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Trade-Related Investment Measures (TRIMs)
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- (j) Proportionality, Necessity, and Reasonableness
  1. Some Members of the Working Party expressed concern that SPS measures applied by the Russian Federation and other CU Parties to exports to the Russian Federation were not always proportionate to the risk identified. These Members gave the following examples of measures that were disproportionate or otherwise inconsistent with international rules:

- the list of goods subject to veterinary control included goods that did not represent a veterinary or sanitary risk which would justify submitting these goods to requirements for listing establishments on the Common Register, State Registration, import permits, and veterinary certificate requirements;

- imposition of trade restrictive measures, such as suspension of establishments or mandatory pre-export testing, were not reviewed and eliminated after food safety standards had been harmonized with international standards or when steps had been taken to address food safety issues;

- Russian Federation inspectors requesting exporting establishments to show the results of monitoring of residues of veterinary medicinal products in processed products in addition to the monitoring carried out on the raw materials;

- the Russian Federation not using residue monitoring plans as a tool to manage the risk of exposure, as foreseen in Codex guidelines, but requesting pre-export tests;

- the Russian Federation requesting systematic inspections of plant nurseries before allowing export to the Russian Federation of plants for planting, in absence of basis foreseen by the IPPC to have such preliminary inspection; and

- overly detailed and unnecessary requirements of inspectors during inspections.

These Members recalled that the principles of proportionality, necessity and reasonableness were enshrined in a number of articles of the WTO SPS Agreement, such as Articles 2.1, 2.2, 5.3, 5.4, 5.6 and Annex C thereof, and that, in their view, the Russian Federation should also modify its practices to make them more proportionate to the risks and reasonable.
  1. The representative of the Russian Federation reiterated that SPS measures, which were not consistent with the WTO Agreement, in particular with the WTO SPS Agreement, would be brought into compliance with the WTO Agreement, as of the date of accession of the Russian Federation to the WTO. He also stated that, in adopting and implementing SPS measures, the Russian Federation recognized the importance of applying the principles of proportionality, necessity and reasonableness consistently with the WTO SPS Agreement. However, any disagreements over the assessment on how these principles were implemented in individual cases, in his view, must be dealt with under appropriate WTO procedures rather than under the Working Party Report.
  2. One Member expressed strong concerns that, despite repeated reassurances of the Russian Federation, the Russian authorities continued to apply certain requirements which were not in conformity with the SPS principles of proportionality, necessity and reasonableness. In particular, they referred to the requirement to present a safety certificate, including results of laboratory analysis for residues of pesticides, nitrates and nitrites in fruits and vegetables upon their exportation from this Member to the Russian Federation in cases where there was no violation of the relevant international standards of MRLs, which were also reflected in the Russian law, concerning pesticide, nitrates and nitrites residue levels. This Member considered that this measure was trade restrictive, totally unnecessary and unjustified and was not in line with the WTO SPS Agreement. Furthermore, this Member noted its concern that certain Russian authorities requested that in the absence of these safety certificates, the importation of these goods could take place provided that a laboratory analysis was carried out at the border upon importation, at the cost of the importer. In this Member's view, such measure would have an equivalent effect to the unjustified requirement for a safety certificate. 
  3. In response, the representative of the Russian Federation stated that the situation in respect of safety certificates as described by this Member was inaccurate and, according to the legislation of the Russian Federation, accompanying of the products of plant origin by the safety certificates, when imported into the territory of the Russian Federation,>
  4. In response to these concerns, the representative of the Russian Federation confirmed that all SPS measures, whether adopted by the Russian Federation or the competent bodies of the CU, would be applied in conformity with the WTO SPS Agreement. In particular these SPS measures would be applied only to the extent necessary to protect human, animal or plant life or health and would be not more trade restrictive than required to achieve the appropriate level of sanitary or phytosanitary protection of the CU and the Russian Federation. Finally, when determining the appropriate level of sanitary, veterinary, or phytosanitary protection, the Russian Federation or the competent bodies of the CU, would take into account the objective to minimize negative trade effects in accordance with the WTO SPS Agreement. The Working Party took note of these commitments.

