Compass Money: U.S. and Its Allies Plan to Revoke Russia’s WTO Membership

G7 has moved to end normal trade relations with Russia. (Financial Times)

U.S. lawmakers have been introducing bills since March 3 to revoke Russia’s WTO membership to punish Russia for the Ukraine invasion. Reps. Earl Blumenauer (D-Ore.) and Lloyd Doggett (D-Texas) introduced the bipartisan “No Most-Favored Nation Trading with Russia Act” to reach two goals. The first consists of revoking MFN tariffs for Russia to deter imports from Russia; the second is to increase political heat for other members to “use the voice, vote, and influence” to oust Russia from the WTO. However, it is unclear what would happen if the bill was passed and signed into law due to the lack of an exit clause in the WTO agreement. Experts have claimed that such treatment of Russia under the WTO would violate the General Agreement on Tariffs and Trade (GATT); however, it could invoke national security exceptions as its rationale for applying differential non-MFN tariffs to Russia.

President Biden’s announcement on March 18 of the U.S., EU, and G7’s plan to revoke Russia’s MFN status bolstered the bipartisan sentiment. The announcement came as a retaliation due to the White House’s fear that Russia would impose asset freezes on companies that plan to move out of Russia. Since the start of the Russian invasion of Ukraine, several multinationals have announced their business suspension in Russia, among which are Coca-Cola, McDonald’s, Starbucks, and Hilton Worldwide Hotels. Corporations range from many industries: consumer goods and retail, energy, finance, food, tech, and media. A comprehensive list of businesses pulling out of Russia can be found here.

President Biden has also signed into law more stringent methods of import bans of Russian goods: oil, petroleum products, liquefied natural gas, and coal, other signature Russian products such as seafood, spirits/vodka, and non-industrial diamonds. Russian petroleum made up 8 percent of total U.S. imports, of which 50 percent of Russian petroleum imports included unfinished oils (largely consumed as supplementary refinery inputs). The complete ban is expected to drive sky-high gas prices for U.S. consumers; meanwhile, U.S. energy suppliers are restraining gas supply to avoid a price crash. The energy industry faces pressure in repaying its shareholders’ excess profits due to staggering losses of the past decade. Europe has not moved to ban Russian energy products due to its dependence on Russian natural gas, which comprises 40 percent of gas consumption.