Russia WTO Accession: Russian Duma Passes Vehicle Utilization Fee That Could Discriminate Against Imported Vehicles | White & Case LLP International Law Firm, Global Law Practice
Russia WTO Accession: Russian Duma Passes Vehicle Utilization Fee That Could Discriminate Against Imported Vehicles

Russia WTO Accession: Russian Duma Passes Vehicle Utilization Fee That Could Discriminate Against Imported Vehicles

On 13 July 2012, the Russian Duma passed a law imposing a "utilization fee" on cars, which may have the effect of discriminating against imported cars.1 The Utilization Fee Law imposes a fee on vehicles imported into Russia and on those cars manufactured or assembled in Russia. While the Utilization Fee Law is purportedly being passed to address environmental concerns, it provides for certain exceptions which may have the effect of protecting Russian car manufacturers, as well as foreign companies assembling cars in Russia. Pursuant to its WTO accession commitments, Russia will have to reduce import tariffs on cars, and the Russian industry is concerned about the likely increase of imports. The amendments are expected to enter into force on 1 September 2012 after they are approved by the Federation Council of the Parliament and signed by the President.

According to the Utilization Fee Law, the utilization fee is being introduced "to ensure environmental safety" and to address the costs associated with the disposal of vehicles that are no longer operational. Specifically, the Russian government will disburse the accumulated utilization fees to entities involved in the disposal of vehicles to defray their expenses under conditions and in the amounts yet to be determined by the Russian government.

The Utilization Fee Law includes several exceptions. Notably, it exempts vehicles produced or manufactured by entities that undertake to safely dispose of the cars once they are no longer used.  The procedure and the conditions for assuming such an obligation have not yet been defined by the Russian government. This provision may be potentially problematic as it could favor Russian producers and foreign producers assembling cars in Russia because their Russian presence could place them in a better position to ensure safe disposal of their vehicles as opposed to their foreign competitors with no production or assembly base in Russia. For these reasons, the utilization fee has been criticized as discriminatory by some of Russia's key trading partners, including the EU.

Under the Utilization Fee Law, the amount of the fee will be determined based on the production year, weight, and other physical characteristics of the vehicle that may affect the disposal costs. The government has not yet announced the final rates. Reportedly, the base rate for light vehicles may be around RUB 20,000 – 45,000 (approximately US$650 – 1,500) and for cargo vehicles RUB 150,000 – 400,000 (approximately US$5,000 – 13,300) per vehicle. The base rate will then be subject to a multiplying coefficient that will depend on the technical characteristics of the vehicle. For instance, for light vehicles with less than 10 seats, weighing less than 3,000 tons and having an engine volume less than 1.3 liters, the multiplying coefficient will be 0.5, i.e., the charge will equal to RUB 10,000 (approximately US$335). Second-hand cars will be subject to increased coefficients (up to four or more).

Construction and road machinery, as well as agricultural and forestry/logging machinery, may also be subject to a utilization fee based on another law that is pending before the Russian Duma. On 11 July 2012, a draft law "On Introduction of Amendments to the Federal Law 'On Consumption and Industrial Wastes' in the Part Relating to Ensuring Safe Utilization of Self-Moving Agricultural and Forest Industrial Vehicles, Construction and Road Machinery" was submitted for consideration to the State Duma Committee for Resources, Environmental Management and Ecology. While this law is also being justified on the basis of environmental concerns, it may also be a measure taken to address the likely increase in imports of such machinery. The base rates for new agricultural machinery are expected to be RUB 30,000 (approximately US$1,000) and for construction, road and timber cutting machinery RUB 35,000 (approximately US$1,160). Multiplying coefficients for new machinery will vary from 2.5 up to 15. The coefficients for used equipment could be twice as high. As with the Utilization Fee Law mentioned above, Russian producers and foreign producers assembling machinery in Russia that ensure the safe disposal of their products will most likely be exempted from the charge.

The WTO agreements do not prohibit utilization fees as such, especially those introduced for environmental purposes. However, if the fees operate to protect domestic industry and discriminate against imports, this would raise concerns over Russia's compliance with its obligations as a WTO member. The national treatment obligation under the General Agreement on Tariffs and Trade (GATT) requires that imported products may not be treated less favourably than like (similar) domestic products. If the utilization fee created a competitive advantage for domestic car producers and manufacturers, it could raise an issue of WTO consistency.

1 - On Introduction of Amendments to the Federal Law on Consumption and Industrial Wastes and Article 51 of the Budget Code of Russia ("Utilization Fee Law").

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2012 White & Case LLP