As Russia continues its hostilities towards Ukraine with assistance from Belarus, a wide range of countries continue to ratchet up sanctions, both trade and non-trade, on Russia and Belarus. The latest announcements came on March 11, 2022.
The G-7 issued a joint statement on March 11th. The joint statement is embedded below followed by an excerpt of the language on new actions being taken. The G-7 includes Canada, France, Germany, Italy, Japan, United Kingdom, United States and the European Union.3-11-2022-Joint-Statement-by-the-G7-Announcing-Further-Economic-Costs-on-Russia-_-The-White-House
“Since President Putin launched the Russian Federation’s invasion on February 24, our countries have imposed expansive restrictive measures that have severely compromised Russia’s economy and financial system, as evidenced by the massive market reactions. We have collectively isolated key Russian banks from the global financial system; blunted the Central Bank of Russia´s ability to utilise its foreign reserves; imposed sweeping export bans and controls that cut Russia off from our advanced technologies; and targeted the architects of this war, that is Russian President Vladimir Putin and his accomplices, as well as the Lukashenko regime in Belarus.
“In addition to announced plans, we will make further efforts to reduce our reliance on Russian energy, while ensuring that we do so in an orderly fashion and in ways that provide time for the world to secure alternative and sustainable supplies. In addition, private sector companies are leaving Russia with unprecedented speed and solidarity. We stand with our companies that are seeking an orderly withdrawal from the Russian market.
“We remain resolved to isolate Russia further from our economies and the international financial system. Consequently, we commit to taking further measures as soon as possible in the context of our ongoing response and consistent with our respective legal authorities and processes:
First, we will endeavor, consistent with our national processes, to take action that will deny Russia Most-
Favoured-Nation status relating to key products. This will revoke important benefits of Russia’s membership of the World Trade Organization and ensure that the products of Russian companies no longer receive Most-Favoured-Nation treatment in our economies. We welcome the ongoing preparation of a statement by a broad coalition of WTO members, including the G7, announcing their revocation of Russia’s Most-Favoured-Nation status.
“Second, we are working collectively to prevent Russia from obtaining financing from the leading multilateral financial institutions, including the International Monetary Fund, the World Bank and the European Bank for Reconstruction and Development. Russia cannot grossly violate international law and expect to benefit from being part of the international economic order. We welcome the IMF and World Bank Group’s rapid and ongoing efforts to get financial assistance to Ukraine. We also welcome the steps the OECD has taken to restrict Russia’s participation in relevant bodies.
“Third, we commit to continuing our campaign of pressure against Russian elites, proxies and oligarchs close to President Putin and other architects of the war as well as their families and their enablers. We commend the work done by many of our governments to identify and freeze mobile and immobile assets belonging to sanctioned individuals and entities, and resolve to continue this campaign of pressure as a matter of priority. To that end, we have operationalised the task force announced on February 26, which will target the assets of Russian elites close to President Putin and the architects of his war. Our sanctions packages are carefully targeted so as not to impede the delivery of humanitarian assistance.
“Fourth, we commit to maintaining the effectiveness of our restrictive measures, to cracking down on evasion and to closing loop-holes. Specifically, in addition to other measures planned to prevent evasion, we will ensure that the Russian state and elites, proxies and oligarchs can not leverage digital assets as a means of evading or offsetting the impact of international sanctions, which will further limit their access to the global financial system. It is commonly understood that our current sanctions already cover crypto-assets. We commit to taking measures to better detect and interdict any illicit activity, and we will impose costs on illicit Russian actors using digital assets to enhance and transfer their wealth, consistent with our national processes.
“Fifth, we are resolved to fighting off the Russian regime’s attempts to spread disinformation. We affirm and support the right of the Russian people to free and unbiased information.
“Sixth, we stand ready to impose further restrictions on exports and imports of key goods and technologies on the Russian Federation, which aim at denying Russia revenues and at ensuring that our citizens are not underwriting President Putin’s war, consistent with national processes. We note that international companies are already withdrawing from the Russian market. We will make sure that the elites, proxies and oligarchs that support President Putin’s war are deprived of their access to luxury goods and assets. The elites who sustain Putin’s war machine should no longer be able to reap the gains of this system, squandering the resources of the Russian people.
