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“Nothing should be left out of the discussion,” EU Trade Commissioner Valdis Dombrovskis told POLITICO earlier this week, speaking of sanctions, and reiterating that the EU wants to remove Russia’s trade privileges at the WTO.
What exactly are these WTO trade privileges?
All 164 WTO member countries enjoy the same basic tariffs when their companies trade goods and services among themselves. This concept of equality is known as the “most favored nation” clause.
There are exceptions to this treatment: WTO countries can lower tariffs for signatories to bilateral or multilateral trade agreements. They can also reduce tariffs unilaterally to encourage developing countries to trade, and they can also impose new tariffs if necessary to defend their companies from unfair trade.
Can the state legally suspend the MFN?
WTO members can suspend certain member clauses if they make a special case of “essential security interests” as enshrined in the WTO founding agreement.
Russia has threatened to sue countries that choose to suspend the WTO’s most favored country clause to WTO courts, claiming that the trade restrictions violate the organization’s rules.
But if it did, all of the defendants would be able to benefit from a tried and tested defense in the event of war, and this belongs to Russia. Ironically, a WTO judge ruled in 2014 in an MFN lawsuit against Russia that Moscow could lawfully file a “security interest” to justify the suspension of Ukraine’s WTO trade preferences.
What are the real consequences of the suspension of Russian trade privileges?
Removing Russia’s most favored country status without any accompanying action would be purely symbolic for the majority of WTO members. This is because very few WTO countries – such as Canada – have common tariffs that they rely on in their trade relations with non-WTO members.
In the case of Canada, which did so last week, all trade with Russia is now covered by a whopping 35%. customs rates. However, for the EU and many other countries such as the US, such alternative tariffs do not exist, meaning that the suspension of MFN is primarily a political cue, while these countries prepare to impose further sanctions.
“The move to officially suspend the MFN clause for Russia is completely unnecessary and purely symbolic, and legally irrelevant,” said Philippe De Baere, partner at law firm Van Bael & Bellis. This is because “the exact same action can be taken in the form of sanctions and sanctions are also justified under Article 21 of the General Agreement on Tariffs and Trade” for security reasons.
What’s next?
The next step was the announcement by the anti-Russian coalition of the suspension of Russia’s trade privileges at the WTO. Last Friday, the European Commission received the political green light from European Union countries to announce a freeze on Russia’s trade privileges. US President Joe Biden, together with the G7 countries, will today take action to end Russia as the most privileged country in the WTO.
Questions remain, how many WTO countries will make this move and whether a coalition of these countries will impose coordinated sanctions to turn the symbolic suspension of the MFN clause into a real blow to Russian trade. According to our information, the European Commission will propose new options for trade sanctions, such as the imposition of import duties, further import bans or export controls. However, as of Friday morning, EU diplomats had yet to receive a specific proposal from the Commission.
