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C O N F I D E N T I A L SECTION 01 OF 06 MOSCOW 003083 
 
SIPDIS 
 
COMMERCE FOR BROUGHER/EDWARDS 
WHITE HOUSE ALSO FOR USTR FOR HAFNER AND KLEIN 
GENEVA FOR WTO REPS 
USDA FAS FOR OCRA/HORGAN, RIKER, NENON; ONA/TING 
 
E.O. 12958: DECL: 12/14/2019 
TAGS: ETRD EAGR ECON PREL RS WTO KZ BO
SUBJECT: THE CUSTOMS UNION AND TRADE- HARMONIZED TARIFFS 
AND NON-TARIFF REGULATIONS (PART 2 OF 3) 
 
REF: A. MOSCOW 3082 
     ¶B. ASTANA 2131 
     ¶C. MOSCOW 2381 
     ¶D. MOSCOW 2204 
     ¶E. MOSCOW 2000 
     ¶F. GENEVA 1001 
 
MOSCOW 00003083  001.2 OF 006 
 
 
Classified By: A/DCM Susan Elliott, Reasons 1.4 b&d. 
 
¶1. (U) Introduction:  This cable is the second in a 
three-part series presenting major features of the Russia, 
Belarus, Kazakhstan Customs Union (RBKCU), finalized on 
November 27 with the signing of most binding agreements. 
This cable reviews the principal points regarding tariffs and 
non-tariff regulations.  The first cable covered the major 
structure and decision-making process of the RBKCU (ref A). 
The third cable will discuss how the RBKCU could potentially 
affect Russia's WTO accession.  End Introduction. 
 
Tariff Procedures 
----------------- 
¶2. (U) The RBKCU Commission, which is the single permanent 
regulatory body of the Customs Union and is composed of a 
representative from each member government (ref A), is in 
charge of keeping and amending the harmonized RBKCU tariff 
table.  The Commission will meet quarterly to make decisions 
on customs and tariff regulations.  The majority of these 
decision will be made by a two-thirds majority of votes (see 
para 13 for exceptions).  All RBKCU Commission decisions will 
be published on the Custom Union's website (www.tsouz.ru) 
upon approval.  Decisions of the Commission come into effect 
at least one month after their official publication and 
remain in force unless the Commission or the Interstate 
Council of Eurasia Economic Community (EurAsEc), the supreme 
body of the RBKCU (ref A), takes action to supersede the 
Commission's decision.  Tariffs, while listed in Euros on the 
table, will be calculated and paid in the currency of the 
country where the goods enter. 
 
¶3. (U) Each country will keep its own tariff commissions, 
which will continue to consider requests for tariff changes 
and safeguards.  (Note: For Russia this is the commission 
headed by Deputy PM Zubkov, aka - the Zubkov Commission. End 
Note.)  The recommendations on overall tariff changes will go 
to the RBKCU Commission for approval.  Through the national 
tariff commissions, a RBKCU member may also ask the 
Commission for a higher, protective duty rate just for its 
country if a member government believes this is necessary for 
the development of a branch of its economy.  A member may 
also request a lower duty rate just for its country in the 
case of an acute shortage of goods, particularly if essential 
for "meeting socially important needs of the population or 
production development needs."  In addition, the member must 
show that production of the same or similar goods within the 
RBKCU cannot meet this need. 
 
¶4. (U) In the case of individual country requests for tariff 
changes, the Commission will send out the proposal to other 
members for comment.  The Commission has 30 days from receipt 
of the request to make a decision.  The Commission generally 
requires a consensus to allow the member to introduce a 
higher or a lower duty rate, provided that the member's 
request has been properly substantiated and that other 
members do not want to take on such a tariff change as well. 
The term of the higher or lower duty rate approved by the 
Commission shall not exceed six months and may be extended if 
the interested party submits a proposal at least one month 
before the measure expires.  In some undefined "emergency 
situations", Customs Union members can apply protective 
tariffs on selected goods without the consent of the other 
members, but only for six months per year and for a maximum 
of five years.  The member states have agreed to grandfather 
in all previously existing protective and anti-dumping 
measures at the time of accession into the RBKCU.  (Note: 
Current safeguards investigations will remain within the 
purview of each country.  While the objective is to migrate 
these decisions to the RBKCU commission, no date has been set 
for the transfer.  End Note.) 
 
