Proposal for a Council Regulation on countermeasures in response to the failure of the Russian Federation to fulfil its obligations under the Partnership and Cooperation Agreement in regard to trade in alcoholic beverages
Date: 2000-10-05
Institutions: European Commission
Subjects: Russia, alcoholic beverage, appeal to the Court (EU), cooperation agreement, trade regulations

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 05.10.2000
COM(2000) 616 final

2000/0247 (ACC)

Proposal for a

COUNCIL REGULATION

on countermeasures in response to the failure of the Russian Federation to fulfil its
obligations under the Partnership and Cooperation Agreement 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”.

identification stamps,
Regional trade regulations,
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
66 million in 1999
1998, thereafter declining further to reach approximately
(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

2

declarations on the need to consolidate the rule of law in the Russian
Federation and respect international trade rules (intrinsically linked to WTO
accession and a 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. The Russian Federation has failed to fulfil its obligations with regard
to trade in alcoholic beverages. Therefore, in accordance with the provisions of PCA
the Community has addressed a letter to the Chairman of the
Article 107.2,
relevant
supplying the Cooperation Council with all
Cooperation Council,
information required for a thorough examination of the situation with a view to
seeking a solution acceptable to the Parties.

The Commission proposes that proportionate measures be taken to sanction the
failure of Russia to fulfil its obligations under the PCA 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.

€

to the Community should be excluded from this
However, goods in shipment
increased import duty, provided that they were dispatched before entry into force of
this Regulation.

6.

The Council is requested:

-

to adopt the proposed Regulation.

3

2000/0247 (ACC)

Proposal for a

COUNCIL REGULATION

on countermeasures in response to the failure of the Russian Federation to fulfil its
obligations under the Partnership and Cooperation Agreement 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)

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
to like domestic products.
in excess of those applied, directly or
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.

indirectly,

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

1

2

OJ C […], […], p. […]
OJ L 327, 28 November 1997, p.1

4

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.

(4)

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 contained a discriminatory
licensing fee requirement
importing and trading foreign-made alcoholic
beverages, in breach of Article 11.2 of the PCA.

for

This discriminatory requirement remains in force, despite the 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. It also restricts market access by normal, bona-fide importers, is a
technical barrier to trade and contravenes Article 53.1 of the PCA.

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,
Regional trade regulations,
further 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.

including compulsory regional

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.

(5)

The Community has expressed its distress over these breaches of the PCA on
numerous occasions, without adequate result.

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 second Cooperation Council in May 1999, the third Cooperation
Committee in October 1999 and third Cooperation Council in April 2000, have
elicited
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.

response. Community concerns were

reiterated

adequate

no

5

The matter has also been raised at meetings of the Sub-committee on trade and
industry. At the third meeting of this Sub-committee in March 2000, the Russian
Federation indicated that some movement
to improve the situation may be
forthcoming. Disappointingly, however, no concrete proposals or commitments were
made.

The trade impact on the Community is substantial. The failure of the Russian
Federation to fulfil its obligations under the PCA and the resulting, cumulative
market access problems have been a major factor in the decrease in Community
exports of alcoholic beverages to the Russian Federation from
478 million in 1994
to
143 million in 1998. This trend continued in 1999, with exports falling to
approximately

66 million.

€

€

€

In view of the above, a reaction by the Community is justified. 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 Community considers that
its
obligations with regard to trade in alcoholic beverages.

the Russian Federation has failed to fulfil

Article 107.2 of the PCA further sets out that, in the selection of measures, priority
must be given to those which least disturb the functioning of the Agreement. The
proposed countermeasures would suspend the Common Customs Tariff for imports
into the Community of vodka falling within CN codes 2208 60 11, 2208 60 19, 2208
60 91 and 2208 60 99 and of undenatured ethyl alcohol of an alcoholic strength by
volume of 80%volume or higher falling within CN code 2207 10 00 originating in
the Russian Federation, which will be replaced, until such time as Russia revises that
of its legislation in breach of the PCA, by autonomous customs duties .

In accordance with the provisions of Article 107.2 of the PCA, the Community has
addressed a letter to the Chairman of the Cooperation Council, supplying the Council
with all relevant information required for a thorough examination of the situation
with a view to seeking a solution acceptable to the Parties. That letter informed the
Council of the Community’s intention, in the event that a solution - in the form of
elimination of the provisions of Russian legislation which contravene the PCA - were
not forthcoming within three calendar months of the date of the letter, to take
appropriate measures to sanction the failure of the Russian Federation to fulfil its
obligations under the PCA.

Goods in shipment to the Community should be excluded from this increased import
duty, provided that
they were dispatched before the entry into force of this
Regulation.

Since the measures necessary for
the implementation of this Regulation are
management measures within the meaning of Article 2 of Council Decision
1999/468/EC of 28 June 1999 laying down procedures for
the exercise of
implementing powers conferred on the Commission3, they should be adopted by use
of the management procedure provided for in Article 4 of that Decision.

(6)

(7)

(8)

(9)

(10)

(11)

3

OJ L 184, 17 July 1999, p. 23

6

HAS ADOPTED THIS REGULATION:

Article 1

The following autonomous customs duties shall be applied to imports into the Community of
products originating in the Russian Federation as follows:

CN code

Description

Rate of duty (%)

2207 10 00

undenatured ethyl alcohol of an alcoholic strength by
volume of 80%vol or higher

2208 60 11

Vodka of an alcoholic strength by volume of 45,4%
vol or less in containers holding 2 litres or less

2208 60 19

Vodka of an alcoholic strength by volume of 45,4%
vol or less in containers holding more than 2 litres

2208 60 91

Vodka of an alcoholic strength by volume of more
than 45,4% vol, in containers holding 2 litres or less

2208 60 99

Vodka of an alcoholic strength by volume of more
than 45,4% vol, in containers holding more than 2
litres

€

90/hl

€

€

3.9/%vol/hl
€
15/hl
+

3.9/%vol/hl

€

4.8/%vol/hl +
€

30/hl

€

4.8/%vol/hl

Article 2

The Commission shall repeal the measures set out in Article 1, in accordance with the
procedure laid down in Article 3(2) once the Russian Federation has fulfilled its obligations
under the Partnership and Cooperation Agreement in the sector of alcoholic beverages.

Article 3

(1)

(2)

The Commission shall be assisted by the Management Committee for Wines
instituted by Article 74 of Council Regulation (EC) No 1493/19994.

Where reference is made to this paragraph, the management procedure laid down in
Article 4 of Decision 1999/468/EC shall apply, in compliance with Article 7(3)
thereof.

(3)

The period provided for in Article 4(3) of Decision 1999/468/EC shall be one month.

Article 4

This Regulation shall enter into force on the day following that of its publication in the
Official Journal of the European Communities. It shall not apply to products proven to have
been dispatched to the European Community before that date.

4

OJ L 179, 14 July 1999, p.1

7

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, […]

For the Council
The President
[…]

8