Effectiveness of European Union sanctions against Russia

Since Russia’s invasion of Ukraine in February 2022, the European Union (hereinafter the “EU”) continues to put in place restrictive measures to sanction Russian’s actions. The main objective of the EU, is to limit Russia’s abilities to finance the war against Ukraine.

On the 9th October 2023, the EU Parliament took a resolution regarding the effectiveness of EU sanctions against Russia. This resolution does an overview of EU sanctions against Russia.  For example, despite EU sanctions against Russian on coal, Russia’s production increased by 0.3% compared to 2021. Since the start of the war, Russia has recorded revenues of €532 billion from fossil fuel exports, of which more than €178 billion is attributable to purchases by EU Member States.

European imports of petroleum products made with Russian oil from India, for example, increased too. In addition, critical Western components continue to be shipped to Russia via countries such as China, Turkey, the United Arab Emirates or Serbia.

These figures and observations enable the deputies to conclude that: EU and its Member States have to improve the effectiveness of the EU sanctions against Russia.

According to the EU Parliament’s resolution, there are several ways to ensure better effectiveness of these sanctions.

The first way, and most important one, is to reduce circumventions of EU sanctions. Indeed, as underlined before, Russia exports its products through non-EU countries. For example, petroleum products made from Russian oil, are exported to the EU from countries such as India. Thus, the Kremlin’s oil finds other paths to access to the EU market.

In addition, EU must break its dependence on Russian fossil fuels. Indeed, EU remains one of the main customers for Russian fossil fuels, mainly because there are several exceptions to the ban on imports of crude oil and petroleum products.

All of these elements are not new. That is why, in 2022, the Council of EU adopted a decision which seeks to add the violation of restrictive measures to the list of EU criminal offences of the Treaty on the Functioning of the European Union. EU also adopted in June 2023, the 11th package of sanctions against Russia. This package introduced a new anti-circumvention tool to tackle sanctions’ evasion. This tool enables the EU to restrict the sale, supply, transfer or export of certain goods and technologies subject to sanctions to certain third countries whose territory is deemed to be exposed to a high and constant risk of being used for circumvention purposes.

The resolution recalls that: “the effectiveness of international sanctions depends on the firmness, cohesion, cooperation, honesty and respect for commitments of the States that have adopted them”. Thus, it asks to EU Member States to improve their control concerning goods or persons targeted by the sanctions. Also try to completely close the EU market to fossil fuels of Russian origin.

In this dynamic, EU Member States will start to discuss, this week, the 12th package of sanctions against Russia. President of the European Commission Ursula von der Leyen stated in her speech in the Verkhovna Rada of Ukraine on the 4th November 2023 that : “The new sanctions shall include up to 100 new listed individuals, new import and export bans, actions to tighten the oil price cap, and tough measures on third-country companies which circumvent the sanctions”. Circumventions of these sanctions will be a key aspect of this new package of sanctions.

Text’s link: European Parliament resolution of 9 November 2023 on the effectiveness of the EU

Our team remains at your disposal for any further information at: dscustomsdouane@dsavocats.com.

The General Court backs the European Commission against Chinese foreign subsidies to Egypt as part of the New Belt and Road Initiative… Is Morocco next?

By its two judgments dated March 1st, 20231 , the General Court has, for the first time, provided
important clarifications on the accountability of foreign subsidies on a product subject to countervailing
measures.


In this case, Hengshi and Jushi, companies incorporated under Egyptian law, produce and export woven
and/or sewn glass fiber fabrics to the EU (“GFF”). Their shareholders are Chinese companies. They are
located in the Sino-Egyptian economic and trade cooperation (“SEETC”) zone created within the
framework of the Suez Canal corridor development plan between China and Egypt. As such, they enjoy
the benefits, including financial, granted by the Chinese government to Chines companies in this area.
Following a first complaint of April 1st, 2019, by Implementing Regulation (EU) n°2020/776, the
Commission decided to adopt (countervailing duties on the imports of GFFs originating in China and
Egypt. Following a second complaint filed on April 24th, 2019, the Commission adopted Implementing
Regulation (EU) n°2020/870 imposing countervailing duties on imports of continuous filament glass
fiber (“CFGF”) products, the main raw material of GFFs, originating in Egypt.