 
MOSCOW 00003083  002.2 OF 006 
 
 
The RBKCU Harmonized Tariff Table 
--------------------------------- 
¶5. (SBU) The harmonized tariff table contains over 11,000 
lines, 80% of them ad-valorem tariffs.  According to a 
December 7 presentation by Senior Russian Trade Negotiator 
Maxim Medvedkov, the harmonization process has only resulted 
in a small number of increases to Russia's tariffs, most in 
the area of meat and food products.  All other tariffs will 
be lower.  He stated that this harmonized table represents a 
1% decrease in the effective real tariff for Russia in 
comparison to 2009.  And, he added, even with the GOR's 
anti-crisis measures, Russia's real effective tariff rate in 
2009 was lower than 2008.  Therefore, Medvedkov believes this 
harmonized tariff table represents real, increased market 
access for foreign goods.  (Note: This statement however, 
does not take into account that the real effective tariff in 
2009 was lower due to a decrease in world trade.  The better 
comparison would be with the real effective tariff of 2007, 
which MED did not provide. End Note.)  Medvedkov added that 
the "few" anti-crisis measures taken so far are temporary and 
will be removed "when the circumstances allow."  (Note: Our 
review of two specific cases reveal that this is not 
altogether true - See para 8. End Note.) 
 
¶6. (SBU) According to Medvedkov, the country most affected by 
the harmonized tariff rates is Kazakhstan, whose real 
effective tariff rate will go up, as it had to raise tariffs 
on over 3,000 tariff lines.  According to Medvedkov, 
Kazakhstan did receive some tariff exemptions for periods of 
one to five years, and some permanent exemptions (see para 
17).  Kazakhstan also lowered over 3,000 tariff lines. 
(Note: The full tariff table can be found, in Russian, on the 
RBKCU web site (www.tsouz.ru). End Note.) 
 
¶7. (U) For the moment, each country will keep its own export 
tariffs, but the objective is to harmonize those as well. 
While some early press reports stated that the harmonized 
export tariffs would go into effect on January 1, 2011, 
Russian trade negotiators indicated that these discussions 
are set for an unspecified date in the future.  As well, a 
separate agreement on duties to be paid by individuals 
importing single vehicles for sale, as well as other goods 
such as alcohol, tobacco, and home appliances is still 
pending discussion and approval by the RBKCU Commission. 
 
Specific Tariff Cases 
--------------------- 
¶8. (SBU) A review of the RBKCU tariff table reveals that some 
of Russia's recent protectionist "temporary" tariff increases 
have now been transferred into the harmonized tariff table. 
One case was the increase in the tariff on trucks to 25%, 
which practically stopped all trade in large, industrial 
off-highway trucks, which Russia does not produce.  Prior to 
Putin's RBKCU announcement on June 9, Russia had agreed to 
create special tariff lines for different types of large 
trucks, so the tariffs on them could be reduced, while the 
overall truck tariff remained in place.  The new tariff lines 
did make it into the harmonized tariff table, with some, 
(8704 10 1012) and (8704 10 1010), receiving a 0% and 25% 
tariff respectively.  However, the higher tariff on the 
largest off-highway trucks, involved in mining and oil 
exploration (8704 10 1029), will remain in the harmonized 
code for the time being because Belarus is strongly opposed 
to decreasing it.  A more negative example is the wholesale 
transfer of the "temporary" increase of tariffs on combines 
to 15%, but no less than 120 Euros per kilowatt of engine 
capacity, thereby making it permanent in the harmonized 
table. 
 
