Sanctions on Russia following its invasion of Ukraine

The global food insecurity crisis — efforts to reduce the crisis and avoid widespread social unrest

In prior posts, I have reviewed the challenges globally on food security flowing from Russia’s invasion of Ukraine. These challenges compound the difficulties flowing from climate change problems of extended draughts in various parts of the world and the challenges for countries trying to rebound from the COVID-19 pandemic. See, e.g., May 24, 2022:  How severe is the food security challenge?, https://currentthoughtsontrade.com/2022/05/24/how-severe-is-the-food-security-challenge/; May 16, 2022:  Wheat prices spike following Indian export ban, https://currentthoughtsontrade.com/2022/05/16/wheat-prices-spike-following-indian-export-ban/; May 15, 2022:  India bans exports of wheat, complicating efforts to address global food security problems posed by Russia’s war in Ukraine, https://currentthoughtsontrade.com/2022/05/15/india-bans-exports-of-wheat-complicating-efforts-to-address-global-food-security-problems-posed-by-russias-war-in-ukraine/; April 19, 2022:  Recent estimates of global effects from Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/04/19/recent-estimates-of-global-effects-from-russian-invasion-of-ukraine/; March 30, 2022:  Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/food-security-challenges-posed-by-the-russian-invasion-of-ukraine/.

In prior periods of agricultural shortages and inflationary prices for agricultural goods, there has been significant social unrest particularly in countries where food accounts for a large part of disposable income for people. See Financial Times, ‘People are hungry’: food crisis starts to bite across Africa, June 23, 2022, https://www.ft.com/content/c3336e46-b852-4f10-9716-e0f9645767c4 (“During the 2007-2008 food crisis, which was caused by a spike in energy prices and droughts in crop-producing regions, about 40 countries faced social unrest: More than a third of those countries were on the African continent.”); see also Terence P. Stewart, The Food Crisis: A Survey of Sources and Proposals for Preventing a Global Catastrophe, 2008 (copied in March 30, 2022:  Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/food-security-challenges-posed-by-the-russian-invasion-of-ukraine/)(excerpt from the summary copied below).

A recent paper from the UN Food and Agriculture Organization and the World Food Programme identifies countries in danger of starvation or acute hunger in the June – September 2022 time period. FAO, WFP, Hunger Hotspots, FAO-WFP early warnings on acute food insecurity, June to September 2022 Outlook, https://docs.wfp.org/api/documents/WFP-0000139904/download/?_ga=2.27484728.588580763.1656342884-1119086152.1656342884. The Executive Summary (page 5 of the report) is copied below.

“The Food and Agriculture Organization of the United Nations (FAO) and the World Food Programme (WFP) warn that acute food insecurity is likely to deteriorate further in 20 countries or situations
(including two regional clusters) – called hunger hotspots – during the outlook period from June to September 2022.

“Acute food insecurity globally continues to escalate. The recently published 2022 Global Report on Food Crises alerts that 193 million people were facing Crisis or worse (Integrated Food Security Phase Classification [IPC]/Cadre Harmonisé [CH] Phase 3 or above) across 53 countries or territories in 2021. This increase must be interpreted with care, given that it can be attributed to both a worsening acute food insecurity situation and a substantial (22 percent) expansion in the population analysed between 2020 and 2021. In addition, an all-time high of up to 49 million people in 46 countries could now be at risk of falling into famine or famine-like conditions, unless they receive immediate life and livelihoods-saving
assistance. This includes 750 000 people already in Catastrophe (IPC/CH Phase 5).

“Ethiopia, Nigeria, South Sudan and Yemen remain at the highest alert level as in the previous edition of this report. In the current report, Afghanistan and Somalia have been added to the list. These countries all have some populations identified or projected to experience starvation or death (Catastrophe, IPC Phase 5) or at risk of deterioration towards catastrophic conditions, and require the most urgent attention.

“In Afghanistan, for the first time since the introduction of IPC in the country in 2011. Catastrophic conditions (IPC Phase 5) are present for 20 000 people in Ghor due to limited humanitarian access during
the March to May period. In the outlook period, acute food insecurity is projected to increase by 60 percent year-on-year.

“After projecting 401 000 people facing Catastrophic conditions (IPC Phase 5) in Tigray, Ethiopia, in 2021, only 10 percent of required assistance arrived in the region until March 2022, and local agricultural production – which was 40 percent of the average – was critical for food security and livelihoods. A recent ‘humanitarian truce’ remains fragile but has allowed for some convoys to reach the region. The Famine Review Committee’s 2021 scenarios of a Risk of Famine for Tigray might remain relevant, unless humanitarian access stabilizes.

“Although no populations were projected to be in Catastrophe (CH Phase 5) in Nigeria in the outlook period, the record-high levels of acute food insecurity are of serious concern. Importantly, the population in Emergency (CH Phase 4) is expected to reach close to 1.2 million people during the peak of the lean season from June to August 2022, including in Adamawa, Borno and Yobe where some local government areas continue to be inaccessible or hard to reach.

‘In Somalia, a Risk of Famine has been identified through June 2022, under a scenario where rains are significantly below average, food prices increase further, conflict and displacement increase and humanitarian assistance remains insufficient – 81 000 people will face Catastrophe (IPC Phase 5) between April and June.

“In South Sudan, a Famine Likely situation, which was present in some areas in 2021, was averted by improved coordination of humanitarian assistance, and hence the projected number of people in Catastrophe (IPC Phase 5) was reduced slightly, to 87 000 between April and July. That said, the situation remains of highest concern.

“In Yemen, the food security situation deteriorated significantly compared to last year, including a strong increase in the number of people in Catastrophe (IPC Phase 5), which are projected to reach 161 000 over the outlook period. There is also a Risk of Famine projected for some areas.

“The Democratic Republic of the Congo, Haiti, the Sahel region, the Sudan and the Syrian Arab Republic remain countries of very high concern, as in the previous edition of this report. In this edition, Kenya is added to the list. This is due to the high number of people in critical food insecurity coupled with worsening drivers expected to further intensify life-threatening conditions. Sri Lanka, West African coastal countries (Benin, Cabo Verde and Guinea), Ukraine and Zimbabwe have been added in the list of hotspot countries compared to the January 2022 edition of this report. Angola, Lebanon, Madagascar and Mozambique remain hunger hotspots.

“Organized violence and conflict remain the primary drivers for acute hunger, with key trends indicating that conflict levels and violence against civilians continued to increase in 2022. Moreover, weather
extremes such as tropical storms, flooding and drought remain critical drivers in some regions.

Ripple effects of the war in Ukraine have been reverberating globally against the backdrop of a gradual and uneven economic recovery from the COVID-19 pandemic, steadily increasing food and energy prices, and deteriorating macroeconomic conditions. Disruptions to the Ukrainian agricultural sector and constrained exports reduce global food supply, further increase global food prices, and finally push up already high levels of domestic food price inflation. Additionally, high fertilizer costs are likely to affect yields and therefore the future availability of food. Adding to the economic instability, civil unrest could emerge in some of the most affected countries in the upcoming months. Finally, humanitarian organizations are seeing sharp cost increases for their operations and reduced global attention risking to translate into increasing funding shortages. (emphasis added)

“Targeted humanitarian action is urgently needed to save lives and livelihoods in the 20 hunger hotspots. Moreover, in six of these hotspots – Afghanistan, Ethiopia, Nigeria, Somalia, South Sudan and Yemen – humanitarian actions are critical to preventing starvation and death. This report provides country-specific recommendations on priorities for emergency response as well as anticipatory action to address existing humanitarian needs and ensure short-term protective interventions before new needs materialize.”

The report at page 12 provides a chart showing the number of people in acute food insecurity in hotspot countries. The page is copied below.

The Financial Times article referenced earlier notes that there have already been signs of social unrest in a number of countries — Chad, Uganda, and Kenya. See Financial Times, ‘People are hungry’: food crisis starts to bite across Africa, June 23, 2022, https://www.ft.com/content/c3336e46-b852-4f10-9716-e0f9645767c4. Similarly, the Economist has flagged social unrest from rising food and energy prices in two recent articles. See The Economist, Costly food and energy are fostering global unrest, June 23, 2022, https://www.economist.com/international/2022/06/23/costly-food-and-energy-are-fostering-global-unrest (“All around the world, inflation is crushing living standards, stoking fury and fostering turmoil. Vladimir Putin’s invasion of Ukraine has sent prices of food and fuel soaring. Many governments would like to cushion the blow. But, having borrowed heavily during the pandemic and with interest rates rising, many are unable to do so. All this is aggravating pre-existing tensions in many countries and making unrest more likely, says Steve Killelea of the Institute for Economics and Peace (iep), an Australian think-tank.”); The Economist, A wave of unrest is coming. Here’s how to avert some of it, June 23, 2022, https://www.economist.com/leaders/2022/06/23/a-wave-of-unrest-is-coming-heres-how-to-avert-some-of-it (“Jesus said that man does not live by bread alone. Nonetheless, its scarcity makes people furious. The last time the world suffered a food-price shock like today’s, it helped set off the Arab spring, a wave of uprisings that ousted four presidents and led to horrific civil wars in Syria and Libya. Unfortunately, Vladimir Putin’s invasion of Ukraine has upended the markets for grain and energy once again. And so unrest is inevitable this year, too.”). The Economist, in the first referenced article, forecasts the likelihood of increase in serious outbreaks of unrest over the next twelve months. Much of Africa, various countries in Asia and the Middle East and parts of Central and South America show increases from 25% to 100% over the prior 12 months. The article also reviews challenges in Turkey, Pakistan, Sri Lanka, Kazakhstan, Kyrgyzstan, Tunisia, Peru, Uganda, Turkmenistan and South Africa.

Major countries and multilateral organizations have been taking actions to try to address some of the challenges presented from the price inflation on food, fertilizer and energy. Some countries that are able are providing assistance to their people with tax reductions or monetary grants. See, e.g., Reuters, Malaysia plans record $18 billion subsidy spend in inflation fight, June 25, 2022, https://www.reuters.com/markets/asia/malaysia-plans-record-18-bln-subsidy-spend-inflation-fight-2022-06-25/ (“Malaysia is projected to spend 51 billion ringgit on consumer subsidies including for fuel, electricity, and food, assuming that commodity market prices remain at current levels, Finance Minister Tengku Zafrul Aziz said in a statement. The government will also distribute 11.7 billion ringgit in cash aid, and 14.6 billion ringgit in other subsidies, he said.”). Other countries provide economic assistance to those in need in other countries. See, e.g., European Commission, Food security: EU to step up its support to African, Caribbean and Pacific countries in response to Russia’s invasion of Ukraine, June 23, 2022, https://ec.europa.eu/commission/presscorner/detail/en/IP_22_3889

Prices for wheat and sunflower oil have spiked since the war as Ukraine’s large volumes that are normally exported have been trapped in Ukraine by Russia’s blockade of Black Sea ports, destruction of grain and sunflower seed silos by Russian missiles, by the theft of Ukrainian product by the Russians and limitations on Ukrainian farmers being able to work their land during the war. See, e.g., NPR, Russia has blocked 20 million tons of grain from being exported from Ukraine, June 3, 2022, https://www.npr.org/2022/06/03/1102990029/russia-has-blocked-20-million-tons-of-grain-from-being-exported-from-ukraine; Center for Strategic & International Studies, Spotlight on Damage to Ukraine’s Agricultural Infrastructure since Russia’s Invasion, June 15, 2022, https://www.csis.org/analysis/spotlight-damage-ukraines-agricultural-infrastructure-russias-invasion (“Russia is taking advantage of the transportation bottlenecks caused by port blockades to target Ukraine’s food storage facilities. According to Ukraine’s ministry of defense, Russian forces have attacked grain silos across the country and stolen an estimated 400,000-500,000 metric tons of grain from occupied regions to increase Russian competitive advantage in the export market.”).

Efforts have been being made by the UN, by Turkey and others to get Russia to stop its blockade of Ukrainian ports to permit the export of grain and other agriculture products. See, e.g., Reuters, Russia, Turkey to pursue talks on Ukraine grain exports, June 23, 2022, https://www.reuters.com/world/russia-turkey-agree-more-consultations-grain-exports-ukraine-2022-06-22/ (“Ukraine is one of the top global wheat suppliers, but shipments have been halted by Russia’s invasion, causing global food shortages. The United Nations has appealed to both sides, as well as maritime neighbour Turkey, to agree to a corridor.”).

At the same time, the European Union and United States have been working to help Ukraine export wheat and other agricultural products by alternative routes, though the volume that can be so moved is only a small percentage of what Ukraine normally exports. See, e.g., European Commission, Commission to establish Solidarity Lanes to help Ukraine export agricultural goods, 12 May 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_3002; Politico, Biden races against time to unlock Ukraine’s trapped grain, June 17, 2022, https://www.politico.com/news/2022/06/17/biden-ukraine-trapped-grain-00040640.

Multilateral organizations like the World Bank, IMF and World Trade Organization have been offering assistance within their zones of competence. For example, the World Bank has a variety of programs that have been started or utilized to help with the growing food insecurity. See World Bank, Food Security Update | Rising Food Insecurity in 2022, June 23, 2022, https://www.worldbank.org/en/topic/agriculture/brief/food-security-update# (lists 14 projects including “The $2.3 billion Food Systems Resilience Program for Eastern and Southern Africa, approved on June 21, 2022, helps countries in Eastern and Southern Africa increase the resilience of the region’s food systems and ability to tackle growing food insecurity.”). The World Bank’s update on food insecurity is embedded below.

Food-security-update

The WTO during the 12th Ministerial Conference which concluded on June 17, 2022 did address food security concerns both by agreeing not to block exports to the World Food Programme and by agreeing to transparency on actions taken and efforts to minimize use of export restraints on agricultural products. See June 17, 2022:  WTO’s 12th Ministerial Conference — some successes after a difficult five plus days, https://currentthoughtsontrade.com/2022/06/17/wtos-12th-ministerial-conference-some-successes-after-a-difficult-five-plus-days/.

In addition, the U.S., European Union and other allies coordinating actions to help Ukraine and hold Russia accountable, have been working to address access to food products, energy products and to increase availability of fertilizers. These actions have been announced by major players unilaterally as well as through various groupings, including the current G-7 meeting in Germany, U.S.-chaired Global Food Security Ministerial Meeting,  and the recently concluded Summit of the Americas Agriculture Producers Declaration. See, e.g., The White House, Summit of the Americas Agriculture Producers Declaration, June 13, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/13/summit-of-americas-agriculture-producers-declaration/; U.S. Department of State, Chair’s Statement for Global Food Security — call to Action, June 24, 2022, https://www.state.gov/chairs-statement-roadmap-for-global-food-security-call-to-action-2/; European Commission, Commission acts for global food security and for supporting EU farmers and consumers, 23 March 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1963; U.S. Department of State, Secretary Antony J. Blinken During the Uniting for Global Food Security Conference, June 24, 2022, https://www.state.gov/secretary-antony-j-blinken-during-the-uniting-for-global-food-security-conference/. These four documents are embedded below.

Summit-of-the-Americas-Agriculture-Producers-Declaration-_-The-White-House

Chairs-Statement_-Roadmap-for-Global-Food-Security-–-Call-to-Action-United-States-Department-of-State

Commission_acts_for_global_food_security_and_for_supporting_EU_farmers_and_consumers

Secretary-Antony-J.-Blinken-During-the-Uniting-for-Global-Food-Security-Conference-United-States-Department-of-State

A few thoughts

The major efforts underway by various countries to reduce the global effect of the Russian war on food security are extensive and will have positive effects, some immediately, others over time (e.g., increasing production of fertilizers or improving efficiencies of fertilizers). However, for the poorest countries and those reliant on food imports from Ukraine and Russia, the internal pressures will continue to mount as limited financial resources and high food and energy prices push more and more people into food insecurity situations of increased severity. Social unrest in a number of countries is likely.

While Russia has exacerbated the food insecurity by its actions on Ukraine’s agricultural products and by other actions restricting its own exports (when sanctions do not cover agricultural goods or fertilizers) and has the ability to end the challenges it has created, it seems highly unlikely that any serious progress will be made in getting Ukrainian agricultural goods out through Black Sea ports while hostilities continue. EU and U.S. efforts are helping some but are not perceived to be a viable short-term solution to moving Ukrainian goods to export markets at affordable prices.

Some short-term steps the private sector can take to help alleviate the damage to at-risk countries is to increase funding to the World Food Programme (its June report cited earlier is this post reflect that with higher prices and challenges in getting funding, the WFP is being forced to reduce assistance in various countries). While most funding for WFP comes from governments, the private sector can contribute and should actively participate. Obviously, there is need for more funding by governments as well, but the multiple crises at least make it questionable how much more governments will do in fact in 2022.

Moreover, with the large number of low and middle-income countries facing potential debt crises, there is a need for at least selective debt relief where the challenges faced flow simply from the rapid increase in inflation.

None of the proposals for action by those looking to lessen the pressures on global markets has involved increasing the percent of the world’s grain that goes to human consumption during the current crisis. See The Economist, Most of the world’s grain is not eaten by humans, June 23, 2022, https://www.economist.com/graphic-detail/2022/06/23/most-of-the-worlds-grain-is-not-eaten-by-humans. Presumably the challenges flow from the large percentage of grains that are fed to animals and the reduction in the world’s pasturelands which make alternative feeding of livestock less likely to increase in the short term. A small percentage (10%) of grains goes to biofuels and would be unlikely to be shifted in the short term as the use of grains in biofuels reduces the volume of petroleum products otherwise needed.

In challenging times, it is important for key countries to step forward and show leadership. There has been extensive leadership shown by the U.S., the EU and many of the other countries involved in supporting Ukraine and holding Russia to account for its unprovoked war with Ukraine. Continued coordination and adoption of bold actions by those currently engaged and an expanded group of willing participants will be needed to reduced the damage to low- and middle-income countries and limit the amount of social unrest that will yet unfold in 2022 and 2023.

European Council May 30-31, 2022 Meeting — finally EU sanctions on most Russian oil; food security from Russian invasion of Ukraine remains problematic

In a two day European Council meeting this week, the Council addressed a wide range of issues including finally approving significant sanctions on Russian oil and continuing to focus on what can be done to reduce the food insecurity caused by Russia’s invasion of Ukraine. The conclusions from the two day meeting can be found at European Council, Special meeting of the European Council (30 and 31 May 2022), Conclusions, https://www.consilium.europa.eu/media/56562/2022-05-30-31-euco-conclusions.pdf. The conclusions are eleven pages in length and cover a range of topics. The document is embedded below and the section on sanctions (page 2) and food security are copied below.

2022-05-30-31-euco-conclusions

“Sanctions

“4. The European Council is committed to intensify pressure on Russia and Belarus to thwart Russia’s war against Ukraine. The European Council calls on all countries to align with EU sanctions. Any attempts to circumvent sanctions or to aid Russia by other means must be stopped.

“5. The European Council agrees that the sixth package of sanctions against Russia will cover crude oil, as well as petroleum products, delivered from Russia into Member States, with a temporary exception for crude oil delivered by pipeline.

“6. The European Council therefore urges the Council to finalise and adopt it without delay, ensuring a well-functioning EU Single Market, fair competition, solidarity among Member States and a level playing field also with regard to the phasing out of our dependency on Russian fossil fuels. In case of sudden interruptions of supply, emergency measures will be introduced to ensure security of supply. In this respect, the Commission will monitor and report regularly to the Council on the implementation of
these measures to ensure a level playing field in the EU Single Market and security of supply.

