The Moscow Times has reported that Russia and Ukraine reached a new gas agreement under which Russia would effectively give a 30 percent discount for its gas exports to Ukraine, potentially costing cost Russia approximately $40 billion over the life of the agreement. (see Anatoly Medetsky, “Deal Struck on Gas, Black Sea Fleet”, http://www.themoscowtimes.com/business/article/deal-struck-on-gas-black-sea-fleet/404501.html). According to the newspaper report, Gazprom, the state-controlled gas export monopoly, “would remove a 30 percent export duty to achieve the price cut. The discount will apply to 30 billion cubic meters of gas sold this year and 40 bcm of gas annually until the contract expires in 2019, Gazprom said in a statement.”
Vitaliy Pogoretskyy, Ukrainian trade lawyer and a PhD student at CEPMLP, University of Dundee, thinks that the agreement raises WTO law, particularly MFN-related, issues that could figure in
"it appears that if Russia accedes to the WTO, it will have to extend the privilege granted to Ukraine (i.e., the removal of gas export duties) to all other WTO Members. The agreed concessions of Russia vis-à-vis its other trade partners in the course of its WTO accession negotiations are still not in the public domain, but clearly the elimination of all the existing gas export duties will be a multi-billion loss for Russia’s budget revenue.
A possible leeway for Russia as to how it reserves this discount only for Ukraine could be an existing free trade agreement between Russia and Ukraine, which theoretically could qualify as an MFN exception under the GATT Article XXIV (i.e., Customs Unions and Free-trade Areas). However, it needs to be examined to what extent this free trade agreement can satisfy the requirements of Article XXIV, and it should be kept in mind that the consistency of a free trade agreement (as an MFN exception) with WTO law can also be challenged. I would also not exclude the possibility that the gas agreement between Russia and Ukraine will ultimately be followed by the further negotiations on Ukraine’s accession to the customs union, formed recently by Russia, Belarus and Kazakhstan, which is another MFN exception under the GATT Article XXIV. In this case, either Russia would have to extend its gas discount to Belarus and Kazakhstan, or there will not be internal export duties within the customs union at all.
Finally, the GATT Article XXI (i.e., Security Exceptions) could also be an exception to the MFN obligation in this case: ‘Nothing in this Agreement shall be construed ... (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests ... (iii) taken in time of ... emergency in international relations ...’.
The contentious issues in Article XXI appear to be the definitions of ‘essential security interests’ and ‘actions taken in time of emergency in international relations’. Along these lines, the questions most relevant to Russia – Ukraine gas agreement deriving from the text and the essence of Article XXI are whether this exception is adjudicatable in the first place (as it was questioned by the US representatives during the WTO consultations between the USA and the EC over the US Helms-Burton Act of 1996), and, if yes, who has the burden of proof in defining the above terms and demonstrating the existence of ‘essential security interests’, falling under the GATT Article XXI?
Any comments on the Russia – Ukraine gas agreement are highly welcome. I wonder whether this agreement may have any implications from trade remedies perspective?"