- (k) Issues Related to Irregularities or Fraud
  1. In response to concerns expressed by some Members, the representative of the Russian Federation stated that potential measures adopted in reaction to evidence of irregularities or fraud in import applications, certificates issued by exporting Members and related documentation would be applied in accordance with the WTO SPS Agreement and, in particular, be no more trade restrictive than required to achieve the appropriate level of sanitary or phytosanitary protection, in compliance with Article 5.6 of the WTO SPS Agreement. Such measures would, to the extent possible, be targeted at the specific operator or operators involved in irregularities or fraud and would not imply a prohibition, temporary or otherwise, of importation of goods from a WTO Member unless, exceptionally, this was necessary to address the particular risk posed by such irregularities or fraud.

- (l) Conclusion
  1. The representative of the Russian Federation confirmed that, from the date of accession of the Russian Federation to the WTO, all SPS measures would be developed, whether by the Russian Federation or the competent bodies of the CU, and applied in the Russian Federation in accordance with the WTO Agreement and in particular, the WTO SPS Agreement. In particular, SPS measures would be applied only to the extent necessary to protect human, animal, or plant life or health; would be based on scientific principles and, where they exist, on international standards, guidelines, and recommendations; and, would not be more trade restrictive than required to achieve the appropriate level of protection applied in the Russian Federation. SPS measures would not arbitrarily or unjustifiably discriminate between Members where identical or similar conditions prevail, including between the territory of the Russian Federation and that of other Members. SPS measures would not be applied in a manner which would constitute a disguised restriction on international trade, and would not be maintained without sufficient scientific evidence, except as provided for in Article 5.7 of the WTO SPS Agreement. The Working Party took note of these commitments.

Trade-Related Investment Measures (TRIMs)
  1. The representative of the Russian Federation explained that the legal basis for preferential tariffs or tariff exemptions for imports of parts and components used in "industrial assembly" programmes for motor vehicles and parts and components thereof was established by the CU Common External Tariff (CET) (as approved by the Decision of the Inter-State Council of EurAsEC No. 18 of 27 November 2009 and put into effect through CU Commission Decision No. 130 of 27 November 2009) as well as in the relevant national legislation. He further explained that the following national laws and regulations were relevant, in his view, for the consideration of the question of consistency of the Russian legislation with the provisions of the WTO Agreement on Trade-Related Investment Measures (hereinafter referred to as the "WTO TRIMs Agreement"): Federal Law No. 225-FZ of 30 December 1995 "On Production Sharing Agreements" (as last amended on 19 May 2010); Presidential Decree No. 135 of 5 February 1998 "On Additional Measures to Attract Investments for Development of Domestic Car Making"; Resolution of the Government of the Russian Federation No. 413 of 23 April 1998 "On Additional Measures to Attract Investments for Development of Domestic Car Making" (currently not applied in practice but still in force); Resolution of the Government of the Russian Federation No. 166 of 29 March 2005 "On Introduction of Amendments to the Customs Tariff of the Russian Federation with Respect to the Parts and Components Imported for the Purpose of "Industrial Assembly'" (as last amended on 8 December 2010); Joint Order No. 73/81/58n of the Ministry of Economic Development and Trade of the Russian Federation (since May 2009, Ministry of Economic Development of the Russian Federation), the Ministry of Industry and Energy of the Russian Federation (MIT) and the Ministry of Finance of the Russian Federation (MOF) of 15 April 2005, "On Approval of the Order, Defining the Term "Industrial Assembly" and Establishing Conditions for Its Application to Imports to the Territory of the Russian Federation of Parts and Components for the Manufacture of Motor Vehicles (Tariff Positions 8701 - 8705) and Parts and Components Thereof", as last amended on 24 December 2010 by Joint Order No. 678/1289/184n "On Amendments to the Order Defining the Term "Industrial Assembly" of Motor Vehicles and Establishing Conditions for its Application to Imports to the Territory of the Russian Federation of Parts and Components for the Manufacture of Motor Vehicles (Tariff Positions 8701 - 8705) and Parts and Components Thereof".

