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Seized Yachts Need to Be Decommissioned to Mitigate Safety and Environmental Risks, Warns Surveyor

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Seized Yachts Need to Be Decommissioned to Mitigate Safety and Environmental Risks, Warns Surveyor

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Van Ameyde McAuslands, the leading marine, surveying and consulting firm in UK has warned against the hazards and environmental risks of improper close down of Yachts.

Seized maritime assets could pose a “significant risk” to ports, harbors and mariners if there is no requirement to ensure mega yachts detained under sanction rules are properly maintained, made safe or deactivated.

Safety concerns raised by Van Ameyde McAuslands, a global firm of marine surveyors and engineering consultants, follows the seizure by port authorities across Europe of a number of high-profile mega yachts thought to be owned by Russian oligarchs.

In London’s Canary Wharf authorities seized the US$38M Phi. The US$75M Axiom was seized in Gibraltar, and in Italy, authorities boarded the $540M SY A, one of the world’s largest privately owned yachts. Yachts thought to be worth more than $16 billion are being held across Europe, in Finland, France, Norway, Spain, and Germany.

Albert Weatherill the Managing Director, Van Ameyde McAuslands, UK warned that When a vessel is seized, it may no longer be in Class and under Flag, and any insurance, including P&I and H&M, is likely to have already been revoked.

From that moment the yacht, by default, becomes a liability of the state. And without insurance, proper loss prevention measures need to be in place to avoid losses and claims. Potential litigation could run into millions of dollars if assets are not properly made safe or shut down correctly. These are not vessels that can be simply turned off and walked away from.

Normally, the annual upkeep of a mega yacht can exceed US$50 million, with flag state requirements calling for minimum manning and planned maintenance. But according to the surveying firm, there is confusion over who will be responsible for carrying out routine maintenance if any is being carried out at all.

If crews are not being paid and walk away or if sanctions prohibit maintenance, what happens if there’s a pollution incident? What happens if the vessel comes adrift or catches fire, if there’s theft or the vessel is sabotaged? There are too many unknowns, and in this industry, unknowns often equate to litigation, Weatherill commented.

Van Ameyde McAuslands believes that seizing authorities, flag states should be aware of the need to take immediate action when a vessel is impounded. Indeed, it is thought that none of the seized yachts to date have been prepared for lay up or surveyed to prevent pollution or disruption to the port.

While it is difficult to predict how long these vessels are going to remain alongside, to make them safe machinery should be deactivated, systems drained down, discharge overboard valves closed, fire systems checked and engines prepared for cold lay-up in accordance with Classification Society and OEM guidelines.

This will prevent any potential damage to machinery, internal cabins, valuables, limiting financial exposure and liability. It will also safeguard against any potential risk to the maritime infrastructure, the environment and the public at large.

Manning, deterioration, damage, fire, theft, danger to people and property, these are all very serious issues. When vessels are dormant for long periods there is potential for things to go wrong and when there is no insurance safety net to fall back on, it’s a big problem.

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President Biden Issues Executive Order Banning U.S. Imports of Russian Origin Oil, Gas, and Coal

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On March 8, 2022, President Biden issued Executive Order 14066 which prohibits the following actions:

-The importation into the United States of any “crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products” of “Russian Federation origin”;

-New investment in the Russian energy sector by U.S. persons, wherever located; and

-Any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of any transaction conducted by a non-U.S. person that would be prohibited by Executive Order 14066 if performed by a U.S. person or within the United States.


The Executive Order further prohibits any transaction by anyone (whether a U.S. person or a non-U.S. person) that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of Executive Order 14066’s prohibitions, as well as conspiracies to violate the prohibitions.

In a Fact Sheet, the Biden Administration stated that the Executive Order is intended to “further deprive President Putin of the economic resources he uses to continue his needless war of choice”.  A  press release from the U.S. Department of the Treasury also stated that “[t]he United States continues to take severe action to hold the Russian Federation accountable for its brutal, unprovoked invasion of Ukraine.  Treasury has targeted the infrastructure supporting President Putin’s invasion of Ukraine”.