Treatment of Meat ) Tariff Rate Quotas 
-------------------------------------- 
¶9. (U) The RBKCU Commission is also charged with introducing 
Tariff Rate Quotas (TRQs).  The quantities allocated for 
Russia in the RBKCU tables are global; however, the RBKCU 
documents note that the issue of the country specific 
allocations, "if necessary," should have been distributed 
within two weeks of November 27.  The TRQ volumes are 
significantly less than the 2009 pork and poultry volumes, 
but identical to the total 2010 figures in Russia's September 
 
MOSCOW 00003083  003.2 OF 006 
 
 
draft decree on the "import of beef, pork and poultry meat in 
2010-2012."  In-quota duties remain the same, 15% for beef 
and pork, and 25% for poultry.  Out-of-quota duties for beef 
and pork are also unchanged at 50% and 75% respectively.  The 
poultry out-of-quota duty has been reduced from 95% to 80%, 
which is still viewed as prohibitive for U.S. poultry. 
 
¶10. (U) Post believes Russia will announce country specific 
allocations similar to their September draft decision.  The 
agreements also instructed RBKCU members to issue licenses 
starting December 15, and in a manner consistent with each 
country' laws.  This start date has slipped with the only 
explanation from Russian officials being &this year is 
complicated.8  Post and industry contacts attribute the 
delay to internal disputes regarding country allocations and 
future TRQ quantities.  (note: Russia published its met 
tariff quotas on December 21.  Post will report septel.) 
 
¶11. (U) As in the past, high-quality beef does not count 
against the TRQ quantities but receives a duty identical to 
the in-quota rate of 15%.  The beef qualifying for this 
benefit, however, has become more restrictive.  Previously 
meat with a value of "not less than 3,000 Euros per 100 kg." 
would qualify.  The new standard applies to beef with a value 
"not less than 8,000 Euros per 100 kg." 
 
¶12. (SBU) According to information available to us in Moscow, 
there are no poultry or beef allocations for Belarus.  While 
the U.S. currently does not export meat or poultry to Belarus 
because of sanitary-phytosanitary (SPS) restrictions, market 
potential would exist if Belarus were to adopt a WTO 
consistent SPS regime.  Interestingly, on December 11 the 
Heads of State Commission met and approved an agreement 
establishing "mutual recognition of accreditation of 
certification bodies for testing laboratories that perform 
work on conformity assessment, as well as sanitary, 
veterinary-sanitary measures and plant quarantine."  This may 
mean, that for the time being, the RBKCU will not provide 
U.S. agricultural exporters with more access to the 
Belorussian market. 
 
¶13. (C) Comment: The provisions regarding the meat TRQs are 
among the most contentious.  As stated earlier, while the 
quantity of the meat and poultry TRQs were anticipated, the 
provisions specifying the country allocations were not 
included in the document.  Draft TRQ documents with the 
proposed country allocation not only contain a proposal for 
2010 parameters but also attempt to solidify the volumes for 
2011 and 2012.  End Comment. 
 
Exceptions 
---------- 
¶14. (U) The RBKCU agreements contain a list of sensitive 
items, which will require a consensus decision (vs. 
two-thirds vote) from the Commission to change tariffs for 
these items.  The list is extensive, covering goods from 68 
(out of 97 total) two-digit HS code groups.  The most 
affected groups include: organic chemicals; nuclear reactors, 
boilers, machinery and parts; prepared vegetables, fruit, 
nuts, or other plant parts; electric machinery; plastics; 
vehicles and parts; inorganic chemicals, precious and rare 
metals, radioactive components; fish; and meat. 
 
¶15. (U) The RBKCU also has a list of goods with restricted 
movement across the Customs Union border.  This list includes 
restrictions on the export of obvious goods such as wildlife, 
poisons, and cultural property.  However, it also includes 
restrictions on imports of goods such as pharmaceutical 
substances; veterinary medicine; non-military, 
radio-electronic and high frequency devices; technical 
equipment intended for gathering of information; ethyl 
alcohol and alcoholic products; and encryption means (see 
para 17). 
 