“7. The European Council will revert to the issue of the temporary exception for crude oil delivered by pipeline as soon as possible.”

“II. FOOD SECURITY

“19. The European Council strongly condemns the destruction and illegal appropriation by Russia of agricultural production in Ukraine. The Russian war of aggression against Ukraine is having a direct impact on global food security and affordability. The European Council calls on Russia to end its attacks on transport infrastructure in Ukraine, to lift the blockade of Ukrainian Black Sea ports and to allow food exports, in particular from Odesa. The European Union is taking active measures to facilitate Ukraine’s agricultural exports and to support Ukraine’s agricultural sector in view of the 2022 season. In this regard, the European Council invites Member States to accelerate work on “Solidarity Lanes” put forward by the Commission, and to facilitate food exports from Ukraine via different land routes and EU ports.

“20. The European Council calls for effective international coordination to ensure a comprehensive global food security response. In this respect, it welcomes the Food and Agriculture Resilience Mission (FARM) – based on the three pillars: trade, solidarity and production – which aims to mitigate consequences for price levels, production and access to and supply of grain. It also supports the UN Global Crisis Response Group, the upcoming G7 initiative establishing a Global Alliance for Food Security (GAFS) and other EU and multilateral actions and initiatives. It reiterates its commitment to keep global trade in food commodities free of unjustified trade barriers, enhance solidarity towards the most vulnerable countries and increase local sustainable food production so as to reduce structural dependencies. The European Council invites the Commission to explore the possibility of mobilising reserves from the European Development Fund to support the most affected partner countries. The European Union welcomes the commitment and support of its partners and of international organisations.

“21. The European Council underlines the importance of the Common Agriculture Policy (CAP) in the EU’s contribution to food security and calls for the swift adoption of the CAP Strategic Plans.

“22. In view of the ongoing fertiliser shortages in the global market, the European Council calls for more concerted efforts to work with international partners to promote a more efficient use of and alternatives to fertilisers.”

It has been clear since the beginning of Russia’s war with Ukraine that the most challenging sanctions for the EU would be on banning Russian oil and gas. The EU has put in place sanctions on Russian coal and will be adding oil on a transitional basis by the end of the year for some 90% of oil imports from Russia with a carve out for oil delivered by pipeline — a carve out needed to address Hungary’s concerns and that of several other Central European countries.

Moreover, on May 31st, the EU and the U.K. agreed to ban insuring ships carrying Russian oil which will likely significantly affect Russia’s ability to export crude oil by ship. See Financial Times, UK and EU hit Russian oil cargoes with insurance ban, May 31, 2022, https://www.ft.com/content/10372dd3-be3c-42b9-982b-241a38efcc88.

The insurance ban is one of several other sanctions that the EU is including in its sixth package. See European Commission statement, Opening remarks by President von der Leyen at the joint press conference with President Michel following the special meeting of the European Council of 30 May 2022
Brussels, 31 May 2022, https://ec.europa.eu/commission/presscorner/detail/en/statement_22_3382 (“Indeed, we had a very good discussion tonight. And I am very glad that the Leaders were able to agree in principle on the sixth sanctions package. This is very important. Thanks to this, the Council should now be able to finalise a ban on almost 90% of all Russian oil imports by the end of the year. This is an important step forward. We will soon return to the issue of the remaining 10% of pipeline oil. I want to note that other elements in the package are also important. It is the de-SWIFTing of the Sberbank. The Sberbank is the biggest Russian bank, with 37% of the Russian banking sector. So this is good that we now de-SWIFT the Sberbank. There is a ban on insurance and reinsurance of Russian ships by EU companies; a ban on providing Russian companies with a whole range of business services. And, very important, there is the suspension of broadcasting in the European Union of three further Russian state outlets that were very typically spreading broadly the misinformation that we have witnessed over the last weeks and months.”).

The actions by the EU and the UK are resulting in higher oil prices at least for the present. Russia is also expanding the countries it is choosing not to supply gasl to. See Financial Times, Dutch and Danish set to be cut off by Russia over gas payment dispute, May 30, 2022, https://www.ft.com/content/6715e4e9-d315-4594-8d57-80ce88613685; CNBC, Oil prices jump after EU leaders agree to ban most Russian crude imports, May 30, 2022, https://www.cnbc.com/2022/05/31/oil-prices-eu-russian-crude.html

So there is little question but that the sanctions imposed by the U.S., EU, UK, Canada, Japan, Australia and others are being ratcheted up and will present increased challenges for Russia and continued pain at the pump for many global consumers and businesses.

By contrast, the efforts of the EU and others to address the growing food crisis caused by the disruption of Ukrainian agricultural exports, while continuing and being supported by multilateral organizations, seem unlikely to result in significant movement of Ukrainian wheat and other products in the coming months. The EU has been working hard to develop alternative export routes for Ukrainian goods as is reflected in the European Council’s conclusions from the May 30-31 meeting. See also Financial Times, EU steps up effort to bring millions of tonnes of grain out of Ukraine, May 30, 2022, https://www.ft.com/content/0e0f6cd9-03f0-4150-b330-62032f9a86ad.

However, a recent Politico article reviews the serious challenges to being able to make a significant dent in the exports of Ukrainian agricultural products with the Black Sea effectively closed. See Politico, Only black Sea ships will allow Ukraine to feed the world again, The EU plan to export grain by road and rail will barely move a fifth of regular food supplies, May 31, 2022, https://www.politico.com/news/2022/05/31/only-black-sea-ships-will-allow-ukraine-to-feed-the-world-again-00035970#:~:text=The%20EU%20plan%20to%20export,fifth%20of%20regular%20food%20supplies.

Time will tell what options those opposing Russia’s invasion of Ukraine or who are suffering from food shortages caused by the war are able to implement to address the food security challenges that will likely harm tens of millions of people around the world. See May 24, 2022:  How severe is the food security challenge?, https://currentthoughtsontrade.com/2022/05/24/how-severe-is-the-food-security-challenge/.

Latest round of sanctions against Russia and Belarus for unprovoked war against Ukraine

The G-7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, the United States and the European Union) released a joint statement on May 8, 2022 emphasizing their continued solidarity with Ukraine and announcing new sanctions being put in place or finalized by member countries. See White House Briefing Room, G7 Leaders’ Statement, May 8, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/08/g7-leaders-statement-2/. Paragraph 12 of the statement reviews the new sanctions G-7 members are pursuing.

“12. Our unprecedented package of coordinated sanctions has already significantly hindered Russia’s war of aggression by limiting access to financial channels and ability to pursue their objectives. These restrictive measures are already having a significant impact on all Russian economic sectors – financial, trade, defence, technology, and energy – and will intensify pressure on Russia over time. We will continue to impose severe and immediate economic costs on President Putin’s regime for this unjustifiable war. We collectively commit to taking the following measures, consistent with our respective legal authorities and processes:

“a. First, we commit to phase out our dependency on Russian energy, including by phasing out or banning the import of Russian oil. We will ensure that we do so in a timely and orderly fashion, and in ways that provide time for the world to secure alternative supplies. As we do so, we will work together and with our partners to ensure stable and sustainable global energy supplies and affordable prices for consumers, including by accelerating reduction of our overall reliance on fossil fuels and our transition to clean energy in accordance with our climate objectives.

“b. Second, we will take measures to prohibit or otherwise prevent the provision of key services on which Russia depends. This will reinforce Russia’s isolation across all sectors of its economy.

“c. Third, we will continue to take action against Russian banks connected to the global economy and systemically critical to the Russian financial system. We have already severely impaired Russia’s ability to finance its war of aggression by targeting its Central Bank and its largest financial institutions.

“d. Fourth, we will continue our efforts to fight off the Russian regime’s attempts to spread its propaganda. Respectable private companies should not provide revenue to the Russian regime or to its affiliates feeding the Russian war machine.

“e. Fifth, we will continue and elevate our campaign against the financial elites and family members, who support President Putin in his war effort and squander the resources of the Russian people. Consistent with our national authorities, we will impose sanctions on additional individuals.”

The U.S. released a fact sheet on its new sanctions. See White House Briefing Room, FACT SHEET: United
States and G7 Partners Impose Severe Costs for Putin’s War Against Ukraine, May 8, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/08/fact-sheet-united-states-and-g7-partners-impose-severe-costs-for-putins-war-against-ukraine/. In the fact sheet, the U.S. outlines the sanctions it is imposing in this latest round.

Targeting State-Controlled Media Within Russia That Bolster Putin’s War. The United States will sanction three of Russia’s most highly-viewed directly or indirectly state-controlled television stations in Russia – Joint Stock Company Channel One Russia, Television Station Russia-1, and Joint Stock Company NTV Broadcasting Company. All three stations have been among the largest recipients of foreign revenue, which feeds back to the Russian State’s revenue.

Banning Services that Help Finance Putin’s War and Aid Sanctions Evasion. The United States will prohibit U.S. persons from providing accounting, trust and corporate formation, and management consulting services to any person in the Russian Federation. These services are key to Russian companies and elites building wealth, thereby generating revenue for Putin’s war machine, and to trying to hide that wealth and evade sanctions. This action builds on previous prohibitions to restrict the export of goods related to aerospace, marine, electronics, technology, and defense and related materiel sectors of the Russian economy.

Cutting off Imports of Russian Oil and Reducing Dependence on Russian Energy. The United States has already banned the import of Russian oil, gas, and coal. Today, the entire G7 committed to phasing out or banning the import of Russian oil. This will hit hard at the main artery of Putin’s economy and deny him the revenue he needs to fund his war. The G7 also committed to work together to ensure stable global energy supplies, while accelerating our efforts to reduce dependence on fossil fuels.

Impose further export controls and sanctions to degrade Russia’s war efforts.  The United States will issue a new rule that imposes additional restrictions on Russia’s industrial sector, including a broad range of inputs and products including wood products, industrial engines, boilers, motors, fans, and ventilation equipment, bulldozers, and many other items with industrial and commercial applications. These new controls will further limit Russia’s access to items and revenue that could support its military capabilities. The United States also sanctioned Limited Liability Company Promtekhnologiya, which produces rifles and other weapons that have been used in military operations in Ukraine; seven shipping companies, which own or operate 69 vessels; and one marine towing company. The Nuclear Regulatory Commission will also suspend general licenses for exports of source material, special nuclear material, byproduct material, and deuterium to Russia.

Impose Sanctions on Russian Elites and their Family Members and Visa Restrictions on Russian and Belarusian Officials Undermining the Sovereignty, Territorial Integrity, or Political Independence of Ukraine. The United States imposed approximately 2,600 visa restrictions on Russian and Belarusian officials in response to their ongoing efforts to undermine the sovereignty, territorial integrity, or political independence of Ukraine. Additionally, the United States issued a new visa restriction policy that applies to Russian Federation military officials and Russia-backed or Russia-installed purported authorities who are believed to have been involved in human rights abuses, violations of international humanitarian law, or public corruption in Ukraine. The United States also sanctioned eight executives from Sberbank– the largest financial institution in Russia and uniquely important to the Russian economy, holding about a third of all bank assets in Russia; twenty-seven executives from Gazprombank – a prominent Russian bank facilitating business by Russia’s Gazprom, one of the largest natural gas exporters in the world; and Moscow Industrial Bank and its ten subsidiaries.”

Canada’s Prime Minister was in Kyiv on May 8th and met with the Ukrainian President. Canada also announced new sanctions. See Canada Prime Minister Justin Trudeau, Prime Minister visits Kyiv, Ukraine, May 8, 2022, https://pm.gc.ca/en/news/news-releases/2022/05/08/prime-minister-visits-kyiv-ukraine; Radio Free Europe/Radio Liberty’s Ukrainian Service, Canadian Prime Minister Announces New Military Aid, Sanctions After Meeting In Kyiv With Zelenskiy, May 8, 2022, https://www.rferl.org/a/ukraine-zelenskiy-trudeau-weapons-equipment-canada/31840100.html (“‘Today, I’m announcing more military assistance, drone cameras, satellite imagery, small arms, ammunition, and other support, including funding for demining operations,’ Trudeau said. ‘And we’re bringing forward new sanctions on 40 Russian individuals and five entities, oligarchs, and close associates of the regime in the defense sector, all of them complicit in Putin’s war,’ in a reference to Russian President Vladimir Putin.”). Canada is also granting duty free treatment to Ukrainian goods for the next year. Canada was the first G-7 country to announce a ban on energy imports from Russia.

The United Kingdom similarly announced additional sanctions and duty free treatment for Ukrainian imports under the U.K.-Ukraine FTA. See Government of the United Kingdom, Press release
UK punishes Putin with new round ofsanctions on £1.7 billion of goods, May 8, 2022, https://www.gov.uk/government/news/uk-punishes-putin-with-new-round-of-sanctions-on-17-billion-of-goods. A section of the press release is copied below.

“The UK is today announcing a new package of sanctions on Russia and Belarus targeting £1.7 billion worth of trade in a move designed to further weaken Putin’s war machine.

“It will bring the total value of products subjected to full or partial import and export sanctions since Russia’s illegal invasion of Ukraine began to more than £4 billion.

“The sanctions announced today by the International Trade Secretary and the Chancellor of the Exchequer include import tariffs and export bans.

“The new import tariffs will cover £1.4 billion worth of goods – including platinum and palladium – hampering Putin’s ability to fund his war effort.

“Russia is one of the leading platinum and palladium producing countries and is highly dependent on the UK for exports of platinum and palladium products.

“Meanwhile, the planned export bans intend to hit more than £250 million worth of goods in sectors of the Russian economy most dependent on UK goods, targeting key materials such as chemicals, plastics, rubber, and machinery.”

The European Commission has proposed phasing out imports of Russian crude oil within six months and all refined oil products by the end of 2022 with some possible exceptions. The European Parliament and European Council still have the proposal under consideration. See EC Press Release, Speech by President von der Leyen at the EP Plenary on the social and economic consequences for the EU of the Russian war in Ukraine – reinforcing the EU’s capacity to act, Strasbourg, 4 May 2022, file:///C:/Users/tps/Downloads/Speech_by_President_von_der_Leyen_at_the_EP_Plenary_on_the_social_and_economic_consequences_for_the_EU_of_the_Russian_war_in_Ukraine___reinforcing_the_EU_s_capacity_to_act%20(1).pdf. EC President von der Leyen’s proposal on sanctions is copied below.

“Today, we are presenting the sixth package of sanctions. First, we are listing high-ranking military officers
and other individuals who committed war crimes in Bucha and who are responsible for the inhuman siege of the city of Mariupol. This sends another important signal to all perpetrators of the Kremlin’s war: We know who you are, and you will be held accountable. Second, we de-SWIFT Sberbank – by far Russia’s largest bank, and two other major banks. By that, we hit banks that are systemically critical to the Russian financial system and Putin’s ability to wage destruction. This will solidify the complete isolation of the Russian financial sector from the global system. Third, we are banning three big Russian state-owned broadcasters from our airwaves. They will not be allowed to distribute their content anymore in the EU, in whatever shape or form, be it on cable, via satellite, on the internet or via smartphone apps. We have identified these TV channels as mouthpieces that amplify Putin’s lies and propaganda aggressively. We should not give them a stage anymore to spread these lies. Moreover, the Kremlin relies on accountants, consultants and spin doctors from Europe. And this will now stop. We are banning those services from being provided to Russian companies.

“My final point on sanction: When the Leaders met in Versailles, they agreed to phase out our dependency on Russian energy. In the last sanction package, we started with coal. Now we are addressing our dependency on Russian oil. Let us be clear: it will not be easy. Some Member States are strongly dependent on Russian oil. But we simply have to work on it. We now propose a ban on Russian oil. This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined. We will make sure that we phase out Russian oil in an orderly fashion, in a way that allows us and our partners to secure alternative supply routes and minimises the impact on global markets. This is why we will phase out Russian supply of crude oil within six months and refined products by the end of the year. Thus, we maximise pressure on Russia, while at the same time minimising collateral damage to us and our partners around the globe. Because to help Ukraine, our own economy has to remain strong.”

The unprovoked war has created major challenges for the global trading system as reviewed in earlier posts particularly in food security for many countries, and in energy and fertilizers. The countries imposing sanctions and providing security and economic assistance to Ukraine are attempting to secure the multinational order that has preserved peace in Europe and many other parts of the world for the last 70+ years. Imposing costs on the Russian Federation and Belarus for their conduct and the unmentionable atrocities will continue and will likely increase as the brutal war started by Russia likely will last for some time yet.

Recent estimates of global effects from Russian invasion of Ukraine

As Russia’s unprovoked war against Ukraine moves through its eighth week, a variety of reports from multilateral organizations explain the severe global fallout from the war as well as the crippling effects on the Ukrainian economy.

On April 13, 2022, the World Bank, IMF, the UN World Food Program and WTO issued a joint statement which is copied below.

“WASHINGTON, 13 April 2022— The Heads of the World Bank Group (WBG), International Monetary Fund (IMF), United Nations World Food Program (WFP), and World Trade Organization (WTO) today called for urgent action on food security. World Bank Group President David Malpass, IMF Managing Director Kristalina Georgieva, WFP Executive Director David Beasley and WTO Director General Ngozi Okonjo-
Iweala issued the following joint statement ahead of the Spring Meetings of the IMF and World Bank Group next week:

“‘The world is shaken by compounding crises. The fallout of the war in Ukraine is adding to the ongoing COVID-19 pandemic that now enters its third year, while climate change and increased fragility and conflict pose persistent harm to people around the globe. Sharply higher prices for staples and supply shortages are increasing pressure on households worldwide and pushing millions more into poverty. The threat is highest for the poorest countries with a large share of consumption from food imports, but vulnerability is increasing rapidly in middle-income countries, which host the majority of the world’s poor. World Bank estimates warn that for each one percentage point increase in food prices, 10 million people are thrown into extreme poverty worldwide.’

“‘The rise in food prices is exacerbated by a dramatic increase in the cost of natural gas, a key ingredient of nitrogenous fertilizer. Surging fertilizer prices along with significant cuts in global supplies have important implications for food production in most countries, including major producers and exporters, who rely heavily on fertilizer imports. The increase in food prices and supply shocks can fuel social tensions in many of the affected countries, especially those that are already fragile or affected by conflict.’

“‘We call on the international community to urgently support vulnerable countries through coordinated actions ranging from provision of emergency food supplies, financial support, increased agricultural production, and open trade. We are committed to combining our expertise and financing to quickly step up our policy and financial support to help vulnerable countries and households as well as to increase domestic agricultural production in, and supply to, impacted countries. We can mitigate balance of payments pressures and work with all countries to keep trade flows open. In addition, we will further reinforce our monitoring of food vulnerabilities and are quickly expanding our multi-faceted policy advice to affected countries guided by the comparative advantages of our respective institutions.’

“‘We also urge the international community to help support urgent financing needs, including through grants. This should include financing of immediate food supplies, safety nets to address the needs of the poor, and for small farmers facing higher input prices. We also urge all countries to keep trade open and avoid restrictive measures such as export bans on food or fertilizer that further exacerbate the suffering of the most vulnerable people. It is especially important not to impose export restrictions on humanitarian food purchases by the UN’s World Food Program.’

“‘It is critical to quickly provide support for food insecure countries in a coordinated manner. We stand ready to work together with our multilateral and bilateral partners to help countries address this urgent crisis.’”

