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What is ‘Most Favored Nation’ Status? President Biden and G-7 to Strip Russia of it.

President Joe Biden announced Friday the U.S. will dramatically downgrade its trade status with Russia as punishment for its invasion of Ukraine and also ban imports of Russian seafood, alcohol and diamonds.

The broad trade shift, which revokes the “most favored nation” status for Russia, is being taken in coordination with the European Union and Group of Seven countries.

“The free world is coming together to confront Putin,” Biden said from the Roosevelt Room of the White House.

What is the most favored nation clause?

The most favored nation clause applies to member countries in the World Trade Organization (WTO).

A country with the most favored nation status cannot be treated any less favorably than other countries within the WTO. In other words, if a country provides any privileges to one nation in a trade agreement, it must offer those privileges to all other MFN countries in the WTO.

Members of the WTO share MFN status, though some countries have different privileges because they are classified as developing economies. Cuba and North Korea do not have MFN status.

MFN does not govern free trade agreements where goods are traded between the participating countries only.

How does MFN benefit a country?

MFN benefits countries in several ways:

· It gives countries access to international markets.

· It lowers the cost of a country’s exports, meaning they are more competitive in the world market.

· It cuts down on red tape since tariffs on goods being imported are all the same.

What does revoking ‘Most Favored Nation’ Status mean for Russia

The revocation carries mostly symbolic weight. Because Russian imports into the U.S. are primarily natural resources, they would generally face little to no increase in their tariffs because of the lost status, Ed Gresser of the Progressive Policy Institute in Washington, said in an online post.

Instead of the current tariff rate, buyers of Russian goods would pay rates established under the Smoot-Hawley Tariff Act of 1930, which disrupted trade during the Great Depression. This would still be zero for uranium, rhodium, palladium, silver bullion and king crabs. But the import tax would shoot up for unwrought aluminum, plywood, semi-finished steel and diamonds, among other products.

What WTO means?

WTO terms means particular conditions that countries have agreed in the WTO, such as their individual ‘commitments’ (pledges) on tariffs, agricultural subsidies or opening up of services markets. Its meaning is therefore much narrower than WTO rules. Therefore, more British imports and exports would face tariffs.

Who controls the World Trade Organization?

The WTO is run by its member governments. All major decisions are made by the membership as a whole, either by ministers (who meet at least once every two years) or by their ambassadors or delegates (who meet regularly in Geneva). Decisions are normally taken by consensus.

How many members are there in the WTO?

There are 164 member countries in the organization.

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