U.S. to End “Permanent Normal Trade Relations” Status for Russia

March 2022

BY

Damon V. PikePrincipal, Customs & International Trade Services

The U.S. and other countries continue to impose measures intended to isolate Russia and exert financial pressure in an effort to end hostilities in Ukraine. In addition to the implementation of export and banking sanctions, the U.S. is now targeting imports by banning Russian oil, liquified natural gas and coal and stripping Russia of its “Permanent Normal Trade Relations” (PNTR) status. It should be noted that Congress must first pass legislation to revoke Russia's PNTR status with the U.S., and members of both the House and the Senate have indicated they are in favor of this move.

PNTR is a legal designation in the U.S. for preferential trade with a foreign nation. The designation was changed from most favored nation (MFN) to normal trade relations in 1998, with permanent later added to the designation. In international trade, MFN status is awarded by one nation to another, and it means that the receiving nation will be granted all trade advantages, such as low tariffs, that any other nation also receives.
 
The Harmonized Tariff Schedule of the United States (HTSUS) includes “Column 1” duty rates (including preferential rates covered by free trade agreements and duty preference programs) for PNTR countries, while “Column 2” rates set forth those reserved for non-PNTR nations (such as Cuba, North Korea and -– soon -– Russia). The country of origin of the goods determines whether Column 1 or 2 duty rates should be assessed on imports. Removing Russia from PNTR status will return trade relations with that country to Cold War-era status by repealing the legislation approved by Congress in 2012, which granted Russia PNTR status in the year it joined the World Trade Organization. Stripping Russia of its most favored nation status will result in the U.S., as well as U.S. allies, imposing higher tariffs on a wide range of Russian goods, thus placing further pressure on the Russian economy, which appears to be already feeling the strain of the recently imposed sanctions, export controls and banking restrictions.
 
In reality, however, the move by the U.S. may be more symbolic than practical. Although imports from Russia — such as mineral fuels, precious metals and stones, iron and steel, fertilizers and inorganic chemicals — could face higher tariffs, more than half of Russia’s imports to the U.S. are comprised of oil, natural gas and coal, which are now banned. President Biden also announced the U.S. would ban imports of Russian seafood, vodka and diamonds, which collectively total more than USD 1 billion annually.
 
Nevertheless, the removal of Russia’s PNTR status sends another clear message that the Russian incursion into Ukraine is not without consequences. The U.S. is not taking this action against Russian imports unilaterally. Canada has already stripped Russia of its MFN status and the U.S. is taking this action in coordination with the EU, Japan and the U.K. As U.S. Trade Representative Katherine Tai stated, “[t]he joint action . . . will revoke most-favored nation treatment of Russian products by the world’s largest economies, denying Russia benefits of membership in the World Trade Organization.”
 

How BDO can help

BDO can assist importers of goods from Russia review the HTSUS classification of their products to determine the correct classification in view of the increased duties due to the loss of MFN status. We can also assist U.S. importers to identify any other available trade remedies that may mitigate or reduce the impact of these trade measures by the U.S. and its allies.  
 
Further, BDO can assist U.S. and foreign companies review, analyze and interpret the new import and export controls and sanctions and develop and/or update import/export compliance programs globally to incorporate the new requirements. This focus will help importers of record and exporters navigate the myriad new import and export regulations and controls imposed by the U.S. government, including those enforced by the Departments of State, Commerce and Treasury.
 
Our services include: 
  • Import/Export Compliance Assessments
  • Import Classification Reviews
  • Compliance with Economic Sanctions
  • Commodity Jurisdiction Requests
  • Export Control Classification Number Ruling Requests
  • Export License Applications
  • Export Classification Reviews
  • Supply Chain Planning
  • Other Administrative Filings with U.S. Customs, State, Commerce and Treasury