Joint Statement: The Heads of the World Bank Group, IMF, WFP, and WTO Call for Urgent Coordinated Action on Food Security, April 13, 2022, https://www.worldbank.org/en/news/statement/2022/04/13/joint-statement-the-heads-of-the-world-bank-group-imf-wfp-and-wto-call-for-urgent-coordinated-action-on-food-security

The World Bank has estimated that the Ukrainian economy will decline by 45% or more because of the war. Reuters, War to slash Ukraine’s GDP output by over 45%, World Bank forecasts, April 10, 2022, https://www.reuters.com/world/us/war-slash-ukraines-gdp-output-by-over-45-world-bank-forecasts-2022-04-10/. Effects in other countries are a combination of the war’s effects on prices of a number of agricultural and non-agricultural goods where Russia, Ukraine and/or Belarus are important global suppliers, supply chain disruptions that have continued from the pandemic and other inflationary pressures. So for example, the OECD has estimated the first year effects of the war and other challenges will reduce global GDP and will add to global inflation though the effects will vary by geographic area. OECD Economic Outlook, Interim Report, Economic and Social Impacts and Policy Implications of the War in Ukraine, MARCH 2022, https://www.oecd-ilibrary.org/docserver/4181d61b-en.pdf. Figure 5 from page 7 of the OECD paper provides estimates of the impact on GDP and on inflation for the Euro area, OECD countries in total, United States, World and World excluding Russia.

Similarly, Figure 3 from page 5 of the report shows the price increases for products where Russia and Ukraine are important sources of global trade.

The World Bank looks at various regions of the world in their Spring reports which show varying effects from the war. See World Bank, Reality Check: Forecasting Growth in the Middle East and North Africa in Times of Uncertainty, April 2022, https://openknowledge.worldbank.org/bitstream/handle/10986/37246/9781464818653.pdf (per capita GDP, “11 out of 17 MENA economies may not recover to pre-pandemic levels by the end of 2022″); World Bank, Africa’s Pulse, An Analysis of Issues Shaping Africa’s Economic Future, Boosting Resilience: The Future of Social Protection in Africa, April 2022 (Vol. 25), https://openknowledge.worldbank.org/bitstream/handle/10986/37281/9781464818714.pdf (Growth in Sub-Saharan Africa is projected to decelerate from 4% to 3.6% in 2022, and estimated at 3.9% or 4.2% in 2023 and 2024 respectively. The growth deceleration in 2022 reflects several short-term headwinds, the slowdown in the global economy, lingering effects of the coronavirus pandemic, elevated inflation, rising financial risks owing to high public debts reaching unsustainable levels, continued supply disruptions, and the war in Ukraine.”); World Bank, South Asia Economic Focus, Reshaping Norms: A New Way Forward, Spring 2022, https://openknowledge.worldbank.org/bitstream/handle/10986/37121/9781464818578.pdf (“South Asian economies are emerging from the deep COVID-19 recession, burdened by high inflation, rising current account deficits, and deteriorated fiscal balances, which are exacerbated by the impact of war in Ukraine. Even as the impact of the pandemic on growth is subsiding, partly because of increases in vaccination rates, the economic scars left behind after two years of the pandemic are deep. Inflation and deficits in trade balances reflect supply bottlenecks, pent-up demand, and rising commodity prices in international markets. Support measures and reduced revenues have deteriorated fiscal balances. All these problems have become more pressing because of the immediate impact of the war in Ukraine, which has pushed up prices of oil and other commodities in international markets.”); World Bank, Europe and Central Asia Economic Update, War in the Region, Spring 2022, https://www.worldbank.org/en/region/eca/publication/europe-and-central-asia-economic-update (“The war is having a devastating impact on human life and causing economic destruction in both countries, and will lead to significant economic losses in the Europe and Central Asia (ECA) region and the rest of the world. It is the second major shock in two years to trigger an economic contraction in the region,
with output in 2022 forecast to contract 4.1 percent—twice as steep as the recession in 2020 from the COVID-19 pandemic.”); World Bank, Semiannual Report for Latin America and the Caribbean, Consolidating the Recovery: Seizing Green Growth, April 2022, https://openknowledge.worldbank.org/bitstream/handle/10986/37244/9781464818677.pdf (“The Russian invasion of Ukraine in late-February 2022 has both imposed a drag on the regional recovery and injected vast uncertainty. Prices of wheat and energy soared in the immediate aftermath. Meanwhile, a new set of supply-chain disruptions—both arising from the war and from a new COVID lockdown in China—present
stagflationary forces that will complicate the job of monetary authorities. The direct depressive effects on global output may be modest, but the increased uncertainty and the sharp (even if short-term) rise in commodity prices will have first-order effects.”); World Bank, East Asia and the Pacific Economic Update, Braving the Storms, April 2022, https://openknowledge.worldbank.org/bitstream/handle/10986/37097/9781464818585.pdf (“At the beginning of 2022, the EAP countries appeared to be on the path of sustained recovery. The region had emerged from the difficult Delta wave and suffered relatively little from omicron wave. External trade and financial conditions remained benign, and governments were contemplating fiscal consolidation. since then, the acceleration in Us inflation prompted faster-than expected financial tightening, China saw a spike in CoViD-19 infections and continued strains on overleveraged real estate firms, and Russia invaded Ukraine. While some larger countries may be better equipped to weather these shocks, the repercussions of these events will dampen the growth prospects of most in the EAP region. Projections for regional growth in 2022 have therefore been reduced from 5.4 percent in the previous Update to 5 percent. In a low case scenario, if global conditions worsen and national policy responses are weak, growth could slow to 4 percent.”).

The World Trade Organization recently released a paper looking at the implications of the war in Ukraine on global trade and development. WTO, The Crisis in Ukraine, Implications of the war for global trade and development, April 2022, https://www.wto.org/english/res_e/booksp_e/imparctukraine422_e.pdf. The Executive Summary from the WTO paper is copied below.

“The crisis in Ukraine has created a humanitarian crisis of immense proportions and has also dealt a severe blow to the global economy. The brunt of the suffering and destruction are being felt by the
people of Ukraine themselves but the costs in terms of reduced trade and output are likely to be felt by people around the world through higher food and energy prices and reduced availability of goods exported by Russia and Ukraine. Poorer countries are at high risk from the war, since they tend to spend a larger fraction of their incomes on food compared to richer countries. This could impact political stability.

From a macroeconomic perspective, higher prices for food and energy will reduce real incomes and depress global import demand. Sanctions will impose economic costs on not only Russia directly but also on its trading partners. Besides Russia and Ukraine, depressed gross domestic product (GDP) will probably be seen mostly in Europe given the region’s geographic proximity and its dependence on Russian energy. Trade costs will rise in the near term due to sanctions, export restrictions, higher energy costs and transport disruptions. As a result, the impact the war will have on world trade in 2022 could be greater than the impact on global GDP.

While shares of Russia and Ukraine in world trade and output are relatively small, they are important
suppliers of essential products, notably food and energy
. Both countries accounted for 2.5 per cent in
world merchandise trade and 1.9 per cent in world GDP in 2021. Yet they supplied around 25 per cent of wheat, 15 per cent of barley and 45 per cent of sunflower products exports in 2019.1 Russia alone accounted for 9.4 per cent of world trade in fuels, including a 20 per cent share in natural gas exports. Many countries are highly dependent on food imports from Russia and Ukraine. For example, more than half of wheat imports in Egypt, the Lebanese Republic and Tunisia come from Russia and Ukraine. Other countries are more dependent on imports of fuels from Russia, such as Finland (63 per cent) and Turkey (35 per cent).

Russia and Ukraine are also key providers of inputs into industrial value chains. Russia is one of the main suppliers globally of palladium and rhodium, key inputs in the production of catalytic converters in the automotive sector and the manufacture of semiconductors. Semiconductor production also depends
to a substantial extent on neon supplied by Ukraine, which further provides a number of low-tech products to the European automobile value chain, such as wire harnesses. Prolonged disruptions in the supply of these goods could harm the recovery of automobile manufacturing.

Sanctions are already having a strong impact on Russia’s economy, with possible medium to long-term consequences. Disconnecting Russian banks from the SWIFT settlement system and blocking Russia’s use of foreign exchange reserves have triggered a sharp depreciation of the rouble, reducing real incomes in the country. Many international firms are also abandoning the Russian market. Oil and gas exports have yet to be strongly affected by the sanctions, but the crisis could accelerate the global transition towards greener energy sources.

Longstanding economic relationships have been disrupted by the war and by the sanctions imposed in its wake. WTO economists have simulated various scenarios to illustrate the channels through which trade could be affected and to explore possible short-run and long-run effects. Global trade growth is projected to slow by up to 2.2 percentage points in 2022. Longer term impacts could also be large and consequential. There is a risk that trade could become more fragmented in terms of blocs based on geopolitics. Even if no formal blocs emerge, private actors might choose to minimize risk by reorienting
supply chains. This could reduce global GDP in the long run by about 5 per cent, notably by restricting
competition and stifling innovation.

“The WTO has an important role to play in mitigating the negative effects of the crisis and in rebuilding
a post-war global economy. Keeping markets open will be critical to ensure that economic opportunities remain open to all countries. This will be especially true in the post-war period, when businesses and families will need to repair their balance sheets and rebuild their lives. Through its importance for international trade and its monitoring, convening and other functions, the WTO is central to ensuring that international trade continues to serve billions of people across the world.”

Rising energy prices and reduced volumes of some basic agricultural products are receiving a lot of attention because of the increasing hunger, malnutrition, number of people suffering extreme poverty that flow from the challenges being experienced at the moment. For example, the FAO paper on April 8, 2022 (CL 169/3) reviews in detail the challenges for food security from the disruption in exports from Russia and Ukraine of many food products, spiking prices for fertilizers from Russia as well as rising energy costs. See FAO Council, 169th Session, 8 April 2022, Impact of the Ukraine-Russia conflict on global food security and related matters under the mandate of the Food and Agriculture Organization of
the United Nations (FAO), https://www.fao.org/3/ni734en/ni734en.pdf. The Executive Summary to the report is copied below.

“The war that began on 24 February 2022 has caused extensive damage and loss of life in key population centres, spread across rural areas, and sparked massive displacement. More than 3.6 million people had been forced to abandon their homes and flee across borders to safety. Millions more are internally displaced. It is clear that the war has resulted in a massive, and deteriorating, food security challenge and disrupted livelihoods during the agricultural growing season in Ukraine and has also affected global food security.

“Already prior to the war in Ukraine, international food prices had reached an all-time high. This was mostly due to market conditions, but also high prices of energy, fertilizers and all other agricultural services. In February 2022, the FAO Food Price Index reached a new historical record, 21 percent above its level a year earlier, and 2.2 percent higher than its previous peak in February 2011.

“The Russian Federation and Ukraine are prominent players in global trade of food and agricultural products. In 2021, wheat exports by the Russian Federation and Ukraine accounted for about 30 percent of the global market. Russia’s global maize export market share is comparatively limited, standing at 3 percent between 2016/17 and 2020/21. Ukraine’s maize export share over the same period was more significant, averaging 15 percent and conferring it the spot of the world’s 4th largest maize exporter. Combined, sunflower oil exports from both countries represented 55 percent of global supply. The Russian Federation is also a key exporter of fertilizers. In 2020, it ranked as the top exporter of nitrogen fertilizers, the second leading supplier of potassium, and the third largest exporter of phosphorous fertilizer.

“Nearly 50 countries depend on the Russian Federation and Ukraine for at least 30 percent of their wheat import needs. Of these, 26 countries source over 50 percent of their wheat imports from these two countries. In that context, this war will have multiple implications for global markets and food security, representing a challenge for food security for many countries, and especially for low-income food import dependent countries and vulnerable population groups.

“Joint, coordinated actions and policy responses are needed to address the current challenges for the
people most in need and to mitigate the impact on food insecurity at global level.”

The heads of the International Monetary Fund and the World Bank, in statements on April 14 and 12 respectively provide sobering summaries of the challenges facing the world, including the war in Ukraine, and the implications for food security, global growth (or contraction), and a range of critical issues needing global cooperation such as climate change. See IMF, Speech of Kristalina Georgieva, IMF Managing Director, “Facing Crisis Upon Crisis: How the World Can Respond,” April 14, 2022, https://www.imf.org/en/News/Articles/2022/04/14/sp041422-curtain-raiser-sm2022; World Bank, Addressing Challenges to Growth, Security and Stability – Scene-Setter Speech by World Bank Group President David Malpass, April 12, 2022, https://www.worldbank.org/en/news/speech/2022/04/12/addressing-challenges-to-growth-security-and-stability-scene-setter-speech-by-world-bank-group-president-david-malpass. Some excerpts are provided below.

IMF Managing Director Georgieva:

“To put it simply: we are facing a crisis on top of a crisis.

“First, the pandemic: it turned our lives and economies upside down—and it is not over. The continued spread of the virus could give rise to even more contagious or worse, more lethal variants, prompting further disruptions—and further divergence between rich and poor countries.

‘Second, the war: Russia’s invasion of Ukraine, devastating for the Ukrainian economy, is sending shockwaves throughout the globe.

“Above all is the human tragedy—the suffering of ordinary men, women, and children in Ukraine, among them over 11 million displaced people. Our hearts go out to them.

“The economic consequences from the war spread fast and far, to neighbors and beyond, hitting hardest the world’s most vulnerable people. Hundreds of millions of families were already struggling with lower incomes and higher energy and food prices. The war has made this much worse, and threatens to
further increase inequality.

“And for the first time in many years, inflation has become a clear and present danger for many countries around the world.

“This is a massive setback for the global recovery.

“In economic terms, growth is down and inflation is up. In human terms, people’s incomes are
down and hardship is up.

“These double crises—pandemic and war—and our ability to deal with them, are further complicated by another growing risk: fragmentation of the world economy into geopolitical blocs—with different trade and technology standards, payment systems, and reserve currencies.

“Such a tectonic shift would incur painful adjustment costs. Supply chains, R&D, and production networks would be broken and need to be rebuilt.

“Poor countries and poor people will bear the brunt of these dislocations.

“This fragmentation of global governance is perhaps the most serious challenge to the rules-based framework that has governed international and economic relations for more than 75 years, and helped deliver significant improvements in living standards across the globe.

“It is already impairing our capacity to work together on the two crises we face. And it could leave us wholly unable to meet other global challenges—such as the existential threat of climate change.

“It is a consequential moment for the international community.

“The actions we take now, together, will determine our future in fundamental ways. It reminds me of Bretton Woods in 1944 when, in the dark shadow of war, leaders came together to envision a brighter world. It was a moment of unprecedented courage and cooperation.

“We need that spirit today, as we face bigger challenges and more difficult choices.”

World Bank President Malpas:

“We are again living through a dangerous period of overlapping crises and conflicts with Poland near the center. I have been deeply shocked and horrified at Russia’s invasion of Ukraine, the atrocities committed against the civilian population, and the loss of life and livelihoods for millions of Ukrainians. The attacks on people and infrastructure are causing tremendous suffering, threatening international peace and security, and endangering the basic social and economic needs of people around the world.”

* * *

Overlapping Global Crises

“The violence is unfortunately not confined to Ukraine. Just over the last year, we have witnessed serious setbacks for development and security, including Afghanistan’s collapse, Lebanon’s crisis, and coups and violence across the Sahel, Ethiopia, Somalia, and Yemen. Millions of Syrians are living in refugee camps in Jordan, Lebanon, and Turkey. Inter-ethnic and inter-religious strife plagues Myanmar and other parts of Asia. And in Latin America and the Caribbean, levels of crime and violence are alarmingly high, with some urban and rural areas controlled by criminal gangs or drug cartels.

“The trend toward insecurity is deeply concerning. This year, 39 of the 189 member countries of the World Bank Group – 39 of 189 – are experiencing open conflict situations or remain worryingly fragile. The number of people living in conflict areas nearly doubled between 2007 and 2020. Today, in the Middle East and North Africa, one in every five people lives in an area affected by conflict. This unraveling of security has brought a surge in the number of refugees, which more than doubled over the last decade to exceed 30 million refugees in 2020. The war in Ukraine has already displaced an additional 10 million people from their homes, pushing more than 4 million people – primarily women and children – into neighboring countries, most of them to Poland and Romania.

“We recognize that each of the ongoing crises hits the vulnerable the hardest, often women and girls. And all the while, we are still suffering the health, economic, and social setbacks of a global pandemic and economic shutdowns. Millions of lives have been lost and millions more are suffering amid the massive reversals in development that hit the poor particularly hard.

“Since the outbreak of COVID-19, violence against women and girls has intensified. Global indicators on food, nutrition, and health have worsened. And children lost more than a year of education due to school closures, with 1.6 billion children out of school globally at the peak of lockdowns, reversing a full decade of gains in human capital.

“Never have so many countries experienced a recession at once, suffering lost capital, jobs, and livelihoods. At the same time, inflation continues to accelerate, reducing the real incomes of households around the world, especially the poor. The extraordinary monetary and fiscal policies that advanced economies have been implementing to boost their demand, combined with supply constraints and disruptions, have fueled price increases and have worsened inequality around the globe. One measure that captures the growing concern of inflation and inequality is the stagnation in real median income across much of the world. Another measure is the likelihood that poverty increases will continue in 2022 as inflation, currency depreciation, and high food prices hit home.

“The war in Ukraine and its consequences are also creating sudden shortages of energy, fertilizer, and food, pitting people against each other and their governments. Even people who are physically distant from this conflict are feeling its impacts.

“Food price spikes hit everyone and are devastating for the poorest and most vulnerable. For every one percentage point increase in food prices, 10 million people are expected to fall into extreme poverty. The rich can afford suddenly expensive staples, but the poor cannot. Malnutrition is expected to grow, and its effects will be the hardest to reverse in children.

“Trade disruptions have already sent grain and commodity prices soaring. Wheat exports from Black Sea ports have been sharply curtailed. And intense drought in South America is reducing global food production. Global food commodity markets are large and well-established, and – after a lag – they tend to self-adjust to disruptions in production. However, additional factors are making the current food supply problems more acute – namely the supply of fertilizers, energy prices, and self-imposed food export restrictions.

“Fertilizer prices are dependent on natural gas prices, which have surged. As LNG is shipped to Europe, LNG shortages are occurring elsewhere, reducing fertilizer production, and disrupting the sowing season and harvest productivity. Russia and Belarus are both large fertilizer producers, adding materially to the problem.

“The financial repercussions of the energy shock are intertwined with the global community’s efforts on climate change. Russia has been an important source for the world’s energy, including oil, coal, and gas – the latter supplying Europe through a network of pipelines. I’ve been pleased to see Europe follow a path toward diversifying its energy mix away from Russia and considering LNG imports and nuclear power for electricity baseload, but these take time. The rapid addition of major new energy production in Europe and other parts of the world will be a necessary ingredient for global recovery and energy security in Europe.

“The World Bank Group strongly supports the integration of climate and development goals. This recognizes the urgency of growth and development at the core of our mission of alleviating poverty and boosting shared prosperity; and the global community’s pledges to slow the growth in human-linked greenhouse gas emissions. These pledges for global public goods will require hundreds of complex, multi-decade projects that reduce emissions and are funded by the global community. We are working to tackle these challenges through analytical work, including our Country Climate and Development Reports and our Infrastructure Sector Assessment Programs. We are pleased to support Poland’s efforts to increase energy efficiency and continue its transition away from coal.

Weakening Economic Outlook

“On the economic front, trends are not encouraging. Prior to the war in Ukraine, the recovery in 2022 was already losing momentum due to rising inflation and lingering supply bottlenecks. While advanced economies were expected to return almost to their pre-pandemic growth rates in 2023, developing economies were lagging substantially behind.

