Permanent Normal Trade Relations | 14 Mar 2022

Why in News?

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.

• The move would pave the way for the US to impose tariffs on a wide range of Russian goods, heightening pressure on an economy on the brink of deep recession.
  • A recession is a period of declining economic performance across an entire economy that lasts for several months.
• The G7 is the group of developed western countries (UK, Canada, France, Germany, Italy, Japan and the US) established in 1975.

What is 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 MFN Status?

• World Trade Organization (WTO) members commit to treating other members equally so they can all benefit from each other's lowest tariffs, highest import quotas and fewest trade barriers for goods and services.
  • This principle of non-discrimination is known as Most Favoured Nation (MFN) treatment.
  • This is one of the measures which ensures trade without discrimination. Another one is 'National 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.
• There are 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.
• In international trade, MFN status (or treatment) is awarded by one nation to another.
  • For example, India accorded MFN status to all WTO member countries, including Pakistan, from the date of entry into force of the so called Marrakesh Agreement, establishing the WTO.
  • A nation with MFN status will not be discriminated against and will not be treated worse than any other nation with MFN status.
    • Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.
• 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.
  • India suspended Pakistan’s MFN status in 2019 after a suicide attack by a Pakistan-based Islamist group killed 40 police. Pakistan never applied MFN status to India.

What does losing MFN status mean?

• Revoking Russia's MFN status sends a strong signal that the United States and its Western allies do not consider Russia a economic partner in any way, but it does not in itself change conditions for trade.
• It does formally allow the Western allies to increase import tariffs or impose quotas on Russian goods, or even ban them, and to restrict services out of the country.
  • They could also overlook Russian intellectual property rights.
• Ahead of MFN status removal, the United States had already announced a ban on imports of Russian oil and gas.
• Further, the European Union has already banned about 70% of all imports, such as tobacco, potash and products made of wood or steel, from non-WTO member Belarus (Russia’s ally in war with Ukraine).

Source: TH