Removing
Russia’s Trade Privileges — What you Need to Know
Removal of privileges is the largely symbolic first step before
countries face tougher decisions over what penalties to apply.
The EU
and a slew of other like-minded countries are expected to lift Russia’s trade benefits
at the World Trade Organization in Geneva, as part of a larger international drive
to ramp up economic pressure on Moscow after its invasion of Ukraine.
“Nothing
should be off the table,” EU trade chief Valdis Dombrovskis told POLITICO
earlier this week when speaking about sanctions, and he confirmed that the EU wants
to remove Russia’s trade privileges at the WTO. This will “allow us then to impose
tariffs to both Russian and Belarusian imports,” he said.
The WTO’s
164 member countries all benefit from the same baseline duties from each other when
their companies trade in goods and services. This concept of equality is called
the “most-favored-nation” — aka
MFN — treatment.
There
are exceptions to the treatment: WTO countries may lower tariffs for signatories
of bilateral or multilateral trade deals. They can also unilaterally lower tariffs
to encourage developing countries to trade, and countries are allowed to impose
new duties if they need to defend their companies against unfair trade.
WTO members
are allowed to suspend the clause against a specific member if they appeal to the
special exemption concerning
“essential security interests,” which is in the WTO’s founding treaty.
Russia
has threatened to sue
countries that decide to suspend Russia’s MFN status at the WTO through the trade
body’s court because it argues that the trade restrictions violate the rules of
the WTO.
But if
it does so, all of the defendants will have the tried-and-tested defense in cases
of war, courtesy of Russia. In an ironic twist of history, WTO judges ruled in a
case that Ukraine brought against Russia for violating the most-favored-nation principle
back in 2014 that Moscow could legitimately use “security interests” to justify
suspending Ukraine’s WTO trade preferences.
Removing
Russia’s most-favored-nation status without any accompanying measures would be purely
symbolic for most WTO members.
That’s
because very few WTO countries — like Canada — have blanket tariffs that they fall
back on for their trade relations with non-WTO members.
In the
case of Canada, which made the move last week, all trade with Russia is now subject
to a whopping 35 percent
tariff.
But for
the EU and many other countries such as the U.S., those alternative tariffs don’t
exist, meaning that suspending MFN is primarily a political gesture while the countries
prepare to impose further sanctions.
“The
step of formally suspending MFN vis-ŕ-vis Russia is completely unnecessary, it would
be purely symbolic, and from a legal viewpoint, meaningless,” said Philippe De Baere, a partner at the law firm Van Bael
& Bellis. That’s because “you can take exactly the same measures in the form
of sanctions, and sanctions are also justified under Article 21 of the GATT [General
Agreement on Tariffs and Trade]" for security interests.
The next
step would be for the anti-Russia coalition of countries to actually announce the
suspension of Russia’s trade privilege at the WTO. Last Friday, the European Commission
obtained the political green light from
EU countries to announce the freezing of Russia’s trade privileges. But since then,
there’s been no white smoke in Geneva.
On Friday,
U.S. President Joe Biden is expected to move toward ending Russia’s most-favored-nation
status at the WTO together with G7 nations, a person
familiar with the decision told POLITICO.
Questions
remain how many WTO countries will make the move, and whether this coalition of
states will impose coordinated sanctions to turn the symbolic MFN suspension into
a concrete hit against Russia’s trade.
The European
Commission is expected to propose new trade sanctions options like imposing tariffs,
further import bans or export controls. But as of Friday morning, EU diplomats had
not yet received concrete proposals from the Commission