Executive Order 14066 is immediately effective.  However, the U.S. Treasury Department’s Office of the Foreign Assets Control (“OFAC”) has issued General License 16 authorizing all transactions that are “ordinarily incident and necessary to the importation into the United States” of certain products of “Russian Federation Origin”, if performed pursuant to written contracts or written agreements entered into prior to March 8, 2022.  The products of “Russian Federation Origin” authorized for import into the U.S. under General License 16 are:

-Crude oil;

-Petroleum;

-Petroleum fuels;

-Oils, and products of their distillation;

-Liquified natural gas; and

-Coal products.

General License 16 will remain effective until April 22, 2022, at which time all such transactions will be fully prohibited.  General License 16 does not  authorize any other actions that are prohibited under the existing Russian Harmful Foreign Activities Sanctions Regulations or transactions with persons who are otherwise subject to blocking sanctions unless such actions or transactions are separately authorized by OFAC.

OFAC also issued new Frequently Asked Questions (FAQ) guidance and updated existing FAQ guidance in order to clarify certain aspects of the Executive Order.  Among other things, these FAQs establish definitions for the terms “Russian Federation origin”, “new investment in the energy sector in the Russian Federation” and “energy sector”.  The FAQs also clarify that the Executive Order’s prohibitions do not extend to products that are not of Russian Federation origin “even if such products transit through or depart from the Russian Federation”.

Additionally, U.S. Customs and Border Protection (“CBP”) issued Cargo Systems Messaging Service Number 51260049 indicating that it will “be requiring filers of entries or admissions to Foreign Trade Zones for shipments of [the Russian Federation origin banned products] to provide purchase orders and/or executed contracts and/or any other documentation showing when the order and/or contract went into effect” through the expiration of General License 16 on April 22, 2022.  CBP also stated it will require the documentation prior to unlading and it “should include conveyance information, bill of lading number(s) and entry number(s) or FTZ admission information.”

Anyone reviewing Executive Order 14066 should also be aware of the significant sanctions and export controls that the U.S. government imposed on Russia prior to Executive Order 14066.

_____________________________________________________________________

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office and is a member of the firm’s International Trade & Supply Chain practice team.

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Global Aluminium Market: Russia Could Lose Export Earnings, Europe to See Higher Prices

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IndexBox has just published a new report: ‘World – Aluminum – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The global aluminium market will see significant changes this year. Due to sanction restrictions, many key importers may refuse purchases from Russia, which could result in global supply chain disruptions. Russia is the second-largest supplier in the global aluminium market, accounting for 11% of total supplies.

Approximately 78% of Russian aluminium exports are sent to ten countries, namely Turkey (20%), Japan (14%), China (10%), the Netherlands (9%), the U.S. (7%), Greece (5%), Chinese Taiwan (4%), Italy (3%), South Korea (3%), and Norway (3%). Financial and logistic sanctions posed on Russia amid its conflict with Ukraine could damage supply chains, leading to local metal shortages in European countries and the U.S. and higher aluminium prices. Russia may lose its share in global aluminium exports due to possible secondary sanctions on countries that will continue importing from the country. Competitors like Canada and India are also likely to attempt to drive out Russia from the market.


 

Russia’s Aluminium Exports

In 2021, the amount of aluminum exported from Russia soared to 4M tonnes, rising by 50% compared with the previous year. In value terms, supplies skyrocketed to $7.9B.

Turkey (807K tonnes), Japan (542K tonnes) and China (410K tonnes) were the main destinations of aluminum exports from Russia, with a combined 44% share of total volume. In value terms, Turkey ($1.5B), Japan ($1.1B) and China ($720M) constituted the largest markets for aluminum exported from Russia worldwide, together comprising 42% of total supplies.

In terms of the main countries of destination, China saw the highest growth rate of the value of exports in 2021. Supplies to China rose more than threefold, while shipments for the other leaders experienced more modest paces of growth.

Global Aluminium Exports in 2020

The amount of aluminium exported worldwide stood at 24M tonnes in 2020, increasing by 2.3% on the year before. In value terms, supplies amounted to $44.7B.

