Brutal may be best for Russian grain exporters Will they or won't they? Agricultural commodities traders remain on edge after comments by Andrei Belousov, Russia's economic development minister, last Friday suggested that grains export restrictions remained on Moscow's agenda. Traders are keeping a close watch on comments coming out of Russia, the world's third-largest wheat exporter. At the same time, they are pondering what method Moscow will choose if it opts to limit exports. The Russian government's tool box includes an outright embargo, export tariffs or quotas, or more informal methods such as increasing red tape or limiting access to transport to reduce the flow of grains leaving the country. Many traders labelled the outright ban Russia imposed in 2010-2011 as "brutal." However, from a legal standpoint, "brutal is best" for exporters, says Michael Swangard, partner at London law firm Clyde & Co who specialises in commodities arbitration. With most grains produced in eastern Europe and Russia traded under the Grain and Feed Trade Association's standard contract that contains a "prohibition clause," a seller is excused from its obligations if it is banned from exporting by an act of government. An "absolute ban has the advantage of affecting all market participants equally," says Mr Swangard. When Russian grain traders were unable to sell wheat due to the ban, there was little or no arbitration work for law firms, he says. But it is not as clear cut in the delay in deliveries or non-delivery caused by transportation problems or increased paperwork, nor for contract defaults due to quotas and tariffs. In 2010, Ukraine - among the world's top 10 wheat exporters - took apparent attempts to slow the flow of grain exports through methods such as cutting back railway wagons carrying goods to port, and customs agents delaying or not processing export authorisations. This "only worked to the disadvantage of the country's grain exporters," according to Mr Swangard. Ukrainian sellers ended up breaching their contracts, and as prices had moved higher, they faced claims for substantial damages. Kiev subsequently introduced export quotas, but if a grains exporter was unable to secure a quota, in many cases, the buyer was able to say there was no absolute prohibition on exports and hence it was the seller's obligation to gain export clearance. Ukraine's approach resulted in a "considerable" number of arbitration cases, and the trend, says Mr Swangard, has been for these disputes over informal restrictions and quotas to find in favour of the buyers. With Russia joining the World Trade Organisation, some grain traders suggest that Moscow may choose a more subtler method in limiting exports. However, the adverse impact on local exporters is another reason for authorities to think twice before making a decision.