler and Ford.

The VDA wants the measure revoked soon so trade can develop fairly. In a statement, the association reminds Russia of its earlier commitments to open its markets, a process begun when it joined the WTO in August 2012.

“Free and reliable trade ultimately benefits both production locations – Germany as well as Russia,” the VDA says.

However a decision made by the WTO disputes-settlement body might not solve the problem, Dudenhöffer says, noting any ruling could be ignored by Moscow. If that happens, the WTO could authorize retaliatory EU trade restrictions against Russia.

“Sure, international courts can make decisions,” he tells WardsAuto. “However, the question is, do these countries follow the decision of the courts? It’s not like a national court that has the power to impose its decisions.”

Outgrowth of Anti-Russian Politics

An expert on international trade law, Petros Mavroidis, of the European University Institute in Florence, Italy, and the University of Neuchatel, Switzerland, believes the size of the Russian 23% anti-dumping duty on Italian van exports is “not shocking.”

The real reason for the case might be anti-Russian politics, he suggests.

For sure, the EC believes it has found real problems with “procedural requirements” used by Moscow to justify its anti-dumping duty, but Mavroidis is surprised the Commission has pushed for a WTO case, given the small size of the Italian and German van trade with Russia.

The only van producer based in Italy involved in the complaint is Sevel, co-owned by Fiat and France’s PSA Peugeot Citroen. Both Fiat and PSA decline comment on the case.

“I think what is interesting here is the moment in which Russia has imposed the anti-dumping duties,” Mavroidis says. “It’s a time in which Russia is under some criticism by the EU for its foreign policies, especially the Ukraine question. Russia has not ducked the issue, but has gone full speed ahead, knowing full well that the anti-dumping duties will upset the EU.

“I assume that nowadays in Brussels, there must be some sort of anti-Russian feeling, so it might have been easier than other times for Italians to persuade their colleagues (in the EU) to go ahead and lodge the complaint,” he adds. “Plus, having Germany on their side probably helped, even though Germany is generally very careful about such matters.”

Germany’s participation was unusual, he says, given the country prefers to avoid diplomatic disputes that might impede its import and export trades with Eastern Europe.

That said, given Russia is a new member of the WTO, it is not surprising that disputes cases would arise.

“It seems Russia has upset the EU with these anti-dumping duties,” Mavroidis says. “(The EU) are the big guys, they are one of the biggest players in the WTO.”

The EC – as is customary – is not commenting on the ongoing WTO case.

Foreign automakers on the ground in Russia support the EU’s action.

The EC says LCV exports from the EU to Russia in 2012 totaled about €100 million ($136 million). The results for 2013 have not been reported yet, but EC sources say shipments declined significantly due to duties.

A Volkswagen Russia spokesman says the automaker has not ruled out the possibility of filing its own lawsuit against Russia in the court of the Eurasian Economic Community, the regulatory agency for the Eurasian Economic Community Common Economic Space and the Customs Union of Belarus, Kazakhstan and Russia.

Volkswagen says the duties have resulted in a 22%-24% price increase for its LCVs in Russia and has slashed its imports 70%-80%.

PSA also has seen negative impact on its pricing and import volume as a result of the duties.

Foreign automakers contend the duties are meant to prop up GAZ, Russia’s flagship LCV producer.

According to the Association of European Businesses, GAZ sales fell 9% in Russia last year to 82,400 units.

– with Breandain O’Shea in Berlin, Eugene Gerden in St. Petersburg

and Keith Nuthall in the U.K.