Pity trade compliance staff. For years, these roles received little attention. Staff ensured that laws and regulations related to the movement of goods across borders were followed. The right paperwork was sent to the correct recipient and customs duties or tariffs were paid accordingly. In an efficient office, with fairly limited changes in border procedures and relevant legal regimes, it was the sort of important operation that largely escaped notice. It was really only if the staff made a serious mistake that trade compliance moved up on the corporate agenda. Failure to follow rules, such as declaring the wrong code or valuations for products, could result in significant fines and penalties. But, generally, most trade moved without incident. As a result, companies probably undervalued the operations and provided only limited resources for staff. Increasingly, however, trade compliance has become a focus of attention within firms. At least four changes have added to the workload: growing trade tensions, supply chain snarls stemming from Covid-19 restrictions, a massive and growing list of sanctions and other types of controls, and the increasing use of economic levers to tackle broader foreign policy issues.

Nevertheless, the basic point still stands—products from the WTO are meant to be given consistent tariff rates at the border. Thus, a member with an MFN rate of 10% on eyeglasses can collect 10% in tariffs from every incoming WTO member firm at the border for each pair of glasses. If the eyeglasses are coming from a non-WTO member, then there is no MFN obligation. Members can apply whatever tariffs they want to glasses from non-WTO members. The pool of non-members is steadily shrinking with most remaining outside the WTO currently involved in accession negotiations. Belarus is not yet a WTO member, meaning that members can quite easily apply whatever tariffs or measures they want against Belarusian eyeglasses or any other product. Governments can be quite particular about products that come in from across borders. Thus, although they have agreed to non-discrimination and MFN treatment in the WTO, they do not give such consent in all circumstances. There are a number of exceptions clauses within the WTO that can be triggered, such as in times of crisis. The WTO has an explicit set of national security exceptions. The original GATT was formed in the aftermath of World War II and officials were extremely conscious of trade concerns in times of direct conflict or war. They put into place Article XXI on security exceptions that includes a provision to suspend application of the rules “taken in time of war or other emergency in international relations.” For a long time, the use of national security exceptions remained limited. They were assumed to be for use by direct combatants in war situations. But the norm against invoking these exceptions has sharply weakened in recent years. Some WTO members have now declared that they will apply national security exceptions to revoke Russia’s MFN treatment. In other words, they have reserved the right to make unilateral changes in their treatment of Russian imports such as imposing an across-the-board 35% tariff on all products. The removal of MFN thus far has largely been focused on tariff changes, but discriminatory practices could be taken across a range of possible trade commitments.

Trade Compliance Keeps Getting Harder

Russia’s Not-Normal Trade Relations