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Cablegate: G20 Demarche: Russia Is Considering "Some"

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.

-------
SUMMARY
-------

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.)

------------------------------------
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."

-------
COMMENT
-------

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

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