EU Threatens To Block Russia's WTO Entry Over Siberian Air Tax

by Ulrika Lomas, Tax-News.com, Brussels

29 March 2006

The European Commission has warned that it will block Russia's application to join the World Trade Organisation unless Moscow follows through on an agreement to abolish taxes charged on European airlines that fly over Siberia, en route to Asian destinations.

The Financial Times quoted EC Transport Commissioner Jacques Barrot as stating that the current fees for flights over Siberia are "exorbitant" and must be scrapped before the EU "can agree any entrance to the WTO" by Russia.

The European Commission claims that European airlines have paid about EUR350m ($421m) a year to take more direct routes to destinations such as Japan and China by flying over Siberia - effectively cancelling out any savings made by using less fuel.

After negotiations in 2004, the EU and Russia initially agreed that the levy would be phased out by the end of 2013, but Europe has accused Moscow of failing to clarify how and when the tax will be abolished.

However, Barrot stated that the EU is hoping to leverage Pascal Lamy's position as the new director-general of the WTO to force Moscow's hand. Lamy was the EU's chief trade negotiator at the time of the 2004 agreement.

“Mr Lamy reminded me a month ago that there was always a tacit agreement that entrance to the WTO would involve removing these charges," Barrot stated.

Russia is hoping to complete its WTO membership negotiations later this year.

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