Following Russia’s military invasion of Ukraine on February 24, 2022, the United States and other major global economies have taken a range of actions to impose economic costs on Russia and Russian interests. These actions initially consisted of economic sanctions targeting Russian companies and individuals, but have been expanded to include trade in goods.
On March 11, 2022, the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States), as well as the European Union, issued a statement announcing their intention to impose additional economic costs on Russia in response to its military invasion of Ukraine, including with respect to trade in goods. The joint statement included a range of commitments aimed at isolating Russia from the world’s major economies and global financial institutions, including revoking Russia’s “Most Favored Nation” (MFN) status, which affords Russian imports access to favorable tariff rates among World Trade Organization (WTO) members, and imposing additional restrictions on exports and imports of “key goods and technologies” to Russia.
As discussed below, the United States, the European Union, and the United Kingdom have each taken steps to effectuate the G7 statement. In addition to revoking Russia’s MFN status, thereby increasing the cost of Russian imports generally, these jurisdictions have all imposed certain product-specific restrictions on the importation and/or exportation of specific goods from and/or to Russia. In certain instances, these measures have also been extended to cover trade with Russia’s ally Belarus.
United States
In addition to
economic sanctions and export controls, the United States has imposed other limitations on trade in goods between the United States and Russia. While the overall level of bilateral trade between the United States and Russia is relatively low, with the United States importing USD 29.7 billion from and exporting USD 6.4 billion to Russia in
2021, trade in certain sectors (
e.g., certain titanium products used by the US aerospace industry, petroleum/oil, etc.) remains significant. For instance, in 2021, the United States imported about 700,000 barrels of Russian crude oil and petroleum per day, which represents approximately half of all Russian imports (by value) into the United States.
Trade-oriented actions by the United States have thus far fallen into two categories: (1) targeted, product-specific restrictions on imports from and exports to Russia; and (2) the removal of MFN (also referred to as “Permanent Normal Trade Relations” or “PNTR”) status from Russia and its ally Belarus.
Product-Specific Restrictions
On March 8, 2022, the Biden Administration issued an
Executive Order “Prohibiting Certain Imports and New Investments With Respect to Continued Russian Federation Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine.” In addition to several investment-related restrictions, the March 8 Executive Order also prohibits imports of Russian-origin crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products.
According to
guidance published by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), the March 8 Executive Order is limited to the identified energy products and does not prohibit imports of non-Russian origin items, even if such items transit through or depart from Russia. Under OFAC
General License No. 16, imports of Russian-origin energy products that were made pursuant to written contracts or agreements entered prior to March 8, 2022 are authorized through 12:01 a.m. eastern daylight time on April 22, 2022.
In parallel with the Administration, the US Congress has also acted to restrict Russian energy imports into the United States, with the House (H.R. 6968) and Senate (S.A. 5021) passing legislation that bans
all Russian-origin products classified under Chapter 27 of the Harmonized Tariff Schedule of the United States (HTSUS). The legislation authorizes the President to waive the prohibition for national interest reasons, subject to congressional approval.
In connection with the joint statement of the G7 members, the Biden Administration issued on March 11, 2022 an
Executive Order, “Prohibiting Certain Imports, Exports, and New Investment with Respect to Continued Russian Federation Aggression” imposing a range of prohibitions against trade and financial activities with Russia, including:
- Importation of Russian-origin fish, seafood, and preparations thereof; alcoholic beverages; non-industrial diamonds; and any other products of Russian origin determined by the Secretary of the Treasury;
- Exportation, re-exportation, sale, or supply, directly or indirectly, from the United States, or by U.S. persons, of luxury goods, and any other items determined by the Secretary of Commerce to any person located in Russia; and
- Exportation, re-exportation, sale, or supply, directly or indirectly, from the United States, or by U.S. persons, of U.S. dollar-denominated banknotes to the Government of the Russian Federation or any person located in Russia
In connection with this Executive Order, Treasury issued
guidance to specify which imports, by HTSUS number, are prohibited.
Under OFAC
General License No. 17, imports of Russian-origin products covered by the March 11 Executive Order that were made pursuant to written contracts or agreements entered into prior to March 11, 2022 are authorized through 12:01 am eastern daylight time on March 25, 2022.
Removal of MFN Status
Also following the March 11, 2022 joint statement by G7 members, the US Congress has taken up legislation to remove Russia’s and Belarus’s PNTR status. The House first passed legislation on March 16, 2022 (H.R. 7108), with the Senate moving to pass equivalent legislation on April 7, 2022 (S.A. 5020) (both bills are titled the “Suspending Normal Trade Relations with Russia and Belarus Act”).