“Seventh, Russian entities directly or indirectly supporting the war should not have access to new debt and equity investments and other forms of international capital. Our citizens are united in the view that their savings and investments should not fund the companies that underpin Russia’s economy and war machine. We will continue working together to develop and implement measures that will further limit Russia’s ability to raise money internationally.
“We stand united and in solidarity with our partners, including developing and emerging economies, which unjustly bear the cost and impact of this war, for which we hold President Putin, his regime and supporters, and the Lukashenko regime, fully responsible. Together, we will work to preserve stability of energy markets as well as food security globally as Russia’s invasion threatens Ukraine’s capacity to grow crops this year.
“We continue to stand with the Ukrainian people and the Government of Ukraine. We will continue to evaluate the impacts of our measures, including on third countries, and are prepared to take further measures to hold President Putin and his regime accountable for his attack on Ukraine.”
Thus, the additional sanctions include actions going forward to remove most favored nation treatment to Russia which will permit countries to impose higher tariffs on imports from Russia, to prohibit certain imports (e.g., oil and gas by Canada and the U.S., other products as identified by individual countries) and expand export restraints (e.g., new ban on export of luxury goods to Russia), eliminating access to financing from the IMF, World Bank and European Bank for Reconstruction and Development, clarifying that crypto assets are subject to sanctions and more.
In the United States, President Biden signed an Executive Order on March 11 to identify additional sanctions being imposed by the United States. The Executive Order is copied below (https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/11/executive-order-on-prohibiting-certain-imports-exports-and-new-investment-with-respect-to-continued-russian-federation-aggression/)
“Executive Order on Prohibiting Certain Imports, Exports, and New Investment with Respect to Continued Russian Federation Aggression
“MARCH 11, 2022
“By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code,
I, JOSEPH R. BIDEN JR., President of the United States of America, in order to take additional steps with respect to the national emergency declared in Executive Order 14024of April 15, 2021, relied on for additional steps taken in Executive Order 14039 of August 20, 2021, and expanded by Executive Order 14066 of March 8, 2022, hereby order:
“Section 1. (a) The following are prohibited:
“(i) the importation into the United States of the following products of Russian Federation origin: fish, seafood, and preparations thereof; alcoholic beverages; non-industrial diamonds; and any other products of Russian Federation origin as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Secretary of Commerce;
“(ii) the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United Statesperson, wherever located, of luxury goods, and any other items as may be determined by the Secretary of Commerce, in consultation with the Secretary of State and the Secretary of the Treasury, to any person located in the Russian Federation;
“(iii) new investment in any sector of the Russian Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, by a United States person, wherever located;
“(iv) the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United Statesperson, wherever located, of U.S. dollar-denominated banknotes to the Government of the Russian Federation or any person located in the Russian Federation; and
“(v) any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.
“(b) The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, or pursuant to the export control authorities implemented by the Department of Commerce, and notwithstanding any contract entered into or license or permit granted prior to the date of this order.
“Sec. 2. (a) Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set forth in this order is prohibited.
“(b) Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited.
“Sec. 3. Nothing in this order shall prohibit transactions for the conduct of the official business of the Federal Government or the United Nations (including its specialized agencies, programs, funds, and related organizations) by employees, grantees, or contractors thereof.
“Sec. 4. For the purposes of this order:
“(a) the term ‘entity’ means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization;
“(b) the term ‘person’ means an individual or entity;
“(c) the term ‘Government of the Russian Federation’ means the Government of the Russian Federation, any political subdivision, agency, or instrumentality thereof, including the Central Bank of the Russian Federation, and any person owned, controlled, or directed by, or acting for or on behalf of, the Government of the Russian Federation; and
“(d) the term ‘United States person’ means any United States citizen, lawful permanent resident, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.
