Everybody loses when the East feuds: Trade Ramifications from the Escalating Russo Ukrainian Conflict

Everybody loses when the East feuds: Trade Ramifications from the Escalating Russo Ukrainian Conflict

By Maleah L. Riley-Brown

After nearly 8 years of conflict, it has been alleged by American forces that Vladimir Putin has mounted troops along the Russian-Ukrainian border and is preparing to invade Ukraine at a moment’s notice.[1] The potential issues that would result should Russia make good on the globe’s fear will not only trigger tensions in the East with the increasing presence of American troops,[2] but may also deal a damaging blow to a recovering global trade economy amidst the ongoing COVID-19 pandemic.

To date back a few years, the conflict between Russia and Ukraine, known as the Russo-Ukrainian war, began in 2013 when Ukrainian citizens began protesting in Kyiv against President Viktor Yanukovych for his decision to reject a deal that favored greater economic integration with the European Union.[3] The subsequent backlash resulted in Yanukovych fleeing the country in 2014[4] and paved the way for Russian-backed separatist forces to take over the parliament in Crimea by installing pro-Russia president Sergei Aksyonov.[5] Shortly after Aksyonov’s ascension to power, Crimean citizens held a referendum in which voters allegedly chose to leave Ukraine and become a part of Russia once more.[6] Critics of the referendum state its illegality because the Ukrainian constitution requires a vote by all Ukrainian citizens for any changes to the territory.[7] The United States and European Union believed that the requirement for an all citizen referendum is consistent with general principles of international law.[8] Nonetheless, as a result of the referendum vote, Russia completed its annexation of Crimea in March 2014, and violence between Ukraine and Russia began the following month.[9]

The implications on international trade have previously reared their ugly head. A panel of the dispute settlement body of the World Trade Organization (WTO) published a 2019 opinion resolving trade disruption because of the ongoing war.[10] In Russia – Measures Concerning Traffic in Transit, Russia instituted prohibitions and restrictions on transit through Russia of Ukrainian goods bound for Kazakhstan, the Kyrgyz Republic, Mongolia, Tajikistan, Turkmenistan, and Uzbekistan.[11] The practice appeared to be a violation of Article V of the General Agreement on Tariffs and Trade (GATT) 1994, which emphasizes the freedom of transit for goods, vessels, and other means of transit across the territories of members of the WTO.[12] Most importantly, Russia argued that its actions were permitted by Article XXI(b)(iii), which concerns measures taken in times of war or another emergency in international relations.[13] The panel ultimately decided that Russia successfully invoked the GATT exception, allowing Russia to continue restricting the transportation of goods to several Eastern countries.[14]

The fear that Russia will invade Ukraine has already sparked responses from Western countries and NATO allies.[15] The United States has deployed some 3,000 troops to Eastern European countries should any act of aggression take place.[16] Russia’s primary concern and reason for the annexation of Crimea stems from Ukraine’s willingness to join NATO as an ally, creating a proverbial wall of Westernized forces that will essentially enclose Russia.[17] Above all, Putin is making good on his vision of returning Ukraine to Russia as a newly reformed USSR and making Russia a world superpower again.[18] China, a recently emerged world power, has stated its intent to support Russia in a rejection of NATO expansion.[19]

With mounting armed forces in Eastern Europe of a magnitude not seen since World War II, it is a natural consequence that trade will almost certainly be affected. For starters, Russia could impose more sanctions, quotas, tariffs, or outright bans on goods originating from Ukraine or other NATO allies and invoke the same Article XXI(b)(iii) exception or any other relevant exception to the GATT. This in turn could create a ripple effect in trade across the globe. Of course, other countries could retaliate and invoke an Article XXI(c) exception which would permit GATT Members to take actions pursuant to obligations under the United Nations Charter aimed at maintaining international peace and security.[20] Such an option was not available previously.[21] The resulting issue is that the WTO has been without an appellate body and therefore unable to review appeals since the end of 2020, much to the fault of countries like the United States has taken issue with the disposition of cases before the dispute settlement body.[22] Regardless, the option always exists under the UN Charter should the security council find the existence of a threat to the peace, breach of the peace, or act of aggression as required under Article 39.[23] The council may then invoke Article 42 to permit military action upon a finding that Article 41 is an inadequate remedy due to the present threat of the use of Russia’s military forces.[24] Whatever happens, history will be made – and hopefully, no lives will be lost further, but the potential impact on trade is strikingly concerning.[25]

[1] Gianluca Mezzofiore & Tim Lister, New satellite images show buildup of Russian military around Ukraine, CNN (Feb. 2, 2022), https://www.cnn.com/2022/02/02/europe/russia-troops-ukraine-buildup-satellite-images-intl/index.html.