The two companies brought actions for annulment of the contested Regulations, based on the violation
of Article 3(1)(a) of the basic anti-subsidy Regulation2, which provides that a subsidy shall be deemed to
exist if there is a financial contribution by the government of the country of origin or export. They argued
that since the products covered by the Commission’s Regulations originate in and are exported from
Egypt, and since the financial contributions are made by the Chinese government, Egypt cannot be
countervailed by reason of the Chinese contributions.


In its judgments, the General Court rejects the Egyptian companies’ requests for annulment and
confirms the Commission’s interpretation of the accountability of the subsidies.
The General Court found that the financial contributions that gave rise to the subsidies could either be
enacted by a public body or be attributable to that body without it even being the direct source of the
subsidies. Moreover, for the anti-subsidy measures to be applicable, the financial contributions must be
granted by the public authorities “within the territory of a country”3. Therefore, there is nothing to exclude the attribution to the Egyptian government of financial contributions granted by the Chinese
government, especially in the context of a free trade zone, such as SEETC.


Furthermore, the General Court notes that such an interpretation does not contravene Article 1 of the
Agreement on Subsidies and Countervailing Measures 4 , which defines a subsidy as a financial
contribution by a government within the territorial jurisdiction of “a” member of the World Trade
Organization. Contrary to the European Regulations, it is not specified that the financial contribution at
the origin of the subsidy must come from the country of origin or export.


The General Court has thus adopted a particularly broad interpretation of the concept of “public
authorities” in the area of subsidies, allowing the Commission to sanction subsidies provided not by the
country of origin or export but by the country of the shareholders of the companies in the country of
origin or export.


Finally, even if reference is made to the Chinese ownership of the Egyptian companies to justify the
accountability of Chinese financial contributions to the Egyptian public authorities, it does not appear
that this is a necessary condition for such accountability. Indeed, the Tribunal considers that financial
contributions from a third country to the country of origin or export that have the effect of subsidizing
companies in the country of origin or export may give rise to countervailing duties, regardless of the
strength of the relationship between the countries.


At a time when the Union is in the process of adopting new Regulations on foreign subsidies5, the
solution adopted by the General Court extends the Union’s power to impose sanctions, this time from
the perspective of trade defense instruments. One can rightly ask whether other African countries,
currently benefiting from Chinese subsidies, will not follow the fate of Egypt…

1 Judgments of the General Court in cases T-480/20 and T-540/20, Hengshi Egypt Fiberglass Fabrics and Jushi Egypts for Fiberglass Industry v. Commission. Both judgments may be appealed to the Court of Justice within two months and ten day of their notification.
2 Regulation (EU) 2016/1037 of the European Parliament and of the Council of the 8th of June 2016 on protection against subsidized imports from non-EU countries.
3 Recital 5 of the basic anti-subsidy Regulation

EU-wide REACH enforcement project

Implementation starts in France

In November 2022, the European Chemical Agency (ECHA) announced that, over the 2023-2025 period, a REACH enforcement project would investigate how companies fulfil the registration, authorization and restriction obligations for products and chemicals they import from outside the EU. To this end, cooperation from national customs authorities in the Member States was sought.

On 07/02/2023, French Customs published a note on their website information of specific tariff provisions (DTP) related to compliance with REACH provisions and restrictions on the manufacture, placing on the market and use of certain dangerous substances and preparations and certain dangerous articles (listed in Annex XVII of the REACH Regulation).

As of 10/02/2023, operators importing in France are to mention on their customs declaration (DAU) either of the following DTP codes:

  • Y106: Compliance with REACH restrictions defined in column 2 of Annex XVII of Regulation (EC) No 1907/2006;
  • Y110: Exemption from REACH restrictions under Article 67(1) and (2) of Regulation (EC) No 1907/2006;
  • Y113: Product not subject to the provisions of Regulation (EC) No 1907/2006.

Several operators and trade federations have reported “customs blockages” following the implementation of these DTPs.

Since Tuesday 21 February, DTP Y113 now mentions Annex XVII of the REACH regulation and is worded as follows: “Product not subject to the provisions of Regulation (EC) No 1907/2006 (Annex XVII)”.

Therefore, operators importing substances subject to the provisions of the REACH Regulation but not falling under Annex XVII may therefore refer to DTP Y113.

The creation of these DTPs for dangerous chemicals might be supplemented by additional codes in the coming months, so as to encompass non-dangerous substances and then meet the objectives of the ECHA enforcement project above described.

Our team has a strong experience in advising international operators in managing their REACH compliance obligations We are at your disposal for any further information at: dscustomsdouane@dsavocats.com.

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