¶16. (U) According to the RBKCU documents available to us in 
Moscow, Kazakhstan will retain some flexibility in 
determining its common external import tariff regime.  Over 
400 specific commodity items, covering some 11 two-digit 
Harmonized System code groups of goods will be subject to a 
 
MOSCOW 00003083  004.2 OF 006 
 
 
transitional period varying from eighteen months to six 
years.  These items include plastics; optical, 
medical/surgical instruments; pharmaceuticals; electric 
machinery, sound and TV equipment; aluminum; and paper and 
cardboard products.  As well, Kazakhstan will have no tariff 
on over 900 specific commodity items including modern 
aircraft; certain types of engines; and raw materials needed 
in the food processing industry, such as tropical fruits (ref 
B). 
 
Cryptographic Goods 
------------------- 
¶17. (SBU) A company currently importing cryptographic goods 
into Russia will find little to no difference under the 
RBKCU, as the basic principles for their importation will not 
change substantially.  National legislation and national 
license issuers will remain the primary source of regulation 
for cryptographic goods.  Current licenses issued in Russia 
will remain valid under the RBKCU.  According to Russian 
trade negotiators, renewal procedures and licensing agencies 
in each country will not change.  Enforcement, however, will 
be a question as regulations are not uniform in each country, 
and it is still unclear whether customs officials will be 
authorized to enforce the laws of the other member countries. 
 
 
Processing Goods and Special Economic Operators 
--------------------------------------------- -- 
¶18. (U) The Customs Code, which governs the conduct of 
customs activities, will not come into force until July 1, 
¶2010.  The Code increases the duty payment period from 15 
days to four months, reduces the period for completing a 
customs declaration from three to two days, but increases the 
time for customs clearance from three to 10 days.  The 
declarer will be able to make any changes in the customs 
declaration before and after the release of the goods.  The 
Code also creates a category for "Special Economic 
Operators."  These are companies that, after an application 
process and payment of a "guarantee," will have the right to 
a "facilitated customs clearance and control scheme."  These 
operators will also have the right to store goods in their 
own warehouses while conducting customs procedures. 
 
General System of Preferences 
----------------------------- 
¶19. (U) The RBKCU will replicate Russia's Generalized System 
of Preferences (GSP) in favor of developing and least 
developed countries.  According to the RBKCU system of tariff 
preferences, the Commission develops and keeps the list of 
goods originating and imported from developing and least 
developed countries, which will receive tariff preferences. 
This list will not account for more than 20% of the total 
number of the harmonized tariff subheadings.  If necessary, 
the Commission may establish an additional list of goods 
subject to the RBKCU tariff preferences, which cannot be more 
than 5% of the total number of harmonized tariff subheadings. 
 Developing countries that are eligible for the RBKCU tariff 
preferences will pay 75% of the rates on the harmonized 
tariff table, while least developed countries will enjoy a 
duty free regime for specified imports. 
 
¶20. (SBU) The products receiving preferences are mostly raw 
materials and food stuffs (such as meat, poultry, dairy, 
grains, textiles, wood products, and construction materials), 
and some light industrial production.  For purposes of the 
GSP, the RBKCU considers countries such as Argentina, Brazil, 
Hong Kong, South Korea, Chile, China and Saudi Arabia as 
developing countries.  We note that none of the CIS countries 
are eligible for these GSP preferences.  While these 
countries do have FTAs with Russia, it is as yet unclear how 
the RBKCU will affect the FTAs as they are not mentioned 
anywhere in the RBKCU documents. 
 
Pending Items 
------------- 
¶21. (U) Over the next few months, the RBKCU Commission will 
continue work on new agreements on harmonized technical 
regulations, sanitary and phytosanitary standards (SPS), and 
other regulatory systems.  During a December 7 presentation 
 
MOSCOW 00003083  005.2 OF 006 
 
 
to foreign embassies, Russia's Senior Trade Negotiator Maxim 
Medvedkov noted that an RBKCU group of experts would review 
existing SPS regulations in each country and determine which 
measures and regulations need to be changed in order to 
create a harmonized document.  During the December 11 RBKCU 
meeting, the Heads of Government approved agreements which 
set a deadline of April 1, 2010 for submission of proposals 
for harmonized SPS regulations and procedures, and an 
intention to have these enter into force on July 1, 2010.  On 
December 18, the RBKCU signed a preliminary agreement setting 
out the operation of a transition period before adoption of 
SPS harmonized regulations.  The members also discussed a 
common economic zone that removes all technical, sanitary and 
other non-tariff barriers between the three countries. 
(Note: In November, President Medvedev proposed that Russia 
recognize all of the EU's regulations and standards as a way 
of reducing the work of bringing Russia's, and presumably the 
RBKCU's regulations up to international standards.  A bill to 
this effect was introduced into the Russia Duma on December 
¶16. End Note.) 
 
