The US and its allies will strip Russia of “most favored nation” trade status

President Joe Biden announced Friday that the United States and its allies have decided to exclude Russia from the normal reciprocity regime that governs world trade, which opens the door for the imposition of punitive customs tariffs against Moscow in response to the invasion of Ukraine.

“We take further steps to ban (trade with) flagship sectors of the Russian economy, in particular seafood, vodka and diamondsBiden said.

Until now, Moscow benefited from a “most favored nation” trade status, which allows free exchange of some goods and services. Russia thus joins Cuba and North Korea, the only countries excluded by the world’s leading power from the principle of reciprocity, the basis of most international trade relations.

The final decision on this new sanction, which was made in coordination with the G7 and the EU, corresponds to the United States Congress. Democratic and Republican members of Congress, showing rare bipartisan momentum when it comes to sanctions against Moscow, had signaled support for ending normal trade relations with Russia.

Biden’s schedule for Friday calls for remarks at 10:15 a.m. (20:15 GMT) to announce new measures in response to Russia’s unprovoked and unjustified war against Ukraine.

The most favored nation clause – known in the United States as the “normal permanent business relationship”- is a pillar of free trade.

This principle of reciprocity and non-discrimination currently governs most commercial relations between states.

The World Trade Organization (WTO) requires that any trade advantage, such as a reduction in tariffs, granted by one member be automatically applied to all the others.

Moscow, which joined the WTO in 2012, has benefited from this regime ever since. Specifically, depriving Russia of this status would allow its trading partners to impose higher customs duties on it, penalizing its exports.

$30 billion

In 2021, the United States imported some $30 billion worth of Russian goods, including $17.5 billion worth of crude oil, a commodity on which Washington has just imposed a full embargo.

This new sanction will be added to many others applied by the West to gradually cut the economic and financial ties of the country led by Vladimir Putin with the rest of the world.

These sanctions have already had a devastating impact on the Russian economy, to the point that the country is now, according to the Fitch agency, on the verge of default.

The ruble breaks weak records as many Western companies suspended their activities in Russia.

The war in Ukraine also has consequences for the entire world economy, which is barely recovering from the COVID-19 pandemic, due in particular to the explosion in the price of raw materials.

Biden is under intense domestic political pressure to announce more sanctions against Russia.

In this context, he decided to prohibit imports of Russian oil to the United States, a measure that Congress demanded of him and that, for the first time, was taken without coordination with the Europeans.

Pressure is also coming from Ukraine, which is urging Washington to hit Russia’s pockets harder, as Biden categorically ruled out military intervention.

“I know the United States is doing everything it can right now, but we really want to see a lot more measures introduced”, Oleg Ustenko, an economic adviser to the Ukrainian president, told CNN.