Explained: What Does Biden's Call to Revoke ¡®Permanent Normal Trade Relations¡¯ Mean For Russia?

The United States President, Joe Biden has stated that the US will move to withdraw Russia's "most favoured nation" (MFN) status. If Congress approves the bill, it will essentially suspend normal trade relations between the two nations and allow the administration to implement fresh taxes and sanctions in retaliation to Russia's invasion of Ukraine.

Biden's decision is coordinated with the Group of Seven (G-7) and the European Union, and it marks a new level of economic pressure on Russian President Vladimir Putin.

politico

"As Putin's merciless invasion escalates, the US and its allied forces and partners are working in full agreement to put financial pressure on Putin and further isolate Russia on the global stage," the statement reads. Biden said in remarks from the White House, outlining steps to "squeeze Putin and hold him even more accountable for his aggression against Ukraine."

What is Permanent Normal Trade Relations (PNTR)?

Permanent Normal Trade Relations (PNTR) is a legal classification for free trade with a foreign country in the United States. Section 5003 of the Internal Revenue Service Restructuring and Reform Act of 1998 modified the status from most favoured nation (MFN) to normal trade relations in the United States. After some time, permanent was added to normal commercial relations.

shutterstock

In international trade, one state grants another MFN designation (or service). It means that members of the World Trade Organization (WTO) agree to treat each other fairly so that they can all benefit from each other's lowest tariffs, maximum import quotas, and smallest trade barriers for products and services.

A country with MFN designation will not experience discrimination or be treated differently than any other country with MFN recognition. If one give someone a special favour (such a lower customs duty rate for one of their items), then one must reciprocate for all other WTO members. MFN treatment is a principle of non-discrimination. This is one of the measures that ensures nondiscriminatory trade. 'National Treatment' is another.

US Revocation of PNTR with Russia

According to reports, taking away MFN formally permits Western alliances to raise import taxes, impose quotas, or even prohibit Russian goods, limit services leaving the country, and potentially evade Russian intellectual property rights. They must enact it in conformity with their own national laws, which in the United States necessitates congressional approval.

AP

MFN designation is also called as permanent normal trade relations in the United States. Biden is sure to receive majority support in Congress, as lawmakers in the United States have already begun to scrutinise and decrease trade ties with Russia. A bipartisan group of congressmen presented legislation early this week that, if passed, would prohibit Russian energy imports into the US and halt normal trade relations with Russia and its ally, Belarus. The bill was put on hold because the White House requested additional time to secure allies' support.

Economic impact

The large majority of Russian exports to the United States are oil and gas, as a result of US sanctions imposed on Moscow in 2014 to punish Putin for his invasion of Crimea. Before Friday's decision, Washington already had imposed a restriction on Russian energy imports, so the loss of MFN may not affect much of the remaining bilateral commerce.

According to Jacob Funk Kirkegaard, senior fellow at the German Marshall Fund, the action is primarily aimed at isolating Russia as much as possible in all international fora. "It's not that this is merely symbolic," he said, "but the impact is significantly smaller than the US oil restrictions or the financial measures applied."

The EU's removal of Russia's MFN designation will have a greater impact because the bloc deals with Russia far more. But, as Kirkegaard pointed out, the EU is also reducing energy imports from Russia, so there may not be much left to punish in the non-energy sector. He explained that removing Moscow's MFN designation also implies that non-MFN taxes will apply, which are typically similar to MFN levels.

AFP

Ending MFN would have a greater impact if the West could persuade additional countries to participate, according to Claude Barfield, senior scholar at the American Enterprise Institute, who spoke with VOA. The Biden administration is already lobbying for a broader coalition of WTO members, outside of the G-7, to declare Russia's MFN status revoked.

A key concern will be whether Russia retaliates by prohibiting G-7 shipments to the country.

"If that were the case, Russia would be further isolating itself and reducing trade with the West," Kirkegaard added.

The US is also restricting imports of items from numerous key areas of the Russian economy, including seafood, vodka, and diamonds, in addition to stripping Moscow of its MFN designation. The G-7 is also attempting to prevent Russia from borrowing from major multilateral institutions such as the World Bank and the International Monetary Fund.

Unlike the restriction on Russian oil imports, which has an impact on what Americans pay at the pump, the impact of further restricting commerce with Moscow on the US economy is likely to be minimal because of the modest quantity of trade involved.

For more on news and current affairs from around the world please visit Indiatimes News.