Some new realities in international trade

Maxim Medvedkov
Higher School of Economics
Moscow, Russia

Trade and economic sanctions imposed on Russia are unprecedented not only in their scope, but also in their non-compliance with the basic rules of the WTO. These rules are based on the principle of non-discrimination, they also prohibit to introduce trade bans and other restrictions of trade. If the Russian government decides to challenge these sanctions in the WTO arbitration, Western trade lawyers will obviously have to work hard trying to justify these bans by the WTO security exceptions. These exceptions allow WTO members to violate basic rules in limited number of cases.  It would be necessary for lawyers to demonstrate that all these bans and restrictions in trade with Russia were taken for the protection of’ “essential security interests” of the countries which introduced sanctions.

WTO arbitration explained few years ago, that such “interests” should include 1. the protection of (their) territories and of (their) population from external threats, and 2. the maintenance of law and public order internally.

 However, the declared aim of sanctions is very much different – to injure and to weaken Russian economy. Hence, lawyers should be able to explain how economic weakness of Russia may contribute to protection of territories and of population of countries which introduced sanctions. And why decision to stop big energy supplies from Russia to the EU, for instance, will be beneficial for stability of their  countries’ public orders.

Lawyers are well paid to do their job in courts properly, and it is more sensible to refrain from evaluating their perspectives to succeed or fail in possible WTO dispute. However, the lawyers may hardly help to avoid imminent material changes that sanctions bring to the multilateral trading system.

It is rather clear that sanctions not only contributed to undermining of the WTO’s credibility, but also encouraged many business representatives to seriously think how to ensure the security of supply for their production as well as of their assets.

Of course, far not all countries can afford to start production of passenger aircrafts, as Russia did in response to Western intentions to land Airbuses and Boeings which form the basis of Russian civilian air fleet. Russia’s plan is to replace about 500 foreign aircrafts with domestic aircrafts. Given the size of the country this is the vital goal that has to be fulfilled. And this means that Boeing and Airbus will not only lose the Russian market forever, but will get a competitor that sometimes will find its niche in world market. After all, there will be buyers for whom it will be important to diversify the sources of supplies of aircrafts, ща their spare parts and services for their maintenance. After all, hardly anyone needs a cart for which you cannot buy a wheel, or a horse that cannot be shod.

A similar story will unfold in many other industries such as software, engineering, semiconductors manufacturing or agriculture. The supply chains have been artificially damaged or broken, and this is forcing governments and companies to look for new development strategies. From now on the reliability of a supplier will be measured not only by traditional criteria, but also by the willingness of its government not to interfere for political reasons in the normal course of economic cooperation between businesses.

The transition to green economy is another plan that has chances to enter into conflict with the WTO law. In addition to the border adjustment mechanism, which WTO consistency is not obvious, the other elements of the EU Green Deal provide for the diversification of supply and for the gradual phase-out of carbon use. The list of the Russian sanctioned goods is surprisingly similar to the list of goods subject to the EU border adjustment mechanism.  Sanctions regime, in fact, allows to rehearse some of the Green deal elements and test their effects for the  economy. For instance, prohibition or sharp reduction of imports of the Russian energy resources, metals, fertilizers are already causing serious damage to many countries. And what will happen to goods from other parts of the World when all Green Deal measures will be implemented, even if in milder form? It is hardly worth expecting enthusiastic participation in such economically unviable  exercise, no matter how good the goals are.

All trade wars end at some point, and their participants sit down at the negotiating table. Then the main issues will obviously be related to security – trade, technological, environmental, food, – and to trust. To ensure trust the new tools will be required, that will guarantee more effectively the implementation of arrangements. Future negotiators will have to show wonders of ingenuity in order to agree upon such tools. And even if successful, distrust may still persist. Perhaps until the time when human negotiators are replaced by negotiating robots?

Fool me once, shame on you; fool me twice, shame on me. Old Russian proverb.

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