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- Pricing Policies
  1. The representative of the Russian Federation explained that, although prices in most sectors of the Russian economy were now determined freely by market forces, in certain sectors, prices were regulated by the State. Presidential Decree No. 221 of 28 February 1995 "On Measures to Streamline the State Regulation of Prices (Tariff)" (as last amended on 8 April 2003) and Government Resolution No. 239 of 7 March 1995 "On Measures to Streamline the State Regulation of Prices (Tariffs)" (as last amended on 29 October 2010) established the main principles of State price (tariffs) regulation in the domestic market of the Russian Federation. Price regulation was implemented by the Government of the Russian Federation, Federal authorities and Sub-Federal bodies of executive power for the goods and services listed in Table 7, Table 8 and Table 9. Normative legal acts issued by Federal executive bodies concerning State regulation of prices for goods and services were subject to official publication, and all resolutions by the Government of the Russian Federation, concerning State regulation of prices and tariffs, including with respect to natural monopolies, were published in "Rossiiskaya Gazeta".
  2. Members of the Working Party sought clarifications on the mechanisms for determining State controlled prices and their relation to market and international prices and whether such prices, when charged by State-owned or State-controlled enterprises, were in accordance with commercial considerations. The representative of the Russian Federation replied that the Federal Service for Tariffs, being the main Federal authority empowered to exercise State price regulation, developed detailed principles (methods) for price regulation in different sectors, such as electric power and heat power, oil and gas transportation through main pipelines, etc. All authorities engaged in regulating prices were required to use these principles (methods) for establishing prices. These principles (methods) took into account the following elements in determining prices: (i) the cost effectiveness of the production of the sector, including the production (marketing) expenses; (ii) taxes and other payments; (iii) the cost of fixed production assets; (iv) the demand for investment for reproduction purposes; (v) depreciation charges; (vi) estimated profits; (vii) remoteness of different consumer groups to the production site; and (viii) adequacy of quality. Compliance with decisions of the Federal Service for Tariffs was obligatory for all operators. Regarding State-owned and State controlled enterprises, the representative of the Russian Federation referred to Presidential Decree No. 221 requiring that prices (tariffs) regulated by the State must be applied in the domestic market of the Russian Federation by all enterprises and organizations, ensuring therefore, that State owned or State-controlled enterprises were subject to common rules in this regard.
  3. A Member requested further clarification of whether the Government of the Russian Federation was fixing the minimum price level of vodka, liquor products and other alcohol, stronger than 28 per cent volume. That Member also asked the Russian Federation to explain how this practice could be in compliance with the Agreement on the Implementation of Article VII of the GATT 1994.
  4. In response, the representative of the Russian Federation said that the minimum prices for vodka, liquor products and other alcohol stronger than 28 per cent volume related only to the internal sale at the retail level of domestically-produced and imported products, and had not been applied in a discriminatory manner between domestically-produced and imported products. This measure had been introduced in order to protect Russian consumers from sales of low quality counterfeited alcoholic products at distressed prices. He confirmed that this measure had no bearing on the customs valuation of the imported product. He noted that Order No. 29n of 20 April 2010 "On Establishing and Introducing of the Minimum Price for the Liquor Products and other Alcohol Stronger than 28 per cent volume (excluding Vodka) for Retail Sale since 1 June 2010" had been issued by the Federal Service of the Russian Federation for alcohol market regulation and was the current basis for regulating prices of these goods.
  5. In reply to a question from a Member of the Working Party, the representative of the Russian Federation explained that government purchases of agricultural products were undertaken at pre-announced administered prices in order to provide market price support to domestic producers. These purchases were only for rye and milling wheat (in 2001, 2002, 2003 and 2005); for rye, wheat, corn and barley in 2008; and for wheat, rye and barley in 2009. He confirmed that no price regulations were applied that could prevent imports of any like product mentioned in this paragraph from being supplied at a price below that of the domestic product.
  6. In response to a question from a Member of the Working Party, the representative of the Russian Federation stated that the reference price for raw cane sugar at the New York Commodity Exchange was used to calculate the rate of import duty and did not represent a reference price for the pricing of raw cane sugar in the market of the Russian Federation.
  7. Regarding price controls applied at the sub-regional level, some Members of the Working Party enquired about the legal basis and scope of authority to apply price controls at this level, and whether these measures were actually reviewed by the Federal authorities.
