The eighth package of EU-Russia sanctions

On 6 October, the European Council adopted a new package of sanctions against Russia, now the eighth, in response to the annexation of the Ukrainian regions of Donetsk, Luhansk, Zaporizhzhia and Kherson in violation of international law. It aims to further restrict Russia’s import and export capacities; individual sanctions are extended in particular to those associated with the annexation and to those who have been identified to circumvent the sanctions.

Restrictions on the transport of crude oil and petroleum products

From the point of view of the maritime economy, the transport of crude oil and petroleum products by sea must again be given special attention.

Whereas previous measures were aimed at allowing the spot market to a limited extent also for deliveries to the EU until 5 December 2022 under grandfather clauses and thus influencing price developments to a certain extent, the approach under the eighth package is more rigid. Carriers are expected to ensure compliance with new regulations imposing a price cap. For the carriage of relevant products, it will therefore be essential to review relevant contracts and price agreements between the parties to the underlying sales contract and to ensure on an ongoing basis that these are to be disclosed immediately and on an ongoing basis. It is recommended to contractually agree on corresponding rights for a carrier and to ensure far-reaching contractual rights are agreed for any form of a breach, in particular the non-performance of transport services which are otherwise due. It can be assumed that the regulations will interfere very massively with normal business processes, in the context of which products are resold on a frequent basis while they are still on board a ship.

Challenges for compliance systems

Not only all maritime transport services to the territory of the EU are covered, but also to third countries, as well as any technical assistance, intermediary services, and the provision of financing or financial assistance. The fact that these measures can be designed in this way is due to the dominant position of European tanker shipping companies and the insurance industry. Thanks to the corresponding market shares, it seems impossible from today’s perspective for Russia to develop an alternative tonnage capacity that could compensate for the intervention in pricing established with a price cap. The mechanism is planned for the transport of crude oil from December 2022, and for other petroleum products from February 2023. The price cap has not yet been specified, but it is already certain that for many companies in the transport industry, as well as in the finance and insurance sectors, new, far-reaching challenges will be created for their internal compliance systems.

Additional prohibitions

It should also be noted that the Russian Maritime Register is now also listed. Any transactions with the Russian Maritime Register of Shipping are thus subject to a prohibition. The Russian Ship Register is a state-owned institution that carries out activities related to the classification and inspection of Russian and non-Russian ships. Shipowners of European-flagged vessels are strongly advised not to cooperate in any way.

Import bans

As a further trade-restrictive measure, further import bans on finished and semi-finished steel products should be mentioned, whereby a transitional period with contingent control is envisaged for semi-finished steel products. Other products covered are in particular pulp and paper, cigarettes, plastics and cosmetics, stones and precious metals as well as leather goods and shoes; the total volume of the import bans is estimated at EUR 7 billion.

Bans on services

In addition, the trade in services is considerably restricted. In addition to areas such as IT-consulting, architecture and engineering, rendering legal advice is also largely restricted. This has led to the raising of constitutional concerns. The primacy of application of EU law must be observed. This is at least the case if there are no obvious and structurally significant transgressions of competences by an organ of the EU. It would be up to the Federal Constitutional Court, for example, to determine that the regulation restricts judicial rights in a way that breaks with the principle of the rule of law and in this respect manifests an overstepping of competences. Since the EU’s Charter of Fundamental Rights specifically provides for judicial rights, with Art. 47 and 48 being particularly noteworthy, a corresponding procedure before the European Court of Justice would be more obvious.

Overall, it is remarkable how resolutely and comprehensively the EU is developing sanctions against Russia and Belarus. Overall, the measures reveal a very deep understanding of essential economic processes and market realities, the consideration of which is of decisive importance for the effectiveness of the measures.

Outlook

The conception of sanctions against Russia and Belarus as the EU’s response to the war in Ukraine sparked by Russia has reached an intense level that leaves only a few economic sectors unaffected of profound changes. It is still possible, for example, to deliver pharmaceutical products to Russia. Goods important to the EU are also still being imported at present. Despite all efforts, especially in the energy sector, established supply flows are proving impossible to replace in the short term. However, the depth of the intervention of the EU sanctions is unmistakable and will have an impact on all relevant economies. In addition to regulating the prohibitions agreed with the sanction regime, special focus is needed on the enforceability of the new legal framework. It can be assumed that Russia’s efforts to circumvent the sanctions will increase as soon as the absence of customary financial flows is felt more massively, to which the regulations of the eighth package of sanctions measures are likely to make a significant contribution. To implement the sanctions more effectively, the Sanctions Enforcement Act II is currently being drafted on a national level. It can be assumed that it will contain competence regulations that will shift the current structure in the enforcement of sanction measures from the states to the federal government to a certain extent. In this context, the creation of a central property registry and a new central authority anchored at the federal level for more effective enforcement of sanction measures are to be expected. It is certainly worthwhile to follow the developments closely. It can be anticipated that the state will try to stabilize and expand currently created control mechanisms. The draft also provides for intervention on the level of preventive measures. Economic actors operating in the EU are advised to assess this as a further, special incentive for the necessary investments in compliance systems.

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