“Sec. 5. The Secretary of the Treasury and the Secretary of Commerce, in consultation with the Secretary of State, are hereby authorized to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA, as may be necessary to carry out the purposes of this order. The Secretary of the Treasury and the Secretary of Commerce may, consistent with applicable law, redelegate any of these functions within the Department of the Treasury and the Department of Commerce, respectively. All executive departments and agencies of the United States shall take all appropriate measures within their authority to implement this order.
“Sec. 6. (a) Nothing in this order shall be construed to impair or otherwise affect:
“(i) the authority granted by law to an executive department or agency, or the head thereof; or
“(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.
“(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.
“(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
“JOSEPH R. BIDEN JR.
“THE WHITE HOUSE,
“March 11, 2022.”
The European Commission’s President, Ursula von der Leyen, provided an overview of additional EU sanctions in her statement of March 11th (https://ec.europa.eu/commission/presscorner/detail/en/statement_22_1724).
“Statement by President von der Leyen on the fourth package of restrictive measures against Russia
“Versailles, 11 March 2022
“Russia’s ruthless invasion of Ukraine continues. Civilians are relentlessly attacked, including in
schools, apartment buildings, and hospitals. And despite repeated offers by the Ukrainian side,
Russia has not shown any willingness to seriously engage so far in negotiations for a diplomatic
solution. Instead, all we hear are new lies and false accusations. And cynically, humanitarian
corridors are either still not opened or being bombed by Russian forces shortly after they are
“So today, we, the EU and our partners in the G7, continue to work in lockstep to ramp up the
economic pressure against the Kremlin. The three sweeping waves of sanctions we have adopted, as
well as the extension of their scope this week, have hit Russia’s economy very hard. The ruble has
plummeted. Many key Russian banks are cut-off from the international banking system. Companies
are leaving the country, one after the other, not wanting to have their brands associated with a
murderous regime. Tomorrow, we will take a fourth package of measures to further isolate Russia
and drain the resources it uses to finance this barbaric war.
“First, we will deny Russia the status of most-favoured-nation in our markets. This will revoke
important benefits that Russia enjoys as a WTO member. Russian companies will no longer receive
privileged treatment in our economies. We will also work to suspend Russia’s membership rights in
leading multilateral financial institutions, including the International Monetary Fund and the World
Bank. We will ensure that Russia cannot obtain financing, loans, or any other benefits from these
institutions. Because Russia cannot grossly violate international law and, at the same time, expect to
benefit from the privileges of being part of the international economic order.
“Second, we will continue pressuring Russian elites close to Putin as well as their families and
enablers. This is why G7 Finance-, Justice- and Home Affairs Ministers will meet next week to
coordinate the task force we set up targeting Putin’s cronies.
“Third, we are making sure that the Russian state and its elites cannot use crypto assets to
circumvent the sanctions. We will stop the group close to Putin and the architects of his war from
using these assets to grow and transfer their wealth.
“Fourth, we will ban the export of any EU luxury goods from our countries to Russia, as a direct blow
to the Russian elite. Those who sustain Putin’s war machine should no longer be able to enjoy their
lavish lifestyle while bombs fall on innocent people in Ukraine.
“Fifth, very importantly, we will prohibit the import of key goods in the iron and steel sector from the
Russian Federation. This will hit a central sector of Russia’s system, deprive it of billions of export
revenues and ensure that our citizens are not subsidising Putin’s war.
“Finally, we will propose a big ban on new European investments across Russia’s energy sector.
Because we should not be feeding the energy dependency which we want to leave behind us. This
ban will cover all investments, technology transfers, financial services, etcetera, for energy
exploration and production – and thus have a big impact on Putin.
“The EU stands firmly with the brave people of Ukraine. This is why, just this morning, we disbursed
EUR 300 million in emergency macro-financial assistance to support Ukraine’s finances. This is the
first tranche of our EUR 1.2 billion financial aid package. More will follow. This crisis is
unprecedented. And so is the unity and speed of reaction our democracies have shown so far. You
have heard me say this before and I firmly repeat it: Ukraine will prevail.”