The shipments of the eight major exporters of aluminium, namely Canada (2.9M tonnes), Russia (2.7M tonnes), India (2.1M tonnes), the United Arab Emirates (2.0M tonnes), the Netherlands (1.9M tonnes), Malaysia (1.5M tonnes), Australia (1.4M tonnes) and Norway (1.3M tonnes), represented more than half of total supplies. The following exporters – South Africa (594K tonnes), Germany (482K tonnes), Saudi Arabia (476K tonnes), Bahrain (469K tonnes) and the U.S. (424K tonnes) – each finished at a 10% share of total volume.

In value terms, Canada ($5.4B), Russia ($4.2B) and India ($3.9B) were the countries with the highest levels of exports in 2020, with a combined 30% share of global supplies. The Netherlands, the United Arab Emirates, Norway, Malaysia, Australia, South Africa, Saudi Arabia, Germany, Bahrain and the U.S. lagged somewhat behind, comprising a further 43%.

Leading Aluminium Importers

In 2020, the U.S. (3.5M tonnes), followed by the Netherlands (2.2M tonnes), Japan (2.1M tonnes), Germany (1.9M tonnes), Malaysia (1.6M tonnes), South Korea (1.4M tonnes), and Turkey (1.2M tonnes) represented the major importers of aluminium, together mixing up 57% of total purchases. Italy (1,058K tonnes), Poland (675K tonnes), Spain (657K tonnes), Taiwan (Chinese) (602K tonnes), Thailand (583K tonnes) and Mexico (512K tonnes) followed a long way behind the leaders.

In value terms, the U.S. ($7B), the Netherlands ($4.1B) and Germany ($3.8B) constituted the countries with the highest levels of imports in 2020, with a combined 32% share of global supplies.

Source: IndexBox Platform

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U.S. and EU Impose Sanctions in Connection with the Crisis in Ukraine: A Detailed Look

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On February 21, 2022, President Biden issued a new executive order targeting the breakaway regions known as the Donetsk People’s Republic (“DNR”) and Luhansk People’s Republic (“LPR”, and together with the DNR, the “Covered Regions”) in eastern Ukraine.  On February 22, 2022, President Biden announced further sanctions, specifically designating two major Russian banks and three close associates of Russian President Vladimir Putin, and imposed increased restrictions on dealings in Russia’s sovereign debt.  On February 23, 2022, the EU adopted, a set of new Regulations and Decisions implementing asset freezes and travel bans notably against senior Russian officials and close associates of President Putin, financial restrictions limiting Russia’s access to the EU’s capital and financial markets, and trade restrictions targeting economic relations with the Covered Regions. The actions follow President Putin’s formal recognition of the independence of those breakaway regions and react to the continued involvement of Russian military forces.

New U.S. Sanctions

February 21, 2022 Executive Order

The February 21 executive order largely extends the existing restrictions on the Crimea region of Ukraine and applies them to the Covered Regions.  In particular, the executive order prohibits:

-New investment in the Covered Regions;

-Importation into the U.S. of any goods, services, or technology originating in the Covered Regions;

-Exportation, reexportation, sale or supply from the United States or by a U.S. persons of any good, services or technology to the Covered Regions; and

-Any approval, financing, facilitation, or guarantee by a U.S. person of prohibited transactions.

The executive order further authorizes the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) to add to the Specially Designated Nationals (“SDN”) list any person determined by the Secretary of the Treasury, in consultation with the Secretary of State:

-To operate in the Covered Regions;

-To be a leader, official, senior executive officer, or member of the board of directors of an entity operating in the Covered Regions;

-To be owned or controlled or acting on behalf of any person blocked under the executive order; or

-To have materially assisted or supported any person blocked under the executive order.

However, although some individuals in the Covered Regions have been previously designated under the Crimea-related authorities, no person has been designated yet under the executive order as of the date of this alert.

Simultaneously with the issuance of the executive order, OFAC issued six general licenses to permit otherwise prohibited activity in the Covered Regions.  Most significantly, General License 17 authorizes all transactions that are ordinarily incident and necessary to the winddown of transactions in the Covered Region until March 23, 2022.  Note, however, that a specific license from OFAC would still be required for any transactions with an SDN designated under the executive order.  The other five general licenses authorize the following activity:

–General License 18– authorizing the export or reexport to the Covered Regions of certain agricultural, medical, and COVID-19 related products and services;

–General License 19– authorizing transactions that are ordinarily incident and necessary to the receipt or transmission of telecommunications in the Covered Regions;

–General License 20– authorizing transactions by the United Nations and other specified non-governmental organizations;

–General License 21– authorizing transactions related to non-commercial, personal remittances to the Covered Regions; and

–General License 22– authorizing transactions related to the exportation of services or software from the United States or by U.S. persons that are incident to the exchange of personal communications over the internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, and blogging.

