Proposal for a Council Decision to supply the Cooperation Council with all relevant information required for a thorough examination of the situation in respect of the failure by the Russian Federation to fulfil its obligations under the PCA in regard to trade in alcoholic beverages
Date: 2000-07-18
Institutions: European Commission
Subjects: Russia, alcoholic beverage, cooperation agreement (EU), information, trade restriction

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 18.07.2000
COM(2000) 452 final

2000/0196 (ACC)

Proposal for a

COUNCIL DECISION

to supply the Cooperation Council with all relevant information required for a thorough
examination of the situation in respect of the failure by the Russian Federation to fulfil
its obligations under the PCA in regard to trade in alcoholic beverages

(presented by the Commission)

1.

2.

3.

4.

EXPLANATORY MEMORANDUM

The Agreement on Partnership and Cooperation (PCA) between the European
Communities and their Member States and the Russian Federation has as one of its
principal objectives the promotion of trade and investment and harmonious economic
relations between the Parties.

A number of provisions of the PCA concern trade in goods; these are closely based
on the corresponding GATT Articles. Despite these provisions, regulation of the
market in alcoholic beverages by the Russian Federation has repeatedly infringed the
Interim Agreement and PCA. In particular, elements of the following legislation of
the Russian Federation violates the PCA: Federal Law no. 5-FZ “On Duties for the
Issuing of Licenses for the Right to Produce and Distribute Ethyl Alcohol, Spirit-
containing Products and Alcohol Products”, Federal Law no. 18-FZ of January 7,
1999 “On State Regulations of Production and Turnover of Ethyl spirits and Alcohol
Products”, Federal Law No. 61-FZ of 31 March 1999, “On the Temporary Ban of
Imports of Ethyl Spirits”, Government Decree No. 34 of 10 January 1999 “On
Transportation of Ethyl Spirits on the Territory of the Russian Federation” and
Government Decree No. 1365 of 9 December 1999, “On Partial Changes in the
Customs Tariff of the Russian Federation”.

Regional trade regulations,
identification stamps,
further restrict trade in alcoholic beverages and contribute to the overall lack of
transparency of Russian legislation.

including compulsory regional

The Community has formally and repeatedly drawn the attention of the Russian
authorities to the incompatibility of the afore-mentioned legislation with the
provisions of the PCA, including in the institutions established by the PCA and in
several aide-mémoires on trade issues of concern, demanding that all Russian
legislative provisions in contravention of the Agreement be revised forthwith. In
addition, consultations under Article 102 of the PCA took place in December 1998.
Unfortunately, only minimal progress was achieved.

A proportionate Community reaction is desirable and justified, for the following
reasons:

–

–

–

the trade impact of the failure of the Russian Federation to fulfil its PCA
obligations is substantial. Community exports of alcoholic beverages to the
Russian Federation decreased from
143 million in
1998, thereafter declining further to reach approximately
66 million in 1999
(i.e. 14% of the 1994 figure). In large part, this is a direct result of market
access difficulties and restrictions on trade, aggravated by the 1998 rouble
devaluation and breakdown in import financing arrangements;

478 million in 1994 to

€

€

€

draft legislation threatens to further restrict market access;

the Community’s aim, as set out in the Common Strategy on Russia, is to
engage with the Russian Federation to promote a state governed by the rule of
law and underpinning a prosperous market economy. A proportionate reaction
to the violation of the PCA will give substance to Community declarations on
the need to consolidate the rule of law in the Russian Federation and respect
trade rules (intrinsically linked to WTO accession and a
international

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prospective EU-Russia FTA). It will also serve to reinforce the Community’s
credibility as a trading partner;

–

there has been little or no movement by the Russian Federation to resolve a
growing number of trade issues of serious concern to the Community, for
example, draft
insurance legislation which violates some of the key PCA
provisions.

5.

Article 107.2 of the PCA provides that countermeasures may be taken, in the event
that either Party considers that the other Party has failed to fulfil an obligation under
the Agreement. Before so doing, the Cooperation Council is to be supplied with all
relevant information required for a thorough examination of the situation with a view
to seeking a solution acceptable to the Parties.

The Russian Federation has failed to fulfil its obligations with regard to trade in
alcoholic beverages. The Commission therefore proposes
that proportionate
measures be taken to sanction this failure by introducing a punitive tariff on imports
into the Community of vodka and undenatured ethyl alcohol of an alcoholic strength
by volume of 80% volume or higher (chemically indistinguishable from vodka of
similar strength) originating in the Russian Federation. The volume of trade affected
by the proposed increased duty amounts to approximately

12.2 million per year.

€

6.