Similar actions are being taken by the United Kingdom and Japan.
Canada had already announced revoking most favored nation treatment for Russia and Belarus and had banned imports of oil and gas. My last post reviewed actions by the U.S., EU and United Kingdom in the oil and gas space. See March 9, 2022: U.S. joins Canada in banning imports of Russian oil and gas; EU announces plan to drastically reduce reliance on Russian gas; United Kingdom will phase out imports of oil and gas from Russia by end of 2022; Australian oil companies stop purchasing Russian oil, https://currentthoughtsontrade.com/2022/03/09/u-s-joins-canada-in-banning-imports-of-russian-oil-and-gas-eu-announces-plan-to-drastically-reduce-reliance-on-russian-gas-united-kingdom-will-phase-out-imports-of-oil-and-gas-from-russia-by-end-of/.
Based on the WTO’s publication Trade Profiles 2021, in 2019 the EU (which included the United Kingdom at the time) was the largest destination for Russian exports (41.3%) and largest source of Russian imports (34.2%). The U.S., Canada and Japan are not shown as among Russia’s five largest export markets for goods. The U.S. (5.4%) and Japan (3.6%) join the EU as among the top five sources of imports into Russia in 2019. WTO Trade Profiles 2021, page 298, https://www.wto.org/english/res_e/publications_e/trade_profiles21_e.htm.
As noted in an earlier post,
“The Russian Federation is not a major trading partner of the United States. In 2021, U.S. imports for consumption from Russia were just $29.657 billion (just 1.05% of total U.S. imports for consumption). The bulk of U.S. imports from Russia ($17.406 billion) are products from Chapter 27 of the Harmonized System (largely oil, gas and downstream products)). Russia accounts for 8.17% of total U.S. imports of products under Chapter 27. At the same time, the United States exports to the world nearly 12 times the amount of the oil and gas products that it imports from Russia in the three major four-digit HS categories (HS 2709, HS 2710, HS 2711). The U.S. also exports relatively small volumes of goods to Russia — $5.531 billion (less than 4/10ths of 1 percent of total U.S. exports).”
February 28, 2022: Trade sanctions following Russia’s invasion of Ukraine, https://currentthoughtsontrade.com/2022/02/28/trade-sanctions-following-russias-invasion-of-ukraine/
The U.S. has now prohibited the imports of oil, gas, and coal products. The additional announced import bans cover around $1.5 billion of goods from Russia ($1.2 of fish and seafood products, $305 million of diamonds and $18.5 million of spirits (2021 U.S. imports for consumption of HS 03, 7102 and 2208). Other products could be added as noted in the Executive Order. Based on 2021 U.S. import statistics, here are other major 4-digit HS categories of products from Russia.
HS7110, PLATIMUN, UNWROUGHT OR IN SEMIMANUFACTURED FORMS, OR IN POWDER FORM $2,449,856,890
HS7201, PIG IRON AND SPIEGELEISEN IN PIGS, BLOCKS OR OTHER PRIMARY FORMS $1,157,617,274
HS7207, SEMIFINISHED PRODUCTS OF IRON OR NONALLOY STEEL $886,744,073
HS3102, MINERAL OR CHEMICAL FERTILIZERS, NITROGENOUS $723,784,769
HS2844, RADIOACTIVE CHEMICAL ELEMENTS AND ISOTOPES AND THEIR COMPOUNDS; MIXTURES AND RESIDUES CONTAINING THESE PRODUCTS $669,931,951
HS7601 ALUMINUM, UNWROUGHT $423,969,585
HS7202 FERROALLOYS $419,659,133
HS3104, MINERAL OR CHEMICAL FERTILIZERS, POTASSIC $366,158,625
HS4412 PLYWOOD, VENEERED PANELS AND SIMILAR LAMINATED WOOD $345,745,434
HS9306, BOMBS, GRENADES, TORPEDOES AND SIMILAR MUNITIONS OF WAR AND PARTS THEREOF; CARTRIDGES AND OTHER AMMUNITION AND PROJECTILES AND PARTS THEREOF $173,633,545.