“The war in Ukraine and the COVID-19 lockdowns in China are further reducing the recovery path. Of concern, the repercussions are worsening the inequality as the war affects commodity and financial markets, trade, and migration linkages, and investor and consumer confidence. Advanced economies with well-developed social protection systems are cushioning parts of their populations from the damage from inflation and trade blockages, but poorer countries have limited fiscal resources and weaker systems to support those in need. Currency depreciations and inflation are hitting the poor hard, causing fast increases in 2022 poverty rates. Adding to the burden, developing country debt has risen sharply to a 50-year high—at roughly 250 percent of government revenues. Debt vulnerabilities are particularly acute in low-income countries, where sixty percent are already experiencing or at high risk of debt distress.

“Most emerging market and developing economies are ill-prepared to face the coming debt shock. Exposures to financial sector risk are opaque at this point, but one measure, the cost of insuring against default in emerging markets, has reached its highest point since the onset of the pandemic.”

A few thoughts

While there has been improved cooperation among multilateral institutions in addressing some of the crises identified, including supporting Ukraine during this period of enormous challenge from Russia’s unprovoked war, solutions to some of the inflationary spikes appear more remote during the pendency of the war and are aggravated by China’s lockdown of areas of the country in pursuit of its zero-COVID policy.

It is clear that Europe, the United States and some of their close allies will be changing investment and trade flows to address the unacceptable dependence on countries which don’t support the global rule of law and respect for national sovereignty. There will likely be spillover effects for other countries unable or unwilling to distance themselves from the Russian Federation. It is hard to see such fragmentation ending even with the end of Russia’s war whenever that occurs.

The increase in food security concerns are at least partially addressable by joint action to keep markets open and not impose export restrictions and ensure funding for UN World Food Program purchases during a period of inflated food prices. While the WTO’s efforts during the COVID-19 pandemic have improved transparency on export and import actions on food and medicines, it is unclear what level of cooperation will occur from countries with a history of imposing export restraints on food during periods of rising food prices. As history shows, increased food insecurity often leads to increased social unrest, as was true in 2007-2008.

While the need to move from fossil fuel imports is apparent for European countries and hence can have positive effects on increased use of renewable energy sources, the current high prices for fossil fuels and the role of Russia in the global supply of such fuels has countries scrambling to increase production to address short-term demand needs. Such increased production of fossil fuels and reduced cooperation among many countries on some issues will likely hurt global efforts to address the existential issue of climate change.

Russia has reportedly started a new phase of its invasion of Ukraine in the east this week. See New York Times, Ukraine Live Updates: Russia Declares New Phase of War as Forces Clash in East, April 19, 2022, https://www.nytimes.com/live/2022/04/19/world/ukraine-russia-war-news. How long the conflict will go on is, of course, unknown. But the rest of 2022 is likely to be challenging for governments and people around the world addressing the fallout from the war and other crises.


Additional trade and financial sanctions imposed on Russian Federation as evidence of atrocities in Ukraine by Russian soldiers mounts

As the Russian troops withdrew from around Kyiv, images of dead civilians in the town of Bucha led to further outrage among many countries resulting in a new round of trade and financial sanctions being imposed by the U.S., EU, U.K., Canada, Japan, Australia and New Zealand. The atrocities also led to a vote at the U.N. to suspend the Russian Federation from the Human Rights Council. See White House, Statement of President Joe Biden on the UN Vote Suspending Russia from the Human Rights Council, April 7, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/07/statement-of-president-joe-biden-on-the-un-vote-suspending-russia-from-the-human-rights-council/.

Keeping up with all sanctions being imposed is challenging in light of the expanding set of actions being taken although different organizations have compiled lists. For example, Reuters posts a time and country based list in Tracking sanctions against Russia, https://graphics.reuters.com/UKRAINE-CRISIS/SANCTIONS/byvrjenzmve/. The version I reviewed was updated on April 8, 2022 and shows actions through April 7. “Reuters is tracking government sanctions and actions against Russia taken by large companies and organisations around the world in the lead up to and following its invasion of Ukraine.” Reuters shows sanctions imposed by 41 governments (viewing the EU as 27) and 99 actions taken by large companies and organizations.

A fact sheet released by the White House on April 6 summarizes actions being taken by the United States in light of the continuing Russian aggression and atrocities. The White House, FACT SHEET: United States, G7 and EU Impose Severe and Immediate Costs on Russia, April 6, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/06/fact-sheet-united-states-g7-and-eu-impose-severe-and-immediate-costs-on-russia/. The fact sheet is copied below.

“Today, the United States, with the G7 and the European Union, will continue to impose severe and immediate economic costs on the Putin regime for its atrocities in Ukraine, including in Bucha. We will document and share information on these atrocities and use all appropriate mechanisms to hold accountable those responsible. As one part of this effort, the United States is announcing devastating economic measures to ban new investment in Russia, and impose the most severe financial sanctions on Russia’s largest bank and several of its most critical state-owned enterprises and on Russian government officials and their family members. These sweeping financial sanctions follow our action earlier this week to cut off Russia’s frozen funds in the United States to make debt payments. Importantly, these measures are designed to reinforce each other to generate intensifying impact over time.

“The United States and more than 30 allies and partners across the world have levied the most impactful, coordinated, and wide-ranging economic restrictions in history. Experts predict Russia’s GDP will contract up to 15 percent this year, wiping out the last fifteen years of economic gains. Inflation is already spiking above 15 percent and forecast to accelerate higher. More than 600 private sector companies have already left the Russian market. Supply chains in Russia have been severely disrupted. Russia will very likely lose its status as a major economy, and it will continue a long descent into economic, financial, and technological isolation. Compared to last year, U.S. exports to Russia of items subject to our new export controls have decreased 99 percent by value – and the power of these restrictions will compound over time as Russia draws down any remaining stockpiles of spare parts for certain planes, tanks, and other resources needed for Putin’s war machine.

“As long as Russia continues its brutal assault on Ukraine, we will stand unified with our allies and partners in imposing additional costs on Russia for its actions. Today, the United States is announcing the following actions:

Full blocking sanctions on Russia’s largest financial institution, Sberbank, and Russia’s largest private bank, Alfa Bank. This action will freeze any of Sberbank’s and Alfa Bank’s assets touching the U.S financial system and prohibit U.S. persons from doing business with them. Sberbank holds nearly one-third of the overall Russian banking sector’s assets and is systemically critical to the Russian economy. Alfa Bank is Russia’s largest privately-owned financial institution and Russia’s fourth largest financial institution overall.

Prohibiting new investment in the Russian Federation. President Biden will sign a new Executive Order (E.O.) that includes a prohibition on new investment in Russia by U.S. persons wherever located, which will further isolate Russia from the global economy. This action builds on the decision made by more than 600 multinational businesses to exit from Russia. The exodus of the private sector includes manufacturers, energy companies, large retailers, financial institutions, as well as other service providers such as law and consulting firms. Today’s E.O. will ensure the enduring weakening of the Russian Federation’s global competitiveness.

Full blocking sanctions on critical major Russian state-owned enterprises. This will prohibit any U.S. person from transacting with these entities and freeze any of their assets subject to U.S. jurisdiction, thereby damaging the Kremlin’s ability to use these entities it depends on to enable and fund its war in Ukraine. The Department of Treasury will announce these entities tomorrow.

Full blocking sanctions on Russian elites and their family members, including sanctions on: President Putin’s adult children, Foreign Minister Lavrov’s wife and daughter, and members of Russia’s Security Council including former President and Prime Minister of Russia Dmitry Medvedev and Prime Minister Mikhail Mishustin. These individuals have enriched themselves at the expense of the Russian people.  Some of them are responsible for providing the support necessary to underpin Putin’s war on Ukraine. This action cuts them off from the U.S. financial system and freezes any assets they hold in the United States.

The U.S. Treasury prohibited Russia from making debt payments with funds subject to U.S. jurisdiction. Sanctions do not preclude payments on Russian sovereign debt at this time, provided Russia uses funds outside of U.S. jurisdiction. However, Russia is a global financial pariah — and it will now need to choose between draining its available funds to make debt payments or default. 

Commitment to supporting sectors essential to humanitarian activities. As we continue escalating our sanctions and other economic measures against Russia for its brutal war against Ukraine, we reiterate our commitment to exempting essential humanitarian and related activities that benefit the Russian people and people around the world: ensuring the availability of basic foodstuffs and agricultural commodities, safeguarding access to medicine and medical devices, and enabling telecommunications services to support the flow of information and access to the internet which provides outside perspectives to the Russian people. These activities are not the target of our efforts, and U.S. and Western companies can continue to operate in these sectors in Russia. When necessary, relevant departments and agencies will issue appropriate exemptions and carveouts to ensure such activity is not disrupted.”

Similarly, the European Commission announced proposed additional sanctions (fifth round) on April 5 and agreed sanctions were announced by the Council of the European Union on April 8. See Press statement by President von der Leyen on the fifth round of sanctions against Russia, Strasbourg, 5 April 2022, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_22_2281; Council of the EU Press release, 8 April 2022, EU adopts fifth round of sanctions against Russia over its military aggression against
Ukraine, https://www.consilium.europa.eu/en/press/press-releases/2022/04/08/eu-adopts-fifth-round-of-sanctions-against-russia-over-its-military-aggression-against-ukraine/; Official Journal of the European Union, L111, 8 April 2022. The Council’s statement is copied below.

“In light of Russia’s continuing war of aggression against Ukraine, and the reported atrocities committed by Russian armed forces in Ukraine, the Council decided today to impose a fifth package of economic and individual sanctions against Russia.

“The agreed package includes a series of measures intended to reinforce pressure on the Russian government and economy, and to limit the Kremlin’s resources for the aggression.

“‘These latest sanctions were adopted following the atrocities committed by Russian armed forces in Bucha and other places under Russian occupation. The aim of our sanctions is to stop the reckless, inhuman and aggressive behaviour of the Russian troops and make clear to the decision makers in the Kremlin that their illegal aggression comes at a heavy cost.’ Josep Borrell, High Representative for Foreign Affairs and Security Policy

“The package comprises:

“- a prohibition to purchase, import or transfer coal and other solid fossil fuels into the EU if they originate in Russia or are exported from Russia, as from August 2022. Imports of coal into the EU are currently worth EUR 8 billion per year.

“- a prohibition to provide access to EU ports to vessels registered under the flag of Russia. Derogations are granted for agricultural and food products, humanitarian aid, and energy.

“- a ban on any Russian and Belarusian road transport undertaking preventing them from transporting goods by road within the EU, including in transit. Derogations are nonetheless granted for a number of products, such as pharmaceutical, medical, agricultural and food products, including wheat, and for road transport for humanitarian purposes.

“- further export bans, targeting jet fuel and other goods such as quantum computers and advanced semiconductors, high-end electronics, software, sensitive machinery and transportation equipment, and new import bans on products such as: wood, cement, fertilisers, seafood and liquor. The agreed export and import bans only account for EUR 10 billion and EUR 5.5 billion respectively.

“- a series of targeted economic measures intended to strengthen existing measures and close loopholes, such as: a general EU ban on participation of Russian companies in public procurement in member states, the exclusion of all financial support to Russian public bodies. an extended prohibition on deposits to crypto-wallets, and on the sale of banknotes and transferrable securities denominated in any official currencies of the EU member states to Russia and Belarus, or to any natural or legal person, entity or body in Russia and Belarus,.

“Furthermore, the Council decided to sanction companies whose products or technology have played a role in the invasion, key oligarchs and businesspeople, high-ranking Kremlin officialsproponents of disinformation and information manipulation, systematically spreading the Kremlin’s narrative on Russia’s war aggression in Ukraine, as well as family members of already sanctioned individuals, in order to make sure that EU sanctions are not circumvented.

“Moreover a full transaction ban is imposed on four key Russian banks representing 23% of market share in the Russian banking sector. After being de-SWIFTed these banks will now be subject to an asset freeze, thereby being completely cut off from EU markets.

“In its conclusions of 24 March 2022, the European Council stated that the Union remains ready to close loopholes and target actual and possible circumvention of the restrictive measures already adopted, as well as to move quickly with further coordinated robust sanctions on Russia and Belarus to effectively thwart Russian abilities to continue the aggression.

“Russia’s war of aggression against Ukraine grossly violates international law and is causing massive loss of life and injury to civilians. Russia is directing attacks against the civilian population and is targeting civilian objects, including hospitals, medical facilities, schools and shelters. These war crimes must stop immediately. Those responsible, and their accomplices, will be held to account in accordance with international law. The siege of Mariupol and other Ukrainian cities, and the denial of humanitarian access by Russian military forces are unacceptable. Russian forces must immediately provide for safe pathways to other parts of Ukraine, as well as humanitarian aid to be delivered to Mariupol and other besieged cities.

“The European Council demands that Russia immediately stop its military aggression in the territory of Ukraine, immediately and unconditionally withdraw all forces and military equipment from the entire territory of Ukraine, and fully respect Ukraine’s territorial integrity, sovereignty and independence within its internationally recognised borders.

“The relevant legal acts will soon be published in the Official Journal.”

As listed above, the Official Journal with the legal actions identified was published on April 8 (OJ L111).

The United Kingdom also took action on April 6 to expand sanctions. Government of the United Kingdom Press Release, UK imposes sweeping new sanctions to starve Putin’s war machine, 6 April 2022, https://www.gov.uk/government/news/uk-imposes-sweeping-new-sanctions-to-starve-putins-war-machine. The sanctions announced in the press release are listed below.

“Key sanctions announced today include:

“asset freezes against Sberbank and Credit Bank of Moscow. Sberbank is Russia’s largest bank and this freeze is being taken in co-ordination with the US

“an outright ban on all new outward investment to Russia. In 2020 UK investment in Russia was worth over £11 billion. This will be another major hit to the Russian economy and further limit their future capabilities

“by the end of 2022, the UK will end all dependency on Russian coal and oil, and end imports of gas as soon as possible thereafter. From next week, the export of key oil refining equipment and catalysts will also be banned, degrading Russia’s ability to produce and export oil – targeting not only the industry’s finances but its capabilities as a whole

“action against key Russian strategic industries and state owned enterprises. This includes a ban on imports of iron and steel products, a key source of revenue. Russia’s military ambitions are also being thwarted by new restrictions on its ability to acquire the UK’s world-renowned quantum and advanced material technologies

“and targeting a further eight oligarchs active in these industries, which Putin uses to prop up his war economy.”

Canada, Japan and Australia also announced additional sanctions. See Government of Canada, Canada announces it will impose additional sanctionson Russian and Belarusian regimes, April 4, 2022, https://www.canada.ca/en/global-affairs/news/2022/04/canada-announces-it-will-impose-additional-sanctions-on-russian-and-belarusian-regimes.html; Reuters, Japan bans Russian coal imports, expels eight diplomats, April 8, 2022, https://www.reuters.com/world/asia-pacific/japan-considers-restrictions-coal-imports-russia-jiji-2022-04-07/; The Japan Times, Japan to expel eight Russians, including diplomats, as Kishida announces new sanctions, 8 April 2022, https://www.japantimes.co.jp/news/2022/04/08/national/japan-russia-expel-diplomats/ (“Kishida, however, announced a sweeping new round of sanctions, declaring that Japan will phase out imports of Russian coal, ban imports of Russian machinery, lumber and vodka, bar new investments in Russia and freeze assets held by major Russian lenders Sberbank and Alfa Bank. Japan will also freeze the assets of an additional 400 or so military personnel and lawmakers and some 20 military-related organizations, including state-run companies, Kishida said.”); Reuters, Australia to impose sanctions on 67 more Russians over Ukraine, April 7, 2022, https://www.reuters.com/world/australia-impose-sanctions-67-russians-over-ukraine-2022-04-07/; New Zealand to apply trade sanctions in response to Russian atrocities, April 6, 2022, https://www.beehive.govt.nz/release/new-zealand-apply-trade-sanctions-response-russian-atrocities (“The Government have announced that they will apply 35% tariffs to all imports from Russia, and extend the existing export prohibitions to industrial products closely connected to strategic Russian industries. This is New Zealand’s most significant economic response to the Russian invasion to date. ‘The images and reports emerging of atrocities committed against civilians in Bucha and other regions of Ukraine is abhorrent and reprehensible, and New Zealand continues to respond to Putin’s mindless acts of aggression,’ Foreign Minister Nanaia Mahuta said. ‘Under the Russia Sanctions Act, New Zealand will apply tariffs across the board to all Russian imports, as well as ban the export of industrial products such as ICT equipment and engines, sending a clear message that New Zealand will not fund or support the Russia war machine,’ Trade and Export Growth Minister Damien O’Connor said.”).

On April 8, President Biden also signed two Congressional bills into law, one suspending normal trade relations with Russia and Belarus and one banning imports of oil, gas and coal from Russia (President Biden had already banned such imports). See White House, Bills Signed: H.R. 6968 and H.R. 7108, APRIL 08, 2022, https://www.whitehouse.gov/briefing-room/legislation/2022/04/08/bills-signed-h-r-6968-and-h-r-7108/ (“On Friday, April 8, 2022, the President signed into law: H.R. 6968, the ‘Ending Importation of Russian Oil Act,’ which statutorily prohibits the importation of energy products from the Russian Federation; and H.R. 7108, the ‘Suspending Normal Trade Relations with Russia and Belarus Act,’ which suspends normal trade relations with the Russian Federation and the Republic of Belarus and seeks to further leverage trade and human rights sanctions.”).

While major importing nations of Russian oil and gas have been unable or unwilling to date to cut off purchases of oil and gas, the level of economic and financial sanctions imposed on the Russian Federation and Belarus coupled with the withdrawal of major businesses (temporarily or permanently) from Russia are having significant negative effects on the Russian economy both short term and longer term. These effects coupled with the damage to the Ukrainian economy inflicted by the Russian war on Ukraine will have global effects. As reviewed in an earlier post, Ukraine and Russia are major exporters of various agricultural products. The war is both creating increased food insecurity and driving inflation on agricultural products which hurts all consumers but the poorest the hardest. See March 30, 2022:  Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/food-security-challenges-posed-by-the-russian-invasion-of-ukraine/. Indeed, global food prices reached an all time high in March. UN News, Ukraine war drives international food prices to ‘new all-time high’, 8 April 2022, https://news.un.org/en/story/2022/04/1115852

The WTO’s Director-General Ngozi Okonjo-Iweala has indicated that global trade growth will be nearly 50% lower than previously projected for 2022 (2.5% vs. 4.7%) flowing from the war in Ukraine and ongoing supply chain issues. Sunday Observer, Ukraine war to halve global trade growth – WTO, 10 April 2022, ww.sundayobserver.lk/2022/04/10/business/ukraine-war-halve-global-trade-growth-wto. The war and individual countries reactions to Russia’s aggression are also likely to have longer term effects on global integration and supply chains. One is already seeing significant reductions in foreign investment flows into China. China’s actions or inactions towards Russia’s aggression may reduce foreign investor confidence in the Chinese economy as a place for investment at least for exports. A return to isolation of some countries from the larger global community is certainly afoot. The only question is whether states besides Russia and Belarus will be in the ostracized group.

With Russia continuing its aggression against Ukraine and with apparent scorched earth tactics being pursued, it is likely that the latest round of sanctions will not be the last. The strains on the global economy are likely to worsen in the coming months.

