The trade sanctions coalition may face hurdles, but despite that – and despite the fact that political institutions within the G7 move at different speeds – coordinated action determined at Elmau will go a long way in overcoming them
Short of a miracle, the conflict in Ukraine will be top of mind when G7 leaders assemble in Elmau in June. We are reminded daily of the appalling loss of life, the internal displacement of people and the cross-border settlement of refugees brought about by this conflict. The human toll extends further, with rising food prices putting at risk the social and political stability of some developing countries far from the theatre of conflict. The integrated nature of our global economy has ensured the fallout is not localised.
Moreover, as G7 governments quickly realised, the 2022 invasion of Ukraine represented a blatant transgression of the international order established after World War II. Including the European Union, G7 members quickly announced a raft of trade sanctions, among other measures. On 11 March, the G7 announced their intention to revoke Russia’s most favoured nation status, allowing high tariffs to be imposed on Russian imports. That same announcement anticipated the creation of a coalition of World Trade Organization members that would sanction Russia. This was followed in May with a commitment “to phase out our dependency on Russian energy, including by phasing out or banning the import of Russian oil”, a big step given pre-conflict energy sourcing patterns and related infrastructure for certain European countries.
The Elmau Summit provides an excellent opportunity to assess the trade sanctions deployed against Russia. For sure, this could include reviewing how far along each G7 member is in imposing stiff tariffs on Russian exports, the timetable for ending its dependency on Russian oil and gas, what exceptions have been adopted and their rationale. Understandably, political institutions in the G7 move at different speeds. This does not justify raising trade barriers. Rather, it reflects the fact that the credibility of the G7 would be jeopardised if there was insufficient follow-up on vows made.
Limits of uncoordinated action
G7 leaders could also identify further steps to isolate the Russian economy, should that be necessary. Taking a leaf out of the sanctions regime implemented against Apartheid-era South Africa, recently Marc-Andreas Muendler and I showed that higher international shipping costs brought about by Western shipping companies refusing to transport Russian goods would do more harm to Russian living standards over the medium term than the 35% tariffs recently levied by G7 governments on all Russian exports. Indeed, the Elmau Summit affords an opportunity to stiffen the resolve of the EU members present, in light of the EU’s recent decision not to ban its shipping lines from transporting Russian oil. The opposition of Greece and Malta appears enough to sink these plans. The lack of any G7 plan to ban shipping was, according to the Financial Times, “central to the proposal being dropped”. The limits of uncoordinated action should be apparent.
More fundamentally, the G7 should reflect on the size of the coalition of countries willing to impose trade sanctions on Russia. For every WTO member that has imposed conflict-related trade measures against Russia, three members have not. For sure, some countries have joined the G7 and the EU in sanctioning Russia: Australia, New Zealand, Norway, Singapore, Korea and Switzerland. But why have more not been convinced of the need to pay an economic price to defend the post-war international order?
The question of leverage
Some arguments cut no ice and should be set aside. That more than 40 countries voted to condemn the invasion of Ukraine at the United Nations is not convincing. Worse, it suggests that some are only willing to send costless signals to Moscow. Another uncompelling argument – recounted to me by certain diplomats in Geneva – is that Russia has successfully offered a mix of threats and inducements to other WTO members to refrain from joining the coalition of sanctioning countries. This raises the awkward question of why Russia has more leverage than the G7 members, acting individually or together.
The advantage of the G7 format is that candid conversations behind closed doors are an option typically not available in larger settings, such as the G20. G7 leaders could identify the factors stunting the expansion of the trade sanctions coalition and the steps they can take to overcome those hurdles. Given the mounting concerns over the availability and price of key foodstuffs and fertilisers, G7 leaders could put together a package of measures – both trade and finance related – that will reassure other governments that steps will be taken first to stabilise global food prices and then to reverse them, as World Bank president David Malpass recently recommended. Furthermore, G7 leaders should charge their officials with devising a coordinated trade and development aid response to Russian influence over other WTO members. The key word is coordinated: now is the time to demonstrate that the whole is more than the sum of the parts. This must supersede the current G7 approach of aligning disparate national responses to the invasion of Ukraine.