EXPLAINER: Russia is not a ‘most favored nation.’ What now?

Mar 11, 2022, 2:09 PM | Updated: Apr 8, 2022, 12:19 am
FILE- Oil storage tanks seen near the town of Usinsk, 1500 km (930 miles) northeast of Moscow, Russ...

FILE- Oil storage tanks seen near the town of Usinsk, 1500 km (930 miles) northeast of Moscow, Russia, on Sept. 12, 2011. The action Thursday, April 7, 2022, by the U.S. House and Senate to revoke Moscow's "most favored nation" trade status, and ban oil imports, intensifies the U.S. response to Russia's invasion of Ukraine amid mounting reports of atrocities. (AP Photo/Dmitry Lovetsky, File)

(AP Photo/Dmitry Lovetsky, File)

WASHINGTON (AP) — With Congress voting to suspend normal trade relations with Russia and ban the importation of its oil, President Joe Biden’s action to tighten the U.S. squeeze on Russia’s economy now can intensify.

The action Thursday by the U.S. House and Senate to revoke Moscow’s “most favored nation” trade status and ban oil imports intensifies the U.S. response to Russia’s invasion of Ukraine amid mounting reports of atrocities. Lawmakers showed overwhelming support for action striking at Russia’s economy, with the two separate bills each passing the Senate 100-0 and garnering near-unanimity in the House.

Last month Biden moved, with European and other key allies, to revoke Moscow’s normal trade status. He also has taken executive action to ban U.S. imports of Russian oil, liquefied natural gas and coal. Also banned are imports of Russian seafood, alcohol and diamonds.

Biden can now sign the new legislation into law. The bill to end normal trade relations with Russia opens the way for Biden to impose higher tariffs on various imports, such as certain steel and aluminum products, further weakening the Russian economy under President Vladimir Putin. It also ensures that Moscow ally Belarus receives less favorable tariff treatment.

And the U.S. is cutting the flow the other way, too: It has barred the export of expensive watches, cars, clothing and other luxury American products to Russia.

The U.S. revocation of Russia’s long-standing most favored trade status was one in a series of economic and financial sanctions that have been leveled against Russia in response to its brutal war against Ukraine that began Feb. 24.

By itself, the downgrade of its trade status won’t have an immediate far-reaching effect on the Russian economy. But combined with the other sanctions the U.S. and its allies have imposed, the goal is to intensify the pressure on Putin and force a pullback of his Russian forces.

A closer look:

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WHAT IS ‘MOST FAVORED NATION’ STATUS?

The idea behind MFN status is to equalize the trade treatment in tariffs and import quotas for all of a country’s trading partners. Say, for example, that the U.S. levies a 13% tariff on imported leather gloves. MFN status means that gloves imported from France, China, Brazil and Russia would all be taxed at that same rate.

MFN status has been a baseline for global trade, ensuring that countries within the World Trade Organization are treated on a similar footing, with some exceptions that allow, for example, preferential treatment for developing countries.

Over the years, the U.S. has revoked the MFN status of more than two dozen countries — generally for political reasons, with the Cold War bringing the sanction against the then-Soviet Union and other communist countries, for example.

With the exception of Cuba and North Korea, the preferred status of those nations was eventually restored. This was done, for example, after the thaw of the Cold War in Eastern Europe and the opening of U.S.-China relations after the visit of President Richard Nixon. With these latest moves, Russia joins the ranks of those two communist countries in lacking MFN status with the U.S.

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WHAT ABOUT REAL IMPACT VS SYMBOLISM?

For the U.S. at least, removing most favored nation status is a mostly symbolic gesture. The U.S. ban that was announced last month on imports of Russian oil, gas and coal already eliminated about 60% of all U.S. imports from Russia. The import bans against alcohol, seafood and diamonds add up to only about $1 billion in revenue, according to White House figures.

Russia provided less than 1% of all U.S. vodka imports in December, according to the Distilled Spirits Council of the United States, and less than 2% of U.S. seafood imports by volume, according to federal statistics.

But symbolism can be important in war.

In debate on the legislation Thursday, Rep. Richard Neal, D-Mass., said innocent Ukrainians were being slaughtered even as lawmakers were meeting.

“We have no time to waste and must immediately further punish Vladimir Putin,” Neal said.

Russia’s 6-week-old invasion failed to take Ukraine’s capital Kyiv quickly, and in the wake of that failure and heavy losses, Russia has shifted its focus to the Donbas, a mostly Russian-speaking, industrial region in eastern Ukraine. Ukraine’s foreign minister begged again Thursday for weapons from NATO — and the western alliance agreed, spurred into action by atrocities revealed in the wake of the Russian withdrawal from areas around Kyiv.

Ukrainian officials said hundreds of bodies of civilians were found, many lying in the street, in towns around Kyiv.

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DIAMONDS, VODKA, KING CRAB. WHAT ELSE DOES THE U.S. IMPORT FROM RUSSIA?

The U.S. buys mostly natural resources from Russia for which existing tariffs are mostly low or zero — oil and metals such as palladium, rhodium, uranium and silver bullion. Imports also include chemical products and semi-finished steel products, plywood and, paradoxically, bullets and cartridge shells.

Because the imports from Russia are mostly natural resources, they generally will face little to no increase in tariffs as a result of the lost MFN status, Ed Gresser, director for trade and global markets at the left-leaning Progressive Policy Institute, noted in an online posting.

To replace the current tariff rates, U.S. buyers of Russian goods would pay import taxes established under a 1930 U.S. law that disrupted trade during the Great Depression. It would still be zero for the metals. But the rates would soar — to levels considered punitive — for unwrought aluminum, plywood and semi-finished steel, among other products.

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EXPLAINER: Russia is not a ‘most favored nation.’ What now?