Today, the United States, in coordination with other G7 countries, announced new sanctions, export controls, and import restrictions on Russia.  The latest U.S. package of measures include sanctions targeting Russia’s defense sector, Entity List designations, increased tariffs on a broad range of Russian goods, and an import ban on Russian gold.

New Sanctions

Various U.S. agencies imposed sanctions on transactions involving individuals and entities connected to Russian aggression in Ukraine.

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and U.S. State Department imposed blocking sanctions on dozens of individuals and entities supporting Russia’s defense sector.  The designations target major state-owned defense companies, defense research organizations, and military operations in Ukraine implicated in international human rights violations.

OFAC designated 29 individuals and 70 entities, including the Russian defense-conglomerate, State Corporation Rostec (Rostec).  The State Department sanctioned 29 individuals and 45 entities, including re-designation of Russia’s Federal Security Service (a.k.a. the FSB).

U.S. persons are prohibited from engaging in any direct or indirect dealings with SDNs without prior authorization from OFAC.  All property or property interests of an SDN are also “blocked,” which means that any SDN property or property interest within the possession or control of a U.S. person must be formally frozen and reported to OFAC.

Today, OFAC also issued several general licenses authorizing transactions with certain newly designated SDNs, including:

  • General License No. 39 authorizing transactions to wind-down activities with Rostec, as well as any entity in which Rostec owns, directly or indirectly, a 50 percent or greater interest, by August 11, 2022;
  • General License No. 40 authorizing transactions involving specified SDNs related to the provision, export, or reexport of goods, technology, and services to ensure civil aviation safety;
  • General License No. 41 authorizing transactions for the manufacture, sale, and maintenance of agricultural equipment produced by SDNs Nefaz Publicly Traded Company (Nefaz) or Public Joint Stock Company, Tutaev Motor Plant (Tutaev Motor Plant), or any entity in which Nefaz or Tutaev Motor Plant owns, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest; and
  • General License No. 42 authorizing limited transactions related to requesting, receiving, utilizing, paying for, or dealing in licenses, permits, certifications, or notifications from the FSB.

The U.S. Commerce Department’s Bureau of Industry and Security (BIS) announced the addition of 36 entities from nine countries to its Entity List for evading newly imposed export controls on Russia.  The export, reexport, or transfer of U.S. origin goods, software, and technologies to those designated on BIS’s Entity List are generally not permissible absent prior authorization from BIS, which will rarely be granted.

Tariffs and Import Restrictions

Pursuant to the United States’ suspension of permanent normal trade relations with Russia and Belarus, the Biden Administration issued a proclamation yesterday increasing tariffs on more than 570 groups of Russian products.  The 35 percent ad valorem duties are effective 12:01 a.m. eastern daylight time on July  27, 2022, and apply to a wide variety of products, including steel and aluminum, minerals, chemicals, wood and paper products, aircraft and parts, and automotive parts, among many others.  The heightened duties will apply irrespective of antidumping and countervailing duties, or other fees or extractions applicable to the Russian products.

Ban on Gold Imports

Finally, OFAC imposed an import ban on Russian-origin gold, effective immediately.  Russian-origin gold includes gold produced, manufactured, extracted, or processed in Russia but not gold that has been incorporated or substantially transformed into a foreign-made product.  See OFAC FAQ 1019.  There is a narrow exception related to imports of Russian-origin gold located outside of Russia prior to imposition of the import ban.  As with OFAC’s prior restrictions on the gold market, a newly amended FAQ reiterates that gold market participants, including persons that process or facilitate gold-related transactions, could face sanctions for circumventing or engaging in prohibited gold-related transactions.  See OFAC FAQ 1029.

 

Today, by overwhelming margins, Congress passed two pieces of legislation to further punish Russia for its invasion of Ukraine. The bipartisan bills suspend Permanent Normal Trade Relations (PNTR) with Russia and Belarus and codify President Biden’s recent Executive Order banning Russian energy imports. The bills now head to the President’s desk and are expected to be signed into law in the coming days.

H.R. 7108, the Suspending Normal Trade Relations with Russia and Belarus Act, passed the Senate by a vote of 100-0 and the House by a vote of 420-3. Among other things, the bill denies Russia and Belarus access to Most Favored Nation (MFN) tariff status, effective one-day after enactment. Russia and Belarus will join Cuba and North Korea as the only nations that do not have PNTR status with the United States. Early last month, in coordination with international allies, President Biden announced his support for revocation of PNTR with Russia – a move that required Congressional action.

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 will 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 will increase to 10.5 to 25 percent. Similar increases will occur with respect to imports of Russian titanium castings and mill products, with duty rates jumping from between 5.5 and 15 percent to 45 percent post-revocation.

Additionally, H.R. 7108 grants the President the authority to further increase tariffs on imports from the two nations after consulting with Congress. That authority expires January 1, 2024.

The bill also directs the United States Trade Representative (USTR) to use “the voice and influence of the United States” at the World Trade Organization (WTO) to: (1) condemn Russia’s aggression in Ukraine; (2) encourage other WTO members to suspend trade concessions to Russia and Belarus; (3) consider further steps to suspend Russia’s participation at the WTO; and (4) work to halt Belarus’s WTO accession process.

Finally, H.R. 7108 permanently reauthorizes the Global Magnitsky Human Rights and Accountability Act, which was set to sunset in December 2022. The law authorizes sanctions on individuals responsible for human rights abuses and corruption.