- (a) Production Sharing Agreements
  1. The representative of the Russian Federation noted that Federal Law No. 225-FZ of 30 December 1995 "On Production Sharing Agreements" (as last amended on 19 May 2010, hereinafter referred to as "Federal Law No. 225-FZ") set-out the legal framework for relations arising in the course of Russian and foreign investment in search, exploration and mining of minerals in the Russian Federation. A "production sharing agreement" was an agreement in which the Russian Federation provided to an investor, in consideration for value received and for a limited term, exclusive rights to perform search, exploration, and mining of minerals in a subsoil plot specified in such agreement and any related work, and the investor undertook to perform the prescribed work at his own risk and expense. The rights and obligations of the parties to a production sharing agreement were governed by the Russian Federation's civil law. The term of the agreement was defined by the parties in compliance with the legislation of the Russian Federation applicable as of the date the agreement was concluded.
  2. The representative of the Russian Federation stated that, according to the Russian legislation, no special tax regime regarding realization of production sharing agreements was established. Chapter 25 of the Tax Code of the Russian Federation stipulated the order of taxation for extraction of natural resources. The Provisions of Chapter 25 applied during the implementation of production sharing agreements.
  3. Pursuant to Federal Law No. 225-FZ, an agreement whose provisions had not entered into force within one year after signature of the agreement, would be terminated on the expiry of that period, i.e., the special procedure for calculating and paying taxes and fees established by the Tax Code and other acts of taxation of the Russian Federation for this agreement would not be applied and this field's exploration would be realized on common terms of taxation, without recourse to provisions of Federal Law No. 225-FZ.
  4. Federal Law No. 225-FZ also contained the requirement that the Parties must include in such agreements an obligation to buy Russian technical equipment for natural resources extraction, their transportation and processing accounting for no less than 70 per cent of total cost of equipment and materials, purchased in each particular calendar year, for execution of works under the agreement. The other obligation of investors was to employ citizens of the Russian Federation, their proportion being no less than 80 per cent of all employed personnel engaged in realization of a production sharing agreement. This obligation was established by Article 7 of the Law. The representative of the Russian Federation added that provisions of paragraph 11 of point 2 of Article 7 of Federal Law No. 225-FZ provided that in case of accession of the Russian Federation to the WTO, all provisions that contradicted the principles of the WTO, would become invalid or would be brought into accordance with the above-mentioned principles. He also clarified, that the Federal Law in question had not imposed local content requirements on agreements concluded before its entry into force. Similarly, it had not changed respective provisions in such agreements, if they were there. In addition, the representative of the Russian Federation informed Members that since the adoption of Federal Law No. 225-FZ no new production sharing agreements had been concluded.
  5. The representative of the Russian Federation also noted that some production sharing agreements had been concluded before the entry into force of Federal Law No. 225-FZ. These were:

a. Production sharing agreement on Chayvinskoe, Odoptinskoe and Arkutun-Daginskoe oil and gas condensing fields (Sakhalin-1). This agreement had been concluded in 1995 and was valid for 25 years (extendable);

b. Production sharing agreement on Piltun-Astokhskoe and Lunskoe oil and gas fields (Sakhalin-2). This agreement had been concluded in 1994 and was valid for 25 years (extendable); and

c. Production sharing agreement on oil-field development and oil production on Kharyaguinskoe oilfield. This agreement had been concluded in 1995. It was valid for 20 years and could be extended for a further 13 years.
  1. Although the agreement on exploration of the southern part of the Samotlorskoe oil and gas condensing field had been concluded between the Government of the Russian Federation, the Administration of Hanty-Mansijsk region and Joint Stock Company "Samoltorneftegaz" it had not been implemented, and instead the normal investment and tax regime applied to this project.
  2. The representative of the Russian Federation noted that Federal Law No. 225-FZ was applicable to agreements concluded prior to the entry into force of Federal Law No. 225-FZ only to the extent that the law did not conflict with the provisions of these production sharing agreements. The production sharing agreements that had been concluded prior to the entry into force of the Federal Law did not contain either local content or export performance requirements. However, two of those agreements (Sakhalin-2 and Kharyaguinskoe) contained recommendations concerning the use of Russian equipment, but neither agreement provided for sanctions or penalties if the investor did not follow these recommendations and did not use such equipment.
  3. One Member noted that in the event that any of the three production sharing agreements listed in paragraph were renewed and/or extended, the Russian Federation should commit to eliminating any provisions which were TRIMs non-compliant. This Member believed that this should be noted in paragraph . In response, the representative of the Russian Federation explained that any additional commitment was redundant since this was already covered by paragraph of this Report.

