In coordination with the European Union and G7 countries, the United States announced a raft of new sanctions and trade control measures targeting Russia today in response to the ongoing war in Ukraine. The new measures include:
- The planned revocation of Russia’s Most Favored-Nation status, which is likely to substantially increase duties on many imports of Russian goods;
- A ban on imports of seafood, vodka and spirits, and non-industrial diamonds;
- A ban on exports of luxury goods to Russia and Belarus, including certain spirits, tobacco products, clothing items, jewelry, vehicles, and antique goods;
- New sanctions authority to ban U.S. investment in any sector of the Russian economy;
- A ban on supplying U.S. dollar banknotes to the Russian government or persons located in Russia;
- Additional sanctions on Russian elites; and
- Steps to deny multilateral lending to Russia.
President Biden issued a new Executive Order (E.O.) today implementing many of the new measures, and the Office of Foreign Assets Control (OFAC) issued guidance on the application of U.S. sanctions laws to virtual currency and several new general licenses.
Revocation of Most-Favored Nation Status
Today, President Biden announced his intention to work with Congress to revoke Permanent Normal Trade Relations (PNTR, also commonly referred to Most-Favored Nation status) with Russia. Once implemented, Russian imports will no longer be subject to the preferential duty rates that imports from nearly all other countries enjoy due to membership in the World Trade Organization. Speaker Pelosi indicated today that the House of Representatives will take up legislation that would be required to formalize the revocation sometime next week. The EU and G7 countries announced similar moves.
While the United States imports a relatively small volume of goods from Russia, the move is expected to significantly raise the cost of certain key materials that U.S. manufacturers frequently source from Russia. For example, the duty rates on imports of unwrought nickel and nickel waste and scrap would increase from duty free to $0.066/kg. Russia is also a source of primary and unwrought aluminum for U.S. manufacturers. The current, general duty rate for these products is either free or less than 3 percent but, would increase to 10.5 to 25 percent if PNTR is revoked. It’s a similar story for imports of Russian titanium castings and mill products, duty rates for which would jump from 5.5 to 15 percent to 45 percent post-revocation.
The revocation of PNTR would be the latest unprecedented move by the United States and its allies in response to Russia’s invasion of Ukraine. For context, only two other nations do not have PNTR status with the United States – Cuba and North Korea.
Import Ban: Seafood, Alcohol, Diamonds
The new E.O. prohibits the import of Russian-origin fish, seafood, alcoholic beverages, and non-industrial diamonds into the United States and provides the Secretary of the Treasury with authority to impose bans on other Russian goods in the future. OFAC issued a temporary general license authorizing U.S. persons to engage in all transactions ordinarily incident and necessary to the import of the banned items through 12:01 am EST on March 25, 2022, so long as the transactions are made pursuant to contracts and written agreements entered into prior to March 11, 2022. OFAC also issued guidance providing the Harmonized Tariff System import codes for the goods subject to the ban.
Luxury Goods Export Ban
Pursuant to the new E.O., the Commerce Department announced amendments to its Export Administration Regulations (EAR) to prohibit the export, reexport, or transfer of specified luxury goods to Russia and Belarus and to sanctioned Russian and Belarusian oligarchs and malign actors, wherever located. Goods subject to the ban, which are enumerated in a new Supp. No. 5 to Part 746 of the EAR, include alcohol products, tobacco products, clothing items, jewelry, vehicles, art, and antique goods (collectively defined as “luxury goods” in the EAR). Limited license exceptions are available for certain exports to Russia and Belarus, but not to oligarchs or malign actors.
U.S. Dollar Banknotes
The E.O. prohibits the direct or indirect export, reexport, sale, or supply of U.S. dollar-denominated banknotes to the Russian government or to any person, including entities and individuals, in Russia without authorization from OFAC. OFAC issued a general license to allow certain personal, non-commercial remittances involving Russia. The general license authorizes certain transactions that are ordinarily incident and necessary to the transfer of U.S. dollar-denominated banknote noncommercial, personal remittances from the United States or a U.S. person (U.S. citizen or resident), to an individual in Russia. The general license also authorizes certain transfers from U.S. person individuals in Russia. Financial institutions and other involved in processing U.S. dollar transactions with Russia need to carefully review these new restrictions and accompanying guidance from OFAC.
Authority for New Investment Bans
Following the imposition of a ban on new U.S. investment in the Russian energy sector announced Monday, today’s E.O. allows OFAC to impose similar investment bans on other sectors of the Russian economy in the future. This provision does not impose any new legal prohibitions, but it is a signal that additional or more expansive investment bans may be coming.
OFAC added several relatives of Russian elites to the List of Specially Designated Nationals (SDN List), along with members of the Russian Duma and an oligarch’s yacht and jet.
The United States and G7 countries also announced that they will take steps to prohibit Russia from obtaining financing from multilateral financial institutions, including the International Monetary Fund and the World Bank.