VZCZCXRO2030
PP RUEHAG RUEHDF RUEHIK RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK
RUEHYG
DE RUEHMO #3563/01 3441503
ZNR UUUUU ZZH
P 091503Z DEC 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 1063
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RHEHAAA/WHITE HOUSE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 MOSCOW 003563 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EUR/RUS AND EEB/TPP/MTAA (BRIAN NAFZIGER) 
STATE PLS PASS USDA/FAS FOR OCRA (FLEMINGS, KUYPERS) AND 
ONA (SALLYARDS, MURPHY) 
COMMERCE FOR MAC (MATT EDWARDS, JAY THOMPSON) 
STATE PLS PASS USTR (CARA MORROW, CECILIA KLEIN, ELIZABETH 
HAFNER) 
 
E.O. 12958: N/A 
TAGS: ETRD EFIN EINV ECON RS
SUBJECT: G20 DEMARCHE: RUSSIA IS CONSIDERING "SOME" 
PROTECTIONIST MEASURES 
 
REF: STATE 125609 
 
THIS CABLE IS SENSITIVE BUT UNCLASSIFIED.  NOT FOR 
DISTRIBUTION OUTSIDE USG CHANNELS OR FOR POSTING ON THE 
INTERNET. 
 
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SUMMARY 
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¶1. (SBU) In response to subject demarche Andrey Kushnirenko, 
Deputy Director of the Economic Development Ministry's Trade 
Negotiations Department, told us December 4 that Russia will 
make decisions related to duty increases based on "all 
relevant factors."  He acknowledged that Russia had committed 
to refrain from raising trade barriers in the G20 
Declaration, but said raising duties was justifiable in 
certain limited and special circumstances.  In that regard, 
he said the GOR was currently considering duty increases on 
imported automobiles and might seek to reopen U.S.-Russia 
side letters and impose higher tariffs on harvesters and 
aircraft.  In a separate meeting, MFA officials told us in 
response to the demarche that Russia was disappointed with 
the pace of WTO accession and protectionist voices within the 
GOR were consequently growing louder.  END SUMMARY. 
 
--------------------------------------------- ---- 
MED: Protectionism OK in Special Cases--Like Cars 
--------------------------------------------- ---- 
 
¶2. (SBU) EconOffs conveyed reftel demarche regarding the G20 
commitment to refrain from protectionist measures to Andrey 
Kushnirenko, Deputy Director in the Economic Development 
Minister's Trade Negotiations Department.  Kushnirenko 
acknowledged Russia's commitment at the G20 Financial Summit 
and agreed with the general proposition that the erection of 
trade barriers was ineffective. 
 
¶3. (SBU) However, Kushnirenko insisted that some countries, 
including Russia, should be allowed to use measures to 
protect vulnerable domestic industries in certain "special 
cases."  He emphasized that Russian decisions would be taken 
on the basis of "all relevant factors," which include the 
global financial crisis and declining import trends, as well 
as Russia,s G20 and APEC commitments, but which also include 
the needs of Russian industries. 
 
¶4. (SBU) In that regard, Kushnirenko confirmed that, in 
November, the Commission on Special Protective Measures in 
External Trade and Customs and Tariff Policy, chaired by 
First DPM Zubkov, had recommended an increase in the duties 
on imported automobiles from the current rate of 25% to a 
higher rate of 30%.  He noted that the Commission had also 
recommended creating a stricter limit on older vehicles 
(i.e., applying a prohibitive duty to all cars older than 
five years, instead of the current regime, which applies 
prohibitive duties to cars older than seven years). 
 
¶5. (SBU) Kushnirenko stated, however, that the GOR had not 
yet decided whether to go ahead with the duty increase on 
cars.  He said the monthly import data showed that car 
imports were slowing; car imports rose by 22% in September 
2008 compared to September 2007, but increased by 5.7% in 
October 2008 compared to October 2007 and were projected to 
be flat in November and perhaps even show a decline in 
December.  Given the slow-down in imports, he said, the case 
for increasing the duty seemed less strong than when the 
Commission had made its original recommendation. 
 
¶6. (SBU) Kushnirenko added that, despite the potential for 
duty increases in certain special cases, Russia was lowering 
duties on many other products.  For instance, the same 
commission meeting that recommended increasing automobile 
duties had recommended eliminating all duties on imported 
buses and trucks. 
 
--------------------------------------------- -- 
Bilateral Commitments with the U.S.--Harvesters 
 
MOSCOW 00003563  002 OF 002 
 
 
--------------------------------------------- -- 
 
¶7. (SBU) Kushnirenko said the GOR was also still reviewing 
some of the commitments Russia had agreed to make in advance 
of WTO accession, which might be having a "negative economic 
effect" on certain Russian industries, as PM Putin had stated 
in late August.  Kushnirenko noted that the U.S.-Russian 
November 2006 bilateral side letters on aircraft and on 
harvesters might have to be modified, based on that review, 
potentially leading to higher duties. 
 
¶8. (SBU) Kushnirenko declined to elaborate further on 
aircraft but did discuss the harvester issue in more detail, 
confirming that Zubkov's commission would also be meeting on 
December 4 to consider an increase in the duties on combine 
harvesters.  He noted that the main domestic producer, 
Rostselmash, was in financial difficulty, had laid off 1,300 
workers in October and November, and had cut its planned 2009 
production output from 7,100 harvesters to 4,300.  He also 
claimed that EU producers, including John Deere's European 
production facilities, were heavily subsidized. 
 
¶9. (SBU) In this situation, Kushnirenko said, it was natural 
for the domestic producers to ask for protection from the 
government.  We pointed out that raising the cost of 
harvesters through increased duties would have a negative 
impact on the price of Russian grains and on Russia,s 
ability to bring in the estimated record crop levels. 
Kushnirenko responded that the Russian government would take 
all factors into account and that perhaps the harvester's 
side letter might need to be modified to provide a higher 
duty only for harvesters with a capacity of 100-200 
kilowatts, a range where Kushnirenko said that the domestic 
industry might need greater protection from imports. 
 
¶10. (SBU) Kushnirenko said he would let us know whether 
Russia would seek to reopen the bilateral agreement once the 
Russian intergovernmental review was complete.  (NOTE: 
Following our meeting, Zubkov's commission did recommend an 
increase in the duty rate on combine harvesters, from the 
current 5% ad valorum rate, to a rate not less than 75 Euros 
per kilowatt for most harvesters.) 
 
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MFA: WTO Sacrifices Without Benefits 
------------------------------------ 
 
¶11. (SBU) In a separate meeting on December 4, MFA North 
America Department Deputy Director Nikolay Smirnov told us in 
response to the demarche that Russia had made "sacrifices" to 
get into the WTO, but so far had not reaped any of the 
benefits, since the accession process had gone more slowly 
than Russian officials had expected.  Andrey Krutskikh from 
the MFA's Department of Security, Technology and Disarmament 
Affairs, added that as a result the protectionist voices 
within the government were growing stronger.  However, both 
he and Smirnov said liberal economic and free trade policies 
remained the view of "the bosses." 
 
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COMMENT 
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¶12. (SBU) In the current economic environment, domestic 
economic factors, especially the complaints of politically 
connected industries such as agriculture, are likely to carry 
more weight with Russian decision makers than international 
commitments.  That said, while the GOR believes it is 
negotiating from a position of strength on trade issues, it 
is likely committed long-term to WTO accession and to freer 
trade.  Protectionist forces are therefore unlikely to get 
everything they want even as they complicate Russia,s trade 
relations in the near-term. 
BEYRLE