- (b) Domestic Motor Vehicle and Components Industry
  1. The representative of the Russian Federation stated that since 2005 the Russian Federation had imposed a system for attraction of investments for development of domestic car making. This system was based on the Resolution of the Government of the Russian Federation No. 166 of 29 March 2005 "On Introduction of Amendments to the Customs Tariff of the Russian Federation with Respect to the Parts and Components Imported for the Purpose of "Industrial Assembly'" (as last amended on 8 December 2010) (hereinafter referred to as "Resolution No. 166"); Joint Order No. 73/81/58n of 15 April 2005, "On Approval of the Order, Defining the Term "Industrial Assembly" and Establishing Conditions for Its Application to Imports to the Territory of the Russian Federation of Parts and Components for the Manufacture of Motor Vehicles (Tariff Positions
    8701 - 8705) and Parts and Components Thereof" (as last amended on 24 December 2010) (hereinafter referred to as "Order No. 73/81/58n"); Resolution of the Government of the Russian Federation No. 718 of 27 November 2006 "On Customs Tariff of the Russian Federation and Customs Nomenclature, Applied During Execution of Foreign Economic Activity"; Resolution of the Government of the Russian Federation No. 839 of 30 December 2006 "On Introduction of Amendments to the Customs Tariff of the Russian Federation with Respect to the Automobile Car Parts Imported for the Purpose of "Industrial Assembling" and Components and Raw materials Imported for the Purpose of Airplane Engines Producing" (as last amended on 8 December 2010) (hereinafter referred to as "Resolution No. 839"). With the establishment of the Customs Union, the CU CET provided for preferential tariffs or tariff exemptions for imports of parts and components used in "industrial assembly" programmes for motor vehicles and parts and components thereof as referred to in paragraph .
  2. The above-mentioned normative legal acts became the basis for investment agreements, replacing previously applied Presidential Decree No. 135 of 5 February 1998 "On Additional Measures to Attract Investments for Development of Domestic Car Making", and Government Resolution No. 413 of 23 April 1998 "On Additional Measures to Attract Investments for Development of Domestic Car Making" that permitted automobile and car parts production within a "bonded warehouse" under special conditions. According to available information, no agreements under the latter acts which were based on the system of bonded warehouse were currently in force.
  3. In response to a question from a Member of the Working Party regarding Resolution No. 166, the representative of the Russian Federation stated that Resolution No. 166 provided for development by authorised government bodies of a procedure for defining the term "industrial assembly" and establishing rules for its application to imports of parts and components for "industrial assembly" of motor vehicles (tariff positions 8701 - 8705) and parts and components thereof.
  4. Pursuant to Resolution No. 166, the MED, the MIT, and the MOF issued Order No. 73/81/58n. Order No. 73/81/58n (as last amended on 17 December 2009) established an investment regime (hereinafter referred to as the "Auto Investment Program No. 1"), according to which the "industrial assembly" of motor vehicles was defined as a system of batch production on the basis of technological processes, achieving a production capacity of no less than 25,000 units per year in double-shift operation. Under Order No. 73/81/58n, an investment agreement concluded by a Russian legal entity with the MED under Auto Investment Program No. 1 was the basis for importation of parts and components at preferential tariff rates for "industrial assembly" of motor vehicles and parts and components thereof. Such an investment agreement also established specific commitments for the reduction over time of the importation of the above-mentioned parts and components at preferential tariff rates for "industrial assembly". Most-favoured nation tariffs were levied on all imports above the agreed-upon level of imports qualifying for preferential tariffs or tariff exemptions. The agreement established other rights and obligations of the parties, i.e., liability for failure to meet obligations under the agreement, validity of the agreement (seven years - for enterprises already in operation and eight years - for newly established enterprises that produce motor vehicles; seven years - for production of engines, gearboxes and drive axles; and five years - for production of any other car part and component for motor vehicles), and the basis for its change and cancellation.
