If you’re thinking about exporting to Russia, well… you probably shouldn’t.
With a growing number of U.S. sanctions and other restrictions after Russia’s invasion of Ukraine, exporting to Russia from the U.S. has become much more difficult. In this article, we’ll explore those reasons as well as take a brief look at the history of U.S. trade with Russia.
U.S./Russia Export Relationship. During the Cold War, trade growth stagnated. Then, with the end of the Cold War and communism, the U.S. formally entered into trade with Russia and trade grew exponentially. Before the Russian invasion of Ukraine in 2022, Russia was ranked as a top 40 U.S. export destination.
Despite U.S. and international sanctions limiting business in the energy, defense and financial services industries, thousands of U.S. firms continued conducting business in Russia, often using Russia as a regional base to work across Eurasia. U.S. companies cited Russia’s 144 million consumers, $29k+ GDP per capita (as measured in purchasing power parity), growing middle class, and highly educated and trained workforce as attractive features of its business environment.
Russia also integrated itself into international supply chains as a major supplier of raw materials and commodities including titanium, uranium, fertilizer, wood and wood products, platinum and platinum group metals, and hydrocarbons.
However, in 2022, all of this changed.
On February 24, 2022, Russia launched an unprovoked, full-scale invasion of Ukraine that continues to the present day. In addition to destroying the lives of hundreds of thousands and the livelihoods of millions, it has also affected global trade significantly.
Presently, companies across the globe cannot justify exporting to Russia given the legal and reputational risks involved. For U.S. exporters specifically, new laws and sanctions have led to an exodus from the country—more than 1,000 companies have curtailed operations in Russia since the invasion. Actions include new BIS export controls as well as OFAC economic sanctions imposed on Russian entities, individuals and industries.
The Russian government has retaliated by passing restrictive laws affecting businesses, threatening and harassing employees at international companies, and prosecuting foreign businesspersons on politically motivated grounds.
According to the U.S. Commercial Service, in the months following the invasion, there was a 70 to 80% drop in U.S. exports to Russia. While the long-term, multiple-year effects of sanctions, export controls and other measures affecting trade are uncertain, in 2023, U.S. export statistics showed an approximate 90% drop in U.S. exports compared to 2021, the last year before Russia re-invaded Ukraine.
When assessing whether or not to do business in a country, the geopolitical, market dynamics and rule of law all point to this: for exporters, Russia is “not open for business.” There is no expectation that the country will be recommended for exporting in the near future. U.S. firms exporting anywhere, but specifically in this region, must conduct careful due diligence on potential business partners to ensure they are in compliance with the law.
April 21, 2022. It is reasonable to factor in the likelihood of increased transit time and expense due to these regulatory obstacles.
Furthermore, the Russian government has created a list of 49 “unfriendly countries” that includes the United States—including all G7 member states and all 27 European Union member states. Some Russian laws and governmental decrees apply specifically to these countries.
The bottom line: While it is possible to move cargo to/from Russia, it is difficult.
Export Assistance
The U.S. Commercial Service in Russia suspended operations on July 15, 2021, due to the Russian government’s ban on locally employed staff. Russia’s invasion of Ukraine in 2022 has severely affected bilateral commercial relations. Until the conflict is resolved, there will be limited resources for exporters interested in this region. The Office of Russia, Ukraine and Eurasia (ORUE) is available for consultations about resources available to U.S. companies.
Export Compliance Issues When Exporting to Russia
From the International Trade Administration:
In response to the Russian Federation’s (Russia’s) invasion of Ukraine, the Bureau of Industry and Security (BIS) has taken swift and severe action to impose stringent export controls on Russia. These restrictions have also been applied to Belarus in response to its substantial enabling of Russia’s invasion. BIS actions build on existing restrictions in place on Russia since its occupation of Crimea. In particular, BIS has imposed controls on a range of items subject to the Export Administration Regulations (EAR) that did not previously require export licenses when destined for Russia or Belarus, and both countries have been made subject to broad in-country transfer controls, and to a license review policy of denial.
Restrictions on Russian ‘military end users’ and ‘military end uses’ cover all items subject to the EAR with exceptions for food and medicine designated as EAR99. The export, re-export, and transfer (in country) of luxury goods is restricted to all end users in Russia and Belarus and to certain Russian and Belarusian oligarchs and malign actors located worldwide. Two new Foreign Direct Product (FDP) rules establish controls over certain foreign-produced items. Partner countries that have committed to implementing substantially similar measures are not subject to the two new FDP rules.
Exports, re-exports and transfers (in-country) from the following countries are not subject to these rules: Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, New Zealand, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, and the United Kingdom.
Product Classification for Export Controls
It’s important to understand the regulations covering exports to Russia. You must be concerned with complying with export regulations no matter where you ship, exporting to Russia—even when it’s allowed—is extremely different from shipping to Canada. It’s a part of the world where more items are controlled, so you need to understand what is required of you and what you risk if you don’t do your job in complying with those regulations.
The first step in ensuring export compliance is determining who has jurisdiction over your goods: the U.S. Department of Commerce under the Export Administration Regulations (EAR) or the State Department’s International Traffic in Arms Regulations (ITAR).
If your goods fall under the jurisdiction of the Commerce Department—which most products do—you must determine if your export requires authorization from the Bureau of Industry and Security (BIS, part of the Commerce Department). To make that determination, first answer the following questions:
- What is the Export Control Classification Number (ECCN) of the item?
- Where is it going?
- Who is the end user?
- What is the end use?
