Strained Ukrainian trading relations

The European Union has made good on its promise to impose trade ‘measures’, banning the import of goods from Crimea. While the measures have been viewed as a token gesture, rather than all-out sanctions, the ruling will nonetheless impact practitioners in the shipping industry. And in a constantly changing landscape, traders, brokers and operators need to keep a close eye on developments to ensure that they do not fall foul of any restrictions, present or future.

The Crimean peninsula is currently the subject of a political and territorial dispute between Ukraine and Russia. While Ukraine and the majority of the international community consider both Crimea and Sevastopol as administrative divisions of Ukraine, Russia and a handful of other countries consider both to be under a Russian federal district.

On the back of continuing tension in Crimea, the EU announced the sanctions last week. European Union Council Decision 2014/386/CFSP and Council Regulation 692/2014 firstly ban from June 25, 2014 the import into the EU of goods originating in Crimea or Sevastopol, and secondly, ban the direct or indirect provision of financing, financial support, insurance or reinsurance related to the import into the EU of goods originating in Crimea or Sevastopol.

International law firm Debevoise & Plimpton explains that goods originating in Crimea or Sevastopol are defined, following EU customs law, as goods wholly obtained in Crimea or Sevastopol or that underwent their “last substantial transformation” there.

Some exceptions

However, there are a number of caveats to the measures.

“There is an exemption for goods which the Ukrainian authorities have confirmed originate from Ukraine and there is also a limited ‘grandfathering’ provision which allows execution (until 26 September 2014) of trade contracts concluded before 25 June 2014 and ancillary contracts necessary for the execution of those trade contracts,” advises law firm Holman Fenwick Willan.

And not all business with Crimea and Sevastopol is banned. The restrictions, as with other EU legislation, only applies to EU nationals, EU-registered companies, activities within the EU and business done in whole or in part within the EU. They therefore do not prohibit any activities of non-EU businesses acting wholly outside of the EU, such as Russian companies with facilities in Crimea.

Also, the measures only apply to the import of goods into the EU; it does not apply to other business activities taking place in Crimea, including imports not destined for the EU.

Providing further cover, no offence is considered to have taken place if a person did not know and had no reasonable cause to suspect that their actions would infringe the prohibition. This is in line with other EU sanctions.

“So a person cannot be prosecuted for this offence if, for example, they did not know and had no reasonable cause to suspect that goods that they were handling originated from Crimea or Sevastopol,” advises Debevoise & Plimpton.

Disruption potential

Notwithstanding the above limitations, these measures still have the potential to disrupt bona fide shipping business.

“Whilst the economic impact of these measures may be limited, they do show that sanctions are very much still on the political agenda, and they emphasise the need for businesses with significant trading or commercial relationships with Crimea, Ukraine or Russia, to continue carefully to monitor the situation,” says Holman Fenwick Willan.

“Any companies which trade in goods originating in Crimea or Sevastopol (or which believe they may finance or insure companies engaged in such trade) will need to review the new Regulation carefully.”

EU importers of goods should review their supply chains and determine if any of their goods come from facilities or operations in Crimea or Sevastopol. If so, they should take steps to stop receiving goods under existing contracts by 26 September – and should not enter into any new contracts relating to the import of such goods.

Additionally, EU companies offering financial or insurance services to the area should tread carefully. “EU companies providing financing, financial assistance or insurance to producers with such facilities or operations should determine if any of the goods so produced are to be imported into the EU, and if so, should similarly halt support under existing contracts and agreements by 26 September, and should not enter into any new contracts,” says Debevoise & Plimpton. “No claims for breach of contract may be brought in the EU against companies acting pursuant to these restrictions.

“These restrictions underscore the need for importers, and those providing financing, insurance and other assistance to them, to conduct appropriate due diligence and understand the origin of the goods they handle.”

Additionally, the EU is not alone in enacting sanctions and international businesses should be aware of the conditions attached to any sanctions in their country of operation. “Businesses engaged in trade with Crimea, Ukraine or Russia should ensure that they keep up to date with the complex and shifting landscape,” concludes HFW.

More information

For specific advice on the impact that EU sanctions on Crimea could have on your business contact HFW’s Daniel Martin on +44 (0)20 7264 8189 or daniel.martin@hfw.com, or Anthony Woolich on +44 (0)20 7264 8033 or anthony.woolich@hfw.com. At Debevoise & Plimpton, contact Lord Goldsmith QC on phgoldsmith@debevoise.com. The latest HFW briefs on the situation can be found here: HFW Briefings.