Exporting to Russia is a fairly complicated process, but not impossible. If Russia is a potential export destination for your company’s products, you’ll need to carefully consider the challenges of U.S. export restrictions and sanctions that limit trade.
U.S. exports to Russia totaled $4.9 billion in 2020, a decline of 15.6% from 2019 likely due to increasing export restrictions and sanctions. The top export commodity sectors in 2020 were machinery and mechanical appliances (30.2%); chemicals, plastics, and leather products (22.4%); and transportation equipment (20.3%).
As the world’s 11th largest economy, Russia has the largest land mass of any country with a population of 144 million. Opportunities for trade do exist, despite the challenges, so consider carefully whether Russia is a viable market for your products and services.
Increasing Export Restrictions and Sanctions for Russia
U.S. export control restrictions and sanctions for Russia have become stricter in recent years in response to activities such as Russia’s military aggression in Ukraine (particularly Crimea), its use of chemical weapons, and cybersecurity threats. The U.S. has responded by placing more export restrictions on Russia’s energy and defense sectors through the Export Administration Regulations (EAR) under the Bureau of Industry and Security (BIS). The U.S. also has added financial sanctions which are administered by the Office of Foreign Assets Control (OFAC). Export restrictions target people, industries, and organizations in Russia. Sectoral sanctions have been applied to industries important to the Russian government such as defense, oil and gas, and financial services.
Overall, export restrictions for Russia are the tightest they have been in 25 years, with more restrictions likely to come. In addition, an arms embargo to Russia was added earlier this year under Section 126.1 of the International Traffic in Arms Regulations (ITAR). Some exceptions remain in place, primarily for items used for space program cooperation between the U.S. and Russian governments.
Despite these challenges, opportunities still exist to export many items to Russia with an appropriate license, or without the need for a license under certain exceptions. If you are considering expanding your export market to Russia, you should be mindful of current regulations and sanctions and have very stringent export compliance controls in place.
Many items on the Commerce Control List (CCL) require a license to export to Russia, but several do not, so it pays to do your research. Sometimes, it’s simple – defense-related items controlled in the 600 series of Export Control Classification Numbers (ECCNs) and space-related items controlled in 9X515 ECCNs all require a license. For dual-use items, which make up the bulk of ECCNs, the need for a license depends on the specific classification. In the case of certain items identified in Supplement No. 2 to Part 746 as particularly useful in the Russian energy industry, a license is required if the item will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deep water (greater than 500 feet), Arctic offshore locations, or shale formations in Russia, or if the exporter is unable to determine whether the item will be used for such purposes.
Nearly all items subject to the EAR have required a license for export, reexport, or transfer to Crimea since 2015.
Unfortunately for exporters, it is now harder to get a license for export to Russia. BIS is following a “presumption of denial” with regard to Russia for items controlled for national security reasons and in certain other cases. Companies must provide a compelling argument as to why they should get a license to export their items to Russia, even more so when facing such a negative licensing policy.
The U.S. has eliminated some exceptions that previously allowed certain items to be exported to Russia without a license. For example, License Exception CIV previously authorized certain items to Country Group D:1 when intended for both a civil end use and a civil end user. However, this exception was eliminated in 2020 for all countries, including Russia. BIS also recently suspended three license exceptions for Russia specifically—RPL (for replacement parts and serviced items), TSU (technology and software, unrestricted), and APR (additional permissive re-export) —although these exceptions are still available for other destinations. License Exceptions RPL and TSU are in wide use. Exporters should be aware that although public notice was given by BIS, these license exception suspensions have not been written into the corresponding sections of the EAR.
New BIS Military-Intelligence End Use/End User Rule
In January 2021, BIS published an interim final rule that was made effective on March 16, 2021. Under Section 744.22 of the EAR, the interim final rule imposes a license requirement on exports, reexports, and transfers of items under the Military-Intelligence End Use/End User (MIEU) rule. This rule mirrors the Military End Use/End User (MEU) rule and it requires a license if there is knowledge of an intended military-intelligence end use or end user for items exported to Russia and seven other countries.
Military-intelligence end use is defined as the development, production, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of, or incorporation into, items described on the U.S. Munitions List (USML) under 22 CFR, part 121, of ITAR. Also regulated are items classified under ECCNs ending in “A018” or in the 600 series, which are intended to support the actions or functions of a military-intelligence end-user as defined in this section. Under the interim final rule, the exporter must apply for a license if they have knowledge of a prohibited military-intelligence end use or end user, which is not always easy to determine.
ITAR Arms Embargo on Russia
The US imposed an arms embargo on Russia early in 2021, so any item controlled under the ITAR needs a license for export to Russia. Existing licenses remain valid unless your company is notified by the Directorate of Defense Trade Controls (DDTC). Amendments and licenses in furtherance of (IFO) agreements also are subject to the new licensing policy. A few exceptions remain in place, primarily for items used in space cooperation programs between the two governments. Applications for these items are reviewed on a case-by-case basis.
This change has created some additional complications for U.S. companies. It is now more difficult to get a license if you have a Russian engineer on staff and more challenging to obtain approval for that individual to have access to ITAR-controlled technology, applicable for both U.S. companies and non-U.S. companies. ITAR also requires mandatory reporting of suspected violations to the State Department if they relate to a country under arms embargo. If anyone is aware of actions, either inadvertent or deliberate, that are done with regard to Russia, they now are required to report these actions.
Where to Find More Information
Despite these challenges, there many opportunities still exist to export items to Russia, but you must have stringent export controls in place. For more information on the export regulations and sanctions, check out the following websites:
- BIS Russia Export Control Information
- Russia Country Commercial Guide – International Trade Administration
- Office of Space Commerce
U.S. export restrictions and sanctions on Russia are targeted and multi-layered. For this reason, exporting must be done in a careful way that requires that Export Control Classification Numbers (ECCNs) or EAR99 classifications are correct. Exporters must pay special attention to end-use and end users as they can affect license requirements. The process of applying for a license requires close scrutiny of all the parties in the transaction to understand if they are on any sanctions lists, or if they are owned by another entity that is on a sanctions list.
The entire process of exporting to Russia also now requires a greater level of administrative attention. Keeping up-to-date on ever-changing rules and sanctions can seem like a complex and overwhelming process. ECTI covers exporting to Russia in all of our live seminars and many of our on-demand e-seminars. Non-U.S. attendees can access this material at our live seminars conducted outside the U.S. and through our non-U.S. e-seminars. Check out our latest tools & resources here.
ECTI can help you easily stay current with the ever-changing landscape of export regulations. Visit www.learnexportcompliance.com to learn about our company, our faculty, our staff and our esteemed Export Compliance Professional (ECoP®) certification program. To find upcoming e-seminars, live seminars and live webinars and browse our catalog of 80-plus on-demand webinars, visit our ECTI Academy. You can also call the Export Compliance Training Institute at 540-433-3977 for more information.
Scott Gearity is President of ECTI, Inc.