  8. In response, the representative of the Russian Federation said that regional governments were authorised to regulate prices (tariff) for some goods and services, upon agreement with the Federal Government. Government Resolution No. 239, referred to above, defined whether price regulation fell within the jurisdiction of regional or Federal Governments. Respective information regarding the jurisdiction of regional governments over price regulation was provided in Table 8 and Table 9. In addition, according to Presidential Decree No. 221, the Government of the Russian Federation was required to coordinate the activity of the regional governmental bodies in State price (tariff) regulation.
  9. In response to a question from a Member of the Working Party, the representative of the Russian Federation further clarified that Sub-Federal executive bodies, currently, did not have any powers to regulate prices, including imposing mark-up restrictions, for any agricultural product and, accordingly, did not maintain or apply such regulations.
  10. In response to a specific question of one Member of the Working Party concerning the "Programme for Federal Budget Compensation of 30 per cent for Mineral Fertilizer and Chemical Plant Protection Product Costs", the representative of the Russian Federation explained that, according to that Programme, ceiling prices were only in effect during the year 2001 and that the Ministry of Agriculture and Sub-Federal bodies applied mark-up restrictions on, and fixed service charges, relating to the sale of mineral fertilizers and chemical plant protection products supplied to agricultural producers under this programme. No programmes of this kind had been adopted or maintained since then.
  11. Some Members sought additional information on the announcement of the Russian Federation of efforts to unify its domestic and foreign operating tariffs for railways, as well as a status report on developments. Noting that the Russian Federation had indicated that discriminatory pricing for transportation on railway freight could be eliminated by 1 March 2002, some Members asked the Russian Federation if this measure had been implemented as planned. These Members expected the Russian Federation to treat all import and export cargoes, as well as cargoes in transit, on the same basis as domestically-produced goods, in line with the national treatment requirements of Article III, as well as the requirements of Articles V and XI of the GATT 1994 and to make a commitment to this effect in the Working Party Report.
  12. Some Members of the Working Party also stated that the Russian Federation should specify how and when it proposed to complete the elimination of the current discrimination vis-à-vis export, import and transit cargoes. Those Members also expressed concerns that differential rates continued to be charged for rail transportation of cargoes for export by land border crossings.
  13. In response, the representative of the Russian Federation explained that his authorities were prepared to introduce the same pricing scheme on tariffs for import cargoes as for domestic products. He added that, in August 2001, the first stage of unification for railway freight tariffs had been implemented with the transition to payment for import and export cargoes shipped through Russian ports, based on tariffs in Price List No. 10-01 by the Federal Energy Commission. These measures eliminated the existing differentiation in pricing for import cargoes shipped through Russian ports and domestically transported cargoes. Competent Federal authorities were preparing the second stage of this tariff unification, which would extend tariffs in Price List No. 10-01 to import cargoes shipped through border land checkpoints of the Russian Federation. He also stated that, in his view, there was no inconsistency between Article XI of the GATT 1994 and the existing system of higher tariffs for railway transportation of exported goods.
  14. As far as railway tariffs for cargoes in transit were concerned, he was of the view that the issue of transit was adequately dealt with in Article V of the GATT 1994.
  15. He further added that one of the goals of structural reform of the railway sector was a gradual transition to market-based pricing in competitive sectors, economic sectors where several juridical persons competed under equal conditions. Responding to questions from Members of the Working Party regarding the next stage of tariff unification, the representative of the Russian Federation said that, currently, the levelling of tariffs was being implemented through the gradual increase of tariffs fixed in Price List No. 10-01, up to the value of tariffs for transportation of import cargoes shipped through border land checkpoints of the Russian Federation. Two steps of such increase had been undertaken in 2005, by 5.4 and 12.8 per cent. The increase had been 27.9 per cent in 2006; 12.8 per cent in 2007; and, 10.9 per cent in 2008. By the end of 2009, around 87 per cent (by volume) of railway traffic (other than traffic in transit) for all types of cargoes was subject to equalized tariffs. In 2010, the equalization of tariffs continued with respect to goods, such as ferrous metals and ores, chemical industry products, grain, and fertilizers. In response to a question from a Member, the representative of the Russian Federation clarified that the Orders of the Federal Service for Tariffs No. 338-T/3 and No. 386-T/1 of 7 December 2010 "On Amending Price List No. 10-01 Tariffs on Cargo Transportation and Infrastructure Services Provided by the Russian Railways" provided for further equalization of railway tariffs, including tariffs for transportation of chemicals, metals, and energy products.
