Overview ___________________________ Russian Dual Pricing Practices Russian Dual Pricing Practices Russia and the WTO Russia and the WTO Dual Pricing of Energy and the WTO Dual Pricing of Energy and the WTO Implications for Energy Governance Implications for Energy Governance

Export prices and domestic prices are different Export prices and domestic prices are different Commonly practiced by energy- exporting countries Commonly practiced by energy- exporting countries Russia: natural gas and electricity Russia: natural gas and electricity Natural gas and electricity prices are suppressed domestically Natural gas and electricity prices are suppressed domestically Limited export market in electricity, but large export market in natural gas to EU and CIS Limited export market in electricity, but large export market in natural gas to EU and CIS

Arguments for: Humanitarian: provides inexpensive heating and energy in a cold climate Humanitarian: provides inexpensive heating and energy in a cold climate Environmental: reduces usage of dirtier energy sources Environmental: reduces usage of dirtier energy sources Economic: Russias resource endowment is a comparative advantage to energy-intensive Russian industries Economic: Russias resource endowment is a comparative advantage to energy-intensive Russian industries

Arguments against: Provides a trade-distorting subsidy to energy-intensive industries Provides a trade-distorting subsidy to energy-intensive industries Encourages excessive use of resources domestically Encourages excessive use of resources domestically Actual practice is triple pricing: different prices for the EU, CIS, and domestic markets Actual practice is triple pricing: different prices for the EU, CIS, and domestic markets

The WTO Accession Process ________________________ Membership in the WTO commits its members to certain fundamental principles: Most-favored nation principle Most-favored nation principle National treatment National treatment Transparency Transparency Lowering trade barriers through negotiations Lowering trade barriers through negotiations Reliance on tariffs Reliance on tariffs

The WTO Accession Process ________________________ Applicant requests WTO membership Applicant requests WTO membership WTO sets up a Working Party open to all interested countries WTO sets up a Working Party open to all interested countries Applicant submits description of current trade regime to WP Applicant submits description of current trade regime to WP

The WTO Accession Process ________________________ WP and applicant negotiate the terms and conditions for entry WP and applicant negotiate the terms and conditions for entry Applicant must also complete bilateral negotiations with WP countries Applicant must also complete bilateral negotiations with WP countries Once completed, formal vote is taken requiring a two-thirds majority of all WTO members Once completed, formal vote is taken requiring a two-thirds majority of all WTO members

Russia is the largest country remaining outside the WTO 1993 Began accession process 2000Putin makes WTO accession a priority 2004Bilateral agreement with EU signed 2006Bilateral agreement with US signed 2009Putin announces Russia will only pursue WTO accession as part of a customs union with Belarus and Kazakhstan

No specific provisions on natural resource or energy pricing in any of the WTO agreements No specific provisions on natural resource or energy pricing in any of the WTO agreements Prior attempts at the multilateral level have failed Prior attempts at the multilateral level have failed Energy pricing provisions have become part of acceding countries WTO-plus commitments Energy pricing provisions have become part of acceding countries WTO-plus commitments

Legal Analysis under WTO Law Subsidies and Countervailing Measures (SCM) Agreement Subsidies and Countervailing Measures (SCM) Agreement GATT Article XI on Export Restrictions GATT Article XI on Export Restrictions GATT Article III.9 on Internal Maximum Price Controls GATT Article III.9 on Internal Maximum Price Controls GATT Article XVII on State- Trading Enterprises GATT Article XVII on State- Trading Enterprises

SCM Agreement Subsidy Definition Financial contribution by a government or by any public body Financial contribution by a government or by any public body Or any form of income or price support Or any form of income or price support Whereby a benefit is conferred Whereby a benefit is conferred

Divides subsidies into 3 categories Prohibited export subsidies (except those permitted under the Agreement on Agriculture) Prohibited export subsidies (except those permitted under the Agreement on Agriculture) Actionable domestic subsidies (must be found de jure or de facto specific) Actionable domestic subsidies (must be found de jure or de facto specific) Non-actionable subsidies (phased out in 2000) Non-actionable subsidies (phased out in 2000)

Distinctions: between prohibited export contingent subsidies (which must be terminated) and actionable domestic subsidies (which are countervailable) between prohibited export contingent subsidies (which must be terminated) and actionable domestic subsidies (which are countervailable) between subsidies to energy industries and subsidies of energy to energy-intensive industries between subsidies to energy industries and subsidies of energy to energy-intensive industries

While pricing of natural gas and electricity is suppressed domestically, the practice does not constitute either a de jure prohibited export contingent subsidy or de jure specific domestic subsidy While pricing of natural gas and electricity is suppressed domestically, the practice does not constitute either a de jure prohibited export contingent subsidy or de jure specific domestic subsidy Domestic prices for natural gas and electricity are suppressed equally to all sectors of the Russian economy Domestic prices for natural gas and electricity are suppressed equally to all sectors of the Russian economy

Critics argue that the provision of natural gas and electricity to industries requiring large energy inputs is tantamount to: a de facto specific domestic subsidy (i.e. steel, fertilizer, and petro-chemical industries) a de facto specific domestic subsidy (i.e. steel, fertilizer, and petro-chemical industries) a de facto export contingent subsidy (i.e. ammonia industry exports 90 percent of production) a de facto export contingent subsidy (i.e. ammonia industry exports 90 percent of production)

Both the EU and the US failed to obtain commitments on abandoning dual pricing of natural gas as a condition for WTO accession Both the EU and the US failed to obtain commitments on abandoning dual pricing of natural gas as a condition for WTO accession EU agreement requires incremental price increases for domestic natural gas prices EU agreement requires incremental price increases for domestic natural gas prices

As most countries still outside the WTO are energy-exporting countries, energy pricing remains a contested WTO-plus issue As most countries still outside the WTO are energy-exporting countries, energy pricing remains a contested WTO-plus issue Recently, Saudi Arabia agreed to abandon dual pricing practices as part of its WTO accession agreement Recently, Saudi Arabia agreed to abandon dual pricing practices as part of its WTO accession agreement

After accession, Russia may still be subjected to a challenge of its dual pricing practices before the WTO Dispute Settlement Panel After accession, Russia may still be subjected to a challenge of its dual pricing practices before the WTO Dispute Settlement Panel Prior to accession, Russia could be subject to domestic countervailing practices that would be illegal under WTO rules Prior to accession, Russia could be subject to domestic countervailing practices that would be illegal under WTO rules

Issues relating to triple pricing remains: CIS as regional free-trade area (but most CIS countries still outside the WTO) CIS as regional free-trade area (but most CIS countries still outside the WTO) Energy pricing policies under EuroSec (the proposed customs union between Russia, Belarus, and Kazakhstan) Energy pricing policies under EuroSec (the proposed customs union between Russia, Belarus, and Kazakhstan)