Food security challenges posed by the Russian invasion of Ukraine

Ukraine and Russia are important exporters of wheat, corn and sunflower oil. See, e.g., WTO Trade Profiles 2021 at 376 (Ukraine top three agricultural expoers were sunflower-seed, or cotton oil ($5.32 billion), corn ($4.885 billion) and wheat and meslin ($3.594 billion)) and 298 (Russian Federation, top two agricultural exports were wheat and meslin ($6.403 billion), sunflower seed or cotton oil ($2.206 billion). Ukraine’s exports in 2022 are certain to be disrupted by the Russian war in the country which is harming infrastructure, the ability of farmers to plant crops, increasing input costs and maritime costs. Effects on Russian exports are less clear but could be affected as well.

The United Nation’s Food and Agriculture Organization (FAO) released an updated evaluation of risks on food security both for Ukrainians and for the world from the ongoing conflict last week (March 25), See FAO, Information Note, The importance of Ukraine and the Russian Federation for global agricultural markets and the risks associated with the current conflict, 25 March 2022 Update, https://www.fao.org/3/cb9236en/cb9236en.pdf. The Executive Summary (pages 1-4) is copied below.

“Executive Summary

“1. Market structure, trade profiles and recent price trends

“1.1 Market shares

“• The Russian Federation and Ukraine are among the most important producers of agricultural commodities in the world. Both countries are net exporters of agricultural products, and they both play leading supply roles in global markets of foodstuffs and fertilisers, where exportable supplies are often concentrated in a handful of countries. This concentration could expose these markets to increased vulnerability to shocks and volatility.

“• In 2021, either the Russian Federation or Ukraine (or both) ranked amongst the top three global exporters of wheat, maize, rapeseed, sunflower seeds and sunflower oil, while the Russian Federation also stood as the world’s top exporter of nitrogen fertilizers, the second leading supplier of potassium fertilizers and the third largest exporter of phosphorous fertilizers.

“1.2 Trade profiles

“• Many countries that are highly dependent on imported foodstuffs and fertilizers, including numerous that fall into the Least Developed Country (LDC) and Low-Income Food-Deficit Country (LIFDC) groups, rely on Ukrainian and Russian food supplies to meet their consumption needs. Many of these countries, already prior to the conflict, had been grappling with the negative effects of high international food and fertilizer prices.

“Risk analysis: Assessing the risks emanating from the conflict

“2.1 Trade risks

“• In Ukraine, the escalation of the conflict raises concerns on whether crops will be harvested and products exported. The war has already led to port closures, the suspension of oilseed crushing operations and the introduction of export licensing requirements for some products. All of these could take a toll on the country’s exports of grains and vegetable oils in the months ahead. Much uncertainty also surrounds Russian export prospects, given sales difficulties that may arise as a result of economic sanctions imposed on the country.

“2.2 Price risks

“• FAO’s simulations gauging the potential impacts of a sudden and steep reduction in grain and sunflower seed exports by the two countries indicate that these shortfalls might only be partially compensated by alternative sources during the 2022/23 marketing season. The capacity of many exporting countries to boost output and shipments may be limited by high production and input costs. Worryingly, the resulting global supply gap could raise international food and feed prices by 8 to 22 percent above their already elevated baseline levels.

“• If the conflict keeps crude oil prices at high levels and prolongs the two countries’ reduced global export participation beyond the 2022/23 season, a considerable supply gap would remain in global grain and sunflowerseed markets, even as alternative producing countries expand their output in response to the higher output prices. This would keep international prices elevated well above baseline levels.

“2.3 Logistical risks

“• In Ukraine, there are also concerns that the conflict may result in damages to inland transport infrastructure and seaports, as well as storage and processing infrastructure. This is all the more so given the limited capacity of alternatives, such as rail transport for seaports or smaller processing facilities for modern oilseeds crushing facilities, to compensate for their lack of operation.

“• More generally, apprehensions also exist regarding increasing insurance premia for vessels destined to berth in the Black Sea region, as these could exacerbate the already elevated costs of maritime transportation, compounding further the effects on the final costs of internationally sourced food paid by importers.

“2.4 Production risks

“• Although early production prospects for 2022/23 winter crops were favourable in both Ukraine and the
Russian Federation, in Ukraine, the conflict may prevent farmers from attending to their fields and harvesting and marketing their crops, while disruptions to essential public services could also negatively affect agricultural activities.

“• Current indications are that, as a result of the conflict, between 20 and 30 percent of areas sown to winter crops in Ukraine will remain unharvested during the 2022/23 season, with the yields of these crops also likely to be adversely affected. Furthermore, considerable uncertainties surround Ukrainian farmers’ capacity to plant crops during the fast approaching spring crop cycle.

“• The conflict is also likely to affect the ability of Ukraine to control its animal disease burden, significantly increasing the risk of proliferation of animal diseases, notably of African swine fever (ASF), within Ukraine and in neighbouring countries.

“• In the case of the Russian Federation, although no major disruption to crops already in the ground appears imminent, uncertainties exist over the impact that the international sanctions imposed on the country will have on food exports. Any loss of export markets could depress farmer incomes, thereby negatively affecting future planting decisions.

“• Economic sanctions imposed on the Russian Federation could also disrupt its imports of agricultural inputs, notably pesticides and seeds, on which the country is highly dependent. This could result in less plantings, lower yields and lower qualities, exposing the Russian agricultural sector and global food supplies, at large, to non-negligible risks.

“2.5 Humanitarian risks

“• The conflict is set to increase humanitarian needs in Ukraine, while deepening those of millions of people that prior to its escalation were already displaced or requiring assistance due to the more than eight-year conflict in the eastern part of the country. By directly constraining agricultural production, limiting economic activity and raising prices, the conflict will further undercut the purchasing power of local populations, with consequent increases in food insecurity and malnutrition.

“• Humanitarian needs in neighbouring countries, where displaced populations are seeking refuge, are also set to increase substantially.

“• Globally, if the conflict results in a sudden and prolonged reduction in food exports by Ukraine and the Russian Federation, it will exert additional upward pressure on international food commodity prices to the detriment of economically vulnerable countries, in particular. FAO’s simulations suggest that under such a scenario, the global number of undernourished people could increase by 8 to 13 million people in 2022/23, with the most pronounced increases taking place in Asia-Pacific, followed by sub-Saharan Africa, and the Near East and North Africa. If the war lasts, impacts will go well beyond 2022/23.

“2.6 Energy risks

“• The Russian Federation is a key player in the global energy market. As a highly energy-intensive industry, especially in developed regions, agriculture will inevitably be affected by the sharp increase in energy prices that has accompanied the conflict.

“• Agriculture absorbs high amounts of energy directly, through the use of fuel, gas and electricity, and indirectly, through the use of agri-chemicals such as fertilisers, pesticides and lubricants.

“• With prices of fertilizers and other energy-intensive products rising as a consequence of the conflict, overall input prices are expected to experience a considerable boost. The higher prices of these inputs will first translate into higher production costs and eventually into higher food prices. They could also lead to lower input use levels, depressing yields and harvests in the 2022/23 season, thus giving further upside risk to the state of global food security in the coming years.

“• Higher energy prices also make agricultural feedstocks (especially maize, sugar and oilseeds/vegetable oils) competitive for the production of bio-energy and, given the large size of the energy market relative to the food market, this could pull food prices up to their energy parity equivalents.

“2.7 Exchange rate, debt, and growth risks

“• The Ukrainian hryvnia reached a record low against the United States dollar (USD) in early March 2022, with likely repercussions for Ukrainian agriculture, including a boost to its export competitiveness and curbs on its ability to import.

“• Although their extent remains unclear at this stage, conflict-induced damages to Ukraine’s productive capacity and infrastructure are expected to entail very high recovery and reconstruction costs.

“• The economic sanctions imposed on the Russian Federation have also led to a significant depreciation of the Russian rouble. Although this should make Russian exports of agricultural commodities more affordable, a lasting rouble depreciation would negatively affect investment and productivity growth prospects in the country.

“• Weakening economic activity and a depreciated rouble are also expected to have serious effects on countries in Central Asia through the reduction of remittance flows, as for many of these countries remittances constitute a significant part of gross domestic product (GDP)

“• The current conflict may also have global spillovers. While its impact on the global economy remains uncertain at this stage and will depend on several factors, the most vulnerable countries and populations are expected to be hit hard by slower economic growth and increased inflation, at a time when the world is still attempting to recover from the recession triggered by the COVID-19 pandemic.

“• Agriculture is the backbone of the economies of many developing countries, the majority of which rely on the United States dollar for their borrowing needs. As such, a lasting appreciation of the USD vis-à-vis other currencies may have negative significant economic consequences for these countries, including for their agrifood sectors. Moreover, the potential reduction of GDP growth in several parts of the world will affect global demand for agrifood products with negative consequences for global food security. Lower GDP growth will also likely reduce the availability of funds for development, especially if global military expenses increase.

“Policy recommendations

“• In order to prevent or limit the conflict’s detrimental impacts on the food and agricultural sectors of Ukraine and the Russian Federation, every effort should be made to keep international trade in food and fertilizers open to meet domestic and global demand. Supply chains should be kept fully operational, including by protecting standing crops, livestock, food processing infrastructure, and all logistical systems.

“• In order to absorb conflict-induced shocks and remain resilient, countries that depend on food imports from Ukraine and the Russian Federation will need to find alternative export suppliers for their food needs. They should also rely on existing food stocks and enhance the diversity of their domestic production bases.

“• The food security impacts of the conflict on vulnerable groups necessitate timely monitoring and well-targeted social protection interventions to alleviate the hardship caused by the conflict and to foster a fast recovery from it. To assist the internally displaced people, refugees and groups directly affected by the conflict, the reach of Ukraine’s national social protection system should be expanded by registering additional population groups within the Unified Social Information System.

“• In countries hosting refugees, access to existing social protection systems and job opportunities should also be eased by lifting legal access barriers and, where needed, by increasing the capacity of host countries’ social protection systems to absorb additional caseloads.

“• Countries affected by potential disruptions ensuing from the conflict must carefully weigh measures they put in place against their potentially detrimental effect on international markets including over the longer term. Particularly, export restrictions must be avoided. They exacerbate price volatility, limit the buffer capacity of the global market, and have negative impacts over the medium term.

“• The spread of African swine fever (ASF) and other animal diseases must be contained by improving biosecurity and good husbandry practices at all geographical levels, by taking steps to facilitate early detection, timely reporting and rapid disease containment, and by implementing measures that support virus detection, such as surveillance schemes and targeted sampling of animals.

“• Market transparency and policy dialogue should be strengthened, as they play key roles when agricultural commodity markets are under uncertainty and disruptions need to be minimised to ensure that international markets continue to function properly and that trade in food and agricultural products flows smoothly.”

Figure 15 of the paper (page 10) identifies countries largely dependent on Ukraine and Russia for wheat.

The FAO also released a separate paper on the food security challenges for the people of Ukraine on March 25, 2022. See FAO, Note on the impact of the war on food security in Ukraine, 25 March 2022, https://www.fao.org/3/cb9171en/cb9171en.pdf.

The FAO’s latest Food Price Index (released March 4, 2022, shows agricultural products already at all time highs. See FAO, The FAO Food Price Index rises to a new all-time high in February, Release date: 04/03/2022, https://www.fao.org/worldfoodsituation/foodpricesindex/en/#:~:text=Release%20date%3A%2004%2F03%2F,February%202011%20by%203.1%20points.

As reviewed in a prior post, countries imposing sanctions on Russia, including the G-7 and the EU, are working to minimize the food security issues. March 26, 2022:  Blockage of Accession of Belarus to WTO, additional sanctions on Russia and other recent developments, https://currentthoughtsontrade.com/2022/03/26/blockage-of-accession-of-belarus-to-wto-additional-sanctions-on-russia-and-other-recent-developments/ (“The G-7 Leaders’ Statement on March 24, 2022 outlined their efforts to address the potential food security issues caused by Russia’s invasion of Ukraine. See G-7 Leaders’ Statement, March 24, 2022, paragraphs 17 and 18,  https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/24/g7-leaders-statement/#:~:text=We%2C%20the%20Leaders%20of%20the,against%20independent%20and%20sovereign%20Ukraine. ’17. More immediately, President Putin’s war places global food security under increased pressure. We recall that the implementation of our sanctions against Russia takes into account the need to avoid impact on global agricultural trade. We remain determined to monitor the situation closely and do what is necessary to prevent and respond to the evolving global food security crisis. We will make coherent use of all instruments and funding mechanisms to address food security, and build resilience in the agriculture sector in line with climate and environment goals. We will address potential agricultural production and trade disruptions, in particular in vulnerable countries. We commit to provide a sustainable food supply in Ukraine and support continued Ukrainian production efforts. 18. We will work with and step up our collective contribution to relevant international institutions including the World Food Programme (WFP), in parallel with Multilateral Development Banks and International Financial Institutions, to provide support to countries with acute food insecurity. We call for an extraordinary session of the Council of the Food and Agriculture Organization (FAO) to address the consequences on world food security and agriculture arising from the Russian aggression against Ukraine. We call on all participants of the Agriculture Markets Information System (AMIS) to continue to share information and explore options to keep prices under control, including making stocks available, in particular to the WFP. We will avoid export bans and other trade-restrictive measures, maintain open and transparent markets, and call on others to do likewise, consistent with World Trade Organization (WTO) rules, including WTO notification requirements.’”).

The issue is taking center stage at the WTO as reviewed in a recent press notice from the WTO on the Director-General’s comments at an informal meeting of the General Council. See WTO news release, DG Okonjo-Iweala: “This is not the time to retreat inward,” 28 March 2022, https://www.wto.org/english/news_e/news22_e/dgno_28mar22_e.htm. Some of the news release is copied below.

“’For dozens of poor countries and tens of millions of people, basic food security is in danger,” she warned. “These countries already have been some of the slowest economic recoveries from the pandemic, and international cooperation on trade is necessary to help mitigate risks of poverty, hunger, even famine and social unrest.’

“The Director-General noted that the UN Secretary-General has set up a three-tiered steering committee involving heads of government, heads of international organizations and technical experts to deal with the issue of surging energy and food prices. 

“The WTO is also expected to play a key role in finding solutions to the food crisis, the Director-General noted. The chair of the WTO’s agriculture negotiations, Ambassador Gloria Abraham Peralta of Costa Rica, is planning a food security conference that will take place at the end of April.  WTO Secretariat staff have also been carrying out analysis on food security issues which will be shared with members shortly.

“’We at the WTO have a solid basis on which to consider workable solutions to the present crisis,” the DG declared.

“In the near-term, international cooperation on trade will be needed to minimize the impact of supply crunches for key commodities where prices are already high by historical standards and to keep markets functioning smoothly, the Director-General said. While only 12 members have imposed export restrictions on food to date, coordinated government action is needed to avoid a repeat of the cascading export restrictions that exacerbated the rise of food prices in the crisis of 2008-2010.

“In addition, countries with buffer stocks that can afford to share could coordinate the release of wheat, barley, other cereals and grains and oils into international markets, thereby alleviating the supply squeeze.  Countries such as the United States, Canada, Australia, Argentina, and France could increase wheat cultivation while others such as China, Germany, Morocco, Saudi Arabia, Egypt, and Nigeria could increase global supply of fertilizer. Africa, with plentiful land and other resources, can also take steps to produce more food itself by using more adaptable varieties of wheat, maize and other crops.

“Trade facilitation measures could also be brought into play to ease the free flow of goods, while efforts should be made to allow the UN’s World Food Programme full access to humanitarian purchases. Prompt notification and information sharing regarding food supplies and stockpiles can help the international community better manage the situation and keep markets functioning more smoothly.”

WTO Members have a poor track record of not retreating from sharing core commodities during periods of shortages, which actions result in increased price volatility and significant harm to food importing nations. The transparency exercise as part of the COVID-19 pandemic on actions on both medical goods and agricultural products has improved the ability to understand actions being taken. But to date, Members continue to take actions to restrict exports when internal food security concerns arise.

I have written with former colleagues a number of papers in the past looking at the food security problems during earlier periods in the last fifteen years and the risks of social unrest that arise for many countries when core commodities become unaffordable. They are imbedded below.

GDP

1-Stewar-Manaker

2-2015-Global-Hunger-and-the-WTO-how-the-International-Trade-Rules-Address-Food-Security

Let’s hope that the focus of the G-7, EU and agricultural exporting countries and the attention being given to the issue at the WTO will result in a minimization of increased food insecurity to people around the world in the coming months.

Blockage of Accession of Belarus to WTO, additional sanctions on Russia and other recent developments

Extensive trade and financial sanctions have been imposed by the G-7 countries and EU and others on Russia and Belarus for Russia’s unprovoked war on Ukraine. The U.S., EU, United Kingdom, Japan, Republic of Korea, Australia, Canada, New Zealand and others have imposed a series of actions. In meetings of the G-7, NATO and U.S.-EU this week, joint action to continue to pressure Russia and Belarus to cease hostilities in Ukraine was reviewed.

At the WTO, a number of Members notified the General Council that accession negotiations with Belarus would not continue. Belarus was described as “unfit” to be a Member. JOINT STATEMENT REGARDING THE APPLICATION FROM BELARUS FOR ACCESSION TO THE WORLD TRADE ORGANIZATION, COMMUNICATION FROM ALBANIA; AUSTRALIA; CANADA; EUROPEAN UNION; ICELAND; JAPAN; REPUBLIC OF KOREA; MONTENEGRO; NEW ZEALAND; NORTH MACEDONIA; NORWAY; UKRAINE; UNITED KINGDOM AND UNITED STATES, 24 March 2022, WT/GC/246. The joint statement is embedded below.

246-1

While, as the joint statement notes, there has been no progress in the accession talks since 2000 based on events within Belarus, the joint statement makes clear that Belarus will not become a member of the WTO, certainly not in the foreseeable future.

The actions of Russia with the support from Belarus in invading Ukraine have led to a massive backlash and effort to remove or limit the role of Russia (and Belarus) in the global economy and in multilateral organizations. In previous posts, I have reviewed efforts by various countries to remove most favored nation treatment on Russia and Belarus. March 20, 2022:  Banned imports, higher tariffs, other actions by trading partners as Russia and Belarus lose most favored nation treatment by G-7 countries and EU during the conflict in Ukraine, https://currentthoughtsontrade.com/2022/03/20/banned-imports-higher-tariffs-other-actions-by-trading-partners-as-russia-and-belarus-lose-most-faovered-nation-treatment-by-g-7-countries-and-eu-during-the-conflict-in-ukraine/. The G-7 and EU have limited access to funding for Russia from the IMF, World Bank and other institutions, are attempting to limit Russia’s role in the WTO. Additional sanctions were announced this week in Brussels. See FACT SHEET: United States and Allies and Partners Impose Additional Costs on Russia, March 24, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/24/fact-sheet-united-states-and-allies-and-partners-impose-additional-costs-on-russia/.

“Today’s actions include:

“Full blocking sanctions on more than 400 individuals and entities, including the Duma and its members,
additional Russian elites, and Russian defense companies that fuel Putin’s war machine.

“This includes:

“328 Duma members and sanctioning the Duma as an entity.

“Herman Gref, the head of Russia’s largest financial institution Sberbank and a Putin advisor since the 1990s.

“Russian elite Gennady Timchenko, his companies and his family members.

“17 board members of Russian financial institution Sovcombank.

“48 Large Russian defense state-owned enterprises that are part of Russia’s defense-industrial base and produce weapons that have been used in Russia’s assault against Ukraine’s people, infrastructure, and territory, including Russian Helicopters, Tactical Missiles Corporation, High Precision Systems, NPK Tekhmash OAO, Kronshtadt. We are targeting, and will continue to target, the suppliers of Russia’s war effort and, in turn, their supply chain.

