Russia’s unprovoked war on Ukraine has triggered a flurry of actions by governments around the world, including the United States. We have all seen the raft of sanctions imposed on companies, oligarchs, and the Russian government. This week, the President announced that the US will no longer import Russian oil and natural gas.
In the sanctions “toolbox”, there are additional trade-focused opportunities to make the purchase of goods from Russia and Belarus. One such step would be removing their Most Favored Nation (MFN) status with the United States, thereby shifting their imports into a higher duty rate known as “Column 2 duties.”
The Harmonized Tariff Schedule of the United States is what customs brokers and importers use to classify merchandise and lays out the rules by which classification is determined and when bilateral or regional trade agreements come into play, country of origin based on substantial transformation or valuation are determined.
For nearly every country on the planet, when goods from that nation are presented for entry, the lower MFN duty rate, or Column 1 rate is presented. If moved to Column 2, Russia and potentially Belarus would join a “distinguished” list of nations presently numbering just two –
Cuba and North Korea.
Unlike trade remedy duties which are added to the Column 1 rate (such as Section 301 or Section 232), the goal of these duties is to make the cost of importing so great that there would not be a domestic market to purchase them, therefore importers will choose to source from elsewhere.
Take a look at this snapshot from the top of a page of the HTS. Note that for the product in question, importing from an MFN country is duty-free. From a Column 2 duty country, it is 20%.
Under normal circumstances, the prohibitively high rate of duty would be a normal deterrent in the free market because people wouldn’t pay an appreciably higher price.
While not large manufacturing nations, there are products from these two countries including wood, rare earth metals, steel and aluminum, and in Russia’s case, wheat. In places where the goods are purchased in bulk, these rates are essentially deal-breakers. Given Russia’s conduct, wanton destruction, and continuing human rights violations, the chances that anyone will purchase Russian anything in the near future is extremely low, especially vodka.