As the situation in Ukraine worsens, governments have been taking action to isolate Russia on the global stage. In the United States, the President has announced that imports of Russian oil, alcohol, seafood and diamonds will be prohibited. The President also announced his intent to revoke Russia’s Most Favored Nation, or MFN, trading status with the United States. Congress is crafting the legislation now, and House negotiators have hit a snag over and when and by whose authority normal relations can be reapplied.
MFN status confers multiple benefits, but the most readily noticeable one is access to preferential duty rates. Non-MFN countries use a second – and much higher – table of rates that are designed to make them not price-competitive in a free market and encourage importers to source them from elsewhere unless there are no other alternatives and the market will support whatever price is charged.
Take, for example, this page from the Harmonized Tariff Schedule of the United States for garments. Note the classification and then the multiple columns. Column 1 is applied to countries with MFN status. Column 2 is for non-MFN countries. That list today includes just two other nations – Cuba and North Korea.
This garment purchased and imported from a country with MFN status would only incur a duty of 4.4% ad valorem. From a non-MFN status holding country, it increases nearly thirteen-fold to 60%.
Logistically, the process requires Congress to pass an act which would revoke Russia’s PNTR, or Permanent Normal Trade Relations. Signals from both sides of the aisle hint at strong bipartisan support for this action which would then require the President’s signature.
In terms of how much is imported annually, statistics show in 2021 the US imported $30.76 billion from Russia of which $18.12 billion was mineral fuels, oils and distillation products. The remaining balance is dominated in descending value by pearls, precious stones, metal, coins, steel, aluminum, fertilizers and then seafood. Receiving the Column 2 treatment would also not preclude these products from further trade remedy duties should they be warranted.
Whether sanctions imposed by the Executive Branch or Congressional legislation change the trading relationship, Alba Wheels Up is closely monitoring activities in Washington to notify our clients if changes to the status quo are imminent. Stay in close contact with your Alba representative to stay abreast of these changes happening at a daily pace.