[2] Dmitry Antonov & Sabine Siebold, NATO sends reinforcements and U.S. puts troops on alert as Ukraine tensions rise, Reuters (Jan. 24, 2022), https://www.reuters.com/world/europe/nato-sends-ships-jets-eastern-europe-ukraine-crisis-2022-01-24/.

[3] Council on Foreign Relations, https://www.cfr.org/global-conflict-tracker/conflict/conflict-ukraine (last visited Feb. 3, 2022).

[4] Id.

[5] Simon Shuster, Putin’s Man in Crimea Is Ukraine’s Worst Nightmare, Time (Mar. 10, 2014), https://time.com/19097/putin-crimea-russia-ukraine-aksyonov/.

[6] Crimea referendum: Voters ‘back Russia union’, BBC (Mar. 16, 2014), https://www.bbc.com/news/world-europe-26606097.

[7] John B. Bellinger III & Jonathan Masters, Why the Crimean Referendum Is Illegitimate, Council on Foreign Relations (Mar. 16, 2014), https://www.cfr.org/interview/why-crimean-referendum-illegitimate. See also К О Н С Т И Т У Ц І Я У К Р А Ї Н И [Constitution] Jun. 28, 1996, §3, art. 73 (Ukr.).

[8] International law recognizes respect for the territorial integrity of States unless regional succession occurs due to grave human rights violations, which is not the case in Crimea. Oxford Public International Law, https://opil.ouplaw.com/view/10.1093/law:epil/9780199231690/law-9780199231690-e1116#:~:text=Territorial%20integrity%20refers%20to%20the,of%20the%20sovereignty%20of%20States (last visited Feb. 4, 2022)(describing the term “territorial integrity); see also, John B. Bellinger III & Jonathan Masters, Why the Crimean Referendum Is Illegitimate, Council on Foreign Relations (Mar. 16, 2014), https://www.cfr.org/interview/why-crimean-referendum-illegitimate.

[9] Supra note 3.

[10] Panel Report, Russia – Measures Concerning Traffic in Transit, WTO Doc. WT/DS512/R (adopted Apr. 5, 2019).

[11] Id.

[12] Id.; see also General Agreement on Tariffs and Trade (1994) art. 5, Apr. 15, 1994, 1867 U.N.T.S. 190, 33 I.L.M. 1153 (1994) [hereinafter GATT 1994].

[13] Supra note 10.

[14] Supra note 10.

[15] Gordon Lubold & Nancy A. Youssef, U.S. Orders 3,000 Troops to Bolster European Allies in Russia-Ukraine Crisis, Wall St. J. (Feb. 3, 2022), https://www.wsj.com/articles/u-s-orders-3-000-troops-to-bolster-european-allies-in-russia-ukraine-crisis-11643810404,

[16] Id.

[17] Dan Bilefsky, Can the West Stop Russia From Invading Ukraine?, N.Y. Times (Jan. 26, 2022), https://www.nytimes.com/article/russia-ukraine-nato-europe.html.

[18] Id.

[19] Robin Brant, China joins Russia in opposing Nato expansion, BBC (Feb. 4, 2022), https://www.bbc.com/news/world-asia-60257080.

[20] GATT 1994 art. 21(c).

[21] The current WTO/GATT system was put in place in 1994 while the original GATT agreement was signed in 1947, approximately two years after the end of World War II. Supra note 20. See generally General Agreement on Tariffs and Trade (1947), Oct. 30, 1947, 61 Stat. pt. 5, 55 U.N.T.S. 194.

[22] Aditya Rathore & Ashutosh Bajpai, The WTO Appellate Body Crisis: How We Got Here and What Lies Ahead?, Jurist (Apr. 14, 2020),  https://www.jurist.org/commentary/2020/04/rathore-bajpai-wto-appellate-body-crisis/. See also World Trade Organization, https://www.wto.org/english/news_e/news19_e/gc_09dec19_e.htm (last visited Feb. 3, 2022).

[23] U.N. Charter art. 39.

[24] U.N. Charter art. 41, 42.