Trade Downgrades Russia to Non-Trade Economy Status – Export Controls and Trade and Investment Sanctions
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On November 10, 2022, the U.S. Department of Commerce (“Commerce”) announced that it had reclassified Russia as a non-market economy, meaning it will no longer treat Russia as a market economy in anti-dumping proceedings. (AD). This is an unprecedented move as it is the first time Trade has transitioned a country to a market economy and then downgraded it to non-trade status. Commerce had treated Russia as a market economy since 2002. Commerce’s decision to downgrade Russia’s market economy status means it will have the ability to apply “the full force of U.S. anti-dumping law to remedy market distortions caused by increasing Russian interference”. government in their economy.1Specifically, Commerce’s application of the “non-market methodology” in anti-dumping proceedings is essentially a summary finding that Commerce cannot rely on costs reported by Russian manufacturers in the dumping calculation. This generally results in significantly higher duty rates through the use of alternative costs from comparable market economy producers. Russia joins 11 other countries classified as non-market economies by the Ministry of Commerce, including China, Vietnam and nine former Soviet republics.
In October 2021, Commerce had reviewed Russia’s market economy status and decided to maintain Russia’s market economy status, although it expressed disappointment with Russia’s lack of progress towards a more market-oriented economy since gaining designation in 2002. Russia’s new non-market economy status was sparked largely by petitions submitted on June 30, 2022 by CF Industries Nitrogen LLC, a producer of based in Illinois and its subsidiaries. The company claimed that Russia and Trinidad and Tobago “export illegally subsidized fertilizers to the United States at unfairly low prices and undervalue their products by up to 433.37%.”2 In its petition, CF Industries pointed to Russian President Vladimir Putin’s two-decade grip on power and said that “Russia’s transition from a planned economy to a market-based system has stalled and, in many domains, has been reversed in recent years”. In response, the Commerce Department launched an investigation into whether the Russian Federation operates as a non-market economy, which concluded with its announcement on Thursday.
Russia’s new non-market economy status is likely to significantly increase tariffs on Russian imports such as aluminum, steel and chemicals to the United States, which have already dropped drastically following US sanctions and trade restrictions in response to the Russian invasion of Ukraine. According to official Commerce data, the United States imported $12.5 billion worth of Russian goods between January and September this year, about half the level reached during the same period in 2021.
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