One key question following the issuance of the executive order is how the specific territories of the Covered Regions will be determined.  This may be particularly challenging, given the shifting borders of the DNR and LPR throughout their prolonged conflict with the Ukrainian government.  We anticipate that OFAC will seek to clarify this question through the guidance in the form of responses to “Frequently Asked Questions” in the coming days.

February 22, 2022 Actions

On February 22, 2022, in a speech in which President Biden stated that “Russia has now undeniably moved against Ukraine,” he announced “the first tranche of sanctions to impose costs on Russia,” promising to “continue to escalate sanctions if Russia escalates.”  Subsequently, OFAC issued a press release detailing the specific actions, all of which were taken pursuant to the existing Executive Order 14024, which included the designation of two major Russian banks and three close associates of President Putin as SDNs as well as restrictions on transactions involving Russian sovereign debt.

Specifically, the two Russian banks targeted are the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (“VEB”) and Promsvyazbank Public Joint Stock Company (“PSB”), along with 42 of their subsidiaries.  The designations were made pursuant to a contemporaneous determination issued by Treasury Secretary Janet Yellen that Russian financial institutions are eligible for sanctions under Executive Order 14024 (previously, determinations had also been made on April 15, 2021, with respect to the technology sector and defense sectors).  Both banks are state-owned institutions and play key roles in servicing Russia’s sovereign debt and defense contracts.  Further, in connection with PSB’s designation, OFAC designated the following five Russian-flagged vessels in which PSB has an interest:

-Baltic Leader (IMO: 9220639), a cargo vessel;

-Linda (IMO: 9256858), a crude oil tanker;

-Pegas (IMO: 9256860), a crude oil tanker;

-Fesco Magadan (IMO: 9287699), a container ship; and

-Fesco Moneron (IMO: 9277412), a container ship.

In addition, three close associates to President Putin – including the Chairman and CEO of PSB and two sons of previously designated oligarchs – were added to the SDN list.  As a result of these designations, U.S. persons are prohibited from virtually all transactions with the listed parties or entities of which they own fifty percent or more, directly or indirectly.  In addition, “significant” transactions with these entities could create secondary sanctions liability under Section 228 of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”).

OFAC also issued a new Directive 1A under Executive Order 14024, which replaces the prior Directive 1.  The effect of the new Directive 1A is to expand existing sovereign debt prohibitions to cover participation in the secondary market for bonds issued after March 1, 2022 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.  Specifically, Directive 1 previously prohibited U.S. financial institutions from, as of June 14, 2021, participating in the primary market for bonds issued by Russia’s Central Bank, National Wealth Fund or Ministry of Finance, or lending funds to those organizations.  Directive 1A keeps those prohibitions in place, and additionally prohibits U.S. financial institutions – effective March 1, 2022 – from participating in the secondary market for bonds issued by the listed organizations.  Note that OFAC clarified in FAQ guidance that the fifty percent rule does not apply to Directive 1A so that entities owned by the institutions identified in Directive 1A are not themselves automatically subject to the restrictions.

In conjunction with these restrictions, OFAC also issued General License 2, which authorizes transactions involving the servicing of bonds issued by VEB prior to March 1, 2022, and General License 3, which authorizes a winddown period with respect to VEB through March 24, 2022.  No similar general license has been issued yet regarding transactions involving PSB.

Potential Further Action

The Biden Administration has also implied that additional multi-lateral sanctions could be forthcoming, indicating an incremental approach.  A Fact Sheet issued in conjunction with the February 21, 2022 executive order explained that the executive order “is distinct from the swift and severe economic measures we are prepared to issue with Allies and partners in response to a further Russian invasion of Ukraine. We are continuing to closely consult with Ukraine and with Allies and partners on next steps and urge Russia to immediately deescalate.”  As also noted above, President Biden characterized the February 22, 2022 actions as the “first tranche” of sanctions and kept open the possibility for “escalation” depending on how Russia responds.  An embargo on semiconductors and advanced technology has reportedly been considered as part of a second tranche of actions if Russia escalates or continues its incursion further into Ukraine.

