The European Union is proposing to increase tariffs on imports of various food products from Russia and Belarus in order, as European Commission president Ursula von der Leyen put it, to “mitigate the growing risk to our markets and our farmers” and “reduce Russia’s capacity to exploit the EU for the benefit of its war machine”.
The increased duties will apply to imports of cereals, oilseeds and related products from Russia and Belarus. But they are designed to allow unhindered passage through EU countries.
As an EU press release put it: “Importantly, the proposed tariffs will … not affect global food security, particularly for developing countries. On the contrary, they are expected to create an incentive for Russia to export to non-EU destination markets, including developing countries.”
Globally, Russia’s abundant provision of grains has done what an excess supply of a product tends to do, according to basic economic theory: crash prices. Reuters reported recently that prices of US and European wheat have “dropped to their lowest in about 3.5 years, weighed down by Russian grain flows which have prompted China to cancel recent purchases from the United States”.
Why tariffs and not sanctions? Importantly, sanctions may not be universally supported. Despite Russia’s aggression against Ukraine, many countries continue normal trade relations with the Russian Federation, including the likes of Brazil, South Africa and India – not insignificant players in global trade terms.
Secondly, World Trade Organization (WTO) rules – including on agricultural products under article 4.2 of the Agreement on Agriculture – prohibit outright bans and restrictions, so sanctions may be seen as illegal. The only items that still face bans and restrictions are those items that might threaten health, environmental protection or national security interests under the WTO’s General Agreement on Tariffs and Trade (GATT) 1994.
The first two exceptions obviously do not apply, and Russia’s export of foodstuffs through EU supply chains cannot be claimed as detrimental to national security interests.
And finally, sanctions may not be even unanimous within the EU. According to the Financial Times, the EU’s trade commissioner, Valdis Dombrovskis, is “likely to opt for tariffs rather than sanctions since it would not require unanimous approval from capitals, as is the case with sanctions”.
In contrast, tariffs are less politically controversial. The GATT agreement allows for “duties, taxes or other charges” on imports that can be applied, among other reasons, to enforce government measures to “remove a temporary surplus”. On this basis, the EU has decided to introduce restrictions with a view to reducing the access of Russian grain to its internal market.
Fine balance
In fact, it’s the surplus of Ukrainian grain in the EU market, enabled by the lifting of EU trade restrictions on Ukraine at the start of the war, that lies at the heart of farmers’ protests across Europe, and EU officials’ concerns.
In a call between Von der Leyen and the Polish prime minister, Donald Tusk, on March 15 – where the possibility of trade restrictions against Russia was raised – the stated concern was “how to support agriculture in Poland and Europe”. Or put another way, how to address Polish farmers’ protests about EU imports of Ukraine grains, which are hurting the internal EU market. The call was not about how to punish Russia, although it could be argued the two are inextricably linked.
EPA-EFE/Olivier Matthys
The farmers’ protests have descended into anti-EU, anti-EU green deal chaos. These protests have arisen in the face of many challenges.
In addition to farmers having to adjust to new rules under the EU Green Deal, which the agricultural sector sees as imposing too many regulations, farmers have also had to contend with continued competition from Ukraine grain exports.
To ease tensions with Poland, Ukraine has said it is willing to accept restrictions on its trade with the EU. Accordingly, the EU announced it will place restrictions on Ukrainian poultry, eggs and other foodstuffs, “if quantities exceed the annual mean average imported between July 2021 and December last year”.
Why target Russian grain?
Tariffs represent at least a show of opposition to Russia, even at the risk of burdening EU consumers who will ultimately bear these costs – even if the tariffs generate some revenue to offset EU farmers’ losses due to Ukrainian grain.
As to whether the tariffs will hurt Russia, they will – a little – if they hamper its exports. But they are unlikely to affect Vladimir Putin’s war aims.
As for global trade, Russia’s excess supplies are a political and market control mechanism, albeit a questionable one. By flooding the market with grains at cheaper prices, Russia achieves what the EU, US and Ukraine do not want: the sustained battering of Ukraine’s economy, which is hugely dependent on grains, and unhappiness among EU farmers and, by extension, its citizens. So long as it can sell its grains without sanctions, Russia is winning the global grain war.
For the rest of the world, the concern is being able to get enough food to feed their people. Most countries – and certainly the vast majority of people in those countries – do not question where they get their food from. They just want the food available at a price they can afford.
