Western governments have announced plans to impose punitive tariffs on Russian trade to further isolate Moscow from the global economy after the invasion of Ukraine.
In a development aimed at ratcheting up the pressure on Vladimir Putin, the G7 group of wealthy nations said it would strip Russia of “most favoured nation” (MFN) status under World Trade Organization (WTO) rules.
Setting out tougher measures in response to Putin’s military aggression in a joint statement on Friday, the G7 said a “broad coalition” of WTO members were preparing to revoke important benefits of Russia’s membership. The G7 is formed of the US, UK, Canada, France, Germany, Italy and Japan.
“We are united in our determination to hold President Putin and his regime accountable for this unjustified and unprovoked war that has already isolated Russia in the world,” the group said in a statement.
Such a move would mean imposing tariffs – border taxes paid by importers – on Russian products such as vodka and other goods. Designed to raise the price of goods to discourage trade, tariffs hit exporters but can also add to consumer costs.
The US currently only excludes two countries from “permanent normal trading relations”, Washington’s version of MFN status: Cuba and North Korea. Rather than tariffs at the current applied rate in the US of about 3% on average across Russian goods, the border tax would increase to more than 10 times that level.
Imposing punitive tariffs on goods sold by Russia to the west would be designed to increase the pressure on the Kremlin, in a move similar to tactics used by the former US president Donald Trump to exert pressure on China amid a bitter dispute between Washington and Beijing. The development follows steps taken by Canada to remove MFN status for Russia.
“The free world is coming together to confront Putin,” Joe Biden said in a statement from the White House announcing fresh actions to inflict economic pain on Russia.
Under global trading rules, MFN status involves two countries agreeing to trade with one another on the best possible terms, with low tariffs and highest possible imports allowed.
Biden said that countries representing half of the global economy were stripping Russia of the benefit, in “another crushing blow to the aggression of an economy that is already suffering badly from our sanctions”.
The move would be largely symbolic for the US given the relatively limited export volumes involved, with the world’s biggest economy importing less than $30bn (£23bn) from Russia last year. Western leaders have also already announced plans to phase out Russian oil and gas imports.
The consequences would, however, be bigger in the EU, which is Russia’s biggest trading partner that accounts for more than a third of total imports and exports. Russia sold about €95.3bn (£80bn) of goods to EU nations in 2020, with more than 70% of this figure dominated by fuel and mining products.
Trade with the UK is also limited outside of oil and gas, with Russia accounting for 1.5% of total imports and 0.7% of exports. Nevertheless, those imports include popular products such as vodka, meaning higher tariffs would push up the cost of goods for British consumers.
In a broad ranging communique, the G7 said it would also collectively push to prevent Russia from obtaining financing from multilateral financial institutions, including the International Monetary Fund, the World Bank and the European Bank for Reconstruction and Development.
“Russia cannot grossly violate international law and expect to benefit from being part of the international economic order,” it said.
The group of leading western nations said it stood ready to impose further restrictions on exports and imports of key goods and technologies with Russia, aiming to deny the Kremlin revenues and ensure western citizens are not underwriting Putin’s war.
“We will continue to evaluate the impacts of our measures, including on third countries, and are prepared to take further measures to hold President Putin and his regime accountable for his attack on Ukraine,” it added.
