In prior posts, I reviewed the joint statement by G-7 countries on their intention to suspend most favored nation treatment on Russia and stop the accession process into the WTO for Belarus in light of the ongoing conflict in Ukraine as well as actions to ban imports of petroleum and coal products and other economic sanctions. See, e.g., March 13, 2022: Additional trade and other sanctions imposed by G-7 and EU countries on Russia and Belarus on March 11, 2022, https://currentthoughtsontrade.com/2022/03/13/additional-trade-and-other-sanctions-imposed-by-g-7-and-eu-countries-on-russia-and-belarus-on-march-11-2022/; 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/.
Press accounts review Japan suspending most favored nation treatment as part of the G-7 effort last week. Kyodo News, Japan to revoke Russia’s “most favored nation” status over Ukraine, March 16, 2022, https://english.kyodonews.net/news/2022/03/2f6fbf6da2af-update1-japan-to-revoke-russias-most-favored-nation-status-over-ukraine.html.
Canada, a G-7 member, took action first, both banning imports of oil and applying 35% tariffs to other imports from Russia and Belarus. Government of Canada, Canada cuts Russia and Belarus from Most-Favoured-Nation Tariff treatment, March 3, 2022, https://www.canada.ca/en/department-finance/news/2022/03/canada-cuts-russia-and-belarus-from-most-favoured-nation-tariff-treatment.html (“Today, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, and the Honourable Mary Ng, Minister of International Trade, Export Promotion, Small Business and Economic Development, announced that the Government of Canada has issued the Most-Favoured-Nation Tariff Withdrawal Order (2022-1), removing these countries’ entitlement to the Most-Favoured-Nation Tariff (MFN) treatment under the Customs Tariff. This Order results in the application of the General Tariff for goods imported into Canada that originate from Russia or Belarus. Under the General Tariff, a tariff rate of 35 per cent will now be applicable on virtually all of these imports. Russia and Belarus will join North Korea as the only countries whose imports are subject to the General Tariff.”); Government of Canada, Government of Canada Moves to Prohibit Import of Russian Oil, February 28, 2022, https://www.canada.ca/en/natural-resources-canada/news/2022/02/government-of-canada-moves-to-prohibit-import-of-russian-oil.html
The United Kingdom has also taken action on revoking MFN treatment of Russian goods. UK Government Press Release, UK announces new economic sanctions against Russia and Belarus, 15 March 2022, https://www.gov.uk/government/news/uk-announces-new-economic-sanctions-against-russia (“UK to deny Russia and Belarus access to Most Favoured Nation tariff for hundreds of their exports, depriving both nations key benefits of WTO membership. UK government publishes initial list of goods worth £900 million – including vodka – which will now face additional 35 percent tariff, on top of current tariffs.”).
In the European Union, action has been announced denying most favored nation status to Russia. European Commission, Statement by President von der Leyen on the fourth package of restrictive measures against Russia, 11 March 2022, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_22_1724 (” 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.” “Fifth, very importantly, we will prohibit the import of key goods in the iron and steel sector from the Russian Federation.”). The fourth package of restrictive measures are contained in regulations and decisions included in L81I of volume 65 of the European Union Official Journal, March 15, 2022, Fifth, very importantly, we will prohibit the import of key goods in the iron and steel sector from the Russian Federation.”). The European Commission provided the following question and answer about denying Russia MFN treatment.
“What are the consequences of denying Russia most-favoured-nation (MFN) status?
“Removal of MFN status means suspending the benefits that come from being a WTO Member, more specifically the benefit of not being discriminated against by other Members. For example, MFN treatment guarantees that a Member will not be subject to higher tariffs than other Members, or to import bans that do not apply to other Members. Suspension of MFN treatment means that the Member concerned – in this case Russia – may be subject to higher tariffs and import bans.
“The EU has decided to act not through an increase on import tariffs, but through set of sanctions that comprise bans on the imports or exports of goods, as this is much quicker and more effective than preparing a completely new tariff schedule from scratch.
