Russia is bracing to hit back at the European Union, the US by leaving WTO, WHO as individual countries slap sanctions
In view of the economic sanctions imposed by NATO members and other European Union countries on Russia for invading Ukraine, Moscow plans to quit the World Trade Organisation (WTO). This is being mulled in response to the decision to remove its “most favoured nation (MFN)” status for invading Ukraine. Several countries have suspended Moscow’s trade preferences and imposed tariffs in excess of what WTO rules typically allow.
Russia may, therefore, sever ties with prominent international bodies, including the WTO and the World Health Organisation (WHO), saying they have “neglected all obligations toward our country”. Pyotr Tolstoy, deputy speaker of Russia’s Assembly, or Duma, said membership of these bodies brings no benefit “but instead directly harms our country.” He said Moscow’s Foreign Ministry had sent a list of international organizations to Parliament (Federal Assembly) with orders to review and break obligations or treaties that damage Russia.
The announcement comes two months after a pro-Kremlin minority party in the Duma drew up a bill calling for Russia to quit the WTO following a decision by a group of countries, including most European nations such as Canada, Japan, and the United States to suspend Moscow’s trade preferences.
Hundreds of western businesses, from Adidas, McDonald’s, and Pepsi to BP, Renault, British American Tobacco, and Starbucks, have pulled out of Russia to protest the war. Removal of Russia’s “most favoured nation” status means those countries can impose tariffs on Russia in excess of what WTO rules typically allow, in addition to allowing them to sanction Russian companies.
The MFN status is an economic position in which a country enjoys the best trade terms given by its trading partner(s). It is mandatory for all the member countries of the WTO to grant MFN status to each member country. As per MFN, the countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.
India had given the MFN status to Pakistan in 1996 after the establishment of WTO in 1995. But Pakistan has not given MFN status to India till date, violating the WTO rules. Therefore, the trade between India and Pakistan has been curtailed, resulting in extreme poverty in Pakistan.
However, some exceptions are allowed. For example, countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside. Or they can give developing countries special access to their markets. Or, a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate.
In general, MFN means that every time a country lowers a trade barrier or opens up its market, it has to do so for the same goods or services from all its trading partners—whether rich or poor, weak or strong. Politico reported that the idea of withdrawing “appears to be a U-turn from the government’s side,” noting that Russia’s WTO mission had written to the news organization in April “the government provides counter-arguments in support of our membership.”
But Russian President Vladimir Putin said in April that “illegal” sanctions on Russian companies by Western trading partners had violated WTO rules and told his government to “prepare an updated strategy for our actions in the World Trade Organization” by June 1. It’s not the first time Russia has discussed leaving the WTO, which it joined in 2012 after 19 years of negotiations.
James Bacchus, a professor of global affairs at the University of Central Florida and a former member of the WTO’s Appellate Body, wrote in March that Russia should be expelled from the WTO. Although there is no specific provision in the Marrakesh Agreement that established the WTO, “it is possible for two-thirds of the WTO’s 164 members to alter the rights and obligations of members and—if a member refuses to agree—for three fourths of the members to expel that member from the organization,” he wrote, adding that this option is set out in Article X of the agreement.
It merely means that it is very difficult for the WTO to get a two third/three fourth majority for expelling a country and there are no veto powers as such. The WHO members have also pressed the Geneva-based health body, which usually avoids taking a stance on politics, to take action against Russia. On May 10, the WHO’s European Committee adopted a non-binding resolution, condemning Russian attacks on Ukrainian health care facilities and the war’s impact on public health. The same resolution urged WHO chiefs to close their Moscow office for non-infectious diseases and relocate it to another country.
(The author wrote - World Trade Organisation: Implications for Indian Economy.)