EU Sanctions: Ensuring Compliance With the New "No Re-Export to Russia" Clause

Among its ongoing efforts to reinforce sanctions against Russia and prevent circumvention of export bans, the EU introduced a new measure as part of its twelfth package of sanctions adopted on December 18, 2023. This measure, outlined in Article 12g of Council Regulation 833/2014 (Regulation), requires that EU exporters and suppliers dealing with certain restricted goods under the EU’s Russia sanctions include a so-called “no re-export to Russia” clause in their contracts with non-EU operators. The requirement has taken effect on March 20, 2024 for contracts concluded as of December 19, 2023.

This Advisory provides a comprehensive overview of this contractual obligation and necessary elements for ensuring compliance to regulatory requirements.

Scope of the “No Re-Export to Russia” Clause

Article 12g of the Regulation obliges EU exporters to contractually prohibit the re-exportation of certain goods to or for use in Russia when exporting, selling, supplying, or transferring those goods from the EU to operators based in any non-EU country, with the exception of the “partner countries” listed in Annex VIII of the Regulation, which currently include Australia, Canada, Japan, New Zealand, Norway, South Korea, Switzerland, the United Kingdom, and the United States of America. These countries are considered to have adopted export bans similar to those of the EU, thus mitigating the risk of prohibited re-exports to Russia.

This requirement extends beyond mere sales agreements, encompassing various types of agreements such as temporary supplies and transfers of restricted goods. Article 12g only applies to the goods and technologies listed in Annexes XI (aviation), XX (jet fuels), and XXXV (firearms) of the Regulation; common high priority goods as listed in Annex XL of the Regulation; and firearms and ammunition as listed in Annex I of Regulation (EU) No. 258/2012.

Considering that the Regulation does not define the term “re-export,” we consider that it should be interpreted in alignment with the definition of “re-export” under the U.S. Export Administration Regulations (EAR), which refers to the shipment or transfer of a good initially exported from the EU customs territory to a third country and subsequently to Russia.

Entry Into Force and Effect on Existing Agreements

The obligation to include the “no re-export to Russia” clause depends on the contract’s date of conclusion.

Contracts Concluded Before December 19, 2023: Contracts that were already concluded when Council Regulation (EU) 2023/2878 came into force benefit from a one-year transition period until December 19, 2024 included or until the contracts’ expiry, whichever is earliest. For any execution of these contracts as of December 20, 2024, they need to be amended to include the “no re-export to Russia” clause.

Contracts Concluded as of December 19, 2023: These contracts must contain the “no re-export to Russia” clause as of March 20, 2024.

What Should a “No Re-Export to Russia” Clause Contain?

On February 22, 2024, the European Commission has issued FAQ guidance (Guidance) to clarify the “no re-export to Russia” clause and ensure compliance.

The Guidance includes a proposed template for the clause that EU operators may use. While it does not preclude the use of other wordings by the parties, the template can be considered as meeting the obligation in Article 12g and is recommended in particular for contracts with non-EU operators doing business in jurisdictions seen as posing a high risk of circumvention.

A key element is that the clause must include adequate remedies in the event of breach of such clause by the importer. Per the Guidance, the remedies “should be reasonably strong and aim to deter non-EU operators from any breaches. They can include, for instance, termination of the contract and the payment of a penalty.” In the absence of material guidance from the EU, an adequate remedy could be understood as one that effectively prevents exports or provides enough disincentives to dissuade a third-country counterpart from re-exporting the restricted goods to Russia.

Recommendations

EU exporters are advised to have in place adequate due diligence procedures to prevent the diversion of sanctioned items to Russia, regardless of whether these are covered by the Annexes referred to in Article 12g. Prior to the introduction of the “no re-export to Russia” clause, the European Commission had already recommended that EU exporters include contractual provisions in contracts with third-country business partners, holding them liable if they re-export the items to Russia (see Chapter D.2, question 46 of the FAQs on sanctions against Russia). Hence, EU exporters may consider expanding the scope of the “no re-export to Russia” clause to cover other sanctioned EU goods.

Additionally, it is recommended that EU exporters take adequate due diligence measures even when engaging with operators based in “partner countries,” to mitigate all risks. For instance, although the U.S. EAR provides an effective mechanism to prevent circumvention by requiring licenses for the export, re-export, or transfer of items subject to U.S. export controls, it is worth noting that certain exceptions to these licenses remain, including for items intended for Russia. Consequently, certain goods falling outside the scope of Article 12g and banned for export by the EU may not face similar restrictions in partner countries, which could facilitate circumvention. Including the “no re-export to Russia” clause in contracts with all non-EU operators can aid in mitigating these risks.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.