Revoking the ‘Most Favoured Nation’ status will allow Washington and its western allies to impose tariffs on a wide range of Russian goods, which would put more pressure on an already-strained economy
A protester holds a placard showing the Russian president Vladimir Putin as an other protester holds a Ukrainian flag during a protest against Russia’s invasion of Ukraine. AP
News has come in that the United States, European Union and the G7 countries, are moving to revoke “most favoured nation (MFN)” trade status for Russia over its invasion of Ukraine.
According to a Reuters report, President Joe Biden will announce the plans at the White House at 10:15 am (EST time).
This latest action comes on top of other unprecedented sanctions, export controls and banking restrictions aimed at pressuring Russian president Vladimir Putin to end the largest war in Europe since World War II.
However, what does MFN status mean, what are the benefits of having MFN status and how does this affect Russia.
We try to explain it.
What is MFN status?
While it may seem that MFN status is special treatment to one country, it is, in fact, the complete opposite.
The MFN clause finds mention in the World Trade Organization’s (WTO) General Agreement on Tariffs and Trade and requires every WTO member country to accord MFN status (or preferential trade terms with respect to tariffs and trade barriers) to all other member countries.
The primary condition under MFN is that a country must charge the same tariff rate on imports irrespective of their origin.
All 164 members of the WTO enjoy MFN status, which means they all receive the same trade benefits as all other members.
However, there’s an exception to this for developing nations. In case of such countries, they receive preferential treatment without having to return it, so their economies can grow.
Benefits of MFN
Being accorded MFN status is highly beneficial to countries, especially developing ones. The MFN status grants a country more access to a foreign market.
Moreover, as trade barriers are lowered, the cost of exports reduces and the products more competition, giving businesses a chance to grow.
It goes without saying that when businesses do well and exports increase, a country’s economy also sees a substantial growth — making it a win-win situation for all.
MFN status also helps in cutting down red tape; different tariffs and customs don’t have to be calculated for each import since they are all the same.
Canada withdraws MFN for Russia and Belarus
The Justin Trudeau-led government in Ottawa on 3 March issued an order removing Most Favoured Nation status from Russia and Belarus.
Withdrawing the MFN status, the administration made a statement, saying: “Russia’s invasion of Ukraine, supported by Belarus, is a violation of international law and threat to the rules-based international order. Canada is taking further action to ensure those who do not support the rules-based international order cannot benefit from it.”
The effect of the withdrawal of Most-Favoured-Nation status from Russia and Belarus is that the duty rate on goods from these jurisdictions will increase to 35 per cent.
How will withdrawing MFN status hurt Russia?
Revoking Russia’s MFN status would allow the US and allies to impose tariffs on Russian imports.
This, in turn, would put additional pressure on the Russian economy that is already heading into a “deep recession.”
Russia has been severely sanctioned by countries across the world, making it No 1 on the infamous list of the most-sanctioned countries in the world. According to global sanctions-tracking database Castellum.ai, there are over 5,500 sanctions against Russia since it began its offensive against Ukraine on 24 February.
The Kremlin had said on Thursday that the economy was experiencing a shock and that measures were being taken to soften the impact of what it described as an “absolutely unprecedented” economic war being waged against Moscow.
Also read: Russia is No 1: A look at the most-sanctioned countries in the world and their ‘crimes’
“Our economy is experiencing a shock impact now and there are negative consequences, they will be minimised,” Kremlin spokesman Dmitry Peskov told reporters on a conference call.
He described the situation as turbulent, but said that measures to calm and stabilise it were already being taken.
Has MFN status of a country been revoked in the past?
In 2019, the Indian government withdrew MFN status to Pakistan following the Pulwama suicide bombing attack in which 40 Central Reserve Police Force (CRPF) personnel lost their lives.
Then Finance Minister Arun Jaitley had said, “The MFN status, which had been granted to Pakistan, stands withdrawn.”
India had granted MFN status to Pakistan in 1996. Under WTO norms, member countries are mandated to give this status to each other on a reciprocal basis. However, Pakistan did not do so.
With inputs from agencies
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