Phase 1 of the European Union (EU) and United Kingdom (UK) expanded sanctions on Russian iron and steel products took effect on September 30. Most notably, the new restrictions aim to curb imports of any products that may have been processed in a third country but contain Russian-origin iron or steel. Similar to other recent bans on products made with forced labor or violating environmental laws such as the U.S. Uyghur Forced Labor Prevention Act, the burden of proof is placed on the importing company to demonstrate compliance with the sanctions.
While the exact requirements for this proof vary from country to country within the EU, a minimum requirement for all processed iron and steel products is a so-called Mill Test Certificate (MTC) verifying that the origin country of the metal is not Russia. Along with varying documentation requirements, the approach to what processed products are restricted also varies by EU country with some taking a more pragmatic approach, while others plan to strictly enforce the sanctions.
The new sanctions could lead to business disruptions, including supply shortages or production stoppages if businesses that are importing metal products lack sufficient documentation to prove the origin of their materials and components. While companies could previously maintain compliance with the sanction package by avoiding business dealings with Russian-based companies, the expanded scope of the sanctions also broadens the impact on supply chains.
Manufacturing sectors particularly at risk of disruptions due to their dependence on semi-finished and finished steel and iron-made components include aerospace, automotive, construction, and general manufacturing.
Sanctions restrict products processed in a third country
The expansion of the restrictions is aimed at making the sanctions on iron and steel production from Russia more effective. The previous ban of direct imports of Russian-origin metal into the EU and UK in April of 2022 increased the supply of the same metal to other countries, while simultaneously lowering the price of metal products made in Russia.
Several countries, including China, India, and Turkey, saw an influx of Russian metals at low prices. This allowed the ban on metals to be effectively circumvented as metal products could be exported from Russia to other countries before being processed and then imported into European markets. As a result, government officials worried that these previous sanctions were not effective in achieving the goal of significantly curbing Russia’s ability to economically further its offensive in Ukraine. By progressively restricting processed iron and steel products, European officials hope to restrict the market for these products more effectively in the future.
The expansion of the sanctions defines the banned products under standardized commodity description codes for import and export including Combined Nomenclature (CN) and Harmonized Tariff Schedule (HTS) codes.
The UK will begin observing the sanctions with no exceptions or transitional period. The EU is opting for a more gradual approach, with countries allowed to continue accepting some imports of semi-finished products or iron or non-alloy steel. The restrictions of products only apply to Russian-origin products that were exported to a third country and then processed into a product that is still listed under the restricted products.
Sanctions likely to have manufacturing impacts in several industries
The most pressing aspect of the expanded ban for manufacturers is that purchases of iron and steel products from any country must now be examined and thoroughly documented to ensure continuity in import and supply into European markets. The complexity of documentation will increase with each stage of processing that a product undergoes as finished products could undergo processing in multiple countries, making the process of tracking and identifying the origin for importation into the EU or UK increasingly challenging. Requirements for documentation also vary by country, further complicating efforts towards compliance.
One of the scenarios that could emerge is an increase in shipment delays at European land border crossings, ports, or airports due to the additional administrative burden. There is also an increased risk of cargo delivery delays and supply disruptions if proper documentation cannot be provided to prove the origin of the product. Failure to provide the proper documents at entry points could lead to long delays or denials for shipments, which in turn could lead to unpredictable supply shortages and disruptions to manufacturing operations at European plants.
The list of banned products includes a wide range of metal products from screws and bolts to larger pieces such as steel slabs and coils, and the newly expanded sanctions will require companies to carefully document the supply chain of many of their products. The sectors most at risk of impacts include those particularly dependent on semi-finished or finished metal components such as the aerospace, automotive, construction, and general manufacturing sectors.
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