WTO is no longer a dogma – Kommersant

The Ministry of Finance presented a basic bill to circumvent WTO rules when introducing preferences for Russian suppliers in the procurement of state-owned companies. According to the requirements of supporters of protectionism, the department is ready to unify the rules for the purchase of the state and state-owned companies from local suppliers. If the bill is adopted, as early as October 2023, the state will be able to impose bans and restrictions on the purchase of imports by state-owned companies with reference to national interests and security – previously such references were considered “impermissible” when challenged in the WTO courts. The chances of foreign suppliers to challenge the decision are also limited due to the virtual freeze of the WTO Courts of Appeal.

The Ministry of Finance published on regulation.gov.ru a package of amendments to the laws on the contract system (44-FZ) and on the procurement of state-owned companies (223-FZ), correcting the conditions for applying the national regime – equal access to bidding for Russian and foreign suppliers. The key innovation of the document is the ability to impose bans and restrictions on the purchase of imports by state-owned companies; so far, such preferences for Russian suppliers have not been applied due to Russia’s obligations to the WTO. At the same time, the practice of prohibitions and restrictions in state orders is already common and regulated, but supporters of the protectionist policy noted the insufficiency of this market (its capacity is many times less than the volume of purchases by state-owned companies) to support domestic suppliers and insisted de facto on the creation of mechanisms to circumvent international obligations, however, their initiatives did not find general government support.

After the start of the military operation of the Russian Federation in Ukraine, the retaliatory sanctions of the West and the formation of international policy in the concept of friendly and unfriendly countries, the requirements for protecting the market intensified. The appearance of the bill was the fulfillment of the requirements of the president and the instructions of First Deputy Prime Minister Andrei Belousov and Deputy Prime Minister and head of the government apparatus Dmitry Grigorenko in response to requests from parliamentarians (see Kommersant on February 20). The Ministry of Finance proposes to establish uniform rules for the application of the national regime in procurement laws – now they are regulated by the law on the contract system (44-FZ, for state orders) and the law on foreign trade activities (164-FZ, for all companies, including state-owned), and, as a general rule, the conditions for suppliers of foreign and Russian goods, works and services should be equal.

However, the government can establish prohibitions and restrictions on the purchase of foreign goods, works and services and preferences for the purchase of Russian ones.

At the same time, the amendments oblige the government to take into account the international obligations of the Russian Federation (this is the EAEU agreement for purchases under 44-FZ, and the WTO agreement for purchases under 223-FZ), while the agreements themselves may contain exceptions – for example, obligations do not apply to purchases constituting a state secret.

In the explanatory note, the authors give a detailed example of how the new construction of restrictions on procurement of state-owned companies will work: firstly, exemptions from the national regime are allowed by the WTO agreement on procurement for military purposes, which will allow the government to expand restrictions and prohibitions for state-owned companies when they are executors of state defense orders . Secondly, exemptions can be introduced if the customers are non-profit organizations created by the state to perform social or managerial functions, to provide public services, or to public law companies (Territorial Development Fund, Single Customer in the Construction Industry, Roscadastre, etc.) or to budgetary and autonomous institutions. The wording and framework nature of the amendments allow the state to flexibly manage the national regime and extend it de facto to any purchases, recognizing state-owned companies as performing social or managerial functions – law enforcement practice will already outline the boundaries.

Although the tightening of the national regime is explained by ensuring national interests and security, protectionist initiatives are publicly justified by the actual economic interests of the Russian Federation – as a mechanism to support demand for the products of Russian suppliers. Due to the need to launch import-substituting industries, its role is only growing: the possibilities of the deficit budget in terms of additional incentives for national producers through government orders are rather limited, and the procurement market for state-owned companies is many times wider (about 30 trillion rubles, including “hidden” purchases from subsidiaries versus 10 trillion rubles).

The reference to the protection of “national security” is increasingly used in the trade policy of countries: previously one of the largest restrictions of this kind was the US embargo on imports of Cuban goods, which has been in effect for more than half a century, in 2014 sectoral sanctions against the Russian Federation followed, and in March 2018 Donald Trump, who served as President of the United States, despite numerous warnings about negative consequences, nevertheless announced the introduction of protective duties on imports of steel and aluminum (25% and 10% respectively) by the country. Later, restrictions affected the import of Chinese products into the United States (as part of the so-called trade wars), and in 2022 the G7 countries refused to apply the most favored nation treatment to already Russian companies. The reference to security requirements was considered “impassable” in the WTO courts, however, in recent years, arbitrators have begun to make decisions on the protection of the injured party – however, they will not be implemented at least until the process of appointing judges to the organization’s appeal body is unblocked. The amendments proposed by the Russian Ministry of Finance may come into force in October 2023. “Kommersant” will follow the development of events.

Diana Galieva, Tatiana Edovina