  16. Having considered the discussion in the Working Party, in particular as to the applicability of Articles III and XI of the GATT 1994, the representative of the Russian Federation confirmed that products imported into, and products destined for exportation or sold for export from the territory of the Russian Federation would, no later than 1 July 2013, be accorded treatment no less favourable with regard to the application of all rail transportation charges (including basic charges, surcharges and rebates) than like, directly competing or substitutable products transported between domestic locations, and no less favourable treatment depending on whether the imported or exported products enter or exit the territory of the Russian Federation by land or through a port or depending on their origin or destination. The representative of the Russian Federation further confirmed that, over the period between the accession of the Russian Federation to the WTO and 1 July 2013, the Russian Federation would gradually reduce the existing differences between, on the one hand, rail transportation charges applicable to products imported into, and products destined for exportation or sold for export from, the territory of the Russian Federation and, on the other hand, rail transportation charges applicable to like, directly competing or substitutable products transported between domestic locations, as well as the existing differences in rail transportation charges for imported and exported products depending on whether they enter or exit the territory of the Russian Federation by land or through a port or depending on their origin or destination. These commitments would not prevent the application of differential internal transportation charges, which are based exclusively on the economic operation of the means of transport and not on the national origin of the product. The Working Party took note of these commitments.
  17. The representative of the Russian Federation confirmed that railway transportation charges on traffic in transit would be in conformity with the provisions of Article V of the GATT 1994 and other relevant provisions of the WTO Agreement. The Working Party took note of this commitment.
  18. The representative of the Russian Federation confirmed that regulated railway tariffs for transit of goods and changes to them would be published before their entry into force. The Working Party took note of this commitment.
  19. In response to questions from some Members concerning electricity prices, the representative of the Russian Federation noted that such prices were regulated in a similar way as gas prices, pursuant to Federal Law No. 41-FZ of 14 April 1995 "On State Regulation of Tariffs on Electric and Thermal Power in the Russian Federation" (as last amended on 27 July 2010), prices for electrical energy provided by regional electrical power-plants to the regional market were fixed both for industrial consumers and households. He added that the setting of prices of electricity supplied to industrial consumers was being reformed (although, like for gas, electricity prices charged to individual households would remain fixed for reasons of social protection). The concept of the reform aimed at de-monopolization and development of competition in the energy sector had been approved by Government Regulation No. 526 of 11 July 2001 "On Reforming the Electricity Sector in the Russian Federation" (as amended on 1 February 2005).
  20. As a result of the reform, it was planned to create in the Russian Federation a competitive electricity energy market through two groups of measures. The first one was aimed at unbundling transportation, dispatching management companies and those engaged in generation, sale and technical maintenance. The part of the latter companies were subject to privatization programmes, while another part, such as companies engaged in transportation and dispatching management activities, remained under governmental control (both in terms of ownership and in terms of price control). The second type of measures was performed with the view to decrease governmental involvement in price control, in respect of those areas of the electricity energy sector where relevant market regulations were applied. This goal had been reached with the launch, in 2003, of the deregulated electricity market. The representative of the Russian Federation informed Members that the amount of electricity sold on the deregulated market, by the end of 2010, had increased to around 80 per cent of electricity sold on the market of the Russian Federation. Conditions of sale of electricity at regulated prices were provided for in Resolution of the Government of the Russian Federation No. 109 of 26 February 2004 "On Establishment of the Price in Respect of Electrical and Heat Energy" and Order of the Federal Service for Tariffs (FST) No. 199-e/6 of 15 September 2006 "On Approval of the Methodological Procedures for Calculation of the Tariffs for Electrical Energy and Power Under Sales Contracts at Regulated Tariffs (Prices) on Wholesale Market". Energy companies and industrial consumers, which could include steel and fertilizer producers, bought such electricity sold at unregulated price.
