Perspectives, Ukraine, Russia & CIS, World Trade Organization

Perspectives: Withdrawing MFN from Russia at WTO is right – going further is problematic

The question of whether Russia should continue to benefit from World Trade Organization membership has moved to prominence in recent days. The rules to remove most-favoured nation treatment are clear and should be applied. But we should be cautious of going further as this would risk the WTO’s future without delivering any benefit to Ukraine.

As the horrors of Russia’s actions in Ukraine become clearer, their participation in global institutions is increasingly being called into question. With this happening in a wide range of fields including sport and culture, trade policy can be no exception.

It is therefore no surprise that there have been calls for Russia to be expelled from the WTO. Ukraine wrote to the Chair of the General Council on 2 March informing him that they would no longer apply WTO agreements in respect of Russia. They also suggested that other members take similar steps, and “consider further steps with the view to suspending participation in the WTO.

Canada responded almost immediately in revoking Russia’s Most Favoured Nation status, and adding Belarus for their role in the conflict. We can expect others who have sanctioned Russia to follow.

The issue of going further was pushed by former Appellate Body Chair James Bacchus, who suggested the US and EU work together “to boot Putin and his corrupt and crony-ridden government out of the global trading system”. It was perhaps a response to this article as much as to Ukraine’s letter that the Russian letter noted that there was no legal ground for suspension from the WTO.

Given the development of WTO and previously GATT membership, there is no obvious precedent for what should happen in the event of such aggression between members. However, both legal and geo-political considerations are relevant, and need careful if urgent consideration.

MFN suspension has clear legal basis

The suspension of Russia’s MFN privilege at the WTO has clear legal base. Article XXI of GATT states that “Nothing in this Agreement shall be construed to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests taken in time of war or other emergency in international relations”. Identical text can be found in Article XIV bis of GATS.

On this basis Canada and those following that lead can set whatever tariffs they like for Russian goods, and withdraw access to services provision. It should be noted that as minerals, oil, and gas account for 59% of Russia’s total exports, such action may not have a major impact, though exports of chemicals and machinery could be more affected.

Notwithstanding the fact that questions around oil and gas supplies remain far more important, it seems therefore clear that countries opposed to Russia’s invasion can and therefore probably should withdraw MFN privileges. However, it should be noted that there is no similar provision for the WTO as a whole, for example to the Marrakesh Agreement establishing the WTO. Notionally changes can be made including expulsion of a signatory if a significant majority agree, but this is legally uncertain territory.

Beware of overreach

While there has been a strong global response to Russia’s aggression, it remains the case that the main actions have been centred on the G7, NATO, and EU, accompanied by typical allies such as Australia, New Zealand, Singapore and South Korea. A number of countries have been more reluctant to take action, worried about relations with either or both Russia and China. Most notable in this category have been Israel and India, but European Ambassadors for example also wrote to Vietnam questioning their abstention in a key UN vote condemning aggression.

Given that many countries which supported that vote have chosen not to impose sanctions, it is difficult to see anything like an overwhelming majority for Russian expulsion from the WTO. Even without certainty about the numbers there could be reasons to proceed given the gravity of the current situation, but those seeking to do so should also be clear about how this may be more widely seen.

There is a residual suspicion in many countries that the US and EU wish to rewrite the rules of the WTO to ensure they continue to be the main gainers from global trade. Thus, they may have the worry that pushing to go further on Russia will lead onwards to China and then potentially other countries.

The cost to Russia of WTO expulsion is probably not great compared to the existing sanctions. Potentially it would be more about symbolism than economics, but if that deepened other divides, it is probably not a good idea to pursue.

Global institutions are always a necessary compromise

With 164 members there is always going to be a range of opinions within the WTO, whether on trade or broader international relations issues. This has of course been a key reason for the failure to deliver new agreements since 1995, but we should never discount the value of having so many countries signed up to a core set of trade rules.

Equally we shouldn’t take for granted the permanence of any arrangement such as the WTO. Countries have seen the value of trade generally, and membership in particular, in different ways. Many have sought to undermine the organisation in different ways, including the US under president Donald Trump, but also before and after. Hence, the value needs to be regularly stressed, even alongside countries going further if they wish.

As well as economic benefits, the interactions between countries carry their own value. This author witnessed Russia and Ukraine exchange tough language during the former’s 2016 Trade Policy Review, but exchange warm words privately afterwards. This is something that would right now be impossible.

Sixty years ago, then US President Kennedy declared an embargo on fellow GATT member Cuba, that substantively remains in place even as both are now part of the WTO membership. Hopefully relations between Russia and Ukraine will return much sooner than in this timeline, with both able to participate fully in functioning – if frustrating – global institutions.


 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

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