Don’t let Russia wreck the WTO

With its recent ban on Western farm imports, Russia is flagrantly flouting its obligations as a member of the World Trade Organization (WTO). Here’s how America should respond.

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In August, Russia’s President Vladimir Putin ordered a one-year import ban on a broad list of agricultural products—including meats, fruits, vegetables, seafood, dairy, and other foods—from the European Union (EU), the United States, Australia, Canada, and Norway. In announcing the ban, Putin declared that it was both “a retaliatory measure” — in response to Western sanctions over Russia’s actions towards Ukraine — and a measure “for supporting Russian manufacturers” by limiting foreign access to Russia’s food sector.

“America’s failure to act would only fuel Russia’s disregard for its international obligations and the rule of law—the ultimate cause of its aggression toward Ukraine.”
Russia’s ban has had significant economic impacts on foreign exporters, especially in the EU, which exported almost $16 billion in farm goods to Russia in 2013. Polish apple growers, German pork producers, and Nordic fishermen are among those that have been hit especially hard. (The ban covers less than $1 billion in U.S. exports, reflecting the serious trade barriers that U.S. farm trade has long faced in Russia.)

The sanctions appear to be causing the greatest damage to Russia itself, worsening overall inflation and resulting in steep price hikes for consumers buying meat, fish, and dairy. (Russian consumers can, at least, drown their sorrows—the ban doesn’t cover beer, wine, or spirits.)

Russia’s action violates core rules of the World Trade Organization (WTO), which Russia joined in 2012. Among other violations, it improperly discriminates among trade from different WTO members (defying the Most Favored Nation principle), and it breaches Russia’s WTO obligation not to retaliate unilaterally without first employing WTO dispute resolution procedures.

U.S. and EU trade officials have sharply criticized Russia for these violations and are considering their next steps. Polish officials have urged the EU to bring a case against the Russian ban at the WTO, which would mark the latest in a series of enforcement cases the EU has already brought against Russia.

So how should the United States respond to Russia’s hotheaded and cynical approach to its trade obligations?

Initially, in crafting a specific American response, it’s important to rely on the expertise of the trade litigators and negotiators at the U.S. Trade Representative’s office, who have a strong record of success with trade disputes. They’re likely best positioned to determine whether directly challenging Russia’s food ban makes long-term strategic sense, whether Russia’s many other trade barriers are ripe for WTO challenge, and whether there are other levers for pressing Russia to play by the rules.

But, no matter the specific strategy, some key principles should guide America’s approach to assuring Russia’s WTO compliance:

Don’t let Russia’s cynical approach undermine the WTO.

Russia has many good laws on its books, but often takes an abusive and cynical approach to applying them. In the same vein, Russia has made some 500 beneficial changes to its trade rules to qualify for WTO membership, but now appears to be taking a highly cynical approach to its WTO obligations.

Specifically, Russia suggests it will defend its food ban through the “nuclear option” of declaring that it’s justified under the WTO’s “self-judging” security exception—a provision that countries have traditionally employed to justify more targeted defense and national security measures. Some trade experts warn that this over-the-top use of the security exception could set a very dangerous precedent—that any violation of WTO rules could be excused on national security grounds.

It’s vital that America not allow Russia’s cynicism to pollute the WTO by establishing such a harmful precedent—whether by law or in fact.

Don’t let Russia use larger geopolitical negotiations to bargain away its WTO violations.

Russia would probably be happy to see its trade violations swept up in broader geopolitical disputes. It has threatened, for example, to bring its own (likely losing) WTO case against Western financial and energy-related sanctions. And some in Russia suggest that Russia should withdraw from the WTO altogether.

Some argue that issues of war and peace should always trump trade relations. But Russia’s disregard for its WTO obligations is ultimately about a more central issue—respect for international rule of law—that’s at the very core of global peace and security.

Don’t give Russia a free pass.

WTO members gave China a free pass on WTO enforcement during China’s first five years in the WTO, an exemption that many believe has contributed to China’s backsliding on its WTO obligations. In response to these concerns, when Russia joined the WTO in 2012, a wary Congress mandated an annual review and an annual report on Russia’s observance of its WTO obligations.

For this process to be credible and effective, however, America must be willing to bring WTO challenges against the most serious of Russia’s barriers to U.S. trade.

Remember that the WTO has real teeth.

The WTO is unique among international organizations in that it can enforce its rulings by authorizing injured countries to withdraw trade benefits—a remedy that is qualitatively different from other sanctions. Russia expressly agreed to this when it joined the WTO. Accordingly, America should not hesitate to bring legitimate WTO disputes and seek penalties because of concerns that Russia might see this as an escalation of broader sanctions.

Finally, remind Russia that rules-based trade is in Russia’s interest.

Russia can no longer insulate itself from the global economy. Russia depends significantly on trade and needs to take a responsible, levelheaded approach to its trade obligations. If Russia’s leaders need a reminder of this, they should look at high prices and empty shelves in Russia’s food stores—the direct result of Russia’s ill-advised trade sanctions on itself.

Whatever American policymakers ultimately decide, the one option that should be off the table is to do nothing. America’s failure to act would only fuel Russia’s disregard for its international obligations and the rule of law—the ultimate cause of its aggression toward Ukraine.

Edward Gerwin, Jr., is Senior Contributing Editor at Republic 3.0 and President of TradeGuru, LLC. Follow: @EdGerwin.