  21. Some Members of the Working Party asked whether gas liquids and condensate, e.g. those used for petrochemical feed stocks, were also included in the list of items under price control. These Members expressed strong concerns about the trade distortions caused by State controls on the pricing of energy for domestic consumption (whether in the form of gas, oil or electricity). The effect of these controls was to depress prices for domestic industrial users, which could lead to a very wide differential between the price paid by domestic industrial users and the price paid by export customers, as well as the world market price. Other Members noted that the price for natural gas was below the full cost of production, including a reasonable profit, and was therefore inconsistent with commercial considerations. Referring to natural gas, these Members considered that the fact that industrial producers of the Russian Federation did not have to pay the full market price for their energy inputs, including gas, especially, in energy-intensive industries and in industries that used gas as an input (rather than an energy source) constituted an unfair competitive advantage. This situation had implications for the ability of imported goods to compete on the market of the Russian Federation and could lead to a displacement of Member products from third country markets. In addition, exports of "downstream" intermediate or finished goods of the Russian Federation, particularly, of products that were energy-intensive, such as fertilizers or metals, could take place at prices below their normal value or at subsidized prices, leading to the possibility of facing anti-dumping or countervailing actions in export markets.
  22. The same Members recognised that this was an area where the Russian Federation had begun a process of regulatory reform, which could not be achieved overnight. They understood that the Russian Federation could wish to maintain controls on the price of energy sold for domestic household consumption. Those Members also stressed that increases in the price of natural gas could lead to a return of the non-payment problem. Members considered that the opportunity of WTO accession should be taken to tackle the negative impact of dual pricing in favour of manufacturing industry, at its source. They considered that the regulatory reform in the energy sector would also benefit the wider economy of the Russian Federation by allowing for a more rational resource allocation and stimulating greater investment and competitiveness.
  23. Members of the Working Party noted that discussions in the Working Party had served to clarify the pricing of gas. However, these Members remained concerned that the regulated price for gas used by industrial consumers>
  24. In response to the questions from Members, the representative of the Russian Federation stated that underground resources within the territory of the Russian Federation, including subsoil domain and mineral resources contained therein, energy and other resources, were the property of the State. The Russian Federation exercised its sovereign rights over the resources. He added that the current practice of regulation of energy and natural gas prices in the Russian Federation>
  25. Responding to concerns expressed by some Members, the representative of the Russian Federation explained that, in his view, the existing pricing system did not create an unfair competitive advantage, nor a countervailable "specific subsidy" in terms of the WTO Agreement on Subsidies and Countervailing Measures, as this mechanism did not grant any benefit to any enterprise or group of enterprises, or industry or groups thereof or specific sectors since it was equally applied to all sectors. This principle was unambiguously provided for by the legislation of the Russian Federation. In particular, operators engaged in providing services under conditions of natural monopolies were obliged, in accordance with Article 8 of Federal Law No. 147-FZ of 17 August 1995 "On Natural Monopolies" (as last amended on 25 December 2008), to provide services subject to price regulation in accordance with that Law, on non-discriminatory conditions according to the requirements of anti-monopoly legislation. Legal acts establishing the methodology of energy and natural gas price-setting, namely, Resolution of the Government of the Russian Federation No. 1021 of 29 December 2000 "On the State Regulation of Gas Prices and Gas Transportation Services Tariffs on the Territory of the Russian Federation" (as last amended on 23 July 2009) (natural gas) and Order of the FST No. 20-e/2 of 6 August 2004 (as last amended on 31 December 2009), (electric energy), were applied equally throughout the whole territory of the Russian Federation (including remote locations). These Acts did not provide for any industry-specific exceptions, exemptions, discounts or preferences. The representative of the Russian Federation also noted that the methodology for the calculation of gas prices was officially published and transparent. Responding to a specific statement of one Member about the possibility to export "downstream" intermediate or finished goods at subsidized prices, the representative of the Russian Federation raised his objection. In his view, such kind of statement by a Member was misleading since it suggested that the Russian Federation applied export subsidies, which>
  26. In response to a question from a Member regarding the Order of the Federal Energy Commission No. 12/1 of 24 March 1999 "On Granting a 50 per cent Reduction of Prices of Gas to Enterprises which Produce Chemical Fertilizers, Chemical Protection for Plants and Raw Materials for Production thereof, in 1999", the representative of the Russian Federation clarified that it had only been in effect during the year 1999 and that there were no other legal provisions that provided for similar price reductions for any other industries. He further added that Gazprom had an ownership interest in certain Russian fertilizer companies. The regulated price paid by the fertilizer companies, in which Gazprom had an ownership interest, was the same as the price paid by other industrial consumers which purchased similar quantities of gas in like circumstances.
