Last week, the United States government imposed additional restrictions on the imports from, and exports to, Russia. The import changes stem from the Suspending Normal Trade Relations with Russia and Belarus Act, signed into law by President Biden, that increase the duties for products that claim Russia or Belarus as their country of origin. In terms of exports, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a press release last Saturday announcing further controls on the export and reexport of U.S.-origin and certain foreign-produced commodities, software, and technologies to Russia and Belarus by amending the Export Administration Regulations (EAR). The expanded rule is currently under public inspection in the Federal Register and will be published tomorrow.
Suspension of Permanent Normal Trade Relations with Russia
- Background
On April 8, 2022, President Biden signed the Suspending Normal Trade Relations with Russia and Belarus Act. As the title suggests, the bill suspends permanent normal trade relations (PNTR) with Russia and seeks to halt the accession of Belarus to the World Trade Organization (WTO). Congress overwhelmingly passed the bill on April 7, 2022.
PNTR is a legal designation that is used to denote nondiscriminatory treatment of a trading partner compared to other countries. Countries that are a part of the WTO, which include the United States and Russia, receive immediate and unconditional nondiscriminatory treatment to the goods and services of all other members. Because the United States is withdrawing PNTR with Russia, the United States is in effect no longer recognizing Russia’s WTO status.
- Key Aspects of the Bill
Russian and Belarusian Imports Subject to Higher Duties: Russian and Belarusian goods are now subject to higher duties since the bill is enacted into law. Rather than having duty rates under “Column 1” of the Harmonized Tariff Schedule of the United States (HTSUS) which the United States has normal trade relations with, Russian and Belarusian goods are now subject to “Column 2” rates of duty which are higher.
Possibility of Higher Duty Rates Than “Column 2” Duty Rates: The bill allows the President until January 1, 2024, to increase the applicable duty rates for Russian and Belarusian goods above the rates set forth in “Column 2” as long as the President consults with the House Ways and Means Committee and the Senate Finance Committee five days prior. If an increase takes place, CBP will issue a notice to importers (see here).
Restoration of Normal Trade Relations: The bill gives the President authority to temporarily restore normal trade relations up to one year or permanently if Russia/Belarus cease military hostilities and other conditions are met. Congress may overrule the President’s decision by passing a resolution of disapproval within 90 days of the certification.
- Takeaways
Review your Supply Chains: In light of these duty increases, now is a good time to review your supply chains to determine how different components may affect the country of origin (COO) determination of your products. For example, if your supply chain sources key components from Russia or Belarus, which could potentially impact a COO determination and therefore duties owed, consider alternative sources that are subject to Column 1 rates.
Increased Scrutiny by CBP: We expect that, in light of this new law, there will be increased scrutiny by CBP for importers with supply chains located in Russia and Belarus. Therefore, it is important to ensure that entries of goods reflect the proper duties and tariff classifications.
Expanded Export Control Restrictions
- Background
On April 9, 2022, BIS issued a final rule expanding highly restrictive controls on the export and reexport of U.S.-origin and certain foreign-produced commodities, software, and technologies to Russia and Belarus. The rule expands license requirements for Russia and Belarus under the EAR to all items on the Commerce Control List (CCL). Previous actions by BIS first began on February 24, 2022 and March 3, 2022 implementing new license requirements and further broadening them which we discussed here.
- Key Aspects of the Rule
Expansion of License Requirements: The new BIS rule expands the license requirement that was previously imposed on Russia and Belarus to include items classified under any ECCN in Categories 0 through 2 of the CCL such as materials and equipment relevant to nuclear, chemical, and materials processing. Thus, all items on the CCL are included for the license requirement.
Expansion of Foreign Direct Product Rule: The FDP rule that relates to Russia/Belarus and Russian/Belarusian Military End Users (MEUs) will now apply to all items on the CCL. Thus, foreign-produced items derived from ECCNs in Categories 0 through 9 of the CCL will now be subject to the EAR under the Russia/Belarus FDP rule.
Limiting License Exception Aircraft, Vessels and Spacecraft (AVS): License Exception AVS is no longer available for aircraft registered in, owned, or controlled by, or under charter or lease by Belarus or by a Belarusian national. This exclusion expands the limitation on AVS for aircraft registered in, owned, or controlled by, or under charter or lease by Russia, or by a Russian national.
- Export Implications
Companies that are exporting to Russia and Belarus will need to consider licensing requirements even with products that may not normally be associated with licensing. Certain low-level, commercial-off-the-shelf commodities, software, and technology in all categories of the CCL are included. Additionally, BIS will be reviewing applications under a policy of denial.