Russia’s exit plan from the World Trade Organization and other global bodies
Col (Dr) PK Vasudeva
Given the economic sanctions imposed by NATO and other European Union (EU) countries on Russia for its invasion of Ukraine, Russia is considering leaving the World Trade Organization (WTO) ) following the decision to withdraw its “most favored nation” (MFN) in response to its invasion of Ukraine. This WTO decision led several countries to suspend Moscow’s trade preferences and impose tariffs higher than what WTO rules generally allow. (WHO), claiming that they have “neglected all obligations towards our country”.
Pyotr Tolstoy, deputy speaker of the Russian State Assembly, or Duma, said membership in these bodies does not bring any benefit “but directly harms our country”. He said that the Foreign Ministry in Moscow sent a list of international organizations to the parliament (Federal Assembly) with the order to review it and break any obligations or treaties that harm Russia.
The announcement comes two months after a pro-Kremlin minority party in the Duma drafted a bill calling on Russia to leave the WTO following the decision of a group of countries – including most European nations, Canada, Japan and the United States – to suspend Moscow’s trade preferences following its invasion of Ukraine. Hundreds of Western companies, from Adidas, McDonald’s and Pepsi to BP, Renault, British American Tobacco and Starbucks, pulled out of Russia to protest the war. Removing Russia’s “most favored nation” status means those countries can impose tariffs on Russia higher than WTO rules generally allow, in addition to allowing them to sanction Russian companies.
MFN status is an economic position in which a country enjoys the best trading conditions offered by its trading partner(s). This means it receives the lowest tariffs, fewest trade barriers and highest import quotas (or none). It is mandatory for all WTO member countries to grant MFN status to each member country. Under MFN treatment, countries cannot normally discriminate between their trading partners. Granting one a special favor (such as a lower customs duty rate for one of its products) and which must be applied to all other WTO members. India had granted MFN status to Pakistan in 1996 after establishment of WTO in 1995 but Pakistan did not grant MFN status to India till today which violated the rules of the WTO. As a result, trade between India and Pakistan has been curtailed resulting in dire poverty in Pakistan.
However, some exceptions are allowed. For example, countries can set up a free trade agreement that only applies to goods traded between the two countries or within the group – discriminating against goods from outside. Or they can grant developing countries special access to their markets. Or a country may erect barriers against products considered to be unfairly traded from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate. But the agreements allow these exceptions only under strict conditions. In general, the MFN principle means that whenever a country lowers a trade barrier or opens a market, it must 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 on the side of the government”, noting that the Russian mission to the WTO wrote to the news agency in April “the government provides counter-arguments to the support of our membership”. President Vladimir Putin said in April that “illegal” sanctions imposed on Russian companies by Western trading partners violated WTO rules and asked his government to “prepare an updated strategy for our actions within the ‘World Trade Organization’ by June 1. It is not the first time. Russia has discussed leaving the WTO, which it joined in 2012 after 19 years of negotiations. Opponents see some WTO conditions as unfavorable to Moscow and say they give the West a tool to punish the country.
James Bacchus, a professor of global affairs at the University of Central Florida and a former WTO Appellate Body member, wrote in March that Russia should be kicked out of the WTO. Although there is no specific provision for such a step in the Marrakesh Agreement which created the WTO, “it is possible for two thirds of the 164 members of the WTO to modify the rights and obligations of members and, if a member refuses to agree, for three quarters 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 just means that it is very difficult for the WTO to get a two-thirds/three-quarters majority to expel a country and there is no veto power as such.
Members of the WHO have also urged the Geneva-based health body – which usually avoids taking a stance on politics – to take action against Russia over the invasion, media outlets including the Daily Mail have reported. . On May 10, the WHO European Committee adopted a non-binding resolution condemning Russian attacks on Ukrainian health facilities and the impact of the war on public health. The same resolution urged WHO chiefs to close their Moscow office for non-infectious diseases and move it to another country.
If Russia withdraws from the WTO, it will have serious consequences for relations with the 164 member countries of the WTO on trade issues and the dispute settlement system, because the WTO is a body designed to promote the free trade by organizing trade negotiations and acting as an independent arbitrator in settling trade disputes. To some extent, the WTO has succeeded in promoting greater free trade. Russia will also suffer more in its economic development because the WTO is committed to economic development. For example, recent rounds have pressured developed countries to accelerate restrictions on imports from less developed countries. By encouraging free trade, Russian companies can specialize and produce better quality goods on the world market. This allows for more economies of scale, which is important for industries with high fixed costs, such as car and airplane manufacturing. In the new trade theory, it is this specialization and exploitation of economies of scale that is the most important factor in improving Russia’s economic well-being. Courtesy of Indiandefencereview