New EU Sanctions

February 21, 2022 Designations

On February 21, the Council of the European Union (“EU”)  imposed travel bans and asset freezes (including a prohibition to make funds or economic resources available) on five new individuals “for actively supporting actions and implementing policies that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine,” bringing the total number of designated parties to 193 individuals and 48 entities on the EU’s list of parties subject to Ukraine-related sanctions.

The new designations include members of the State Duma of the Russian Federation, who were elected to represent the annexed Crimean peninsula and the City of Sevastopol on 19 September 2021, as well as the head and deputy head of the Sevastopol electoral commission.

February 22-23, 2022 Actions

On February 22, the Presidents of the European Council and European Commission jointly announced that an additional package of restrictive measures will be swiftly adopted by the EU in reaction to Russia’s latest aggression against Ukraine, which the EU sees as “illegal and unacceptable” under the Minsk Agreements, which stipulate the full return of the Covered Regions to the control of the Ukrainian government.

The same day, Josep Borrell, the High Representative of the Union for Foreign Affairs and Security Policy, urged Russia “to reverse the recognition, uphold its commitments, abide by international law and return to the discussions within the Normandy format and the Trilateral Contact Group.” Borrell later announced in a joint press conference with French Minister for Europe and Foreign Affairs Jean-Yves Le Drian that the 27 Member States had unanimously agreed on a new package of sanctions.

The new package has been swiftly adopted and published in the Official Journal of the EU on February 23 through 4 Council Decisions and 5 Regulations amending EU’s current sanctions program targeting Russia progressively strengthened since 2014, which already included:

-Individual restrictive measures consisting of travel bans and assets freezes on designated individuals and entities;

-Comprehensive restrictions on economic relations with Crimea and Sevastopol, including (i) an import ban on goods from Crimea and Sevastopol, (ii) restrictions on trade and investment related to certain economic sectors and infrastructure projects, (iii) a prohibition to supply tourism services in Crimea or Sevastopol, and (iv) an export ban for certain goods and technologies;

-An import and export ban on trade in arms as well as an export ban for dual-use items for military end-users or end-use in Russia;

-Financial restrictions limiting access to EU primary and secondary capital markets for certain Russian banks and companies;

-Economic restrictions limiting Russia’s access to sensitive technologies and services that can be used for oil production and exploration.

As announced, the new package of sanctions is quite wide-ranging and intended to “hurt [Russia] a lot” in the words of High Representative Borrell.

First, the legal acts of February 23 (Council Implementing Regulation (EU) 2022/260 and 2022/261 ; Council Decision (CFSP) 2022/267) formally designate individuals and entities which will be subject to individual restrictive measures, namely a travel ban and an asset freeze, in the Union. The new designations target:

-336 members of the Russian State Duma who voted for the recognition of the two self-proclaimed republics; and

-22 decision-makers involved in the illegal decision in addition to 4 entities (Internet Research Agency, Bank Rossiya, PROMSVYAZBANK and VEB) financially and materially supporting, or benefiting from them, those operating in the Russian defense sector and having played a role in the invasion such as senior military officers, as well as individuals engaging in a “disinformation war” against Ukraine.

The legal acts (Council Implementing Regulation (EU) 2022/259 ; Council Decision (CFSP) 2022/265) also provided for a derogation from the application of the new restrictive measures targeting Bank Rossiya, PROMSVYAZBANK and VEB. The competent authorities of a Member State may authorize the release of certain frozen funds or economic resources belonging to these Russian banks, or the making available of certain funds or economic resources to those entities, under such conditions as the competent authorities deem appropriate and after having determined that such funds or economic resources are necessary for the termination by August 24, 2022, of operations, contracts, or other agreements, including correspondent banking relations, concluded with those entities before February 23, 2022.