“Establishment of an initiative focused on sanctions evasions.

“G7 leaders and the European Union today announced an initiative to share information about and coordinate responses related to evasive measures intended to undercut the effectiveness and impact of our joint sanctions actions. Together, we will not allow sanctions evasion or backfilling. As part of this effort, we will also engage other governments on adopting sanctions similar to those already imposed by the G7 and other partners.

“Continuing to blunt the Central Bank’s ability to deploy international reserves, including gold, to prop up the Russian economy and fund Putin’s brutal war.

“G7 leaders and the European Union will continue to work jointly to blunt Russia’s ability to deploy its international reserves to prop up Russia’s economy and fund Putin’s war, including by making clear that any transaction involving gold related to the Central Bank of the Russian Federation is covered by existing sanctions.”

This week President Biden noted the U.S. preference to have Russia removed from the G-20, although press accounts indicate such a move even if backed by the G-7 would be blocked by China and possibly others. See, e.g., Reuters, Russia’s G20 membership under fire from U.S., Western allies, March 22, 2022, https://www.reuters.com/world/europe/poland-pushes-call-russia-be-excluded-g20-2022-03-22/; Reuters, Russia’s Putin gets Chinese backing to stay in G20, March 23, 2022, https://www.reuters.com/world/europe/russias-ambassador-indonesia-says-putin-plans-attend-g20-summit-2022-03-23/. If Russia is not excluded, it is unclear if G-7 Members and others might opt not to attend any G-20 meetings during the pendency of the war.

At the WTO, the joint statement to the General Council on the need of Members to take actions in light of the threats posed by Russia was followed by a response from Russia. The two documents are embedded below.

244

245

The two largest economic challenges from the war in Ukraine is escalating energy prices and food security flowing from the large percentage of global wheat shipments coming from Ukraine and Russia. While the U.S. and Canada have banned imports of oil and/or gas from Russia in recent weeks, that option is not immediately available to the EU countries. 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/ (“The European Commission announced a proposed ambitious program to diversify gas supplies and expand renewables to achieve a potential two-thirds reduction in dependence on Russian oil and gas by the end of 2022 for the European Union. The program, RePowerEU, was announced on March 8th and contains a number of documents.”).

The U.S. and the EU reached agreement on joint efforts to help reduce EU dependence on Russia energy which include U.S. commitments to export to the EU (or get third countries to export to the EU) a quantity of liquified natural gas equal to the LNG purchased from Russia in 2021 (15 BCM) and to ramp up exports to the EU of LNG in the coming years to 50 BCM. See Joint Statement between the United States and the European Commission on European Energy Security, March 25, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/25/joint-statement-between-the-united-states-and-the-european-commission-on-european-energy-security/; FACT SHEET: United States and European Commission Announce Task Force to Reduce Europe’s Dependence on Russian Fossil Fuels, March 25, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/25/fact-sheet-united-states-and-european-commission-announce-task-force-to-reduce-europes-dependence-on-russian-fossil-fuels/.

Because of the dependence of many countries on imports of grains from Ukraine and Russia, the war in Ukraine poses significant food security issues. The WTO’s Director-General has recently noted the potential for social unrest from food insecurity. See The Guardian, War in Ukraine could lead to food riots in poor countries, warns WTO boss, March 24, 2022. (“In an interview with the Guardian, the WTO director general expressed concern about the knock-on effects of Russia’s invasion – stressing the dependence of many African countries on food supplies from the Black Sea region.”).

The G-7 Leaders’ Statement on March 24, 2022 outlined their efforts to address the potential food security issues caused by Russia’s invasion of Ukraine. See G-7 Leaders’ Statement, March 24, 2022, paragraphs 17 and 18, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/24/g7-leaders-statement/#:~:text=We%2C%20the%20Leaders%20of%20the,against%20independent%20and%20sovereign%20Ukraine.

“17. More immediately, President Putin’s war places global food security under increased pressure. We recall that the implementation of our sanctions against Russia takes into account the need to avoid impact on global agricultural trade. We remain determined to monitor the situation closely and do what is necessary to prevent and respond to the evolving global food security crisis. We will make coherent use of all instruments and funding mechanisms to address food security, and build resilience in the agriculture sector in line with climate and environment goals. We will address potential agricultural production and trade disruptions, in particular in vulnerable countries. We commit to provide a sustainable food supply in Ukraine and support continued Ukrainian production efforts.

“18. We will work with and step up our collective contribution to relevant international institutions including the World Food Programme (WFP), in parallel with Multilateral Development Banks and International Financial Institutions, to provide support to countries with acute food insecurity. We call for an extraordinary session of the Council of the Food and Agriculture Organization (FAO) to address the consequences on world food security and agriculture arising from the Russian aggression against Ukraine. We call on all participants of the Agriculture Markets Information System (AMIS) to continue to share information and explore options to keep prices under control, including making stocks available, in particular to the WFP. We will avoid export bans and other trade-restrictive measures, maintain open and transparent markets, and call on others to do likewise, consistent with World Trade Organization (WTO) rules, including WTO notification requirements.”

It is clear that food security in the coming months will be an important focus within the WTO Committee on Agriculture. See WTO news release, Agriculture negotiators chart path towards MC12, 21 March 2022, https://www.wto.org/english/news_e/news22_e/agng_21mar22_e.htm (“Several members highlighted the impact of the conflict in Ukraine on the negotiation process as well as the resulting threats to food security. Some members also highlighted the importance of transparency, called for food markets to be kept open, and urged members to refrain from imposing export restrictions. Delegations acknowledged the unprecedented challenges to global food security and stressed the need to deliver a comprehensive outcome on agriculture at MC12 that would place food security at the forefront. Many reiterated their clear support for a multilateral decision as soon as possible to waive food purchases by the World Food Programme (WFP) from any export restriction.”).

Comments

The war in Ukraine is leading to an isolation of the Russian Federation and Belarus and a rethinking of the global economic integration of the last thirty years. How large the retreat from global economic integration turns out to be will depend on various factors including the duration of the war, the extent to which some countries aid the Russian war effort and hence lead to a larger group of sanctioned countries, and the basic incompatibility of state-controlled/directed economies with the current global trading system architecture. The changes in supply chains, trade flows and investment decisions that have been made in the last month will have profound effects on global commerce going forward.

Short term, because of the disruption in grain production and shipments from Ukraine, there is an immediate challenge to food security which if not addressed effectively can have debilitating effects including societal upheaval in a number of developing countries as was seen in 2008-2009.

The WTO has an obvious role to play on the food security issue. Time will tell how many Members contribute to a meaningful solution on food security.

Banned imports, higher tariffs, other actions by trading partners as Russia and Belarus lose most favored nation treatment by G-7 countries and EU during the conflict in Ukraine

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

HS7207, 20%

HS7601, 10.5-25%

HS7202, 6.5-35%; up to 6.6cents/kg.

HS4412, 40-50%

HS 9306, 30-45%

HS8412, 27.5-35%

HS4002, 20%.

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.

Despite the China-Russian Federation Relationship, is supporting Russia in China’s economic interest?

The United States and China met in Italy on March 14th for a lengthy meeting on the Russia-Ukraine conflict. Press accounts make clear that the United States has articulated its concern about any nation serving to undermine the sanctions being imposed on Russia for its unprovoked invasion of Ukraine. See, e.g., CNBC, China says it wants to steer clear of U.S. sanctions over Russia’s invasion of Ukraine, March 15, 2022, https://www.cnbc.com/2022/03/15/ukraine-crisis-china-wants-to-avoid-us-sanctions-over-russias-war.html (“The U.S. has warned of consequences for any country that provides Russia with support amid the Kremlin’s conflict with Ukraine. ‘We are watching very closely to the extent to which the PRC [People’s Republic of China] or any country in the world provides support material, economic, financial, rhetorical otherwise, to this war of choice that President [Vladimir] Putin is waging against the government of Ukraine, against the state of Ukraine and against the people of Ukraine,’ State Department spokesman Ned Price said at a news briefing Monday. ‘We have been very clear both privately with Beijing and publicly with Beijing that there would be consequences for any such support,’ Price said.).

Indeed, the U.S. has indicated it has information suggesting that Russia has asked China for such assistance, although China has denied the U.S. claim. See, e.g., Financial Times, US officials say Russia has asked China for military help in Ukraine, March 13, 2022, https://www.ft.com/content/30850470-8c8c-4b53-aa39-01497064a7b7; New York Times, Russia Asked China for Military and Economic Aid for Ukraine War, U.S. Officials Say, March 13, 2022, https://www.nytimes.com/2022/03/13/us/politics/russia-china-ukraine.html.

The relationship between the Russian Federation and China is currently quite close as shown in the meeting between Xi Jining and Vladimir Putin at the start of the Winter Olympics last month. See, e.g., Ministry of Foreign Affairs of the People’s Republic of China, President Xi Jinping Held Talks with Russian President Vladimir Putin, February 4, 2022, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202202/t20220204_10638923.html; NPR, Parsing the meaning of the Xi-Putin meeting on the sidelines of the Beijing Olympics, February 8, 2022, https://www.npr.org/2022/02/08/1079112810/parsing-the-meaning-of-the-xi-putin-meeting-on-the-sidelines-of-the-beijing-olym (“After Russian President Vladimir Putin attended the opening ceremony in Beijing last Friday, he met with China’s President Xi Jinping. The two men declared there were no limits to their strategic partnership. And they went further, too. In a statement, China backed Russia’s demand to stop the NATO expansion to the East. The countries took aim at the U.S. with a promise to, quote, ‘counter interference by outside forces in the internal affairs of sovereign countries under any pretext.'”).

In a blog post today, Alan Wolff and Nicolas Veron explore reasons why China’s providing assistance to Russia should be increasingly unattractive. Nicolas Veron and Alan Wm. Wolff, Six reasons why backstopping Russia is an increasingly unattractive option for China, Bruegel blog, March 15, 2022, https://www.bruegel.org/2022/03/six-reasons-why-backstopping-russia-is-an-increasingly-unattractive-option-for-china/. Alan Wolff is a former Deputy Director-General at the WTO and a former Deputy U.S. Trade Representative. Nicolas Veron is a senior fellow at Bruegel, a Brussels-based economic policy think tank he helped cofound in 2002–04.  Both are with the Peterson Institute for International Economics. The blog post is an excellent review of reasons why China should find it in its own interest to distance itself from the war of aggression by Russia.

The six reasons are laid out in the post as follows:

“First, China in recent decades has displayed a preference for stability. Its primary engagement with the world at large has been as a trading partner and major investor in infrastructure. As the war grinds on, the invasion of Ukraine looks increasingly like a reckless gamble that will disrupt and break many relationships, including trade and financial ones. By supporting Russia, China can only prolong the conflict, actively contributing to continued destabilisation of the international order. A return to stability can only come with an early peaceful resolution in Ukraine.

“Second, China has promoted a geo-economic vision for Eurasia, in which it stands at the eastern end of a trading network that extends all the way to Western Europe. China has invested heavily in its relationships with the countries to its west, including Russia and Ukraine. With the EU now firmly on the side of the Ukrainian government, the new reality is that Ukraine will emerge more closely integrated with the rest of Europe. If China stands on the Russian side in a prolonged conflict, it would undermine its Eurasian vision of the Belt and Road.

“Third, China has a longstanding diplomatic doctrine that emphasises five principles of mutual coexistence: mutual respect for sovereignty and territorial integrity; mutual non-aggression; mutual non-interference in each other’s internal affairs; equality and mutual benefit; and peaceful coexistence. A quick Russian operation that delivered a stable puppet government in Ukraine could have allowed China to formulate a narrative in which these principles were upheld, but the evidence of Ukrainian patriotism in a war of resistance renders this impossible. To be seen to be discarding the foundational principles of its diplomacy would be costly for China, not least in its relations with its Asian neighbours.

“Fourth, China wants to reunify Taiwan with the mainland. A quick Russian victory in Ukraine might have provided support for a Chinese strategy of seizing the ‘23rd province’ by force. By contrast, a protracted conflict in which the Ukrainian side achieves impressive feats of resistance is a reality from which China may want to distance itself as much as possible. By propping up Russia, China could solidify the pro-Ukraine camp into a durable coalition that could provide a similarly unified response to any Chinese move against Taiwan.

“Fifth, China is energy-dependent. The oil price inflation resulting from the war in Ukraine is bad news for the Chinese economy – even assuming it can buy more oil and gas from Russia at a discount. Furthermore, the war-induced price increases in commodities such as wheat, which are basic to the well-being of many developing countries, could subtract from the goodwill built up via the Belt and Road Initiative if China’s actions are viewed as prolonging the conflict.

“Sixth, China’s extraordinary growth has been critically supported by access to markets and a continuing flow of international investment. Were China to materially support Russia’s aggression, the pro-Ukraine camp’s sanctions could begin to apply to Chinese interests. Russia’s increasingly murderous attacks against civilians add to the challenge. If China supports Russia, the implied reputational damage may lead to boycotts and lost investment, not to mention moral revulsion among the Chinese population as well. A scenario of significant decoupling of pro-Ukraine countries from China would do direct harm to China’s economic interests.”

A recent Financial Times article looked at the rising costs for China of its close relationship with Russia. Financial Times, The rising costs of China’s friendship with Russia, March 10, 2022, https://www.ft.com/content/50aa901a-0b32-438b-aef2-c6a4fc803a11. The article reviews the serious reputational problems for China from Russia’s brutal war. On the topic of trade costs, the article also notes both its reliance on imported oil, gas, iron ore and wheat and reviews the fact that China is facing the worst harvest in recent memory of wheat requiring increased imports of about 50% more than the average over recent years.

“Among the large economies, China is one of the most exposed to the fallout from the war. As the world’s biggest importer of oil, it has watched crude prices — which were already high — surge 27 per cent since the war began, while Chinese iron ore contracts surged 25 per cent over the first 10 days of the conflict.

“The impact could be even more pronounced on food. Chinese wheat prices and corn futures are also at record highs, perhaps prompting a lecture on Sunday by Xi about the importance of food security to a group of delegates attending the annual session of China’s parliament.”

According to the WTO Trade Profiles 2021, China imported in 2019 $176.321 billion of crude oil, $118.944 billion of iron ores and concentrates and $42.078 of petroleum gases. Page 80. Wheat and corn are not among the top five agricultural imports and so their value in 2019 were each below $4 billion. So the big hit economically in terms of higher costs will be in oil, gas and steel inputs.

The higher costs for imported products may be the smallest of the costs China faces from the potential rupture in relations with the EU, U.S. and other countries, and the other issues identified above. That said, the challenge for China may flow from the leader-to-leader commitments which may make it hard for Xi to accept distancing from Russia and the misinformation being spread by Chinese officials which may prevent a rational evaluation of self-interest by top Chinese leadership. Let’s hope that China is able to understand the costs they are incurring and likely to incur from solidarity with Russia.

A global trading system without the Russian Federation (and other autocratic states?) – what the fallout from the Russian invasion of Ukraine may mean for global trade

The unprovoked invasion by the Russian Federation into Ukraine has led to the largest group of financial and economic sanctions by a large portion of the global community in modern times. Canada has withdrawn most favored nation treatment from Russia, a move that is being followed by the EU, United States and others. Russia has been excluded from the Developed Countries Coordinating Group within the WTO, and G-7 countries (and the EU) are working to ensure that multilateral organizations like the IMF and World Bank and the European Bank for Reconstruction and Development cannot be used by Russia for loans. There are calls in some countries (e.g., the United States) to work to remove Russia from the WTO.

On March 11, 2022 two staunch supporters of the global trading system penned an article that appeared in The National Interest that raise a number of important questions including the following one —

“As the collective will grows to confront the destabilizing authoritarianism of Russia, as well as one of its strongest backers, China, what should become of the institutions that enabled their rapid integration into the post-Cold War world economy?” Rufus Yerxa and Wendy Cutler, No Longer Business as Usual at the World Trade Organization, March 11, 2022, https://nationalinterest.org/feature/no-longer-business-usual-world-trade-organization-201149. Amb. Yerxa is a former Deputy Director-General of the WTO and former Deputy U.S. Trade Representative and U.S. Ambassador to the GATT. Ms. Cutler is a former Acting Deputy U.S. Trade Representative who was deepely involved in the Trans Pacific Partnership negotiations for the United States and is the Vice President and Managing Director of the Asia Society Policy Institute. Both are lifelong supporters of a global trading system and the rule of law. The answer to the question posed appears in the next to last paragraph of the article.

“Indeed, the current crisis may lead the United States and like-minded members to chart a new trade future outside of the WTO framework, not necessarily abandoning the WTO entirely, but creating a new multilateral structure with deeper commitments among countries dedicated to free-market democracy. This may be the only leverage available to change the status quo.”

The article is surprising considering the authors but reflects the evolving concerns of many former trade negotiators that the global trading system is not functioning well because of the non-market economic system of some (particularly China) and now the unacceptable actions of the autocratic state of the Russian Federation. For example, in 2020 I reviewed an article by a former director general for trade for the European Commission that argued for the need for countries to leave the WTO and set up a separate multilateral trading system to exclude China since China was not moving to a market economy. July 25, 2020:  A new WTO without China?  The July 20, 2020 Les Echos opinion piece by Mogens Peter Carl, a former EC Director General for Trade and then Environment, https://currentthoughtsontrade.com/2020/07/25/a-new-wto-without-china-the-july-20-2020-les-echos-opinion-piece-by-mogens-peter-carl-a-former-ec-director-general-for-trade-and-then-environment/.

Many commentators, including me, have written on the need for a new trading order among countries with similar economic systems. See, e.g., March 31, 2021:  “Blowing up the trading system” — Clyde Prestowitz’s suggested way for the world to move forward in light of China’s economic system, https://currentthoughtsontrade.com/2021/03/31/blowing-up-the-trading-system-clyde-prestowitzs-suggested-way-for-the-world-to-move-forward-in-light-of-chinas-economic-system/; January 16, 2022:  Is it time for a new approach to bilateral trade with China?, https://currentthoughtsontrade.com/2022/01/16/is-it-time-for-a-new-approach-to-bilateral-trade-with-china/.

One possible approach to a parallel system with more ambitious and current rules among largely market economies would be an expansion of the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) to include the United States and European Union (neither of which has a current application — the U.S. having withdrawn under the Trump Administration) with acceptance of current applicants other than China. A former European Commissioner for Trade advocated the EU and US joining the CPTPP in an article for the Peterson Institute for International Economics in January this year. See Cecilia Malmstrom (PIIE), The EU should use its trade power strategically, January 4, 2022, https://www.piie.com/blogs/realtime-economic-issues-watch/eu-should-use-its-trade-power-strategically (“The European Union should also seek to enter the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and convince the United States to do the same. The European Union already has agreements with most members of the CPTPP, but an FTA would signal the European Union’s readiness to strengthen global trading rules with its partners.”). Considering China’s record at the WTO and its coercive practices against some of the CPTPP members, it is hard to understand how the CPTPP members can accept China as a member in the coming years.

While neither the United States nor the European Union are looking to abandon the WTO, the Russian invasion of Ukraine is creating enormous tensions for many Members in dealing with the Russian Federation within the WTO, and there have been growing concerns about the inability of the WTO system to address the massive distortions to global trade created by the Chinese economic system. Reform at the WTO is difficult and typically requires consensus of existing Members. This presumably dooms reforms needed to bring China’s system into alignment with WTO principles including market orientation. While Members can decide to suspend most favored nation treatment, there is no obvious path to removing Russia as a member. Thus, continued challenges at the WTO are likely to continue in the months and years ahead.

