WTO Forum – Kaliningrad 2015 Dr. Beatriz Huarte Melgar, LL.M. “The Freedom of Transit in WTO and its Implementation in RUSSIA/Kaliningrad” WTO Forum – Kaliningrad 2015 Dr. Beatriz Huarte Melgar, LL.M.

WTO Freedom of Transit (Article V GATT 1994) WT/DS366/R (27 April 2009) Colombia – Indicative prices and restrictions on ports of entry Customs transit: Suspensive regime WTO Freedom of Transit - Beatriz Huarte Melgar

Article V:1 GATT 1994 “Goods (including baggage), and also vessels and other means of transport, shall be deemed to be in transit across the territory of a contracting party when the passage across such territory, with or without transshipment, warehousing, breaking bulk, or change in the mode of transport, is only a portion of a complete journey beginning and terminating beyond the frontier of the contracting party across whose territory the traffic passes. Traffic of this nature is termed in this article traffic in transit.” WTO Freedom of Transit - Beatriz Huarte Melgar

Article V:2 GATT 1994 “There shall be freedom of transit through the territory of each contracting party, via the routes most convenient for international transit, for traffic in transit to or from the territory of other contracting parties. No distinction shall be made which is based on the flag of vessels, the place of origin, departure, entry, exit or destination, or on any circumstances relating to the ownership of goods, of vessels or of other means of transport.” WTO Freedom of Transit - Beatriz Huarte Melgar

Article V:3 GATT 1994 “Any contracting party may require that traffic in transit through its territory be entered at the proper custom house, but, except in cases of failure to comply with applicable customs laws and regulations, such traffic coming from or going to the territory of other contracting parties shall not be subject to any unnecessary delays or restrictions and shall be exempt from customs duties and from all transit duties or other charges imposed in respect of transit, except charges for transportation or those commensurate with administrative expenses entailed by transit or with the cost of services rendered.” WTO Freedom of Transit - Beatriz Huarte Melgar

Article V:4 GATT 1994 “All charges and regulations imposed by contracting parties on traffic in transit to or from the territories of other contracting parties shall be reasonable, having regard to the conditions of the traffic.” WTO Freedom of Transit - Beatriz Huarte Melgar

Article V:5 GATT 1994 “With respect to all charges, regulations and formalities in connection with transit, each contracting party shall accord to traffic in transit to or from the territory of any other contracting party treatment no less favourable than the treatment accorded to traffic in transit to or from any third country.” Ad Article V: Paragraph 5 “With regard to transportation charges, the principle laid down in paragraph 5 refers to like products being transported on the same route under like conditions.” WTO Freedom of Transit - Beatriz Huarte Melgar

Article V:6 GATT 1994 Each contracting party shall accord to products which have been in transit through the territory of any other contracting party treatment no less favourable than that which would have been accorded to such products had they been transported from their place of origin to their destination without going through the territory of such other contracting party. Any contracting party shall, however, be free to maintain its requirements of direct consignment existing on the date of this Agreement, in respect of any goods in regard to which such direct consignment is a requisite condition of eligibility for entry of the goods at preferential rates of duty or has relation to the contracting party’s prescribed method of valuation for duty purposes. WTO Freedom of Transit - Beatriz Huarte Melgar

Article V:7 GATT 1994 “The provisions of this Article shall not apply to the operation of aircraft in transit, but shall apply to air transit of goods (including baggage).” WTO Freedom of Transit - Beatriz Huarte Melgar

Relationship with other Legal Provisions With other GATT Provisions: Article V:6 GATT 1994 vs. Article I:1 GATT 1994 With other Legal Provisions: Article V GATT 1994 vs. Article 7 ECT (Energy Transit). Article V GATT 1994 vs. Article 51 TRIPS (IP Rights: The suspension by the customs authorities of the release into free circulation of goods suspected of being counterfeit or pirated goods.) Footnote 13: There shall be no obligation to apply such procedures to […] goods in transit. Article V GATT 1994 vs. Article 11 WTO Trade Facilitation Agreement (Bali, December 2013). WTO Freedom of Transit - Beatriz Huarte Melgar

Case Study: Kaliningrad Implementation of the WTO Freedom of Transit between Kaliningrad/Russia and the EU WTO Freedom of Transit - Beatriz Huarte Melgar

