Japan to revoke Russia’s most favored nation trade status

Japan announced its intention on Wednesday to join Western countries in revoking the most favorable nation (MFN) status for Russia as part of its economic sanctions against the country, essentially marginalizing Russia as a trade partner.

The United States, the EU and the United Kingdom have already announced similar moves following a Group of Seven leaders’ statement last Friday that they would “endeavor” to take action to deny the preferred trade status to Russia.

Prime Minister Fumio Kishida made the announcement during a news conference on Wednesday evening, stressing the need to reinforce economic sanctions in line with the G7 statement.

Kishida also said Japan is planning to expand its list of banned exports to Russia, including luxury items, and add more names to freeze its assets.

Tsuyoshi Kawase, a professor of international economics at Sophia University, wrote in a report Monday that the impact of revoking MFN treatment for Russia will be huge when the entire G7 and other countries join in and not just the U.S. alone.

“As Russia’s trade partner, EU, especially Germany and the Netherlands, is important, comprising more than 40% of its export destination,” Kawase wrote in the report for the Research Institute on Economy, Trade and Industry on Monday, adding that the focus would be whether the EU will raise tariffs on energy, and if so how much.

The MFN status, a key principle of the World Trade Organization, suggests special treatment but it actually represents equal treatment for member nations. The clause requires countries to guarantee one another equal tariff and regulatory treatment. “There is no formal procedure for suspending MFN treatment and it is not clear whether members are obliged to inform the WTO if they do so.”

For instance, if one country imposes a 3% tariff on lumber imports from another country, the tariff for all other member countries importing lumber to that country should also be set at 3%.

Since Tokyo is not a major trading partner for Moscow, the latest move is likely to have a limited impact on Russia.

According to the Finance Ministry, imports from Russia in 2021 totaled ¥1.54 trillion, with more than half of those encompassing oil, liquefied natural gas and coal in recent years.

Russia’s delisting would raise tariffs for seafood such as crab (from 4% to 6%), salmon (3.5% to 5%) and sea urchin (7% to 10%), according to a Mainichi Shimbun report. Seafood imports from Russia have totaled about ¥100 billion annually over the past few years.

“It’s a political message from Japan that it will stay in lockstep with other countries,” said Wakaba Kobayashi, an economist at Daiwa Institute of Research.

Kobayashi said that if Japanese companies importing those products need to find alternative suppliers, it would entail added costs that could eventually lead to rising prices in Japan.

But a Finance Ministry official said details of which items will see raised tariffs are currently under discussion and there is no set outcome on what happens if and when Japan revokes the MFN status.

On Tuesday, the government also imposed a further ban on exports to Russia and Belarus starting Friday covering about 300 semiconductors, computers and communications devices. Japan has already banned exports of about 200 items to the two countries.

Companies exporting items such as medical supplies, humanitarian aid, smartphones for consumers and other nonmilitary products may be allowed, according to the trade ministry.

“If the economic sanctions continue for a longer period with no prospect of the war ending, it is inevitable that Russia will be cut off (from the international community),” Sophia University’s Kawase wrote in the report.

“Even if the battle itself ends soon, it would require an enormous amount of time (for Russia) to recover,” Kawase said. “The trust that Russia has lost within the multinational economic framework is huge.”