As the EU is Russia’s largest trading partner, actions by the EU will have the largest trade effect on Russia. The ban on imports of some iron and steel products from Russia by the EU is presumably a multibillion Euro action.
A joint paper from UC San Diego and St. Gallen Endowment released on March 11, 2022 provides estimates of additional costs on the Russian economy from the loss of most favored nation treatment and actions on oil and gas. See Simon J. Evenett and Marc-Andreas Muendler, Making Moscow Pay, How Much Extra Bite will G7 & EU Trade Sanctions Have?, 11 March 2022. https://mcusercontent.com/4d3c72e64f71605940b148af0/files/ec2fa8af-8662-06b7-05b0-6defeac28f74/Making_Moscow_Pay_by_Revoking_MFN_11_March_2022_finalised.pdf. The authors summarize the results of their analysis as follows (page 1).
“Following the revocation of MFN treatment of Russian goods, the members of the G7 and European Union (EU27) can raise import tariffs sharply. We outline three trade sanction scenarios in this computation-based brief and report their predicted effects on Russian GDP, on bilateral exports, and on Russian job losses. Once the Russian economy has adjusted, the most severe trade sanction scenario is expected to result in a permanent GDP reduction of 1.06%, in bilateral Russian exports to the G7 and EU27 nations falling by 70.9%, and in 522,000 job losses from the Russian energy sector. Losses on this scale for Russia amount to a third of the estimated GDP gain from its WTO accession. The same scenario is estimated to result in 206,000 job losses in the G7 and EU27 and to reduce their joint GDP by 0.06% permanently.”
The additional trade sanctions are, of course, just the latest actions and the short term results of the other collective sanctions has been severe on the Russian economy. Bans on investment and financing and exports of technology and critical goods have potentially significant short, medium and long-term effects on the Russian economy. The world has already seen the steep decline of the Russian currency and a need to close the Russian stock market over the last week or so.
The luxury goods export ban by the G-7 countries and EU is another shot at Pres. Putin’s inner circle and the nation’s oligarchs who support Putin and those in Belarus. In the U.S., the initial list of “luxury goods” is included in a notice from the U.S. Department of Commerce Bureau of Industry and Security. See unpublished Federal Register notice (to be published on March 16, 2022), U.S. Department of Commerce Bureau of Industry and Security, Imposition of Sanctions on ‘Luxury Goods’ Destined for Russia and Belarus and for Russian and Belarusian Oligarchs and Malign Actors Under the Export Administration
Regulations (EAR), 2022-05604.pdf (federalregister.gov). The list of luxury goods in the notice includes wines and spirits, tobacco products, perfumes and certain beauty products, plastic products for sports, yachts, travel bags and handbags, furs and fur skins, silk and silk products, carpets, high value clothing ($1,000/unit or higher), camping and sporting equipment, high value footwear ($1,000/unit or higher), porcelain and china, lead crystal glassware, jewelry including gemstones, silver and gold bullion, coins and products, marine engines, passenger vehicles, motorcycles, watches, pianos, art works (paintings, sculpture, other).
Sanctions are intended to apply pressure on Russia and Belarus to expedite a resolution to the unprovoked conflict underway in Ukraine. While many have pointed to the challenges of making sanctions effective, there are few other options short of an expanded war to press the Russians to cease their aggression.
The latest package of sanctions agreed to by the G-7 countries and EU continue to ratchet up pressure on the governments of Russia and Belarus and isolate them from multilateral financial institutions and other multilateral organizations and reduce their access to the markets of many major countries. With the withdrawal of many non-Russian companies from the Russian market during the war and the refusal of many others to deal with Russian goods, President Putin’s war is moving Russia backwards economically — a process likely to take decades to overcome.
With the war continuing to escalate in Ukraine, the sanctions announced on March 11 will not be the last.