(Bloomberg) — Some of the world’s largest economies are taking the unprecedented step to revoke Russia’s basic trade rights at the World Trade Organization and place them in the company of other pariah states such as Cuba and North Korea. They are removing Russia’s “most favored nation” status from the global trade organization, paving the way for more bans on Russian imports or higher tariffs on Russian goods like diamonds and platinum. The aim is to further isolate Russia and increase pressure on President Vladimir Putin to end the war in Ukraine.

1. What is the most favored nation principle?

The Geneva-based WTO oversees a set of basic tariffs on world trade in goods and services. All 164 members agree to deal equally with each other under the most-favoured-nation treatment known as MFN. It is a cornerstone principle of the WTO and an important reason for countries to join the body because it treats all members – no matter how big or small – about equal.

2. Which countries have denied Russia MFN rights?

By mid-March 2022, a quarter of the WTO’s 164 members — collectively accounting for 58% of global gross domestic product — were ready to stop treating Russia as a most-favoured nation under WTO rules. The list includes major economies such as the US, the 27 members of the European Union, Japan, the UK, Canada, South Korea, and Australia. While more countries were expected to join the alliance, certain major emerging economies — such as China, India, Brazil, Indonesia, Saudi Arabia and Turkey — continued to offer Russia MFN status.

3. What does it mean for Russian companies?

In practice, the move means that Russian exporters may now be subject to:

4. What is the impact for American and European companies?

The withdrawal of MFN status is largely symbolic for the US, as Russia accounts for only 0.7% of its total imports. Still, it plans to ban imports of non-industrial diamonds, along with alcohol and seafood, targeting iconic goods like vodka and caviar, though most of the Russian-branded vodkas are produced in other countries. Previous US sanctions packages and a ban on Russian energy imports have made it too difficult for most US companies to maintain ties. It’s a much bigger deal in the EU, which backed the plan on March 4, as Russia accounts for 5.8% of the bloc’s total trade in goods. It is the EU’s fifth largest trading partner and a major supplier of fuel, timber, iron, steel and fertilisers. The EU still allows European companies to import critical Russian products such as oil, natural gas, titanium, aluminum, copper, nickel, palladium and iron ore. The EU is Russia’s largest trading partner, accounting for 37% of total trade in goods with the world in 2020.

Yes. Governments that have revoked Russia’s MFN status say their decision is justified under the WTO’s national security exceptions, which allow a country to violate its WTO obligations and “take any action which it deems necessary for the protection of its essential security interests”. WTO dispute panels have already confirmed that countries can take such measures if imposed “in time of war or other emergency in international relations”. In 2019, a WTO dispute settlement panel notably supported Russia’s argument that its trade restrictions on Ukraine were justified following Russia’s annexation of Crimea.

6. Have governments previously revoked WTO rights?

Yes, although there has never been a collective action like this and Russia is the 11th largest economy in the world. In recent years, there has been an increase in the number of WTO members individually imposing national security-related trade restrictions. Former President Donald Trump famously imposed tariffs on steel and aluminum goods because he said the tariffs were necessary to protect America’s defensive capabilities. Saudi Arabia also cited national security concerns in an intellectual property dispute with neighboring Qatar.


This post How Russia’s lost trade rights lead to import bans on diamonds, platinum and vodka was original published at “https://www.bloombergquint.com/quicktakes/the-unprecedented-end-of-russia-s-basic-trade-rights-quicktake”

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