There are three ways to classify your products for export controls: You can self-classify your products, submit a SNAP-R request for a ruling, or rely on the product vendor to provide the information. Learn about that process in our article, Export Codes: ECCN vs. HS, HTS and Schedule B. By classifying your product correctly, you’ll be protecting yourself from potential fines, penalties and even jail time.
Export License Determination
Next, companies must use the ECCN codes and reasons for control described above to determine whether or not there are any restrictions for exporting their products to specific countries. Once they know why their products are controlled, exporters should refer to the Commerce Country Chart in the EAR to determine if a license is required.
Although a relatively small percentage of all U.S. exports and re-exports require a BIS license, exporting to Russia does require a license, and BIS has tightened the availability of license exceptions. Additionally, virtually all exports and many re-exports to embargoed destinations and countries designated as supporting terrorist activities require a license. Countries fitting that bill are Cuba, Iran, North Korea and Syria.
Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Control (OFAC) of the Treasury Department.
Shipping Solutions Professional export documentation and compliance software includes an Export Compliance Module that uses the ECCN code for your product(s) and the destination country to tell you if an export license is required. If indicated, you must apply to BIS for an export license through the online Simplified Network Application Process Redesign (SNAP-R) before you can export your products.
There are export license exceptions, like low-value or temporary exports, that allow you to export or re-export, under stated conditions, items subject to the Export Administration Regulations (EAR) that would otherwise require a license. These license exceptions cover items that fall under the jurisdiction of the Department of Commerce, not items controlled by the State Department or some other agency.
Russian Industry Sector Sanctions
In addition to using ECCN and USML classification codes to determine export restrictions, the U.S. announced Russian Industry Sector Sanctions based on Schedule B codes and Harmonized Tariff Schedule (HTS) codes to restrict the export, re-export or in-country transfer of specific items to Russia and Belarus. These sanctions include several hundred 6-digit HTS codes and entire 2-digit chapters.
This means that a wide array of goods that previously may not have been subject to stringent export controls now require a license when destined for Russia or Belarus. Check out, Exporters Beware: New Russian Sanctions Based On Schedule B and HTS Codes.
Deemed Exports
Surprise! You may be an exporter without even knowing it! Deemed exports, or the disclosure of information or services rather than an actual product, is an important issue to pay attention to when exporting. A deemed export occurs when technology or source code (except encryption and object source code, which is separately addressed in the EAR), is released to a foreign national within the United States.
Sharing technology, reviewing blueprints, conducting tours of facilities, and other information disclosures are considered potential exports under the deemed export rule and should be handled accordingly. You can learn how to apply this principle here.
Restricted and Denied Parties
Restricted party lists (also called denied party lists) are lists of organizations, companies or individuals that various U.S. agencies—and other foreign governments—have identified as parties that one can’t do business with. There are several reasons why a person or company may be added to a restricted party list. For example, they may be a terrorist organization or affiliated with such an organization; they may have a history of corrupt business practices; or they may otherwise pose a threat to national security.
Restricted party screening (or denied party screening) refers to the process in which a company checks a potential customer or business partner against one or more of the restricted party lists to ensure their potential partners are legally accepted. The primary restricted party lists in the United States are published by the Department of Commerce, Department of State, and Department of Treasury. However, several other agencies produce lists as well. These agencies recommend that companies perform restricted party screening periodically and repeatedly throughout the movement of goods in the supply chain.
BIS has added almost 1,000 entities to the Entity List for their support of Russia’s military and defense sectors. While most of these entities reside in Russia and Belarus, they include companies and individuals in China, Turkey, the UAE, India, South Korea and other countries. These entities are involved in activities contrary to U.S. national security interests, and adding them to the Entity List effectively prohibits them from receiving U.S. exports without a license. This measure cuts off their access to critical U.S. technologies and components. It’s important to conduct restricted party screening for every export shipment (the Entity List is one of hundreds of lists you need to check). Restricted Party Screening Software makes this process easier—you can try ours for free.
OFAC’s 50 Percent Rule
In addition to restricting exports to entities on one of the government’s bad-guy lists, it is illegal to export to entities that don’t appear on any of OFAC’s Specially Designated Nationals (SDN) lists but that have at least 50% ownership by one or more entities that do appear on one of the SDN lists. This is referred to as the 50 Percent Rule.
This means your customer as an entity may not be blocked, but you could be in violation if your customer is owned, in aggregate, directly or indirectly by a blocked party or parties with a 50% or more ownership stake.
The 50 Percent Rule means that OFAC compliance screening requires more than simply looking up names of people or companies on a list—it requires making determinations about ownership. This can be a difficult and time-consuming process, but one that can be helped by utilizing software that includes ownership information. Check out the blog post, OFAC Compliance Best Practices, for more details.
Restricted Party Screening
Should you choose to export to Russia, it’s imperative you check every single restricted party list every time you export because:
- Fines for export violations can reach up to $1 million per violation in criminal cases.
- Administrative cases can result in a penalty amounting to $300,000 or twice the value of the transaction, whichever is greater.
- Criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges.
Export Documentation and Compliance Software
While Russia is not a place exporters should consider working, if you’re considering exporting to almost any other country in the world, Shipping Solutions export documentation software can help you quickly create the necessary documents and stay compliant with export regulations. Register for a free demo of Shipping Solutions software to see how it will revolutionize the way you’re currently creating your export paperwork.
This is one in a series of articles exploring exporting to specific countries across the globe—we previously featured the ASEAN, Australia, China, the United Kingdom, Japan, Mexico, Canada, India, Brazil, Germany, France, the Netherlands, the EU, South Korea, Singapore, Belgium, and Taiwan.
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