On September 8, 2023, the UK Departments for Business and Trade and International Trade jointly published guidance on the scope of the sanctions on certain Russian iron and steel products processed in a third country that will come into effect under Part 5, Chapter 4CA of The Russia (Sanctions) (EU Exit) Regulations 2019 (“Russia Regulations”) on September 30, 2023 (“Guidance”). The measure seeks to reduce circumvention of sanctions on the covered Russian iron and steel products by limiting market participants’ ability to conceal the Russian origin of these items through third country processing. The Guidance confirms that there will be no exceptions or transitional period in relation to the goods covered by the prohibition that was introduced in The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2023 in April 2023, making it important for impacted companies to promptly assess the Guidance to determine the likely impact of the sanctions on their business activities and put in place controls to ensure compliance with the new restrictions timely.
Regulations 46IA – 46ID of the Russia Regulations prohibit persons subject to UK sanctions jurisdiction from:
- Importing any “relevant processed iron or steel product” into the United Kingdom;
- Directly or indirectly providing technical assistance relating to such an import;
- Directly or indirectly providing financial services or funds in pursuance of, or connection with, an arrangement with the object or effect of importing a “relevant processed iron or steel product”; and
- Directly or indirectly providing brokering services in pursuance of, or in connection with, any arrangement described in 3., above.
What is a “Relevant Processed Iron or Steel Product”?
An “iron or steel product” is any item listed in Schedule 3B of the Russia Regulations. It is “processed” if it has been altered, transformed in any way, or subjected to any other type of operation or process (Regulation 46IA(2) of the Russia Regulations) in a third country (i.e., a country other than the UK, Isle of Man, or Russia) and incorporates one or more Schedule 3B iron or steel products originating in Russia (Regulation 46IA of the Russia Regulations).
The Guidance provides several real world examples of the application of this definition and scenarios in which the prohibition will / will not bite, as follows:
|Prohibited Activity||Permissible Activity|
|Russian-origin Schedule 3B steel slabs (Harmonised System Code (“HS Code”) 7207) are exported to Country X, where they are transformed into Schedule 3B hot rolled coils of alloy steel (HS Codes 7225 – 7226) and are of Country X’s origin before being imported into the UK.||Russian-origin pig iron (HS Code 7201), a non-schedule 3B item, enters Country A, where it is transformed into Schedule 3B slabs (HS Code 7207) before being imported into the UK.|
|Russian-origin Schedule 3B Steel billets (HS Code 7207) are exported to Country Y, where they are transformed into steel rods (HS Code 7215), such that they are of Country Y origin. The steel rods enter Country Z and undergo processing into Schedule 3B steel wire (HS Code 7223) before being imported into the UK.||Russian-origin Schedule 3B coils of stainless steel (HS Codes 7219 – 7220) are exported to Country B, where they are used to manufacture a car (HS Code 8703), a non-schedule 3B item, which is considered to be of Country B origin and is then imported into the UK.|
How to Demonstrate Compliance / Supply Chain History
The Guidance states that traders should have documentation available to demonstrate evidence that their supply chain is compliant with the prohibitions on third country processing of in-scope Russian iron and steel products and indicates that traders will need to have evidence such as Mill Test Certificate(s) that set out:
- The country of origin of the iron and steel products processed in the third country (or countries);
- The date that the iron and steel product left its country of origin; and
- The country / countries and facility / facilities where processing has taken place.
Traders may be asked to present this evidence of a good’s supply chain at the UK border. In certain circumstances, customs may request additional information relating to the goods such as an invoice, bill of lading, or other book / document relating to the goods.
To ensure compliance with these requirements, traders should conduct due diligence to ensure that they are not directly or indirectly circumventing the sanctions on in-scope iron or steel products processed in third countries. Traders also should include appropriate contractual protections in their contracts to the effect that goods to be imported do not incorporate any Russian-origin Schedule 3B iron or steel products.
The licensing grounds available in relation to this prohibition are limited and set out in the UK Russia sanctions Statutory Guidance, which currently states that a licence may be granted for the import of in-scope iron and steel products that left Russia before April 21, 2023. For more information on these developments, contact the author of this post, Alexandra Melia, in Steptoe’s Economic Sanctions team in London.