Companies Should Prepare for Range of Russia Export Licensing Restrictions, Lawyers Say
Although many companies could be affected by a potential expansion of the U.S. foreign direct product rule if Russia invades Ukraine, the U.S., the United Kingdom and Canada can also deploy other export restrictions that could have significant compliance implications, Baker McKenzie lawyers said. Those controls could range from more strict licensing policies to a complete trade embargo on certain Russian annexed territories.
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U.S. officials for weeks have said they intend to enact, alongside allies, a series of severe sanctions and export control measures against Russia if it further invades Ukraine (see 2201250042 and 2201270049). Although the specific moves aren’t yet clear, the U.S. could expand the Commerce Department’s FDP rule, which would be intended to cut Russia off from a range of foreign-produced technologies (see 2202140038).
But companies should also be preparing for a host of other trade restrictions, including enhanced licensing restrictions for sensitive goods, tighter license review policies and an additional set of licensing requirements for exports and reexports to Russia, Meghan Hamilton, a trade lawyer, said during a Feb. 15 Baker McKenzie webinar. The agency may also revoke certain Russia-related licenses, Hamilton said, or the administration could introduce a broad export prohibition for entire territories.
Such a move has precedent: After Russia annexed Crimea in 2014, the Bureau of Industry and Security introduced a license requirement for all goods subject to the Export Administration Regulations destined to Crimea, except certain EAR99 items. “I wouldn't preclude a complete export ban for any territory that is annexed by Russia,” Hamilton said.
Canada could take similar steps by imposing a trade embargo against Russia, said Brian Cacic, a Toronto-based trade lawyer. Those restrictions could mirror Canada's approach to Belarus, which is listed on Canada’s Area Control List and requires an export permit for all Canadian items (see 2106210023).
Cacic called that measure the “most severe approach,” adding that Canada will likely try to align its measures to match the U.S. and other allies. “A number of different statutory instruments could be exercised on how to restrict exports,” he said. “I think it'll just be a question of which one is the most appropriate.”
Although the U.K. also said it will increase export scrutiny on Russia-bound goods if Russia invades Ukraine, many of those exports are already subject to strict requirements, said Ross Evans, a London-based trade lawyer. Ross said the U.K. rejects only about 2% of export licenses, but the majority of those denials are for goods destined to either Russia or China.
“Licenses are still being granted and it's still possible to get them,” Evans said. “But there will be a lot of scrutiny with applications at the current time, and in this climate, you expect that to remain with the potential for new measures to be introduced.
Aside from the FDP rule, BIS could also expand its de minimis rule to restrict exports with lower thresholds of U.S.-origin content, Hamilton said. “I think that it's important to review your supply chains now,” Hamilton said, “and figure out how, particularly with regard to the foreign direct product rule, that would impact exports or reexports to Russia."