The Council is requested:

–

to adopt the proposed Decision to supply the Cooperation Council with all
relevant information required for a thorough examination of the situation in
respect of the failure of the Russian Federation to fulfil its obligations under
the PCA in regard to trade in alcoholic beverages, with a view to seeking a
solution acceptable to the Parties;

–

to sign the draft letter to the Chairman of the Cooperation Council in annex.

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2000/0196 (ACC)

Proposal for a

COUNCIL DECISION

to supply the Cooperation Council with all relevant information required for a thorough
examination of the situation in respect of the failure by the Russian Federation to fulfil
its obligations under the PCA in regard to trade in alcoholic beverages

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article
133 thereof,

Having regard to the Agreement on partnership and cooperation establishing a partnership
between the European Communities and their Member States, of the one part, and the Russian
Federation, of the other part,

Having regard to the proposal from the Commission1,

Whereas:

(1)

(2)

(3)

Article 107.2 of the Partnership and Cooperation Agreement (PCA) provides that
appropriate measures may be taken, in the event that either Party considers that the
other Party has failed to fulfil its obligations under the Agreement. Before so doing,
however, except in cases of special urgency, the Cooperation Council is to be supplied
with all relevant information required for a thorough examination of the situation with
a view to seeking a solution acceptable to the Parties.

The failure of the Russian Federation to fulfil its obligations under the Partnership and
Cooperation Agreement with regard to trade in alcoholic beverages does not constitute
a case of special urgency, as defined by three Joint Declarations annexed to the Final
Act of the Partnership and Cooperation Agreement.

The following legislation of the Russian Federation violates the PCA and attempts by
the European Community to raise its concerns with the Russian Federation at all
levels, including in the context of consultations held pursuant to Article 102 of the
is now appropriate to take
for which reason it
PCA have been unsuccessful,
appropriate measures to respond to the failure of the Russian Federation to fulfil its
obligations under the Partnership and Cooperation Agreement:

–

Federal Law no. 5-FZ of January 8, 1998 “On Duties for the issuing of licenses
for the right to produce and distribute ethyl alcohol, spirit-containing products
and alcohol products”,

1

OJ C …, …, p. …

4

–

–

–

Federal Law no. 18-FZ of January 7, 1999 “On State Regulations of Production
and Turnover of Ethyl spirits and Alcohol Products”,

Federal Law No. 61-FZ of 31 March 1999 “On Temporary Ban of Imports of
Ethyl Spirits”, which supersedes Government Decree No. 34 of 10 January
1999 “On Transportation of Ethyl Spirits on the Territory of the Russian
Federation” which, however, remains in force,

Government Decree No. 1365 of 9 December 1999 “On Partial Changes in the
Customs Tariff of the Russian Federation”, which entered into force on 1 April
2000.

(4)

trade regulations,

identification stamps,
Regional
further restrict trade in alcoholic beverages and contribute to the overall lack of
transparency of Russian legislation.

including compulsory regional

HAS DECIDED AS FOLLOWS:

Sole Article

The European Community shall supply the Cooperation Council with all relevant information
required for a thorough examination of the situation in regard to the failure by the Russian
in
Federation to fulfil its obligations under the Partnership and Cooperation Agreement
respect of trade in alcoholic beverages, by means of the letter attached in Annex, co-signed by
the Commission and the Council and addressed to the Chairman of the Cooperation Council.

Done at Brussels,

For the Council
The President

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ANNEX

Draft letter from the Community to the Chairman of the
Cooperation Council with the Russian Federation

Sir,

Subject: failure of the Russian Federation to fulfil its obligations under the PCA in regard to
trade in alcoholic beverages

The Agreement on Partnership and Cooperation (PCA) establishing a partnership between the
European Communities and their Member States, of the one part, and the Russian Federation,
of the other part2 lays down as one of its objectives the promotion of trade and investment and
harmonious economic relations between the Parties.

Article 11 of the PCA indicates that products of the territory of one party shall not be subject,
directly or indirectly, to internal taxes or other internal charges of any kind in excess of those
applied, directly or indirectly, to like domestic products. Moreover, these products shall be
accorded treatment no less favourable than that accorded to like products of national origin in
respect of all laws, regulations and requirements affecting their internal sale, offering for sale,
purchase, transportation, distribution or use.

Article 13 of the PCA sets out that GATT Article VIII, according to which fees and charges
of whatever character connected with importation must be limited to the cost of the services
rendered and GATT Article X, providing for reasonable transparency and predictability, shall
be applicable mutatis mutandis between the Parties. Moreover, Article 15.2 of the PCA
indicates that goods originating in the Community shall be imported into the Russian
Federation free of quantitative restrictions and Article 16 provides that, until the Russian
Federation accedes to the WTO, consultations are to be held in the Cooperation Committee on
import tariff policies, including changes in tariff protection. In addition, Article 53 of the PCA
stipulates that the Parties shall remedy or remove restrictions on competition in so far as they
affect trade between the Parties.

