G-7

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.

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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.

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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.