Kaliningrad (SEZ since the Federal Law No. 16-FZ of 2006) RUSSIA LITHUANIA Port of Klaipeda X BELARUS BELARUS POLAND Kaliningrad (SEZ since the Federal Law No. 16-FZ of 2006) The Russian exclave between Poland and Lithuania on the Baltic Sea WTO Freedom of Transit - Beatriz Huarte Melgar

EU – Russia: Legal Basis for Cooperation on Transit of Goods 1994 Partnership and Cooperation Agreement (PCA). It is renewed annually since 2007: Article 10: MFN Treatment. Article 11: National Treatment. Article 12: Freedom of Transit. Joint Statement on EU Enlargement and EU-Russia relations (27 April 2004): Effective implementation of the principle of freedom of transit of goods, including energy between Kaliningrad region and the rest of Russia. On the basis of Article 19 of the PCA, prohibitions or restrictions on goods in transit can only be imposed if justified. Negotiations on a veterinary cooperation agreement, which will facilitate trade in goods of animal origin between Russia and the enlarged EU. It welcomes the customs arrangement of 17-18 December 2003 with respect to the implementation of an easy and simple customs procedure for the transit of goods to and from Kaliningrad by road and rail across EU territory. Commitment to conclude a further agreement on the interconnection of the EU and Russian customs transit regimes, also applicable to the transit of goods to and from Kaliningrad. Recall that no customs transit formalities, including guarantees, are required for movements of goods through pipelines and that electricity is not subject to customs transit under EC law including in respect of transit between the Kaliningrad region and the rest of Russia. Readiness to continue to exchange information on changes made to our respective legislation, including that on customs, affecting trade in goods and to address issues related to the transit regime within the PCA structures. WTO Law (since 22 August 2012)  Dispute Settlement Understanding to resolve trade disputes Article I:1 GATT 1994: MFN Treatment. Article III GATT 1994: National Treatment. Article V GATT 1994: Freedom of Transit. WTO Freedom of Transit - Beatriz Huarte Melgar

Transit Issue between Lithuania and Kaliningrad The state owned company Lithuanian Railroads applies different coefficients for railroad transit depending on the origin and destination of the goods in transit. Result: Discrimination  Traffic in transit goes to Klaipeda Port (Lithuania) in detriment to Kaliningrad. Interpretation: Breach of the MFN Principle by Lithuania concerning transit of goods: Article V:2 GATT 1994 (second sentence). Article V:5 GATT 1994. Article V:6 GATT 1994 (first sentence). Concerning costs: Breach of Article V:3 GATT 1994. Breach of Article V:4 GATT 1994. WTO Freedom of Transit - Beatriz Huarte Melgar

CONCLUSIONS Transit of goods between Russia and the EU is not affected by the fact that Kaliningrad is a SEZ (Russian and EU foreign trade are indeed affected by the SEZ). Trade relations (inter alia, transit of goods) between Russia and the EU are governed by the PCA, which is part of the acquis communautaire, and by WTO law. The MFN regime in trade established in the PCA creates better conditions for market access between Russia and the EU. On the basis of Article 12 PCA and Article V GATT 1994, the principle of freedom of transit of goods is effectively implemented, including energy, between Kaliningrad region and the rest of Russia. The goods in transit shall not be subject to unnecessary delays or restrictions and shall be exempt from customs duties and transit duties or other charges related to transit, except charges for transportation or those commensurate with administrative expenses entailed by transit or with the costs of services rendered and that treatment no less favourable than that which would have been accorded to such goods had they been transported without transiting through the EU territory shall be accorded to goods in transit to and from Kaliningrad region, as it has to be in general for all trade in goods between the EU and Russia. (Joint Statement on EU Enlargement and EU-Russia relations, 27 April 2004). Thus, transit of goods between Kaliningrad and Russia throughout EU territory is legally well guaranteed by means of the PCA, which has been reinforced after the Russia’s accession to the WTO. Therefore, in the transit issue with Lithuania, Russia should contemplate to bring the case under the WTO dispute settlement mechanism. WTO Freedom of Transit - Beatriz Huarte Melgar

Thank you very much for your attention!