The sanctions war and the role of the WTO

The “war of sanctions” between Russia and the West over the Ukrainian conflict has created a new situation inside the World Trade Organization.

Drawing by Konstantin Maler. Click to enlarge

For the first time, economic measures are being applied to a member state capable of large-scale retaliation. Previous instances of politically-motivated sanctions concerned countries of a different caliber. Take, for example, sanctions against Argentina over the Falklands conflict, or sanctions against Yugoslavia in the early 1990s.

Russia is a different ball game, because of its size and its ability to reciprocate. Indeed, Russian President Vladimir Putin this summer introduced an embargo on agricultural and food supplies from a number of countries. Tellingly, the measure is titled, “On applying individual special economic measures aimed at ensuring the security of the Russian Federation.”

This wording is deliberate and should be viewed in the context of Russia’s membership of the World Trade Organization, a body that aims to liberalize global trade. Article XXI of the General Agreement on Tariffs and Trade (GATT), on which the modern WTO is based, is titled “Security Exceptions.” It says that any member state has the right to take measures that it “considers necessary for the protection of its essential security interests … taken in time of war or other emergency in international relations.”

That phrasing is quite loose: everyone can interpret security interests as they see fit, and practically anything can be presented as an “emergency in international relations.”

President Putin has stressed that the measure does not run counter to Russia’s obligations in the WTO. “In our WTO accession agreement, we set it such that in the interests of ensuring the country’s security, we have the right to impose certain restrictions,” he said. “They have restricted access [for Rosselkhozbank] to credit resources in international banks ... In effect they are creating more favorable terms for their goods on our market, so our retaliatory steps are quite justified….”

From the very start of this war of sanctions, both sides made statements threatening to contest the measures taken against them in the WTO. That was what Russian Prime Minister Dmitry Medvedev and Economic Development Minister Alexei Ulyukayev said right after the “first alarm,” when the Obama administration decided to exclude several Russian banks from Visa and MasterCard payment systems. For its part, the EU threatened a lawsuit in response to the Russian embargo. However, so far neither has happened and is unlikely to do so.

In a war of sanctions, each side maintains that it operates within WTO rules. But even if they manage to prove that the actions they take are in line with the letter of the agreements, the breach of their spirit is obvious. Decisions are driven exclusively by political logic. Rivalries are not economic in nature, but strategic and geopolitical. Economic governance institutions are becoming either an arena for — or instruments in — that confrontation.

But of course this is not how it was all intended to be. The fundamental premise of the WTO and the other Bretton Woods structures in the early 21st century was that there would be no more large-scale political confrontations in the world. Global economic interdependency would push traditional forms of rivalry into the background, and economic disagreements were to be resolved within the WTO and other similar institutions.

Yet the crisis in this approach began long before the Ukrainian conflict. The accession of large developing economies, especially China, turned the WTO from an organization of like-minded countries into a structure which harbors different interpretations of “fairness.”

There emerged a critical mass of countries seeking a different application of the same norms. Western founders of the global system realized that the instruments they created were beginning to contribute to the success of others. When economic competition between huge powers increases, it creates big waves in politics, for example in U.S.-China relations.

The case of Russia makes this politicization obvious. Geopolitical rivalry between Moscow and its Western partners in the WTO actually never stopped. Sanctions against Russia show that the market decides things, until it runs up against the political will of the world’s strongest power. When that political will interferes, market forces retreat. Should this logic continue, the very ideological foundations of globalization come into question, because countries are closely following today’s events, extrapolating the meaning of the conflict for themselves. All the more so, since the United States itself initiated the creation of preferential trade zones instead of universal rules.

Fyodor Lukyanov is the editor-in-chief of Russia in Global Affairs and chairman of the board of the Foreign and Defense Policy Council. 

All rights reserved by Rossiyskaya Gazeta.

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