The details of the trade restrictions announced last Friday on Russia as part of a fourth round of sanctions adopted by Brussels in response to Moscow’s military attack on Ukraine were finally released on Tuesday evening.
These involve a ban on steel imports and export restrictions on luxury items. They open a new phase in EU foreign policy in which traditional goods trade policy is getting dragged into the EU’s hitherto finance, weapons and persons-focused international sanctions toolbox.
Any qualms about WTO-compliant treatment of trade with Russia can now be set aside, given Brussels’ decision, made official today in Geneva, to rescind the country’s MFN treatment in the institution.
Security exception
The EU move is premised on the notion that the recent events in Ukraine are affecting its essential security interests. This would provide legal cover for discrimination against Russian trade. Whether Russia responds with litigation in the WTO’s dispute settlement body remains to be seen. But Moscow has already indicated that it might do so.
Be it what it may, only in very rare occasions has the WTO has been able to opine on the use of the famous national security exception under GATT Article XXI.
It did so relatively recently in a report related to a case brought by Ukraine against Russia’s transit restrictions at the height of their bilateral conflict following Russia’s annexation of Crimea and occupation of the Donbass six years ago.
WTO panelists revealed back then to the international trade community that they will largely defer to a national government’s national security determination and let them get away with relevant trade measures. There is no reason it would be different if Russia were to sue the EU in Geneva. The fact that the new trade measures are taken on the basis of the EU’s Article 215 of the Treaty of the Functioning of the European Union, i.e. its common foreign and security policy – would likely offer further legal cover in Geneva.
So the new EU sanctions package expands on ‘traditional’ foreign policy sanctions. These have so far targeted the travel rights and assets of powerful individuals tied to the actions condemned by the EU, involved the ban of arms and dual-use product sales, and built on the already wide ranging financial and investment sanctions in place against Russia, some of them since 2014.
This started with the EU’s decision to ban exports of aircraft parts to Russia only days after the Russian invasion in at the end of last February. The European Commission did this in coordination with the United States. This can be seen as an early ‘deliverable’ of the elusive EU US Trade and Technology Council process – the European Commission has been explicit about the fact that the TTC has facilitated this decision.
The aircraft move can also be interpreted as a side-effect of the recent EU US Airbus Boeing settlement, which made it clear the US and EU are now interested in keeping commercial rivals – of which Russia is one – out of the global civil aircraft market, given that the ban is not explicitly focused on military aircraft.
With the removal of Russia’s MFN rights, the field is now open for whatever other actions the EU might deem useful in fighting with economic tools against a real war with weapons to its east.
Steel imports build on existing trade restrictive trends, luxury exports will hurt
Of course the EU will first move where it hurts least its import interests and where it can satisfy protectionist demands.
This is clear in today’s decision to ban imports of finished steel products from Russia : a relatively small trade worth around € 3.5 bn.
The product list is derived from the currently applicable steel safeguard Russia’s specific country-quota under this safeguard will be reallocated and can now be filled by Russia’s commercial rivals.
The other trade restriction announced today is economically and politically more painful to bear: the ban exports of luxury goods. The list of goods bans covers a range of products above a certain price level: works of art, music instruments, luxury electronics, watches, fashion accessories, expensive clothes and cars, diamonds, furs, luxury foods (yes, even caviar, where more is produced in Europe than in Russia…) and alcoholic beverages, and the like.
This has raised hackles in Italy in particular. But the product coverage is spread evenly around the specialties of various EU member states in the luxury brand area.
The EU has not yet proceeded with banning key industrial inputs, commodities or agriculture products or inputs such as fertilizers from Russia.
Some of these exports were banned by Russia anyway at the end of last week. But not some of the most critical ones, where mutual dependence is high – and we are not even talking of oil, coal or gas.
It might even well be that, through banning imports of similar products from Russia’s commercial rival Belarus in early March, Russian exports might have gotten a boost in the meantime.
