Russian memo to WTO says U.S. sanctions are illegal

GENEVA (Reuters) - Russia has told the United States that its Ukraine-related sanctions on a Russian bank and Russian citizens are illegal under World Trade Organization rules and must be scrapped.

Russian Economy Minister Alexei Ulyukayev said last week that Russia could launch a dispute at the world trade body to challenge U.S. sanctions.

The latest warning, set out in a confidential document circulated at the WTO on Wednesday, explained what grounds Russia would have for doing so and made clear that Moscow believes it would win a trade dispute if it launched one.

Member countries can claim some exemptions from WTO rules, however, including on grounds of national security.

Although it would be unusual to rely on those grounds to deflect a WTO dispute, the United States invoked the national security argument as a member of the trade body’s predecessor organization to justify its economic embargo on Cuba.

The United States and European Union have so far imposed visa bans and asset freezes on a few Russians in protest at Moscow’s annexation last month of Crimea from Ukraine.

But U.S. President Barack Obama said on Thursday he was poised to impose more sanctions on Moscow if it does not act fast to end an armed stand-off in Ukraine’s east, where pro-Russian separatists are defying Kiev’s authority.

The document also fired a warning shot at other countries that may be thinking of bringing sanctions against Russia.

“The Russian Federation also notes debates among the political elite of certain WTO Members calling for imposition of trade restrictive measures in respect of Russian goods and services, exports to Russia and transfers of payments,” it said.

“In response to these debates we call upon all WTO Members to refrain from being misled by such political motives and neglecting the WTO Agreement.”

The U.S. sanctions, punitive measures by Washington over Russia’s annexation of Crimea, targeted St Petersburg-based Bank Rossiya and its chairman and largest shareholder Yuri Kovalchuk.

Russian bank SMP was also indirectly affected as co-owners Boris Rotenberg and his older brother Arkady fell under U.S. sanctions. SMP chief executive Dmitry Kalantyrsky has said that an estimated 9 billion rubles ($252 million) were withdrawn after the sanctions were imposed.

Russia’s document cited U.S. executive orders on March 6, 17 and 20 and said it had serious concern about their substance and practical implementation.

“The measures provided for in the Executive orders are incompatible with the obligations of the United States under the GATS,” it said, referring to the WTO’s General Agreement on Trade in Services.

It listed several ways in which the U.S. sanctions broke the GATS rules, including by barring a Russian bank from establishing a commercial presence in the United States and prohibiting its cross-border supply of services and payments.

Although it joined the WTO less than two years ago, Russia has already become embroiled in trade disputes with the European Union and Japan, and a flurry of threats and warnings suggest that more cases could soon follow. ($1 = 35.7037 Russian Rubles)

Reporting by Tom Miles; Editing by Catherine Evans