Comments ) We Have Several Concerns 
----------------------------------- 
¶22. (C) One of the first areas of concern as we reviewed the 
RBKCU documents is that if companies or foreign governments 
want to lobby for tariff reductions, the RBKCU structure 
essentially requires that the petitioner lobby three 
governments simultaneously.  In addition, the large number of 
tariffs that require consensus votes means that importation 
of goods in these categories will depend on the whims of the 
RBKCU Commission.  This is worrisome given, at least on the 
Russian side, the capricious and arbitrary way in which the 
national commission approves protectionist tariffs.  The 
formal RBKCU appeals structure (ref A) only exists on paper 
so far, and is more focused on providing a venue for appeals 
from RBKCU member countries than from economic operators. 
 
¶23. (C) The RBKCU documents also lack any serious, 
comprehensive discussion on issues of regulation and 
enforcement of SPS standards, intellectual property 
protection, licensing for cryptographic imports, etc.  This, 
combined with the delayed implementation of the harmonized 
Customs Code (until July 1, 2010), raises serious concerns 
about how customs officials in the RBKCU will enforce 
regulations and licenses of three different countries.  One 
Russian trade expert, Galina Baladina, former Director of the 
Ministry of Economic Development's Department of State 
Regulation and External activity and Customs, is also 
concerned that the RBKCU broadens the authority of customs 
services disproportionately, while not providing enough legal 
guarantees for businesses.  Could customs officials in all 
three countries have access to the necessary information from 
the other member countries and would they be able to enforce 
it fairly and effectively?  When asked about this weakness in 
the enforcement structure, Russia's lead RBKCU negotiator, 
Andrei Tochen, could only respond "well, as you know, customs 
officers cannot enforce the laws of other countries."  (Note: 
Post will discuss the RBKCU's effects specifically on 
intellectual property enforcement septel. End Note.) 
 
¶24. (C) The fact that the RBKCU is being implemented without 
every single trade issue officially harmonized and agreed to, 
means that local laws and regulations will continue to 
operate in parallel.  For importers trying to bring products 
into the RBKCU, this will only increase their administrative 
burden.  Complicating matters further, when a harmonized 
position does exist, but is preliminary and generalized and 
contradicts local regulations, there is no clear method for 
determining which regulation takes precedence.  Russian trade 
officials claim that in places where the RBKCU regulations 
contradict Russian laws, the RBKCU agreements, as 
international treaties, would take precedence.  We did not 
find such a statement, however, in the RBKCU documents. 
 
¶25. (C) In our estimation these areas of concern leave 
serious gaps that unscrupulous traders and government 
officials can exploit.  The traders can use the 
inconsistencies in regulations to find alternative ports of 
entry for their goods.  On the government side, trade 
 
MOSCOW 00003083  006.2 OF 006 
 
 
officials can use the ambiguity regarding which laws and 
regulations take precedence to cherry pick which rules most 
benefit their country.  As well, protectionist tendencies 
within the RBKCU will be favored over increased 
liberalization of trade, as once tariffs are raised, they 
will be harder to reduce. 
 
¶26. (C) That said, Maxim Medvedkov has repeated publicly that 
the RBKCU is an evolving project that will continue to 
change.  This is a basic admission that they were not able to 
cover all issues necessary to create a fully operational 
customs union in six months, and will need to continue to 
address issues, probably on the basis of their urgency.  This 
provides a possible opening for foreign companies and 
governments to influence changes in regulations that would 
increase access and, possibly, make some regulations less 
burdensome. 
Beyrle