The EU is requesting the WTO to establish a panel in the on-going dispute settlement case (DS604) on Russia’s state-owned enterprise procurement practices for commercial purposes by state related entities that favour domestic goods and services to the detriment of EU companies.
This request is the next step in the dispute settlement process after WTO consultations held between the EU and Russia on 13 September 2021 failed to resolve the issues of concern to the EU. The EU’s panel request will be on the agenda of the next meeting of the WTO Dispute Settlement Body on 29 November 2021.
Since 2015, Russia has gradually expanded its import substitution policy through the use of various restrictions and incentives. These aim to replace the use of foreign goods and services in procurement contracts by certain state-related entities, and by legal entities in investment projects financed by the State. The economic impact for EU companies is very significant. In 2019, the value of published tenders by state-owned enterprises amounted to RUB 23.5 trillion, which is around EUR 290 billion and equivalent to 21% of Russia’s GDP.
The EU is challenging, in particular, three Russian measures that the EU considers incompatible with WTO law, notably with the core principle of National Treatment, that requires WTO members to treat foreign and domestic producers in a non-discriminatory manner. The Russian measures include:
- Discriminatory assessments of procurement bids: during the assessment phase in their procurements, certain state-related entities deduct 15% (up to 30% for certain products) from the offered price for domestic products or services of Russian entities. If the bid with domestic products or services of a Russian entity is then selected, the full price is subsequently still paid. This means that imported products or services of foreign entities are looked at less favourably during this assessment phase, because they do not benefit from this 15% price reduction. This gives rise to discrimination against bids with imported goods or services provided by foreign entities.
- Requirements for prior authorisations: Russian companies that want to procure certain engineering products abroad need an authorisation by Russia’s Import Substitution Commission. This authorisation appears to be given on an arbitrary basis and is not needed for purchasing domestic engineering products.
- National quota requirements in procurement: for around 250 products, including vehicles, machinery, medical devices and textile products, where up to 90% have to be domestic products.