  5. The representative of the Russian Federation explained that under Auto Investment Program No. 1, Russian producers of motor vehicles classified under HS 8701 - 8705, engaged in assembly of motor vehicles and parts and components thereof, qualified for preferential tariffs or tariff exemptions for imports of parts and components used in the production of those motor vehicles or parts and components thereof, provided they met requirements that include the following: a planned production capacity of not less than 25,000 units per year and, certain production activities taking place in Russia (e.g., stamping and painting) not later than 18 months (for Russian legal entities modernising existing production capacities) or 30 months (for Russian legal entities establishing new production capacities) after the entry into force of the agreement, and imported parts and components not to exceed 70 per cent of the value (excluding the value of bodies for motor vehicles classified under HS 8707) of parts and components used in a year not later than 54 months after meeting the above-mentioned requirement on performing certain production activities.
  6. The representative of the Russian Federation noted that as of 23 June 2011,
    31 agreements on the assembly of motor vehicles and 44 agreements on the assembly of parts and components of motor vehicles negotiated under the system of "industrial assembly" were signed under Auto Investment Program No. 1. Table 44 provided for an exhaustive list of agreements concluded under Auto Investment Program No. 1. In response to a question from a Member, the representative of the Russian Federation clarified that there was no legal linkage between agreements on investments in "industrial assembly" of motor vehicles and agreements on investments in "industrial assembly" of parts and components thereof. In response to another question, the representative of the Russian Federation informed the Members that the last agreement under Auto Investment Program No. 1 was signed on 22 June 2011 pursuant to the special provisions set-out in Article 3.1 of Order No. 73/81/58n. He also confirmed that no other agreement under Auto Investment Program No. 1, including pursuant to the special provisions set-out in Article 3.1 of Order No. 73/81/58n, would be signed after 23 June 2011.
  7. The representative of the Russian Federation noted that under Auto Investment Program No. 1, the majority of the agreements on investments in "industrial assembly" of motor vehicles or parts and components thereof had been signed before 2008, and that no new agreements under Auto Investment Program No. 1 could be concluded after 23 June 2011. He noted that, as with many WTO Members, in 2009, the global financial crisis had caused a significant decline in the production and sales of motor vehicles in the Russian Federation, which made it difficult for enterprises to meet their obligations under their respective agreements and to take advantage of the preferential tariffs or tariff exemptions. Therefore, the Russian Federation was considering extending for two years the duration of the tariff exemption provided to enterprises that had concluded investment agreements under Auto Investment Program No. 1 to manufacture motor vehicles or parts and components thereof in Russia before 1 January 2009.
  8. Responding to a Member's question, the representative of the Russian Federation explained, that an investor's enforceable obligations under agreements concluded pursuant to Auto Investment Program No. 1, were limited to using parts and components imported under preferential tariff treatment only for the purpose of "industrial assembly"; providing documents reporting on, among other things, capital investments and the use of imports of parts and components for "industrial assembly", at regular intervals; and setting-up at its plant the serial performance of operations as agreed (e.g. welding, painting, etc.). If the investor failed to implement one or several of these obligations, the investor was given a transitional period in order to come into compliance with the relevant provisions of the agreement. If the investor failed to come into compliance during the transitional period, the investor had to pay MFN tariff rates on imports of parts and components of motor vehicles and/or parts and components thereof from the date the violations were revealed. In case of early termination of the agreement, MFN rates were applied from the date of such termination.
