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Japan revokes Russia’s ‘most favored’ status over Ukraine

RURIKA IMAHASHI, Nikkei staff writer

 

TOKYO — Japan will revoke Russia’s “most favored nation” status over its invasion of Ukraine, Prime Minister Fumio Kishida announced on Wednesday.

 

“Russia’s invasion of Ukraine is an atrocity that should be recorded in history,” Kishida told reporters. “We denounce it in defense of the values of freedom, human rights and the rule of law.”

 

“Most favored” nation status gives World Trade Organization members equal treatment based on a principle of nondiscrimination. Most importantly, it means that members benefit from each other’s lowest trading tariffs.

 

With that status revoked, Russia will face higher tariffs on exports to Japan, thereby rendering its products less cost-competitive and attractive. United Nations data show Japan was Russia’s 12th largest export destination in 2020 and that its exports to Japan that year were valued at $9 billion, of which oil and other fuel made up nearly 70%.

 

Kishida said Japan will put more diplomatic and economic pressure on Russia in coordination with Western countries. As part of additional sanctions, the country will ban the export of luxury goods as well as the import of some items from Russia. “We’ll identify target items as soon as possible,” Kishida said.

 

Japan will also expand the list of targets subject to having their assets frozen to additional oligarchs and others close to Vladimir Putin.

 

There are concerns that Russia can evade sanctions by using digital assets. To prevent that from happening, Kishida said, Japan will also work with cryptocurrency exchanges to strengthen the effect of financial sanctions.

 

Last week, the leaders of the G-7 major industrial nations issued a statement in which they announced they would strip Russia of most-favored nation status in regard to key products.

“This will revoke important benefits of Russia’s membership of the World Trade Organization,” the group said in the statement.

 

Japan relies on Russia for around 9% of its LNG imports, according to 2021 customs data. The G-7 countries have agreed to “make further efforts to reduce our reliance on Russian energy, while ensuring that we do so in an orderly fashion and in ways that provide time for the world to secure alternative and sustainable supplies.”

 

Kishida said each country has its own energy mix and its own degree of vulnerability in regard to energy supplies. Countries also differ on whether they are net energy importers or net exporters, he added. “We will strive to bring our [unique situation] in line with the sanctions [announced by the G-7] as much as possible while pursuing our country’s energy security,” Kishida said.

 

Regarding the Sakhalin 2 LNG project, in which Japanese trading houses Mitsui and Mitsubishi have stakes, Kishida described it as “an important project in terms of Japan’s stable energy supply.” He explained that having the stakes makes it possible for Japan to procure energy at a low price over the long term. The project feeds 9% of Japan’s LNG demand, Kishida said.

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