what does it mean to commercially cut Russia off from the world

7:10 am, March 22, 2022

With the outbreak of Russia’s war in Ukraine, the European Union (EU) adopted a series of sanctions against the aggressor. Those announced on March 15, 2022, plan to target more oligarchs, ban luxury exports and hit several defense companies. Among those sanctions is also the EU’s announcement of suspension of Russia’s so-called Most Favored Nation (MFN) status in the World Trade Organization (WTO). As a result, this principle, which allows the country to benefit from the best possible trading conditions and numerous economic advantages, will be taken away from Russia in the international business world.

As a principle of public international law, the MFN statute establishes the sovereign equality of states in matters of trade policy. This implies that each member of the WTO must guarantee equal treatment to other members and that each member treats all others in the same way as trading partners. If a government increases the benefits it provides to a trading partner, it must grant the same “better” treatment to all other WTO members so that they all remain “most favored”.

Exception to the Favorable Principle of the Multilateral Trading System

The principle of most favored nation treatment dates back to 1947. It is contained in Article I of the General Agreement on Tariffs and Trade (GATT) governing the regime of goods, Article II of the General Agreement on Trade in Services (GATS) and Article IV of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) governing relations within the WTO. .

Reading the rules of the WTO, we see that they provide certain means that allow members of this international organization to establish special trade barriers for other members. The relevant in this case is a security exception. Article XXI of the 1994 treaty establishing the WTO allows 164 member states to refuse to grant MFN status to another member if it proves “necessary for the protection of its essential security interests”, in particular “in the event of war or other public emergency in international relations”. connections”.

In the context of the ongoing armed aggression, ensuring security is the main legal justification for the sanctions imposed against Russia. It therefore constitutes an exception to the favorable principle of the multilateral trading system.

The abolition of Russia’s trade privileges in the WTO will have several consequences. As the European Commission stated on March 15, 2022: the withdrawal of most favored nation status means the end of the benefits of WTO membership, in particular the benefits of non-discrimination from other members. Leaving MFN means that the member concerned, in this case Russia, could be subject to higher tariffs and import bans. So it is not mandatory, but if a trading partner wants to pressure the Kremlin to reconsider its ambitions, international law does not prevent it.

Faster and more effective sanctions than raising import duties

In this context, the EU decided to act not by increasing customs duties on imports, but by a set of sanctions, including bans on the import or export of goods. This method is faster and more efficient than preparing a completely new tariff scale. In practice, the Russian Federation has already lost a number of trade advantages. In particular, the suspension of the provision of SWIFT financial services to some Russian banks constitutes a non-application of the most favored nation clause for Russia under GATS.

The suspension of the most favored nation treatment undoubtedly gives even more importance to these unprecedented sanctions. European Commission Executive Vice President Valdis Dombrovskis said the EU is united in holding President Putin and his regime accountable for their crimes. The only way for Russia to avoid commercial, financial, economic and reputational catastrophes is to stop its invasion of Ukraine immediately. So the PFUE and the Commission are making very clear geopolitical commitments. This decision to make an exception to this MFN international legal principle should be seen as a clear EU response to Russia’s failure to comply with another fundamental principle of public international law, the non-use of armed force, enshrined in the 1946 Charter of the United Nations. .

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