Suspend Russia’s Trade Benefits, For Now
from Greenberg Center for Geoeconomic Studies

Suspend Russia’s Trade Benefits, For Now

Seats for delegates are pictured before the ceremony marking the accession of Russia to the WTO during the 8th WTO Ministerial Conference in Geneva in December 2011.
Seats for delegates are pictured before the ceremony marking the accession of Russia to the WTO during the 8th WTO Ministerial Conference in Geneva in December 2011. Denis Balibouse/REUTERS

To ratchet up economic penalties against Russia over its war in Ukraine, the United States and its allies should consider a coordinated suspension of Russia’s trade privileges.

March 3, 2022 10:30 am (EST)

Seats for delegates are pictured before the ceremony marking the accession of Russia to the WTO during the 8th WTO Ministerial Conference in Geneva in December 2011.
Seats for delegates are pictured before the ceremony marking the accession of Russia to the WTO during the 8th WTO Ministerial Conference in Geneva in December 2011. Denis Balibouse/REUTERS
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Current political and economic issues succinctly explained.

Economic sanctions against Russia have steadily escalated since last week, not only targeting individuals close to the Kremlin, but also major financial institutions. These actions have already begun to isolate Russia from the global economy, and each additional tranche of sanctions is likely to put more pressure on Russian President Vladimir Putin. While the breadth of current sanctions is unprecedented, the United States and its allies have not exhausted all means of economic coercion. One option that should be on the table is a coordinated suspension of trade concessions.

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On February 25, Representatives Lloyd Doggett (D-TX) and Earl Blumenauer (D-OR) announced that they would be introducing legislation “to end Permanent Normal Trade Relations (PNTR) with the Russian Federation and to initiate a process to formally deny Russia access to the World Trade Organization (WTO), following its unprovoked invasion of Ukraine.” Currently dubbed the “No Most Favored Nation Trading with Russia Act,” the legislation seeks to remove normal trade relations treatment for Russia and calls on the president to encourage allies to take similar actions, including the condemnation of Russia’s actions at the WTO. A similar bill, the “No Most Favored Nation Trading with Russia Act,” was introduced into the Senate by Sen. Ron Wyden (D-OR), in addition to the “No Trading with Invaders Act” introduced by Senators Rob Portman (R-OH) and Ben Cardin (D-MD).

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Treaties and Agreements

World Trade Organization (WTO)

WTO members agree not to discriminate against trading partners or among trading partners, and also to limit using border measures such as tariffs and quotas. These are the core principles that underlie the rules-based trading system. When Russia joined the WTO in 2012, these rules applied to its relations with all the other members of the organization (there are 164 in total). However, like all rules, there are exceptions.

The exceptions that have garnered the most attention in recent years are those surrounding issues of national security. While security exceptionalism in trade can sometimes veer into disguised protectionism, as witnessed by the Donald Trump administration’s actions under Section 232 of the Trade Expansion Act of 1962, others can serve a legitimate purpose. In fact, negotiators of the predecessor to the WTO, the General Agreements on Tariffs and Trade, recognized the need to address potential security concerns and included provisions in the treaty that would allow for countries to suspend concessions for reasons of national security. And, as law professor Mona Pinchis-Paulsen explains, the United States had an “overwhelming influence… in designing and constructing the exceptions,” particularly Article XXI. This, along with security exceptions found in the General Agreement on Trade in Services (GATS) and the agreement on Trade Related Aspects of Intellecutal Property Rights (TRIPS), could be used to justify suspending most-favored nation treatment for Russia.

The process by which to do this legislatively is fairly straightforward in the United States, as the three-page bill submitted by Rep. Doggett and Rep. Blumenauer attests to. If this bill were to become law, any future consideration of reinstating normal trade relations for Russia would revert back to the previous practice of having the president reconfirm this determination as part of a reporting requirement established with Congress. The removal of permanent normal trade relations could allow Russia to be treated like North Korea or Cuba when it comes to tariffs. It could also be particularly useful in targeting specific products of which Russia is a major exporter, such as palladium, oil and gas, or wheat.

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For such actions to be most effective, the United States cannot be the only country that denies trade preferences to Russia. Russia ranks 23rd among U.S. trading partners, with roughly $29.7 billion worth of goods imported and $6.4 billion exported in 2021.  President Biden could therefore coordinate efforts with allies to increase the consequences of these trade sanctions. If other WTO members followed suit, the hit on the Russian economy could be severe.

Notably, these actions do not require removing Russia from the WTO altogether, but could instead serve as a practical way to suspend the benefits of WTO membership. This is crucial. For a member to be removed from the WTO, the treaties would need to be altered with the support of two-thirds of the membership. This would be a challenge. Furthermore, it would be irreversible and require Russia to reapply for WTO membership—a process that can take years to complete.  By using the national security exception to deny Russia its WTO privileges, the United States and its allies could attain the same results with a far less cumbersome policy option.

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Trade

Economics

Diplomacy and International Institutions

Treaties and Agreements

World Trade Organization (WTO)

Most important, there should be a clear path for Russia to re-enter the multilateral trading system at some point in the future, not least because sustained economic isolation would have a crippling effect on the entire Russian economy. It would undoubtedly harm many of Russia’s citizens who are in no way responsible for the actions of their government. For instance, the United States and its allies should proceed with caution in levying tariffs that could have harmful effects on global food security. Russia’s trading partners should also keep in mind that tariffs will raise prices of targeted goods for importers, which places the highest burden on consumers, manufacturers, and processors that rely on Russia for intermediate inputs.

These actions, like all the sanctions currently in place, should be temporary in nature. In addition, any action to suspend trade concessions should also come with transparency and reporting provisions that would require the president to regularly update Congress on actions that have been taken, and to detail future proposed actions. While the need to ramp up pressure against Putin is urgent, Congress and the president should ratchet up the trade sanctions in a manner that limits as much as possible the economic impact on the United States, its allies, and innocent bystanders.

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