Is Russia About to Lose Permanent Normal Trade Relations with the West?

Is Russia about to lose nearly duty-free entry into the United States and elsewhere as a result of its war in Ukraine? Yes, it is.

The European Union wants to remove Russia’s most-favored nation (MFN) status at the World Trade Organization, a move that will impact some 95 billion euros ($105 billion) in trade with Russia.

“We are discussing options available to us in the WTO context,” European Commission Spokeswoman Miriam Garcia Ferrer told Bloomberg on Thursday. “This includes the possibility of removing MFN treatment to Russia on the basis of the WTO national security exception.”

Canada went one step further and said that instead of “the possibility” of doing it, they were in fact going to remove Russia from MFN trade status, along with Belarus, as that Russian allied nation is helping with the war against Ukraine.

The move is largely symbolic, as Canada imports around $1 billion worth of goods from Russia, 46% of which is petroleum products Canada can source elsewhere.

“Simply put, this means that Russia and Belarus will no longer receive the benefits, particularly low tariffs that Canada offers to other countries that are fellow members of the WTO,” Canada’s Finance Minister, Chrystia Freeland, told reporters at a news conference on Thursday.

Goods from Russia and Belarus will be subjected to a 35% tariff from herein. It is unclear if this is effective immediately or not.

Then there is the United States.

CPA circulated a petition last week calling for more sanctions on Russia, including its removal from Permanent Normal Trade Relations.

If coupled with policies directed at American manufacturing, revoking Russia PNTR strengthens calls by the President in his State of the Union Address to improve domestic supply chains.

“Instead of relying on foreign supply chains, let’s make it in America.” – President Joe Biden, March 2, 2022, State of the Union Address

Other than petroleum products, the U.S. mainly imports palladium, enriched uranium, and pig iron from Russia, with Russia being a key supplier of the last two items.

The U.S. may follow Canada to hike tariffs on those Russian goods, including oil, as removal of the PNTR status would increase port duties across the spectrum of goods Russia sells here.

Seven members of Congress from both parties in the House and Senate have bills that call for stripping Russia of this trade benefit. Sens. Rob Portman (R-OH), Bill Cassidy (R-LA), Ben Cardin (D-MD), Ron Wyden (D-OR), and Sherrod Brown (D-OH) are joined by House Representatives Earl Blumenauer (D-OR-3) and Lloyd Doggett (D-TX-35) in seeking legislation to change Russia’s trade status with the U.S.

CPA also recommends the White House do the following:

  • Immediately sign a new executive order targeting specific capital markets sanctions on certain key Russian industries and companies such as the Russian military and cyberspace industrial complex;
  • Protect retail and institutional investors and pensioners from funding Moscow’s agenda via capital markets sanctions;
  • Establish secondary sanctions to thwart entities or individuals from helping Russia circumvent sanctions

Permanent Normal Trade Relations is one step above Normal Trade Relations treatment for a country’s exports. Everyone selling goods to the U.S. that is not North Korea and Cuba has this status today.

The U.S. first extended Normal Trade Relations to Russia in 1990, and that continued after the fall of the Soviet Union. Presidents were required to periodically renew and extend Russia’s trade status with Proclamations. Russia was then held accountable – wars and gross human rights violations, for example, would have stripped that status.

That changed in 2012 for Russia, when President Obama signed into law H.R. 6156, which made Russia’s NTR status permanent.

CPA Trade Counsel, Charles Benoit, wrote that repealing PNTR for Russia “should be viewed as a minimum for anyone who considers themselves a hawk.”

Doing so would shift Russia back to the Trade Act of 1974’s Title IV framework, which could be simultaneously amended with some new criteria that would call for immediate removal of trade status, such as in the event of unprovoked military incursions into other countries.

Our goods imports from Russia are around $20 billion a year, with a little over a third being petroleum products, including crude oil. Russia is a major source of pig iron and enriched uranium, but the U.S. has thousands of uranium deposits and prospected mines.

We could help countries like Brazil increase pig iron production for the U.S. market if no one wanted to make that here, meaning higher tariffs on Russia is unlikely to be a drastic, inflationary move for the U.S. economy.

Congress Must Undo its Permanent Normal Trade Relations Votes for Russia, and China




Get the latest in CPA news, industry analysis, opinion, and updates from Team CPA.