UK withdraws Russia WTO privilege by increasing tariffs on Russian goods

The UK government has now imposed a 35% tariff uplift on goods imported from Russia and Belarus. The list of affected goods is here and includes works of art, antiques, ships and floating structures, silver, iron and steel, fur skins, beverages, spirits (including vodka) and vinegar, fertilisers, glass and machinery. As a result of the new tariffs, it will be much more expensive to import these Russian goods which, in turn, may lead to their reduced importation. The government’s aim is to ‘cause maximum harm to Putin’s war machine while minimising the impact of UK businesses.’

The decision is effective 25 March 2022 but will not affect the specified goods if they were exported from Russia or Belarus before that date.

Figures from the International Trade Council and HMRC show imports from Russia in recent years have been around £18 billion (2020 and 2021) jumping up from £11 billion in 2019. The Department of Transport estimated, on 15 March 2022, when the measures were first announced, that £900 million worth of goods would be affected by the higher tariff – therefore roughly 5% of recently imported goods. There are significant imports currently excluded from the additional tariff. These include aircraft and spacecraft (£21 million in 2021) and platinum, palladium, rhodium etc (£1.4 billion). Oil and gas is also not on the list; however, HMG has separately announced that oil imports are being phased out which therefore removes the need for any additional tariffs to imposed. There was also expected to have been a tariff increase on fish. However that has been postponed while the government considers implications for the sector.

Tariffs (also called customs duties) are a tax imposed by the UK on imports of products into the UK. As a World Trade Organisation (WTO) Member, the UK has agreed not to impose tariffs on imports above a certain maximum, which differs for each product (Article II:1 General Agreement on Tariffs and Trade (GATT) 1994). In addition, as a WTO Member, the UK has agreed to treat Russia on a ‘most favoured nation’ basis, which means that it cannot discriminate against Russian imports vis-à-vis those from other countries (Article I:1 GATT 1994).

The UK’s decision to impose a 35% tariff on Russian products is potentially counter to both of the above rules. However, WTO Members are also permitted to take any action which they consider ‘necessary for the protection of [their] essential security interests’ and which are ‘taken in time of war or other emergency in international relations’ (Article XXI(b)(iii) GATT 1994). This provision was at issue in two WTO disputes, one of which involved trade restrictions imposed by Russia on Ukraine following its annexation of Crimea and involvement in Eastern Ukraine. This case law gives clear grounds to support an argument that, objectively, Russia’s invasion of Ukraine, condemned by 141 UN Member States, and ordered to cease by the International Court of Justice, constitutes a ‘emergency in international relations’ relevant to the UK. At the same time, as the UK is not a belligerent party, there remains a question whether the UK’s 35% additional tariff falls within the range of measures that are ‘necessary’ to secure the UK’s ‘essential security interests’. Among the arguments that can be made on this point are (1) that, as a NATO member, and as a direct supporter of Ukraine’s defensive operations, the UK has a direct security interest that it needs to protect and (2) that the UK has an essential security interest in the maintenance of international peace and security, and is therefore entitled to adopt measures to enforce Russia’s compliance with its fundamental international law obligation, which also constitutes a peremptory norm of international law (jus cogens), not to engage in a war of aggression. Both of these arguments easily meet the threshold of plausibility outlined in WTO caselaw, and accordingly importers should treat with care any argument that they are unlawful.

So what does this mean for importers? A decision will have to be taken as to what to do with contracts for importing affected goods from Russia. A tariff increase may not be sufficient to extricate a party from its responsibilities in a contract – but that will depend on the terms of the contract. If a party is unable to terminate a contract, will importers seek to pass on the increase to others? A careful review of the contracts of the specified goods and assessment of the impact on business relationships needs to be undertaken.