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Removing Russia’s trade privileges — what you need to know

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.

What exactly are these WTO trade privileges? 

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.

Is it legal for countries to suspend the most-favored-nation treatment?

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.

What are the real-world consequences of suspending Russia’s trade privileges?

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-à-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.

What happens next? 

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.

This article is part of POLITICO Pro

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