  27. Elaborating on the issue of internal price of natural gas, the representative of the Russian Federation stated that the basic principle of price-setting was to ensure economically viable production and recovery of costs, including, inter alia, the cost of production, overheads, financing charges, transportation, maintenance and upgrade of extraction and distribution infrastructure, investment in the exploration and development of new fields done or planned, and reasonable profits.
  28. In relation to concerns from Members about the disparity between the price of gas sold to industrial consumers in the Russian Federation and the world price of gas, the representative of the Russian Federation stated that gas export prices were not regulated and were established on the basis of supply and demand in the importing country. He was of the view that there was no "world market price" for gas, and noted that for gas shipped to Europe, costs of shipment and transport reflected a substantial part of the landed price. The representative of the Russian Federation reiterated that the price of gas for internal consumption by industrial consumers in the Russian Federation was fixed at an average level of US$80 per thousand cubic meters (in 2010) that secured recovery of estimated costs (around US$64 per thousand cubic meters in 2010) and an amount for profit.
  29. The representative of the Russian Federation explained that his Government was guided by the Energy Strategy of the Russian Federation for the period up to the year 2030, which provided for an increase in natural gas prices. He noted that during the last nine years, the gas price had increased from US$19.3 (in 2001) up to US$80 (in 2010). The final price for gas could differ depending on the region, since the transportation arm had an impact on the final price levels.
  30. Some Members noted that the Government of the Russian Federation had issued Resolution No. 333 of 28 May 2007 "On Improving State Regulation of Gas Prices". These Members requested additional information on the Resolution and the intentions of the Russian Government for implementing this Resolution.
  31. In response, the representative of the Russian Federation explained that his Government intended to modify State regulation of gas prices and develop market pricing principles for the domestic gas market, with the objective of benefiting the economy of the Russian Federation. In the Resolution of the Government of the Russian Federation No. 333 of 28 May 2007, the Government of the Russian Federation directed the Federal executive body, responsible for State regulation of prices, to develop a formula which ensured equal return on gas supplies to the international and domestic markets. This formula was used to inform participants in the gas market of the price that would have been applied to gas produced by Gazprom and its affiliates, if the formula had been in effect. The relevant government bodies would submit proposals as to the advisability of implementing State regulation of gas transportation tariffs instead of State regulation of wholesale gas prices and application of the formula to determine wholesale prices for the gas produced by Gazprom and its affiliates under contracts to all consumers (other than the population, i.e., individual households).
  32. Members welcomed the steps taken by the Russian Federation towards modifying the regulation of gas prices in the Russian Federation. Such action, in their view, would be beneficial to Gazprom and ensure a stable supply of gas to the domestic and international markets. They encouraged the Russian Federation to move forward in accordance with the Resolution of the Government of the Russian Federation No. 333 of 28 May 2007 to improve the State regulation of gas prices as soon as possible.
  33. In response to the concerns expressed, the representative of the Russian Federation stated that upon accession, producers/distributors of natural gas in the Russian Federation would operate, within the relevant regulatory framework, on the basis of normal commercial considerations, based on recovery of costs and profit. He confirmed that the policy of his Government was to ensure, upon accession, that these economic operators, in respect of their supplies to industrial users, would recover their costs (including the cost of production, overheads, financing charges, transportation, maintenance and upgrade of extraction and distribution infrastructure, investment in the exploration and development of new fields) and would be able to make a profit, in the ordinary course of their business. He added that his Government would continue to regulate price supplies to households and other non-commercial users, based on considerations of domestic social policy. The Working Party took note of these commitments.
  34. The representative of the Russian Federation confirmed that, from the date of accession, the Russian Federation would apply price controls on products and services contained in Table 7,
    Table 8 and Table 9 and any similar measures that would be introduced or re-introduced in the future, in a manner consistent with the WTO Agreement. He further confirmed that price control measures on goods would take account of the interests of exporting Members, as provided for in Article III:9 of the GATT 1994. Price control measures would not be used for purposes of affording protection to domestic production of goods, or to impair the service commitments of the Russian Federation. The representative of the Russian Federation also confirmed that the lists of goods and services subject to State price controls in Table 7, Table 8 and Table 9 were comprehensive, and that, from the date of accession, the Russian Federation would publish in the Rossiiyskaya Gazeta notice of any changes in the coverage of goods or services that were subject to price controls. The Working Party took note of these commitments.