Explained: What revoking Russia’s ‘most favoured nation’ status means

What is the News?

The US and other members of the Group of Seven (G7) will revoke Russia’s “Permanent Normal Trade Relations (Pntr)” status to punish Russia for war over Ukraine.

What is Permanent Normal Trade Relations(PNTR)?

The status of Permanent Normal Trade Relations (PNTR) is a legal designation in the United States for free trade with a foreign nation.

In the United States, the name was changed from Most Favored Nation (MFN) to PNTR in 1998.

What is the Most Favoured Nation(MFN) Status?

The World Trade Organization members commit to treating other members equally, so they can all benefit from each other’s lowest tariffs, the highest import quotas and the fewest trade barriers for goods and services. This principle of non-discrimination is known as the most favoured nation (MFN) treatment. 

Article 1 of the General Agreement on Tariffs and Trade (GATT),1994 requires every WTO member country to accord MFN status to all other member countries.

However, there are also some exceptions, such as when members strike bilateral trade agreements or when members offer developing countries special access to their markets.

For countries outside the WTO, such as Iran, North Korea, Syria or Belarus, WTO members can impose whatever trade measures they wish without flouting global trading rules.

What is the process for the removal of MFN Status?

There is no formal procedure for suspending MFN treatment and it is not clear whether members are obliged to inform the WTO if they do so. 

Note: India suspended Pakistan’s MFN status in 2019. Pakistan never applied MFN status to India.

What does losing MFN status mean?

For instance, revoking Russia’s MFN status sends a strong signal that the United States and its Western allies do not consider Russia an economic partner in any way, but it does not in itself change conditions for trade. 

However, it does formally allow the Western allies to increase import tariffs or impose quotas on Russian goods or even ban them and restrict services out of the country. They could also overlook Russian intellectual property rights.

Source: This post is based on the article “Explained: What revoking Russia’s ‘most favoured nation’ status means” published in Indian Express on 16th Mar 2022.