Trade Sanctions Following Russia’s Invasion Of Ukraine



Terrence P. Stewart | Current Thoughts on Trade

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.”

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).

“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.’

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. 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.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

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