As part of the EU’s fifth sanctions package of April 8, 2022, restrictive measures were imposed under Article 3j(1) of Council Regulation (EU) 833/2014 on the purchase, import or transfer of Annex XXII coal products. The restrictions state (emphasis added):
“(1) It shall be prohibited to purchase, import, or transfer, directly or indirectly, coal and other solid fossil fuels, as listed in Annex XXII into the Union if they originate in Russia or are exported from Russia.”
There are also similarly worded restrictions under Article 3i, which targets inter alia certain fertilizer products under Article 3i(1). The restrictions state (emphasis added):
“(1) It shall be prohibited to purchase, import, or transfer, directly or indirectly, goods which generate significant revenues for Russia thereby enabling its actions destabilising the situation in Ukraine, as listed in Annex XXI into the Union if they originate in Russia or are exported from Russia.”
Given the reference to “into the Union”, it was initially widely interpreted that these restrictions only prohibited the purchase, import or transfer of Annex XXII coal/fertilizer products where they were destined for an EU Member State.
On April 17, 2022, the EU issued a FAQ stating that “transfer is a broad concept covering a wide range of operations: not only the movement of goods through customs controls, but also the transport of goods, including (but not exhaustively) their loading and trans-shipment.” Whilst this made clear that “transfer” included transportation, for the reasons given above, Articles 3j(1) and 3i(1) still ostensibly required goods to be destined for the EU.
On June 14, 2022, the EU published a further FAQ under the heading “Imports & Purchase of Goods,” which stated, among other things (emphasis added):
“Is the purchase of goods listed in Annexes XVII, Annex XXI and XXII of Council Regulation 833/2014 by an EU company allowed when the goods are exported from Russia towards a third country and are not transiting Union territory?
No. Articles 3g, 3i and 3j of Council Regulation 833/2014 prohibit the purchase, import, or transfer, directly or indirectly, of the goods listed in Annexes XVII, XXI and XII if they originate in Russia or are exported from Russia. The prohibition on purchase applies irrespective of the final destination of the goods. Provided the purchase falls within the scope of Article 13 of Regulation 833/2014, it is not relevant whether the goods are destined for the EU or not.”
With this, the EU seemingly sought to clarify that EU persons were restricted from purchasing restricted Russian-origin coal regardless of its destination. However, there remained some uncertainty as to whether the restrictions on importing and transferring restricted coal products only applied to imports and transfers “into the Union” (and not third countries). Given the distinction between Articles 3j(1) and 3g(1), the title given to the relevant FAQ (“Imports & Purchase of Goods” – which was subsequently reorganized under the heading “Purchase of Listed Goods” in the EU’s Consolidated FAQs) and the precise wording of the FAQs, this appeared the most likely position.
To confuse matters, on August 10, 2022, the EU issued a revised FAQ under the title “Import, purchase and transfer of listed goods” which stated (emphasis added):
“2. Is the transfer of goods listed in Annexes XVII, Annex XXI and XXII of Council Regulation 833/2014 by an EU company allowed when the goods are destined for a third country and are not transiting Union territory?
Last update: 10 August 2022
No. Articles 3g, 3i and 3j of Council Regulation 833/2014 prohibit the purchase, import, or transfer, directly or indirectly, of the goods listed in Annexes XVII, XXI and XXII if they originate in Russia or are exported from Russia. The prohibition on transfer applies irrespective of the final destination of the goods, whereas the prohibition on the import applies by nature to goods moving ‘into the Union’. Provided the transfer falls within the scope of Article 13 of Council Regulation 833/2014, it is not relevant whether the goods are destined for the EU or not….”
Per our last alert that related to the above FAQs, we noted that in doing so the EU had also appeared to unintentionally restrict the transfer of certain products to third countries that went against the spirit of the regulations, particularly in relation to fertilizers.
Nevertheless, on August 29, 2022 and notwithstanding industry outcry, the EU reiterated its position with the promulgation of further FAQs, which confirmed:
a) The transfer of targeted goods to third countries was prohibited; and
b) The provision of financial assistance, including brokering and insurance related to the transfer of such goods, was prohibited.
The above FAQs have now been amended as of September 19, 2022, and this has reversed the position in relation to certain restricted goods, as follows (emphasis added):
“2. Is the transfer of goods listed in Annexes XVII, XXI and XXII of Council Regulation 833/2014 by an EU company allowed when the goods are destined for a third country and are not transiting Union territory
Last update: 19 September 2022
No. Articles 3g, 3i and 3j of Council Regulation 833/2014 prohibit the purchase, import, or transfer, directly or indirectly, of the goods listed in Annexes XVII, XXI and XXII if they originate in Russia or are exported from Russia. The prohibition on transfer applies irrespective of the final destination of the goods, whereas the prohibition on the import applies by nature to goods moving “into the Union”. Provided the transfer falls within the scope of Article 13 of Council Regulation 833/2014, it is not relevant whether the goods are destined for the EU or not. This supports the aim of the sanctions which is to significantly weaken Russia’s economic base, depriving it of critical markets for its products and to significantly curtail its ability to wage war. Any other interpretation would render the prohibition largely devoid of purpose and create significant loopholes.
However, the Union is committed to avoiding that its sanctions impact food and energy security of third countries around the globe, in particular of the least developed ones. In light of this commitment, which is clearly stated in recitals 11 and 12 of Council Regulation 2022/1269, the transfer to third countries of certain goods listed in Annex XXI and XXII should be allowed “to combat food and energy insecurity around the world” and “in order to avoid any potential negative consequences therefor” in third countries. This applies to the transfer to third countries, as well as financing or financial assistance related to such transfer, carried out by EU operators or via the EU territory (including in transit) of the following goods:
- Fertilisers falling under CN codes 310420, 310520; 310560; ex31059020 and ex31059080 related, as listed in Annex XXI;
- Animal feed falling under CN code 2303, as listed in Annex XXI;
- Certain hydrocarbons falling under CN codes ex2901 and 2902, as listed in Annex XXI;
- Essential goods falling under CN codes 44 (wood); 2523 and 6810 (cement products), as listed in Annex XXI;
- All the items listed in Annex XXII (coal and related products).”
In summary, the EU has therefore clarified that certain goods, such as the above-mentioned fertilizers, animal feeds, essential goods, and coal and related products, are now permitted to be transferred (including transported) to non-EU countries to mitigate food and energy insecurity. The EU has also amended FAQ 4 to clarify that relevant services (such as financial assistance including brokering or insurance) tied to the transfer under Articles 3i and 3j of the above-listed goods to third countries via EU operators or the EU territory are now permitted.
Client Alert 2022-227