H.R. 6968, the Ending Importation of Russian Oil Act, passed the Senate by a vote of 100-0 and the House by a vote of 413-9. The bill prohibits imports of Russian energy products – specifically, all products under Chapter 27 of the Harmonized Tariff Schedule – in a manner consistent with President Biden’s March 8 Executive Order.

Under the respective bills, subject to certain conditions and Congressional disapproval, the President is granted the authority to return normal tariff treatment and resume imports of Russian energy products.

Today, the Biden Administration issued a new Executive Order (E.O.) banning imports of Russian-origin energy into the United States and prohibiting new investments in the Russian energy sector.  Although the United States imports relatively little energy from Russia, the move is seen as an important measure to reduce Russia’s access to foreign currency.  The investment ban is likely to cement the U.S. withdrawal from the Russian energy sector, following recent announcements by U.S. and other western energy companies that they are pulling back from projects in Russia in response to the invasion of Ukraine.

Import Ban

The E.O. prohibits the import of Russian-origin crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products into the United States.  According to guidance released by the Office of Foreign Assets Control (OFAC), the import ban applies to energy products that were produced, manufactured, extracted, or processed in Russia, but not to energy goods that have been incorporated or substantially transformed into foreign-made products.  The ban does not apply to imports of other forms of energy and does not prohibit imports of non-Russian origin energy products that merely transited through Russia.

OFAC issued General License No. 16 to authorize U.S. persons to engage in transactions that are ordinarily incident to the import of prohibited energy products until 12:01 a.m. eastern daylight time, April 22, 2022 so long as such transactions are conducted pursuant to written contracts or written agreements entered into prior to March 8, 2022.  OFAC also clarified that non-U.S. persons will not be subject to U.S. sanctions under the new E.O. for importing Russian energy products into other countries, so long as those activities do not involve sanctioned parties and do not otherwise involve prohibited transactions.

Investment Ban

Because the United States imports relatively little energy from Russia, the E.O.’s ban on new energy investment in Russia is likely to be more impactful for U.S. industry than the import ban.  The E.O. broadly prohibits any new investment in Russia’s energy sector by a U.S. person, wherever located.  “New investments” are defined in guidance from OFAC as any transaction that “constitutes a commitment or contribution of funds or other assets for, or a loan or other extension of credit to, new energy sector activities” located or occurring in Russia beginning on or after March 8, 2022.  “New investments” do not include transactions related to maintenance or repair.

The “energy sector” is defined broadly by OFAC to include:

The procurement, exploration, extraction, drilling, mining, harvesting, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, or transport of petroleum, natural gas, liquified natural gas, natural gas liquids, or petroleum products or other products capable of producing energy, such as coal or wood or agricultural products used to manufacture biofuels, and the development, production, generation, transmission or exchange of power, through any means, including nuclear, electrical, thermal, and renewable.

Pending Legislative Action

 Shortly after President Biden signed the E.O., House Speaker Nancy Pelosi announced that the House of Representatives would vote on bipartisan legislation to impose additional trade controls on Russia, including a statutory ban on the import of Russian oil and energy products; a review of Russia’s access to the World Trade Organization; and reauthorization and expansion of the Global Magnitsky Human Rights Accountability Act, which authorizes sanctions in response to human rights abuses.  The bill does not include a provision to revoke Russia’s Permanent Normal Trade Relations (PNTR) status, despite bipartisan, bicameral proposals unveiled over the past week.  A revocation of PNTR status would dramatically increase tariffs on imports of certain Russian goods, including metals and other commodities that are key inputs for certain U.S. industries.  It is not clear when or if the Senate will take up the measure.

Related International Developments

As has been the case throughout the crisis, the Biden Administration’s action today reflects close coordination with international allies.  Across the Atlantic, the UK government announced today that it will phase out imports of Russian oil and refined products by the end of 2022.  The ban will not apply to imports of Russian natural gas, although the UK is “exploring options” to further reduce its share of natural gas from Russia.  The European Union also moved today to reduce its reliance on Russian energy, with the release of a proposed plan to make Europe independent from Russian fossil fuels – beginning with natural gas – “well before 2030.”  A European Commission press statement notes the effort may reduce EU demand for Russian gas by two-thirds by the end of 2022.  The Canadian government announced last week that it would ban imports of Russian crude oil in a largely symbolic action given that Canada does not currently import Russian crude.

On Friday, April 5th, a World Trade Organization (WTO) panel issued its decision in a landmark dispute between Russia and Ukraine.  The dispute, Russia – Measures Concerning Traffic In Transit, marks the first time a WTO panel has been tasked with determining whether it has jurisdiction to review actions taken by a WTO Member to protect its own national security interests.

The dispute was brought by Ukraine in September 2016 after Russia imposed various restrictions preventing Ukraine from using Russian road and rail transit to trade goods destined for Kazakhstan, the Kyrgyz Republic, Mongolia, Tajikistan, Turkmenistan, and Uzbekistan.  In defense, Russia claimed that its actions were not subject to WTO review because they constituted actions necessary to protect Russia’s “essential security interests” during an “emergency in international relations” between Russia and Ukraine.  Actions taken by a WTO Member during a war or an emergency in international relations are excepted from WTO review pursuant to Article XXI of the General Agreements on Tariff and Trade 1994 (GATT).  The Trump Administration has cited Article XXI as exempting from WTO jurisdiction its decision to impose duties on imports of steel and aluminum products pursuant to Section 232 of the Trade Expansion Act of 1962 (Section 232).  Continue Reading WTO Panel Issues Landmark Decision Regarding Actions Taken to Protect National Security Interests