Overview
___________________________
• Russian Dual Pricing
Practices
• Russia and the WTO
• Dual Pricing of Energy and
the WTO
• Implications for Energy
Governance
Russian Dual Pricing Practices
___________________________
• Export prices and domestic prices
are different
• Commonly practiced by energyexporting countries
• Russia: natural gas and electricity
• Natural gas and electricity prices
are suppressed domestically
• Limited export market in
electricity, but large export market
in natural gas to EU and CIS
Russian Dual Pricing Practices
___________________________
Arguments for:
• Humanitarian: provides
inexpensive heating and
energy in a cold climate
• Environmental: reduces usage
of dirtier energy sources
• Economic: Russia’s resource
endowment is a comparative
advantage to energy-intensive
Russian industries
Russian Dual Pricing Practices
___________________________
Arguments against:
• Provides a trade-distorting
subsidy to energy-intensive
industries
• Encourages excessive use of
resources domestically
• Actual practice is triple pricing:
different prices for the EU, CIS,
and domestic markets
The WTO Accession Process
________________________
Membership in the WTO commits its
members to certain fundamental
principles:
• Most-favored nation principle
• National treatment
• Transparency
• Lowering trade barriers
through negotiations
• Reliance on tariffs
The WTO Accession Process
________________________
• Applicant requests WTO
•
•
membership
WTO sets up a Working
Party open to all interested
countries
Applicant submits
description of current trade
regime to WP
The WTO Accession Process
________________________
• WP and applicant negotiate
•
•
the terms and conditions for
entry
Applicant must also complete
bilateral negotiations with
WP countries
Once completed, formal vote
is taken requiring a twothirds majority of all WTO
members
Russia and the WTO
___________________________
Russia is the largest country
remaining outside the WTO
1993
2000
2004
2006
2009
Began accession process
Putin makes WTO accession a
priority
Bilateral agreement with EU signed
Bilateral agreement with US signed
Putin announces Russia will only
pursue WTO accession as part of a
customs union with Belarus and
Kazakhstan
Dual Pricing and the WTO
___________________________
• No specific provisions on
natural resource or energy
pricing in any of the WTO
agreements
• Prior attempts at the
multilateral level have failed
• Energy pricing provisions
have become part of
acceding countries WTO-plus
commitments
Dual Pricing and the WTO
___________________________
Legal Analysis under WTO Law
• Subsidies and Countervailing
Measures (SCM) Agreement
• GATT Article XI on Export
Restrictions
• GATT Article III.9 on Internal
Maximum Price Controls
• GATT Article XVII on StateTrading Enterprises
Dual Pricing and the WTO
___________________________
SCM Agreement Subsidy
Definition
• Financial contribution by a
government or by any
public body
• Or any form of income or
price support
• Whereby a benefit is
conferred
Dual Pricing and the WTO
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Divides subsidies into 3
categories
• Prohibited export subsidies
(except those permitted
under the Agreement on
Agriculture)
• Actionable domestic
subsidies (must be found de
jure or de facto specific)
• Non-actionable subsidies
(phased out in 2000)
Dual Pricing and the WTO
___________________________
Distinctions:
• between prohibited export
contingent subsidies (which
must be terminated) and
actionable domestic subsidies
(which are countervailable)
• between subsidies to energy
industries and subsidies of
energy to energy-intensive
industries
Dual Pricing and the WTO
___________________________
• While pricing of natural gas
and electricity is suppressed
domestically, the practice does
not constitute either a de jure
prohibited export contingent
subsidy or de jure specific
domestic subsidy
• Domestic prices for natural gas
and electricity are suppressed
equally to all sectors of the
Russian economy
Dual Pricing and the WTO
___________________________
Critics argue that the provision
of natural gas and electricity to
industries requiring large energy
inputs is tantamount to:
• a de facto specific
domestic subsidy (i.e.
steel, fertilizer, and petrochemical industries)
• a de facto export
contingent subsidy (i.e.
ammonia industry exports
90 percent of production)
Implications for Energy Governance
___________________________
• Both the EU and the US
failed to obtain
commitments on
abandoning dual pricing of
natural gas as a condition
for WTO accession
• EU agreement requires
incremental price increases
for domestic natural gas
prices
Implications for Energy Governance
___________________________
• As most countries still outside
the WTO are energyexporting countries, energy
pricing remains a contested
WTO-plus issue
• Recently, Saudi Arabia
agreed to abandon dual
pricing practices as part of its
WTO accession agreement
Implications for Energy Governance
___________________________
• After accession, Russia may
still be subjected to a
challenge of its dual pricing
practices before the WTO
Dispute Settlement Panel
• Prior to accession, Russia
could be subject to domestic
countervailing practices that
would be illegal under WTO
rules
Implications for Energy Governance
___________________________
Issues relating to triple
pricing remains:
• CIS as regional free-trade
area (but most CIS
countries still outside the
WTO)
• Energy pricing policies
under EuroSec (the
proposed customs union
between Russia, Belarus,
and Kazakhstan)