Permanent Normal Trade Relations

March 15, 2022

Syllabus: General Studies Paper 2

Context

To punish Russia for its actions in Ukraine, the United States and other members of the Group of Seven (G7) will remove Russia’s “Permanent Normal Trade Relations (PNTR)” designation.
Taking this step would open the door for the United States to slap tariffs on a wide variety of Russian imports, increasing the pressure on a country that is on the verge of entering a serious recession.
- A recession is defined as a period of falling economic performance throughout an entire economy that lasts for many months or more.
- The G7 is a group of industrialised western countries (the United Kingdom, Canada, France, Germany, Italy, Japan, and the United States) that was created in 1975.

About PNTR

The designation of Permanent Normal Trade Relations (PNTR) in the United States is a legal classification for free trade with a foreign country.
In the United States, the designation was changed from Most Favored Nation (MFN) to Preferred Nation for Trade and Investment (PNTR) in 1998.

What is the meaning of MFN Status?

In order to profit from each other’s lowest tariffs, maximum import quotas, and fewest trade obstacles for products and services, members of the World Trade Organization (WTO) agree to treat other members equally.
Most Favoured Nation (MFN) treatment is the term used to describe this concept of non-discrimination.
This is one of the safeguards in place to ensure that there is no discrimination in commerce. ‘National Treatment’ is another another term to consider.
Article 1 of the General Agreement on Tariffs and Trade (GATT), signed in 1994, mandates every member nation of the World Trade Organization (WTO) to grant MFN status to all other members.
There are certain exceptions, such as when members enter into bilateral trade agreements or when members grant developing nations preferential access to their markets, but these are rare.
WTO members can apply any trade sanctions they choose on countries that are not members of the organisation, such as Iran, North Korea, Syria, or Belarus, without violating global trading norms.
In international commerce, a country’s MFN status (also known as treatment) is granted to another country.
Example: From the date of entry into force of the so-called Marrakesh Agreement, which established the WTO, India provided MFN status to all WTO member nations, including Pakistan; this status has been extended to all WTO member countries since.
A nation that has been granted MFN status will not be subjected to discrimination or harsher treatment than any other nation that has been granted MFN status.
If you provide someone a particular favour (such as a lower customs tax rate for one of their items), you must reciprocate with the same favour for all other WTO members.
There is no official mechanism for suspending MFN treatment, and it is unclear whether countries are required to notify the World Trade Organization (WTO) if they take this action.
In 2019, India revoked Pakistan’s MFN designation following a suicide assault by a Pakistan-based Islamist organisation that claimed the lives of 40 police officers. Pakistan never requested that India be granted MFN status.

What does it mean to be stripped of MFN status?

The revocation of Russia’s MFN status sends a strong signal to the world that the United States and its Western allies do not regard Russia to be an economic partner in any form, but it does not alter the trading environment in and of itself.
However, it does provide the Western allies the authority to increase import duties or quotas on Russian goods, or even to prohibit them entirely, as well as to restrict services that are exported from the nation.
They may also fail to recognise the existence of Russian intellectual property rights.
Prior to the revocation of MFN status, the United States has already imposed a prohibition on the importation of Russian oil and gas into the country.
Furthermore, the European Union has already prohibited almost 70% of all imports from Belarus, which is not a member of the World Trade Organization and is Russia’s partner in the conflict with Ukraine. These items include tobacco, potash, and wood and steel products.

The Hindu link

https://www.thehindu.com/incoming/us-allies-to-end-normal-trade-relations-with-russia/article65215475.ece/amp/

Question- What do you mean by Permanent Normal Trade Relations designation? How does losing this designation might impact Russia’s trade with the world?