The article last week from Amb. Yerxa and Ms. Cutler points to the growing concern about the survivability of the current system with rogue states like the Russian Federation and non-market economic actors like China. As the article concludes, “Responsible global leaders now confront a troubling reality: the old notion that countries who trade together are less likely to go to war has been laid to rest on Ukrainian soil. It can no longer be business as usual at the WTO.” What the current war in Ukraine means for the WTO remains unclear. The coming months will likely provide answers to the continued relevance of the WTO and the need for a separate system for democratic, market economies.

Additional trade and other sanctions imposed by G-7 and EU countries on Russia and Belarus on March 11, 2022

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

“PRESIDENTIAL ACTIONS

“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
announced.

“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).

Final comments

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.

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.

March 8, 2022 saw major announcements on new sanctions on the Russian Federation and/or Belarus from the United States, European Union and the United Kingdom and a continued exodus of major oil companies from Russian involvement.

In the United States, President Biden announced new actions in the form of an Executive order which bans –

“The importation into the United States of Russian crude oil and certain petroleum products, liquefied natural gas, and coal.

“* * *

“New U.S. investment in Russia’s energy sector, which will ensure that American companies and American investors are not underwriting Vladimir Putin’s eff orts to expand energy production inside Russia.
Americans will also be prohibited from financing or enabling foreign companies that are making investment to produce energy in Russia.”

The White House, FACT SHEET: United States Bans Imports of Russian Oil, Liquefied Natural Gas, and Coal, March 8, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/08/fact-sheet-united-states-bans-imports-of-russian-oil-liquefied-natural-gas-and-coal/.

The Executive Order reads in full –

“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, hereby expand the scope of the national emergency declared in Executive Order 14024 of April 15, 2021, and relied on for additional steps taken in Executive Order 14039 of August 20, 2021, finding that the Russian Federation’s unjustified, unprovoked, unyielding, and unconscionable war against Ukraine, including its recent further invasion in violation of international law, including the United Nations Charter, further threatens the peace, stability, sovereignty, and territorial integrity of Ukraine, and thereby constitutes an unusual and extraordinary threat to the national security and foreign policy of the United States.  Accordingly, I hereby order:

     “Section 1.  (a)  The following are prohibited:

“(i)    the importation into the United States of the following products of Russian Federation origin:  crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products;

“(ii)   new investment in the energy sector in the Russian Federation by a United States person, wherever located; and

“(iii)  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, 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; and

     “(c)  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, in consultation with the Secretary of State, is 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 may, consistent with applicable law, redelegate any of these functions within the Department of the Treasury.  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 8, 2022.”

Executive Order on Prohibiting Certain Imports and New Investments With Respect to Continued Russian Federation Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine, March 8, 2022, https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/08/executive-order-on-prohibiting-certain-imports-and-new-investments-with-respect-to-continued-russian-federation-efforts-to-undermine-the-sovereignty-and-territorial-integrity-of-ukraine/.

The new prohibitions do not prevent honoring existing contracts in the next 45 days. President Biden reviewed that the steps were taken after consultations with allies realizing that many allies were not in a position to take identical action at the moment reflecting very different situations in terms of domestic production of oil and gas and dependency on imports from Russia. See The White House, Remarks by President Biden Announcing U.S. Ban on Imports of Russian Oil, Liquefied Natural Gas, and Coal, March 8, 2022, https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/03/08/remarks-by-president-biden-announcing-u-s-ban-on-imports-of-russian-oil-liquefied-natural-gas-and-coal/ (“We’re moving forward on this ban, understanding that many of our European Allies and partners may not be in a position to join us.  The United States produces far more oil domestically than all of European — all the European countries combined.  In fact, we’re a net exporter of energy.  So we can take this step when others cannot. But we’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy as well.”).

The United Kingdom announced that it would phase out imports of oil from Russia during 2022. See Financial Times, US and UK ban Russian oil and gas imports in drive to punish Putin, March 8, 2022, https://www.ft.com/content/2e0b1d84-e595-4c5a-be4e-928417b9c7cc (“UK prime minister Boris Johnson’s government said it would phase out the import of Russian oil by the end of the year. Kwasi Kwarteng, UK business secretary, said the British government would organise an ‘orderly transition’ away from Russian oil imports. But Rishi Sunak, UK chancellor, told a cabinet meeting that consumers would pay a price for the ban, with lower-income households particularly hard hit. The UK is less dependent on Russia than much of mainland Europe, with Russian supplies making up 8 per cent of overall oil imports into the UK. Johnson is expected to make a statement later this week on reducing British imports of Russian gas.”).

The European Commission announced a proposed ambitious program to diversify gas supplies and expand renewables to achieve a potential two-thirds reduction in dependence on Russian oil and gas by the end of 2022 for the European Union. The program, RePowerEU, was announced on March 8th and contains a number of documents. The opening statement of Executive Vice-President Timmermans is copied below in part.

“Opening remarks by Executive Vice-President Timmermans

“* * *

“It is abundantly clear that we are too dependent on Russia for our energy needs. It is not a free
market if there is a state actor willing to manipulate it.

“The answer to this concern for our security lies in renewable energy and diversification of supply.

“Renewables give us the freedom to choose an energy source that is clean, cheap, reliable, and ours.
And, instead of continuing to fund fossil fuel imports and fund Russian oligarchs, renewables create
new jobs here in Europe.

“With the plan we outline today, the EU can end its dependence on Russian gas and repower Europe.
Fit for 55, once implemented, will reduce the EU’s total gas consumption by 30% by 2030. That’s
100 billion cubic meters of gas we will no longer need.

“Now, we will take it to the next level.

“By the end of this year, we can replace 100 bcm of gas imports from Russia. That is two-thirds of
what we import from them. This will end our over-dependency and give us much needed room to
maneuver. Two thirds by the end of this year.

“It is hard, bloody hard. But, it is possible, if we are willing to go further and faster than we have
done before.

“REPowerEU is our plan to make Europe independent from Russian gas.

“It is based on two tracks:

“First: we will diversify supply and bring in more renewable gases.

“With more LNG and pipeline imports, we can replace 60 bcm of Russian gas within the next
12 months.

“By doubling sustainable production of biomethane we can replace another 18 bcm, using
the Common Agricultural Policy to help farmers become energy producers.

“We can also increase the production and import of renewable hydrogen. A Hydrogen
Accelerator will develop integrated infrastructure and offer all Member States access to
affordable renewable hydrogen. 20 million tonnes of hydrogen can replace 50 bcm of Russian
gas.

“We will also start replacing natural gas with renewable gases. This, in sum, is the first pillar of
REPowerEU.

“In parallel, we must accelerate our clean energy transition. Renewables make us more
independent, and they are more affordable and reliable than the volatile gas market.

“So, we need to put millions more photovoltaic panels on the roofs of our homes,
businesses, and farms. We must also double the installation rate of heat pumps over the
next 5 years.

“This is low-hanging fruit. By the end of this year, almost 25% of Europe’s current electricity
production could come from solar energy.

“In addition to this, we need to speed up permitting procedures to grow our on- and offshore wind capacity, and rollout large-scale solar projects. This is a matter of overriding public interest.

“Some of these changes will not happen overnight, and that’s why we also need to prepare for next
winter.

“By October, gas storage facilities in the EU must be filled up to 90% capacity. And the Commission is
ready to support joint procurement of gas.

“Finally, and most importantly, we need to protect those who are struggling to pay their energy bills.

“Our plan today proposes several ways to help the most exposed households and businesses.

“Kadri will go through these in more detail.

“To conclude, RePowerEU is our plan to break our dependency on Russian gas, and to find freedom in
our energy choices.

“We can do it, and we can do it fast.

“All we need is the courage and grit to get us there. If ever there was a time to do it, it is now.

European Commission, Opening remarks by Executive Vice-President Timmermans and Commissioner Simson at the press conference on the REPowerEU Communication, Brussels, 8 March 2022.

See European Commission, COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS, REPowerEU: Joint European Action for more affordable, secure and sustainable energy, Strasbourg, 8.3.2022, COM(2022) 108 final.

While Australia does not appear to have announced a ban on imports of Russian oil into Australia, its two oil companies have announced cessation of procurement or lack of procurement from Russia. See Reuters, Australian refiners cease purchase of Russian crude oil, voice support for Ukraine, March 8, 2022, https://www.reuters.com/business/energy/australias-viva-energy-cease-purchase-russian-crude-oil-2022-03-08/.

Other actions

While the U.S. Congress has bills pending before both the House of Representatives and the Senate that would remove normal trade relations status on Russia (i.e., end most favored nation treatment) and instruct the US Trade Representative to seek suspension or removal of Russia from the WTO, press reports indicate that with President Biden’s action on Russian oil, gas and coal, the Administration has asked for a different piece of legislation from Congress, one that wouldn’t (at least at present) address normal trade relations or Russia in the WTO. See Inside U.S. Trade’s World Trade Online, House drops push to strip Russia of PNTR at administration’s request, March 8, 2022, https://insidetrade.com/daily-news/house-drops-push-strip-russia-pntr-administration%E2%80%99s-request. While Canada has suspended normal trade relations on goods from Russia and Belarus, U.S. inaction presumably reflects the focus of the U.S. and European allies on other sanction issues while seeking internal support for the step of suspending normal trade relations.

On March 9, 2022, the EU announced additional financial sanctions of Belarus and an expansion of individuals being sanctioned in Russia. See European Commission press release, Ukraine: EU agrees to extend the scope ofsanctions on Russia and Belarus, 9 March 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1649. Most of the press release is copied below.

“The European Commission welcomes today’s agreement of Member States to adopt further targeted sanctions in view of the situation in Ukraine and in response to Belarus’s involvement in the aggression. In particular, the new measures impose restrictive measures on 160 individuals and amend Regulation (EC) 765/2006 concerning restrictive measures in view of the situation in Belarus and Regulation (EU) 833/2014 concerning Russia’s actions destabilising the situation in Ukraine. These amendments create a closer alignment of EU sanctions regarding Russia and Belarus and will help to ensure even more effectively that Russian sanctions cannot be circumvented, including through Belarus.

“For Belarus, the measures introduce SWIFT prohibitions similar to those in the Russia regime, clarify that crypto assets fall under the scope of “transferable securities” and further expand the existing financial restrictions by mirroring the measures already in place regarding Russia sanctions.

“In particular, the agreed measures will:

“Restrict the provision of SWIFT services to Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus, as well as their Belarusian subsidiaries.

“Prohibit transactions with the Central Bank of Belarus related to the management of reserves or assets, and the provision of public financing for trade with and investment in Belarus.

“Prohibit the listing and provision of services in relation to shares of Belarus state-owned entities on EU trading venues as of 12 April 2022.

“Significantly limit the financial inflows from Belarus to the EU, by prohibiting the acceptance of deposits exceeding €100.000 from Belarusian nationals or residents, the holding of accounts of Belarusian clients by the EU central securities depositories, as well as the selling of euro-denominated securities to Belarusian clients.

“Prohibit the provision of euro denominated banknotes to Belarus.

“For Russia, the amendment introduces new restrictions on the export of maritime navigation and radio communication technology, adds Russian Maritime Register of Shipping to the list of state-owned enterprises subject to financing limitations and introduces a prior information sharing provision for exports of maritime safety equipment.

“In addition, it also extends the exemption relating to the acceptance of deposits exceeding €100.000 in EU banks to Swiss and EEA nationals.

“Finally, the EU confirmed the common understanding that loans and credit can be provided by any means, including crypto assets, as well as further clarified the notion of “transferable securities”, so as to clearly include crypto-assets, and thus ensure the proper implementation of the restrictions in place.

“Furthermore, the amendment introduces new restrictions.

“Furthermore, an additional 160 individuals have been listed in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

“The listed individuals include:

“- 14 oligarchs and prominent businesspeople involved in key economic sectors providing a substantial source of revenue to the Russian Federation – notably in the metallurgical, agriculture, pharmaceutical, telecom and digital industries -, as well as their family members.

“- 146 members of the Russian Federation Council, who ratified the government decisions of the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Donetsk People’s Republic’ and the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Luhansk People’s Republic’.

“Altogether, EU restrictive measures now apply to a total of 862 individuals and 53 entities.”

As Russia continues to escalate its hostilities in Ukraine, the U.S., EU, G7 and other countries continue to make clear that there will be major costs imposed on Russia for the unprovoked war. While many of the sanctions are financial, some are trade focused. The move away from Russian oil and gas and the restrictions on the export to Russia of materials and technology for the sector will significantly reduce Russian gross domestic product over time with so much of the economy currently tied to oil, gas and coal.

Joint letter from European Union and United States on removing the Russian Federation from the WTO Developed Countries Coordinating Group

With the Russian war in Ukraine intensifying, western countries and their allies continue to up the level of sanctions. My last three posts have looked at trade components of the sanctions imposed by a host of governments and what steps might occur at the WTO. See March 4, 2022:  Removal of MFN benefits for goods from Russia and Belarus — Canada moves first; Ukraine applies economic embargo on Russia; EU and US consider removal of MFN benefits, https://currentthoughtsontrade.com/2022/03/04/removal-of-mfn-benefits-for-goods-from-russia-and-belarus-canada-moves-first-ukraine-applies-economic-embargo-on-russia-eu-and-us-consider-removal-of-mfn-benefits/; March 2, 2022:  A former Appellate Body Chair argues WTO Members have the ability to remove the Russian Federation from WTO Membership; other proposals to strip MFN benefits from Russia and services restrictions, https://currentthoughtsontrade.com/2022/03/02/a-former-appellate-body-chair-argues-wto-members-have-the-ability-to-remove-the-russian-federation-from-wto-membership-other-proposals-to-strip-mfn-benefits-from-russia-and-services-restrictions/; February 28, 2022:  Trade sanctions following Russia’s invasion of Ukraine, https://currentthoughtsontrade.com/2022/02/28/trade-sanctions-following-russias-invasion-of-ukraine/.

On March 4, 2022, the European Union and the United States forwarded a joint letter to the WTO’s Chairman of the General Council alerting the WTO that the other members of the Developed Countries Coordinating Group would no longer be including the Russian Federation in their deliberations on potential chairs of WTO bodies and committees.

The EU Mission to the WTO provided a tweet that included the joint letter. The tweet says, “EU 🇪🇺 and US 🇺🇸 informed the Chair of the WTO General Council today that Russia’s participation in the Developed Countries Coordinating Group of the WTO is suspended. Russia is an aggressor state that blatantly violates international law. #StandWithUkraine️”. https://twitter.com/EUmissionWTO

The letter is included below.

EU-US-letter-to-WTO-re-removal-of-Russia-from-developed-country-coordinating-group

Yesterday’s article in Inside U.S. Trade’s World Trade Online reviews the limited effect of the action, particularly in light of the recent announcement of the slate of Chairs for committees and bodies. See Inside U.S. Trade’s World Trade Online, U.S., EU, others suspend Russia from WTO coordinating group, March 4, 2022, https://insidetrade.com/daily-news/us-eu-others-suspend-russia-wto-coordinating-group (“The move will have little immediate impact, according to Inu Manak, a senior fellow at the Council on Foreign Relations, because the WTO announced its committee chairs last month. However, she said, it sends a “fairly big signal,” as the members of the coordinating group are symbolically kicking Russia out of the influential club that chooses who leads discussions at the WTO.”).

Still in the offing is what additional trade actions — such as stripping Russia of most favored nation (“MFN”) tariff treatment, banning imports of Russian oil and gas, or attempting to expel Russia from the WTO — will be pursued or implemented. As noted in yesterday’s post, Canada has led on stripping Russia of MFN treatment and banning imports of Russian oil and gas. The U.S. and EU have one or both under consideration. It is unclear if other countries are considering one or both actions as well. None have yet endorsed the idea of expelling Russia from the WTO, though at least one former WTO Appellate Body Chair has opined that such an action could occur under WTO provisions. See March 2, 2022:  A former Appellate Body Chair argues WTO Members have the ability to remove the Russian Federation from WTO Membership; other proposals to strip MFN benefits from Russia and services restrictions, https://currentthoughtsontrade.com/2022/03/02/a-former-appellate-body-chair-argues-wto-members-have-the-ability-to-remove-the-russian-federation-from-wto-membership-other-proposals-to-strip-mfn-benefits-from-russia-and-services-restrictions/.

Yesterday’s action by developed countries in the WTO signals that actions within multilateral organizations will be part of the effort to get the Russian Federation to cease its unprovoked war with Ukraine. Considering the increasing levels of hostility, countries opposing the Russian and Belarusan actions need to speed up further sanctions.

Removal of MFN benefits for goods from Russia and Belarus — Canada moves first; Ukraine applies economic embargo on Russia; EU and US consider removal of MFN benefits

  1. Canada

Amid the global outcry at the actions of the Russian Federation in waging war on Ukraine, countries are reviewing options to increase the economic pain on Russia and Belarus which has permitted its country to be used for staging and other purposes. Canada acted on March 3, 2022 by removing both the Russian Federation and Belarus from receiving most favored nation treatment on any imports into Canada. See Department of Finance Canada, Canada cuts Russia and Belarus from Most-Favoured-Nation Tariff treatment, March 3, 2020, https://www.canada.ca/en/department-finance/news/2022/03/canada-cuts-russia-and-belarus-from-most-favoured-nation-tariff-treatment.html; Deputy Prime Minister of Canada Chrystia Freeland, Canada cuts Russia and Belarus from Most-Favoured-Nation Tariff treatment, March 3, 2022, https://deputypm.canada.ca/en/news/news-releases/2022/03/03/canada-cuts-russia-and-belarus-most-favoured-nation-tariff-treatment; Canada Border Services Agency, Order withdrawing the Most-Favoured-Nation status from Russia and Belarus, Customs Notice 22-02, https://www.cbsa-asfc.gc.ca/publications/cn-ad/cn22-02-eng.html. The press releases contain the following explanation of the action being taken.

“Russia’s invasion of Ukraine, supported by Belarus, is a violation of international law and threat to the rules-based international order. Canada is taking further action to ensure those who do not support the rules-based international order cannot benefit from it.

“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.

“This measure is in addition to the many punitive actions that Canada and its allies have already taken against Russia and Belarus as a result of the illegal and unprovoked invasion of Ukraine, including other trade restrictions under the Special Economic Measures Act.

“Quotes

“‘Today, I am announcing that Canada will be the first country to revoke Russia’s and Belarus’s Most-Favoured-Nation status as a trading partner under Canadian law. We are working closely with our partners and allies to encourage them to take the same step. Simply put, this means that Russia and Belarus will no longer receive the benefits – particularly low tariffs – that Canada offers to other countries that are fellow members of the WTO. The economic costs of the Kremlin’s barbaric war are already high, and they will continue to rise. Canada and our allies are united in our condemnation of President Putin and his war of aggression, and we are united in our support for the remarkable Ukrainians who are so bravely resisting his assault.’

“– The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance

“‘It is the direct result of Russia’s unjustified invasion of Ukraine that has triggered our government’s removal of the Most-Favoured-Nation Tariff (MFN) treatment on almost all imports from Russia and Belarus. Canada is stepping up by putting significant economic pressure on Russia, and is providing resources to Ukraine including military equipment and emergency humanitarian support. Canada remains resolute in our solidarity with Ukraine and the Ukrainian people, and we will continue supporting them as they fight to defend their freedom and democracy.’