In practice, suspension of PNTR means that imports from Russia and Belarus will be subject to “Column 2” tariff rates of the HTSUS. These rates are, on balance, much higher than those “Column 1” tariff rates normally accorded to US WTO trading partners. That said, for certain products, there may be no difference between tariff rates under Column 1 and Column 2. With Congress’s action to strip Russia and Belarus of PNTR, Russian and Belarussian imports will now join those from North Korea and Cuba subject to higher Column 2 tariff rates. In addition to the increased duty rates, the key features of the legislation passed by Congress include:
- Presidential authority to unilaterally raise tariff rates on Russian and Belarussian imports to levels above Column 2 tariff rates until January 1, 2024;
- Presidential authority to restore, for periods not to exceed one year, PNTR for Russia and Belarus, subject to the certification to Congress of certain conditions (e., withdrawal of forces from Ukraine and cessation of military hostilities) and congressional disapproval; and
- Instruction to the Office of the US Trade Representative to take steps to encourage other WTO members to suspend trade concessions to Russia and Belarus and to consider further actions with a view toward suspending Russia from the WTO and halting Belarus’s WTO accession process.
Given the level and mix of Russian imports into the United States, without approximately half of imports comprised of now banned energy products, it is unclear the extent to which the revocation of Russia’s PNTR status and imposition of Column 2 tariff rates will impact the amount of duties imposed on Russian imports moving forward. The Biden administration has also not indicated whether it will use the discretion afforded by the legislation to raise tariff rates above those Column 2 rates.
European Union
The European Union has also moved to respond to Russian aggression in Ukraine, announcing on March 15, 2022, its intent to take any actions necessary to protect its essential security interests, including the suspension of MFN treatment on products and services of Russia. Unlike the United States and certain other WTO members, the European Union does not maintain a non-MFN tariff schedule, meaning that the decision to revoke Russia’s MFN status would not lead to an automatic increase in tariff rates applicable to Russian imports, and would reflect a largely symbolic gesture.
In terms of process, the European Union will use the statement regarding the withdrawal of MFN benefits to send a signal that it no longer considers Russia a “normal” trading partner, and then proceed with imposing import and export restrictions and possibly also higher tariff rates by means of a regulation imposing sanctions. Such action would follow the usual course for the adoption of economic sanctions in the European Union, akin to those previously imposed against Russia following its military invasion of Ukraine. Specifically, proposals for sanctions from the High Representative of the Union for Foreign Affairs and Security Policy will be considered by the Council of the European Union, and the European Commission, together with the High Representative, gives effect to these decisions through joint proposals for Council regulations, also adopted by the Council.
The European Union has
already imposed economic sanctions against Russia, including an import prohibition on certain iron and steel products in a recently adopted fourth round of economic sanctions. Any additional measures impacting trade will be in addition to those already passed.
In light of the significant scale of EU-Russia trade, these EU measures are expected to have a powerful impact on Russia’s economy and will impose additional costs for EU importers, especially if the European Union decides to target some of Russia’s key export sectors. The European Union is Russia’s largest trading partner, accounting for 37.9% of Russian exports in 2020 (EUR 95.3 billion). The majority of these
imports are of fuel and mining products (especially petroleum (EUR 67.3 billion)), followed by agriculture and raw materials (EUR 4.3 billion), chemicals (EUR 4.1 billion), and iron and steel products (EUR 4 billion). However, a lack of consensus among EU members means that the European Union could forego measures impacting imports of Russian oil, gas, or other energy products, meaning that the impact of increased duties will be more limited.
United Kingdom
On March 11, 2022, the UK Prime Minister issued a
press release with the text of the G7 joint statement and a promise to endeavour “to take action that will deny Russia Most-Favoured-Nation status relating to key products.” As in the United States and the European Union, UK action would revoke important benefits of Russia’s membership of the WTO and ensure that the products of Russian companies no longer receive MFN treatment.
The following week, on March 15, 2022, the Department for International Trade (DIT) and HM Treasury issued a
statement which outlined what the revocation of Russia’s MFN status would mean in practice. According to the statement, the United Kingdom will:
- Deny imports from Russia and Belarus treatment under the United Kingdom’s MFN tariff rates;
- Impose an additional 35% tariff rate on top of current tariff rates; and
- Ban exports of certain luxury items to Russia.
Products facing additional tariffs are estimated to be worth GBP 900 million and include: iron, steel, fertilisers, wood, tyres, railway containers, cement, copper, aluminium, silver, lead, iron ore, residue/food waste products, beverages, spirits and vinegar (this includes vodka), glass and glassware, cereals, oil seeds, paper and paperboard, machinery, works of art, antiques, fur skins and artificial fur, ships and white fish.
These tariff changes were accomplished through legislation pursuant to Section 15 of the Taxation (Cross-border Trade) Act (2018) which gives the government the power to vary the amount of import duty applicable to goods in the event of a “dispute or other issue {which} has arisen between Her Majesty’s government in the United Kingdom and the government of a country or territory.” The statutory instrument which gives legal effect to this change (The Customs (Additional Duty) (Russia and Belarus) Regulations 2022) and accompanying documents can be found
here.
Generally, the United Kingdom’s
bilateral trade with Russia is dwarfed by EU-Russia trade. UK exports to Russia amounted to GBP 4.3 billion (0.7% of all UK exports) and imports from Russia amounted to GBP 11.6 billion (1.8% of all UK imports) in the year leading up to Q3 of 2021. As such, raising tariff rates will likely have a much smaller economic impact on the Russian and UK economies than similar measures imposed by the European Union.