  9. The representative of the Russian Federation explained that Order No. 73/81/58n had been amended by Joint Order No. 678/1289/184n of 24 December 2010 "On Amendments to the Order Defining the Term "Industrial Assembly" of Motor Vehicles and Establishing Conditions for its Application to Imports to the Territory of the Russian Federation of Parts and Components for the Manufacture of Motor Vehicles (Tariff Positions 8701 - 8705) and Parts and Components Thereof" (hereinafter referred to as "Order No. 678/1289/184n"). Order No. 678/1289/184n provided for agreements with manufacturers of motor vehicles and manufacturers of parts and components of motor vehicles aimed at establishing the conditions for those manufacturers to import parts and components of motor vehicles and parts and components thereof at a preferential tariff rate (hereinafter referred to as "Auto Investment Program No. 2"). With regard to agreements to manufacture motor vehicles (concluded and implemented in accordance with Annex 1 of Order No. 73/81/58n, as amended by Order No. 678/1289/184n), in order to have preferential tariffs apply to imported parts and components under Auto Investment Program No. 2, the manufacturer had to meet the requirements that include, the following: (1) to gradually establish an annual production capacity of 300,000 units (for Russian legal entities establishing new production capacities for motor vehicles other than trucks) or 350,000 units (for Russian legal entities modernizing existing production capacities for motor vehicles other than trucks) or 30,000 units (for Russian legal entities either establishing new or modernizing existing production capacities for trucks); (2) to engage in certain manufacturing operations in the Russian Federation (e.g., stamping operations); (3) to establish and/or modernise Research and Development centres in the Russian Federation; (4) to install domestically produced engines and/or gear boxes into at least 30 per cent of the motor vehicles produced by this manufacturer in Russia (or into at least 200,000 motor vehicles if production volume exceeded 1 million units a year); and (5) to gradually reach a specified minimum average annual level of production localization in the Russian Federation. The requirement to ensure a minimum average annual level of production localization was phased-in over time until the final level of 60 per cent was required starting from the sixth year from the date of entry into force of the investment agreement. During the five preceding years, the average annual level of production localization required was 35 per cent, 40 per cent, 45 per cent, 50 per cent and 55 per cent respectively (for a Russian legal entity modernizing existing production capacity), or 30 per cent for the fourth year and 40 per cent for the fifth year (for a Russian legal entity establishing new production capacities). Order No. 73/81/58n, as amended by Order No. 678/1289/184n, set-out time periods for achieving each of the above-mentioned requirements.
  10. With respect to investment for the assembly of parts and components of motor vehicles in the Russian Federation (concluded and implemented in accordance with Annex 2 of Order No. 73/81/58n, as amended by Order No. 678/1289/184n), the representative of the Russian Federation explained that under investment agreements concluded under Auto Investment Program No. 2, manufacturers of parts and components for motor vehicles had to meet requirements that include the following: for each type of part or component, to perform certain operations in the Russian Federation (e.g., mechanical processing), to reach a minimum required level of average annual production localization, and, for certain parts and components, to use certain Russian products (e.g., for engines, to use Russian crankshaft, cylinder blocks and cylinder heads).
  11. The representative of the Russian Federation explained that all agreements to manufacture motor vehicles under Auto Investment Program No. 2 had to be concluded and signed by 1 June 2011. Twelve such investment agreements had been concluded under Auto Investment Program No. 2 (see list in Table 42) and no additional agreements with manufacturers of motor vehicles were authorised under Order No. 73/81/58n, as amended by Order No. 678/1289/184n. He further explained that investors who signed an investment agreement for the same investment project, as indicated in Table 42, in order to benefit from the preferential tariff treatment for imports of parts and components used in "industrial assembly", could meet the requirements set-out in paragraph 1.2, Annex 1 of Order No. 73/81/58n, as amended by Order No. 678/1289/184n, collectively, i.e., despite their individual agreements with MED, these investors would not be required to meet each of those requirements individually but as a de facto "consortium" as long as these investors were in such consortium under the same investment project. With respect to manufacturers of parts and components of motor vehicles, companies with agreements under Auto Investment Program No. 1 had the right to conclude agreements under Auto Investment Program No. 2 until 31 December 2011. Companies manufacturing parts and components of motor vehicles that did not have an agreement under Auto Investment Program No. 1, had the right to conclude an agreement under Auto Investment Program No. 2 until 31 December 2013. To conclude such an agreement, a company manufacturing parts and components of motor vehicles had to have concluded in advance, but no later than by 28 February 2011, a memorandum of understanding with the MED concerning its intention to conclude an agreement under Auto Investment Program No. 2, otherwise, this company could not conclude such an agreement. The list of signed agreements to produce parts and components of motor vehicles under Auto Investment Program No. 2 as well as the list of companies manufacturing parts and components of motor vehicles having concluded the above-mentioned memorandum of understanding were included in Table 43.