“– The Honourable Mary Ng, Minister of International Trade, Export Promotion, Small Business
and Economic Development”.

Later in the press release there is a list of other actions Canada has taken in response to the Russian war against Ukraine including the following.

“This measure complements other recent measures targeting trade with Russia and Belarus, which will come into force imminently, including the ban on crude oil imports from Russia and Belarus, announced on February 28, 2022, and the ban on Russian owned or registered ships and fishing vessels from Canadian ports and internal waters, announced on March 1, 2022.

2. Ukraine

Ukraine notified the WTO on March 2, 2022 that “Ukraine severed its diplomatic relations with the aggressor state, decided to impose a complete economic embargo and no longer apply the WTO agreements in its relations with the Russian Federation.” The Ukrainian letter to the Chairman of the WTO General Council is included below.

Letter-from-Ukraine-to-WTO-re-not-applying-WTO-obligations-to-Russia

3. United States

In the United States, withdrawal of MFN treatment is being considered by the Congress with bills introduced in both the House and the Senate as well as bills to ban imports of oil and petroleum products from Russia. See February 28, 2022:  Trade sanctions following Russia’s invasion of Ukraine, https://currentthoughtsontrade.com/2022/02/28/trade-sanctions-following-russias-invasion-of-ukraine/ (reviewing H.R. 6835); see also S.3717 introduced by Senators Cassidy and Brown (“A bill to withdraw normal trade relations treatment from, and apply certain provisions of title IV of the Trade Act of 1974 to, products of the Russian Federation, and for other purposes”); S.3722 introduced by Senate Finance Committee Chairman Wyden (“a bill to withdraw normal trade relations treatment from, and apply certain provisions of title IV of the Trade Act of 1974 to products of the Russian Federation, and for other purposes”); S.3718 introduced by Senator Marshall and eight others (a bill to prohibit the importation of petroleum and petroleum products from the Russian Federation”). These bills are in addition to many others looking to impose additional sanctions on the Russian Federation.

While the U.S. has applied some sanctions on Belarus, at present the bills before Congress do not seek removal of MFN treatment from goods from Belarus. As Belarus is not yet a WTO Member (it is going through the accession process), there are not the same WTO considerations in removal of MFN treatment on goods from Belarus.

4. European Union

Press articles indicate that the EU is actively considering whether to remove MFN treatment for Russia. See, e.g., Bloomberg, EU Seeks to End Russia’s Most-Favored Nation Status at WTO, March 3, 2022, https://www.bloomberg.com/news/articles/2022-03-03/eu-seeks-to-suspend-russia-s-most-favored-nation-status-at-wto (“‘In reaction to the Russian aggression against Ukraine, the EU has adopted sweeping sanctions vis-a-vis Russia, which undoubtedly have a major impact on trade,’ European Commission Spokeswoman Miriam Garcia Ferrer said in an emailed reply to Bloomberg. ‘We are discussing options available to us in the WTO context. This includes the possibility of removing MFN treatment to Russia on the basis of the WTO national security exception.’”); Financial Times, Canada imposes tariffs on Russian imports by using WTO exemption, March 4, 2022, https://www.ft.com/content/88b1b680-cc23-4e69-ba2d-69c7d96910b0 (“Bernd lange, chair of the European parliament’s international trade committee, tweeted: ‘We cannot continue with business as usual in WTO when it comes to trade with Russia. One step could be to remove MFN status.'”).

The EU has been Russia’s largest trading partner, importing $188 billion worth of goods in 2021. See https://www.statista.com/statistics/1099626/russia-value-of-trade-in-goods-with-eu/. A large portion of EU imports from the Russian Federation are oil and gas. The Financial Times articles indicates that in 2020 more than two thirds of imports from Russia into the EU were oil and gas.

Comments

One can expect that there will be continuing efforts to increase the sanctions and trade costs on Russia and Belarus for the unprovoked war in Ukraine. Denying both countries MFN treatment can be expected by some countries. Canada’s lead hopefully will be followed by the U.S. and EU and others.

In a number of countries, informal bans on Russian goods, including oil and gas is already occurring. See, e.g., BBC News, Ukraine sanctions: UK dockers refuse tanker of Russian gas, March 4, 2022, https://www.bbc.com/news/uk-england-kent-60619112.

The larger issue of whether WTO Members should exclude Russia from the organization is also attracting at least private sector comments. See, e.g., March 2, 2022:  A former Appellate Body Chair argues WTO Members have the ability to remove the Russian Federation from WTO Membership; other proposals to strip MFN benefits from Russia and services restrictions, https://currentthoughtsontrade.com/2022/03/02/a-former-appellate-body-chair-argues-wto-members-have-the-ability-to-remove-the-russian-federation-from-wto-membership-other-proposals-to-strip-mfn-benefits-from-russia-and-services-restrictions/; Kevin D. Williamson, National Review, Force Russia from WTO?, February 28, 2022, https://www.nationalreview.com/corner/force-russia-from-wto/.

Many countries have raised the conflict at the WTO during the recent February 23-24, 2022 General Council meeting and at the recent February 28, 2022 Dispute Settlement Body meeting. See, e.g., EU Statements at the General Council Meeting, 23 and 24 February 2022, https://eeas.europa.eu/delegations/world-trade-organization-wto/111430/eu-statements-general-council-meeting-23-and-24-february-2022_en (“Thursday 24 February 2022 (morning), STATEMENT ON THE INVASION OF UKRAINE BY THE RUSSIAN FEDERATION, We heard many Delegations talking about the tragedy to human lives brought about by the Covid pandemic. Today the tragedy is people being killed by the use of force following the invasion of Ukraine this morning. This is a sad day for Europe, a sad day for the world. The European Union strongly condemns this unjustified attack on Ukraine, an independent and sovereign State. This constitutes a gross violation of international law. In these dark hours, our thoughts are with the innocent women, men and children as they face this unprovoked attack and fear for their lives.“); Statements by the United States at the Meeting of the WTO Dispute Settlement Body
Geneva, February 28, 2022, https://uploads.mwp.mprod.getusinfo.com/uploads/sites/25/2022/03/Feb28.DSB_.Stmt_.as_.deliv_.fin_.pdf “• Before addressing the present agenda item, the United States will comment on the atrocious situation that we see happening on the ground in Ukraine. • The United States stands with Ukraine. The United States condemns Russia’s further invasion of and continuing military assault against the sovereign nation and people of Ukraine, and condemns this violation of the core principles that uphold global peace and security. The United States will continue to support the Ukrainian people as they defend their country from this unprovoked attack and we commend the true and tremendous courage we are seeing from the Ukrainian people, the armed forces, and Ukrainian leaders. The United States has expressed its views before and after the UN Security Council vote and I refer Members to our previous official statements for more details.”).

While the WTO news releases include a statement from the Director-General on the Ukraine conflict, the press releases reviewing meetings where the Ukraine conflict has been raised by Members is silent on the issue being raised. See, e.g., WTO news release, WTO dispute panel to review Chinese complaint regarding Australian duties, February 28, 2022, https://www.wto.org/english/news_e/news22_e/dsb_28feb22_e.htm; WTO news release, WTO chairpersons for 2022, February 24, 2022, https://www.wto.org/english/news_e/pres22_e/pr898_e.htm; WTO news release, WTO members agree on mid-June dates for reconvening MC12, https://www.wto.org/english/news_e/news22_e/mc12_23feb22_e.htm; WTO news release, WTO members initiate membership talks for Turkmenistan, February 23, 2022, https://www.wto.org/english/news_e/news22_e/acc_23feb22_e.htm.

It is not clear if major Members like the U.S. and EU will seek specific action against Russia within the WTO in the coming weeks or simply pursue any action unilaterally (or in coordination with certain other trading partners). Hopefully, concerned nations will see that Russia is held accountable at all multilateral organizations, including the WTO. One can assume that accession negotiations with Belarus will stop progressing until there is a satisfactory resolution of the conflict from the view of many of the existing WTO Members (other than the Russian Federation).

It is possible that WTO Members at least on a plurilateral basis will look at steps to facilitate medical and food assistance to Ukraine during the crisis. Such action is occurring and will certainly continue to occur by certain WTO Members outside of the context of the WTO, but the WTO has a role it could play. Similarly, the WHO recently took action to get 36 tons of medical supplies to the Polish border with Ukraine as the following tweet reviews. More can and should be done.

WHO-medical-assistance

Just as the COVID-19 pandemic has tested the world and involve trade elements for its resolution, so too the unprovoked war on Ukraine started by Russia and facilitated by Belarus is testing the world and needs a meaningful trade response as part of the effort to achieve a peaceful resolution.

A former Appellate Body Chair argues WTO Members have the ability to remove the Russian Federation from WTO Membership; other proposals to strip MFN benefits from Russia and services restrictions

In my post on February 28, 2022, I reviewed actions in the U.S. and various other trading partners to impose additional export controls on goods going to Russia because of its invasion of Ukraine as well as a House bill to both strip normal trade relations from Russia and have the US seek to have Russia removed from the WTO. See February 28, 2022:  Trade sanctions following Russia’s invasion of Ukraine, https://currentthoughtsontrade.com/2022/02/28/trade-sanctions-following-russias-invasion-of-ukraine/.

That same day, James Bacchus, a former WTO Appellate Body Chair, published an opinion in the Wall
Street Journal indicating that WTO Members have the ability under Art. X of the Marrakesh Agreement Establishing the WTO to expel Russia from the organization if they have the will. See Wall Street Journal, Boot Russia From the WTO, February 28, 2022, https://www.wsj.com/articles/boot-russia-from-the-wto-world-trade-organization-putin-international-economic-sanctions-tariff s-legal-authority-11646092051. Mr. Bacchus urges the United States to lead the effort to have Russia expelled from the WTO because of the unprovoked war started by Russia with Ukraine. Article X of the Marrakesh Agreement Establishing the WTO deals with amendments to the WTO and not specifically with removal of a Member. Mr. Bacchus’ piece is relying on language from Art. X:5 which states in part that “The Ministerial Conference may decide by a three-fourths majority of the Members that any amendment made effective under the preceding provision is of such a nature that any Member which has not accepted it within a period specified by the Ministerial Conference in each case shall be free to withdraw from the WTO or to remain a Member with the consent of the Ministerial Conference.” As recognized by Mr. Bacchus, the organization typically operates by consensus. Nonetheless, his opinion piece raises at least an approach that might be tried (propose an amendment to the WTO (e.g.. WTO membership is suspended at such time as the Member invades another WTO Member without UN authorization) and get Members to agree to vote on it and achieve 3/4 support).

In the U.S. Congress, the Chairman of the Senate Finance Committee, Senator Wyden of Oregon, issued a press release on March 1, 2022 which included some additional trade and finance steps that could be taken to increase the sanctions on Russia. See Wyden Outlines Finance Committee Next Steps to Hold Russia Accountablefor Ukraine Invasion, March 1, 2022, https://www.finance.senate.gov/chairmans-news/wyden-outlines-finance-committee-next-steps-to-hold-russia-accountable-for-ukraine-invasion. Chairman Wyden’s list provides six additional steps that the U.S. should be taking to sanction Russia. The second deals with trade and is copied below.

” Second, we need to make sure tariff treatment of Russia reflects its pariah status. Permanent normal trade relations are extended to countries as they join the World Trade Organization (WTO) and agree to abide by rules that ensure a level playing field in international trade. Removing normal trade relations will raise tariffs on Russian goods and send a message that unprovoked invasions of a foreign nation will not be tolerated in any arena. In addition, Russia’s actions to throttle internet access and censor online content as a means to crush dissent and limit access to reliable information not only raise human and civil rights concerns, but also act as a barrier to trade. We must consider how trade tools can be used to address such digital authoritarianism by any actor.”

President Biden, in his state of the union address on March 1, 2022, indicated that the United States was joining the European Union and Canada in closing U.S. airspace to Russian aircraft. Such closure obviously restricts trade in some service sectors.

Some states and businesses are boycotting purchase of Russian goods.

It is clear that countries around the world will be ratcheting up sanctions on Russia and Belarus as Russia’s war in Ukraine continues to intensify. Much of the sanctions are finance-related but trade sanctions are a part and likely to become more important over time.

Trade sanctions following Russia’s invasion of Ukraine

The United States, the European Union, United Kingdom, Canada, Japan, Republic of Korea, Taiwan, Australia and New Zealand have imposed various financial sanctions on certain actors in the Russian Federation following last week’s invasion of Ukraine.

There have also been new export restrictions on various products of potential importance to the Russian economy and military being imposed by these same countries. For example, the United States Department of Commerce is publishing revised regulations on export controls of products to the Russian Federation. The document which is available online at the moment will be published in the Federal Register on March 3, 2022. The “Background” section of the revised regulations describes the reason for the modifications and coverage. As noted the new restrictions are primarily aimed at Russia’s defense, aerospace and maritime sectors.

I. Background

“In response to the Russian Federation’s (Russia’s) further invasion of Ukraine, the Bureau of Industry and Security (BIS) imposes extensive sanctions on Russia by amending the Export Administration Regulations (15 CFR parts 730 – 774) (EAR). Russia’s invasion of Ukraine flagrantly violates international law, is contrary to U.S. national security and foreign policy interests, and undermines global order, peace, and security, and therefore necessitates these stringent and expansive sanctions. The Commerce Department’s sanctions are one aspect of the broad U.S. Government response to Russia’s unprovoked aggression and are being imposed in coordination with allies and partners.

“In response to Russia’s 2014 invasion of Ukraine and occupation of the Crimean region, the U.S. Government, in coordination with its partners and allies, imposed restrictions on Russia, including asset-blocking measures, licensing requirements applicable to exports, reexports, and transfers (in-country) of items subject to the EAR destined for certain Russian entities, and special controls on items subject to the EAR intended for use in specified Russian industry sectors. Leading up to Russia’s further invasion of Ukraine, the U.S. Government announced that should Russia encroach further on Ukraine’s territory, it would impose additional, comprehensive sanctions with significant consequences.

“The export control measures implemented in this final rule protect U.S. national security and foreign policy interests by restricting Russia’s access to items that it needs to project power and fulfill its strategic ambitions. These items include sophisticated technologies designed and produced in the United States, as well as certain foreign-produced items that contain or are based on U.S.-origin technology subject to the EAR or other technology that is subject to the EAR that are essential inputs to Russia’s key technology and other sectors. BIS is primarily targeting the Russian defense, aerospace, and maritime sectors with these new export controls. These export controls include controls on the export from abroad of certain foreign-produced items that are subject to the EAR. Given the global dominance of U.S.-origin software, technology, and equipment (including tooling), these new controls, implemented in parallel with similarly
stringent measures by partner and allied countries, will cover a broad scope of items that Russia seeks to advance its strategic ambitions and consequently impair the country’s key industrial sectors.”

DEPARTMENT OF COMMERCE, Bureau of Industry and Security, 15 CFR Parts 734, 738, 740, 742, 744, 746, and 772, [Docket No. 220215-0048], RIN 0694-AI71, Implementation of Sanctions Against Russia Under the Export Administration Regulations (EAR), https://public-inspection.federalregister.gov/2022-04300.pdf.

Will one or more countries impose import restrictions on Russia for its invasion of Ukraine?

In the United States, some members of Congress have introduced legislation which, if passed and signed into law, would revoke permanent most favored nation treatment for imports from the Russian Federation with an annual review on any waiver dependent on Russia’s withdrawal from Ukraine and the existence of freely elected Ukrainian leadership. In the House of Representatives, the bill introduced would also require the U.S. to seek to limit Russia’s participation in the WTO. See H.R. 6835, To Withdraw Normal Trade Relations Treatment from, and apply certain provisions of Title IV of the Trade Act of 1974 to, products of the Russian Federation, Congressional Record H1146, 117 Cong. 2nd Session (Feb. 25, 2022), https://www.congress.gov/117/crec/2022/02/25/168/35/CREC-2022-02-25.pdf. While the text of the bill is not yet available online, the press release from the sponsors (copied below) lays out the purpose.

“End ‘Favored Nation’ Trade Relations with Russia, Bar Russia From WTO

Washington, D.C. – U.S. Representative Lloyd Doggett, Chair of the House Ways and Means Health Subcommittee, and U.S. Representative Earl Blumenauer, Chair of the House Ways and Means Trade Subcommittee, announce today that they are 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.

“’In seeking multiple ways to respond to Russia’s unprovoked invasion of Ukraine, we should close every possible avenue for Russian participation in the world economy,’ said Rep. Doggett. ‘Our legislation takes one such step of the type previously used in 1992 in response to Serbian aggression. It would remove most favored nation trade treatment for Russian imports by terminating Permanent Normal Trade Relations (PNTR). The U.S. should deny Russia previously-granted WTO terms and seek to expel Russia from the World Trade Organization (WTO). As Putin undermines the stability carefully built since World War II, he and his oligarch pals should not benefit from the trading system created to ensure that stability and peace.’

“’The United States must use every tool at our disposal, short of armed conflict, to protect Ukraine’s independence. Putin’s unprovoked and unprecedented actions warrant a proportional response that includes terminating Permanent Normal Trading Relations and denying it WTO membership,’ said Rep. Blumenauer. ‘Putin and his cronies should not be insulated from the consequences of their unjustified actions and I intend to use my position as the chairman of the Ways and Means Subcommittee on Trade to ensure that.’

End “Favored Nation” Trade Relations with Russia, Bar Russia From WTO, February 25, 2022, https://doggett.house.gov/media/blog-post/end-favored-nation-trade-relations-russia-bar-russia-wto.

It is understood that similar legislation will be introduced in the Senate this week.

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).

If the U.S. enacts the introduced legislation, Russian imports would be subject to Column 2 rates of duty absent legislation modifying the non-MFN rate. For oil and gas products, Column 2 imports duties are 2-4 times the MFN rates for oil and derived products imported from Russia (HS 2709 and 2710) and duty free for natural gas products imported from Russia (HS 2711). However, rates are low even under Column 2. For other products from Russia, increased duties would be substantial. For example, most steel mill products under Chapter 72 would be subject to Column 2 tariffs of 20% or more versus duty free treatment pursuant to MFN. U.S. imports of such products from Russia in 2021 were $2.641 billion.

So revoking MFN treatment to Russia will have some effect, even if modest overall.

The WTO does not have a procedure for removing Members from the organization other than a Member choosing to withdraw. So it is not clear what opposition to continued membership of a country by other Members would lead to. Some have identified types of disputes that could be brought to address broad-based nullification and impairment from economic systems not like market based economies. See, e.g., Wall Street Journal, For U.S. to Stay in WTO, China May Have to Leave, August 22, 2018, https://www.wsj.com/articles/for-u-s-to-stay-in-wto-china-may-have-to-leave-1534935600. It is not clear that such an approach would be of interest vis-a-vis Russia.

It is, of course, the case that WTO Members are entitled to MFN treatment for their goods. To the extent trading partners opt to withdraw MFN treatment or other rights of Membership, there are potential justifications (e.g., GATT Art. XXI). But even without such justifications, it is a form of limiting WTO benefits to a Member who is viewed as a pariah for extraordinary conduct. Actions by WTO Members against Russia would likely be subject to retaliation (though no retaliation should be taken absent a WTO dispute resolution, though would likely be taken).

It is unknown if the U.S. Administration will support the legislation that has been introduced and, if so, if trading partners would join in adding import restrictions to the sanctions imposed to date on Russia. The fact that members of Congress are looking at additional sanction activity reflects the extraordinary situation Russia’s unprovoked invasion has created.