US decides to deny Russia ‘most favored’ trade status

WASHINGTON — The United States decided on Friday to sever normal trade relations with Russia — and ban imports of its seafood, vodka and diamonds — as it joined other countries to increase economic pressure on Moscow for its invasion of Ukraine.

“As Putin continues his merciless assault, the United States and our allies and partners continue to work together to increase economic pressure on Putin and further isolate Russia on the world stage,” Biden said.

Stripping Russia of its most favored nation trading status will require a vote of Congress, which the House will pass next week, House Speaker Nancy Pelosi (D., Calif.) said. The Senate is working on a deal it can pass quickly, a spokesman for Senate Majority Leader Chuck Schumer (D., NY) said.

The proposed legislation would end the U.S. policy of treating Russia as the most favored nation, a key principle of the World Trade Organization that requires member countries to provide equal tariff and regulatory treatment to other members.

On Friday, other nations also detailed new efforts to isolate Russia.

Wealthy Group of Seven democracies have pledged to work to curtail the West’s trade with Russia and restrict its access to funding from international financial organizations such as the International Monetary Fund and the World Bank.

European Commission President Ursula von der Leyen said the EU would ban the import of key iron and steel products from Russia, which she said would deprive the Kremlin of billion euros in export earnings.

The EU is by far the most important destination for Russian exports, buying 41% of the total value in 2019, followed by China with 13.4%, according to the WTO.

Ms von der Leyen said the EU would also ban the export of luxury goods to Russia.

“Those who support Putin’s war machine should no longer be able to enjoy their lavish lifestyle as bombs fall on innocent people in Ukraine,” she said.

The US action will deprive Russia of more than $1 billion in export revenue, according to a White House statement, adding that the United States “reserves the authority to impose additional import bans, if applicable”.

The United States also imposed restrictions on exports of luxury goods, such as watches, vehicles and jewelry, to Russia and Belarus on Friday. The value of U.S. exports of products covered by the restrictions is nearly $550 million a year, the White House said.

The Russian Embassy in Washington did not respond to a request for comment.

The United States still has other measures to increase the pressure on Russia. He could expand sanctions on the banking system, including cutting off Gazprombank, a vital part of Russia’s energy export, from access to the US dollar.

Another option is to put in place a total ban on exports to Russia, going beyond the defense, maritime, luxury and sensitive technology sectors already banned or severely regulated.

Crab – primarily snow crab and red king crab – accounts for the bulk of newly banned imports into the United States, accounting for $1.1 billion of Russia’s $1.2 billion seafood imports in 2021.

Since Russia invaded Ukraine in late February, the United States and allied countries have imposed heavy sanctions on Russia. The WSJ’s Shelby Holliday explains how these sanctions affect everyone from President Vladimir Putin to ordinary Russian citizens. Photo: Pavel Golovkin/Associated Press

A spokeswoman for the National Fisheries Institute said the group of importers would work with the administration on implementing the latest seafood import ban.

Russia is famous for its vodka, but Americans drink relatively little of the distilled alcohol exported from that country. Russia exported about $21 million worth of vodka to the United States in 2021, or about 1.4% of vodka imports into the United States. The United States imported $276 million worth of diamonds from Russia in 2021, most of which was for non-industrial use.

Overall trade between the United States and Russia is modest, with $36.1 billion in two-way merchandise trade between the two nations in 2021, making Russia the United States’ 23rd largest trading partner. according to Census Bureau data.

Of that amount, $29.7 billion were imports of Russian products into the United States, including fuels, precious metals, iron and steel. Import volume is only 6% of US purchases from China in 2021.

Apart from oil and gas, Russia is not a major player in world trade. Even so, analysts say the combined impact of other nations will be significant.

“The more countries that take this step, the more effective the sanctions will be,” said Inu Manak, trade policy officer at the Council on Foreign Relations. “If the allies coordinate to remove trade concessions from Russia, the impact on the Russian economy will be quite severe.”

The administration has already announced a ban on Russian oil, coal and gas, which make up about 60% of all US imports from the country.

Ed Gresser, a former official in the U.S. Trade Representative’s office who is now vice president of the Progressive Policy Institute, a centrist-leaning Democratic think tank, said the energy import ban could have an impact inflationary because of Russia’s huge presence in the global energy market.

The other measures announced on Friday are not likely to have much effect on consumers “because Russia’s trade with the world is not very significant”, he said.

Apart from energy products, other raw materials, and basic commodities, which make up a large portion of the United States’ remaining purchases, Russia will continue to receive duty-free or insignificant duty-free treatment even after the end of most-favoured-nation trading status.

The tariff rate on specialty metals such as uranium and palladium, another major import category that includes critical foods for some US industries, will remain zero even if Russia’s status changes.

Indeed, the list of tariff rates, which is used for countries without most favored nation status, was designed to minimize tariffs on U.S. manufacturers dependent on imported materials, while imposing higher rates on consumer products.

The loss of most favored trade status means that some Russian imports will be subject to higher tariff rates that are currently imposed on North Korea and Cuba. The United States imports relatively little from Cuba and nothing from North Korea.

The proposed legislation also calls for Russia’s expulsion from the WTO. This is a symbolic gesture, as this step would require a long-term effort to obtain the consent of more than 100 member countries.

Meanwhile, Senate Finance Committee Chairman Ron Wyden (D., Ore.) is proposing changes to the tax code aimed at penalizing the Russian government and punishing Russians who own U.S. assets.

His plan would deny foreign tax credits and certain deductions to U.S. companies earning income in Russia and Belarus, adding those countries to a list that includes Iran, North Korea, Syria and Sudan.

“If American companies choose to continue paying taxes to Russia – taxes that fund the bombing of hospitals for women and children – they should do so without a penny of help from American taxpayers,” he said. declared.

Mr. Wyden’s plan would also deny U.S.-Russian tax treaty benefits to sanctioned individuals and entities and give the Treasury Department the ability to add more people to that list. The change would effectively increase taxes on their cross-border dividend and interest payments.

Other steps the United States could take include sanctions on sectors such as shipping and insurance and blacklisting other companies and government officials. On Friday night, the Treasury Department announced a new round of financial sanctions targeting “Russian and Kremlin elites, oligarchs, and Russian political and national security leaders” who have backed Mr Putin.

Write to Yuka Hayashi at [email protected], Alex Leary at [email protected] and Anthony DeBarros at [email protected]

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