  12. In response to a question from some Members, the representative of the Russian Federation explained that an important difference between Auto Investment Program No. 1 and Auto Investment Program No. 2, was that Auto Investment Program No. 2 was based on the amount of value added in the Russian Federation rather than the percentage of imported parts and components of motor vehicles that could be used. Auto Investment Program No. 1 effectively limited the volume of parts and components of motor vehicles (goods) that could be imported and used in the assembly of an automobile to 70 per cent of all parts and components (excluding the value of bodies for motor vehicles classified under HS 8707), thus imposing a 30 per cent local content requirement. Auto Investment Program No. 2, took another approach. Instead of limiting the percentage of parts and components of motor vehicles that could be imported, Auto Investment Program No. 2 was based on an added value criterion that took into account all of the various factors that went into the production of a motor vehicle. This criterion was based on the percentage of the actual selling price of the automobile excluding VAT and excise tax. While there was a requirement to produce certain components in the Russian Federation, a manufacturer could meet the value added criterion based on a wide range of inputs, including services, factory operation, and other overhead expenses. Although Auto Investment Program No. 2 required manufacturers at the end of a transition period to meet a 60 per cent added value requirement, the broad base for calculating value added provided more flexibility to manufactures in their selection of parts and components and helped mitigate the TRIMs-inconsistent aspects of this programme. In response to a question from a Member regarding how much of the ex-factory price of an automobile consisted of the value of parts and components, the representative of the Russian Federation stated that, based on studies conducted in Russia and the United States, it was estimated that parts and components accounted for approximately 50 per cent of the ex-factory price of an automobile. He noted that the ex-factory price was a price of the automobile located at the warehouse of the manufacturer that included VAT and other taxes and profit of the manufacturer.
  13. One Member expressed concern that the conditions of the Auto Investment Program No. 2 were significantly more prescriptive and stringent as compared to the Auto Investment Program No. 1. In this Member's view, the Auto Investment Program No. 2 would cause important displacement of third countries traditional suppliers to the Russian automotive market. This Member requested the Russian Federation to undertake a commitment that WTO-incompatible elements of the Auto Investment Program No. 1 and Auto Investment Program No. 2 would be phased-out and no new WTO-incompatible Trade-Related Investment Measures would be introduced in the Russian Federation.
  14. In response to a question, the representative of the Russian Federation explained that under Auto Investment Program No. 2, the manufacturer was required to submit a report to the MED and the MIT confirming that imported parts and components of motor vehicles and parts and components thereof were properly used and that the manufacturer met the other requirements of its investment agreement. If a manufacturer failed to meet the requirements set-out in the investment agreement, he lost the right to import parts and components under preferential tariffs until the relevant manufacturing process was brought into compliance with the investment agreement. If the manufacturer used parts and/or components imported under preferential tariffs for purposes other than those specified in the investment agreement, the agreement could be terminated and the most favoured nation tariff rates would be assessed on such parts and/or components.
  15. In response to a question from a Member of the Working Party about the "Concept of the Development of the Russian Car-Making Industry by 2020" (approved by the Order of the Ministry of Industry and Trade of the Russian Federation No. 319 of 23 April 2010, hereinafter referred to as "Order No. 319"), the representative of the Russian Federation noted that Order No. 319, which was being implemented at present, did not confer any benefits in exchange for investment commitments.