“In practice, the EU has already removed a number of trade benefits that Russia previously enjoyed through the imposition of sanctions. Additionally, the EU has restricted the provision of SWIFT financial services to certain Russian banks, which constitutes a disapplication of MFN vis-à-vis Russia under the General Agreement on Trade in Services (GATS). Today’s sanctions remove further trade benefits from Russia.”
European Commission, Question and Answers: fourth package of restrictive measures against Russia, 15 March 2022, https://ec.europa.eu/commission/presscorner/detail/en/QANDA_22_1776.
In the United States, the President through executive order has restricted exports of luxury goods and many other items to Russia and Belarus and banned imports of oil, gas, coal and a number of other products reviewed in earlier posts. March 13, 2022: Additional trade and other sanctions imposed by G-7 and EU countries on Russia and Belarus on March 11, 2022, https://currentthoughtsontrade.com/2022/03/13/additional-trade-and-other-sanctions-imposed-by-g-7-and-eu-countries-on-russia-and-belarus-on-march-11-2022/; 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/; February 28, 2022: Trade sanctions following Russia’s invasion of Ukraine, https://currentthoughtsontrade.com/2022/02/28/trade-sanctions-following-russias-invasion-of-ukraine/.
Such actions constitute treating Russia and Belarus differently (though Belarus is not a WTO Member and hence not entitled to MFN treatment by reason of WTO membership). To formally remove most favored nation treatment from Russia in the U.S., Congress must act. On Thursday, March 17, 2022, the House of Representatives passed a bill that would, inter alia, deny MFN treatment to Russia and Belarus and encourage USTR to take other actions at the WTO to block forward movement on Belarus’ accession to the WTO and urge other WTO Members to similarly deny MFN treatment to Russia. H.R. 7108 is embedded below.House-bill-to-strip-PNTR-from-Russia-passed-House-on-3-17-2022
The United States tariff schedule has two columns of rates. Column 1 is the most favored nation rate. Column 2 is the other rate, often considerably higher. The House bill would have all imports from Russia and Belarus subject to the Column 2 rate. Moreover, the bill gives the President the authority to raise rates on products from those two countries above the Column 2 rate. The vast majority of imports from Russia are oil and gas products ($17.4 billion of $29.7 bill total imports in 2021) which already banned by Executive Order. Other products (worth about $1.5 billion) have also been banned by Executive order. Of the remaining imports the following fourteen 4-digit HS categories accounted for $8.14 billion of the imports from Russia in 2021
HS7110 PLATINUM $ 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 $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, ETC., AMMO $173,633,545
HS7106 SILVER (INCLUDING SILVER PLATED WITH GOLD OR PLATINUM) $144,208,220
HS8412 ENGINES AND MOTORS NESOI, AND PARTS THEREOF $133,429,434
HS8108 TITANIUM AND ARTICLES THEREOF, INCLUDING WASTE AND SCRAP $130,833,908
HS4002 SYNTHETIC RUBBER AND FATICE IN PRIMARY FORMS, ETC. $114,129,678
For three of the 14 categories, the column 2 rate is duty free just like the column 1 rate — HS7110, HS3102, HS 3104. For three others, column 2 rates range free to 45% (HS2844, HS8108) or 65% (HS7106. The other 8 categories had column 2 rates that were all above free and generally substantially higher than column 1 rates.
HS 7201, column 2 rates rom 2.5% to $1.10/ton
HS7202, 6.5-35%; up to 6.6cents/kg.
HS 9306, 30-45%
When the legislation becomes law (likely by end of March), the higher column 2 rates will apply to all imports from Russia and Belarus not banned from entry. For those categories that would remain duty free under column 2, President Biden will have the authority to raise rates (actually he will have the authority to raise rates on any products from the two countries).
While the trade actions outlined above are but one part of a much broader set of sanctions imposed by many trading partners, they add to the breadth of sanctions being imposed in light of the unprovoked invasion of Ukraine by Russia and the complicity of Belarus. The sanctions will remain in place and will likely continue to be increased until Ukraine’s sovereignty is respected, Russian troops (and various mercenaries brought in by Russia) withdrawn and a freely elected Ukrainian government either remains in place or is elected.