As a result of the changes made to the EU Regulation No. 833/2014, which addresses restrictive measures in response to the military conflict between Ukraine and Russia, a new requirement has been introduced for exporters of certain goods categories. Effective from 20 March 2024, these exporters are required to incorporate a clause in their purchase or supply contracts that prevents the recipient/importer from a third country from re-exporting or transferring these goods to Russia or for use in Russia.
These amendments are designed to counteract the evasion of EU sectoral sanctions, particularly in instances where sanctioned goods are exported from the EU to third countries, especially those bordering Russia, and subsequently re-exported to Russia. While many EU exporters already include a re-export prohibition in their contracts, these amendments have transformed this best practice into a legal requirement.
The new rules apply to all exporters who export a variety of goods, such as brake linings or discs, ball bearings or other bearings, antennas or reflectors, and various electrical goods like integrated circuits, diodes, transistors, plugs and sockets, among others. The comprehensive list of goods is detailed in Annexes XI, XX, XXXV and XL of the Regulation, as well as in Annex I of the EU Regulation No. 258/2012.
Exporters of these goods are required to prevent the recipient of the goods from re-exporting the goods to Russia. Geographically, this obligation applies to an exporter (an EU company) if it exports the goods outside the EU, excluding the partner countries listed in Annex VIII of the Regulation. These countries are: United States, Japan, United Kingdom, South Korea, Australia, Canada, New Zealand, Norway and Switzerland.
All contracts signed from 20 March 2024 onwards must include a prohibition on the re-export of the aforementioned goods to Russia. Contracts signed before 19 December 2023 are subject to a one-year transition period until 19 December 2024 or until the specific contract expires, whichever comes first. Contracts signed after 19 December 2023 must incorporate this prohibition by 20 March 2024.
In this context, a “contract” refers to an agreement between parties where all the necessary components of the transaction, such as price, quantity, delivery date, etc., have been agreed upon.
It is the responsibility of the exporter to ensure that the contract also includes adequate remedies for breach of this prohibition. Typically, this might involve the exporter’s right to terminate the contract unilaterally and/or impose a contractual penalty, but the parties may also opt for other legal remedies. In such cases, the contractual penalty must be commensurate with the nature of the violation. It cannot be merely symbolic; it must be sufficiently effective to deter non-EU companies from breaching this prohibition.
The exporter is required to report to the competent authority of the relevant member state as soon as it becomes aware of a breach of this prohibition by a third-country business partner.
The sanctions regulations do not provide specific wording for this prohibition on re-exporting goods to Russia, allowing exporters to choose the wording of the prohibition that best suits the contractual relationship with the relevant recipient. The key requirement is that this wording fundamentally complies with the requirements of Article 12g of the Regulation.
Furthermore, the European Commission recommends including in the contract that this prohibition is a crucial element of the contract. If a new contract for the supply of goods is being drawn up, the prohibition can be included by adding a relevant clause to it. If the contractual relationship is already established, the parties can choose to amend the existing contract or draw up a new contract with the relevant clause included.
Summary
To sum up, the sanctions regulations impose a prohibition on re-exporting goods to Russia without prior authorization from the competent authority. The exporter must ensure that the contract with the recipient includes this prohibition and adequate remedies in case of breach. The exporter must also report any breach to the competent authority as soon as possible. This is a measure that, according to the EU, aims to prevent the circumvention of the sanctions regime.
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