In 1998, the Russian Federation adopted Federal Law no. 5-FZ “On Duties for the issuing of
licenses for the right to produce and distribute ethyl alcohol, spirit-containing products and
alcohol products”, which contains a discriminatory licensing fee requirement for importing
and trading foreign-made alcoholic beverages, in breach of Article 11.2 of the PCA. This
discriminatory requirement remains in force, despite subsequent adoption by the Russian
Federation of Federal Law no. 18-FZ of January 7, 1999 “On State Regulations of Production
and Turnover of Ethyl spirits and Alcohol Products” which, although seemingly intended to
address this breach, has not done so and in addition contains a quota restriction on imports of
strong alcohol, in breach of Article 15.2 of the PCA. This same legislation provides that, to
qualify for an alcohol import license, an importer needs to have annual minimum imports of
alcoholic beverages equal to 50,000 decalitres of pure alcohol. This threshold conflicts with
Article 13.2 of the PCA, which refers to GATT Article VIII. The threshold also restricts
market access by normal, bona-fide importers, is a technical barrier to trade and contravenes
Article 53 of the PCA.

2

OJ L 327, 28 November 1997, p.1.

6

In May 1999, Federal Law No. 61-FZ of 31 March 1999, imposing a ban on imports of ethyl
spirits until 2002 and thereby infringing Article 15.2 of the PCA, entered into force. This
latter Law supersedes Government Decree No. 34 of 10 January 1999 “On Transportation of
Ethyl Spirits on the Territory of the Russian Federation”, which remains in force and which
imposes restrictions on imports of ethyl spirits, such that they may only be imported through
designated points of entry. This requirement contravenes Article 13.2 of the PCA, which
refers to GATT Article VIII.

identification stamps, further
including compulsory regional
Regional trade regulations,
restrict trade in alcoholic beverages and contribute to the overall lack of transparency of
Russian legislation, infringing Article 13.4 of the PCA, which refers to GATT Article X.

Government Decree No. 1365 of 9 December 1999, which entered into force on 1 April 2000,
introduced an ad-valorem import duty on certain wines without consultations being held in
the Cooperation Committee, in breach of Article 16 of the PCA.

to find a solution, requesting that

These restrictions on trade have severely damaged the interests of the Community. The
Community has on several occasions raised its concerns with the Russian authorities in an
attempt
the provisions of Russian legislation which
contravene the PCA be repealed. However, in contrast to the constructive approach adopted
by the European Community in attempting to meet Russian trade concerns in recent years, the
Russian Federation has addressed little attention to Community concerns. The matter has been
raised at meetings of the Cooperation Council and Cooperation Committee. Aide-mémoires
on this issue, most recently transmitted to the Russian authorities at the Cooperation Council
in May 1999 and the Cooperation Committee in October 1999, have elicited no adequate
response. Community concerns were reiterated by Commissioner van den Broek in his letter
to then Deputy Prime Minister Bulgak of May 1999. In addition, consultations, in accordance
with Article 102 of the PCA, took place in December 1998, at which time the Community’s
concerns were not sufficiently addressed. The matter was subsequently raised at meetings of
the Sub-committee on trade and industry in June 1999 and March 2000, at which time the
to improve the situation may be
Russian Federation indicated that some movement
forthcoming. Disappointingly, however, no concrete proposals or commitments were made.

Article 107.2 of the PCA provides that appropriate measures may be taken, in the event that
either Party considers that the other Party has failed to fulfil its obligations under the
Agreement. The European Community considers that the Russian Federation has failed to
fulfil its obligations under the Agreement in respect of trade in alcoholic beverages and
hereby seeks to supply information to the Cooperation Council with a view to seeking a
solution acceptable to the Parties, in accordance with Article 107.2 of the PCA.

The European Community therefore invites the Russian Federation to remove forthwith the
above-mentioned restrictions imposed on trade in alcoholic beverages which are in breach of
the PCA.

The European Community further takes this opportunity to inform the Cooperation Council of
its intention, in the event that an acceptable solution, in the form of elimination of the
provisions of Russian legislation which contravene the PCA, is not forthcoming within three
calendar months of the date of this letter, to take appropriate and proportionate measures in
order to respond to the failure of the Russian Federation to fulfil its obligations under the PCA
in regard to trade in alcoholic beverages.

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I would be grateful if you could transmit this letter to members of the Cooperation Council as
foreseen under Article 7 of the Rules of Procedure.

Yours faithfully,

For the Council of the European Union
The President

For the European Commission
The Commissioner for External Relations

8