Moreover, further financial restrictions limiting Russia’s access to the EU’s capital and financial markets will now apply (Council Implementing Regulation (EU) 2022/262 ; Council Decision (CFSP) 2022/264) including notably:

-A prohibition to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments issued after March 9, 2022 by Russia and its government, the Central Bank of Russia or any person or entity acting on behalf or at the direction of the said Central Bank;

-A prohibition to directly or indirectly make or be part of any arrangement to make any new loans or credit to the above-mentioned persons and entities;

-The current prohibitions applicable to securities giving the right to acquire or sell such transferable securities are extended to the securities giving rise to a cash settlement determined by reference to transferable securities.

Finally, the legal acts (Council Implementing Regulation (EU) 2022/263 ; Council Decision (CFSP) 2022/266) introduce extensive trade restrictions targeting economic relations with the Covered Regions of Donetsk and Luhansk, on the model of those already targeting Crimea and Sevastopol including:

-A prohibition to import goods from the Covered Regions into the EU and to provide, directly or indirectly, financing or financial assistance as well as insurance and reinsurance related to such imports;

-A prohibition to (i) acquire any new, or extend any existing participation in ownership of, real estate in or located in the Covered Regions, including the acquisition in full of such an entity or the acquisition of shares therein, and other securities of a participating nature of such an entity; (ii) grant or be part of any arrangement to grant any loan or credit or otherwise provide financing, including equity capital, to an entity in the Covered Regions, or for the documented purpose of financing such an entity; (iii) create any joint venture in the Covered Regions or with an entity in the Covered Regions; and (iv) provide investment services directly related to these prohibited activities;

-A prohibition to sell, supply, transfer or export goods and technology listed in Annex II suited for use in the transport, telecommunications, energy, oil and gas and mineral sectors, to (i) any natural or legal person, entity or body in the Covered Regions, or (ii) for use in the Covered Regions;

-A prohibition to provide, directly or indirectly, technical assistance or brokering services related to the goods and technology listed in Annex II, or related to the provision, manufacture, maintenance and use of such items to any natural or legal person, entity or body in the Covered Regions or for use in the Covered Regions;

-A prohibition to provide, directly or indirectly, financing or financial assistance related to the goods and technology listed in Annex II to any natural or legal person, entity or body in the Covered Regions or for use in the Covered Regions.

-A prohibition to provide technical assistance, or brokering, construction or engineering services directly relating to infrastructure in the specified territories in the mentioned sectors, independently of the origin of the goods and technology; and

-A prohibition to provide services directly related to tourism activities in the Covered Regions.

The new restrictive measures entered into force on February 23, the date of their publication in the Official Journal of the EU.

Potential Further Action

In reaction to the latest events, Olaf Scholz, Germany’s Chancellor, announced that Germany will halt the certification of Nord Stream 2, a gas pipeline designed to bring natural gas from Russia directly to Europe, a decision welcomed by both High Representative  Borrell and President Ursula von der Leyen.

On February 23, 2022, President Biden announced that he would direct OFAC to sanction Nord Stream 2 AG – a wholly owned subsidiary of Gazprom, which is already subject to U.S. sectoral sanctions – and its corporate officers.

The EU had warned it will leave the door open to the adoption of more wide-ranging political and economic sanctions at a later stage should Russia use “the newly signed pacts with the self-proclaimed “republics” as a pretext for taking further military steps against Ukraine.” As President Putin declared war against Ukraine and escalated military action on February 24, President Michel of the European Council urgently convened an extraordinary meeting of the European Council. EU leaders intend to meet later today to discuss further restrictive measures that “will impose massive and severe consequences on Russia for its action, in close coordination with our transatlantic partners.”

The Member States will also keep a close eye on Belarus, which is said to have “aided and supported the Russian actions” in Ukraine, and the EU is ready to enlarge the listing criteria “to target those who provide support or benefit from the Russian government – the oligarchs, in plain language,” if needed.

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OFAC Sanctions Four Ukrainian Officials for Acting on Russia’s Behalf; Additional Russia Sanctions Could Follow

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As tensions run high between Washington and Moscow over a possibly imminent Russian invasion of Ukraine, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) designated today four (4) current and former Ukrainian officials under Executive Order (“EO”) 14024 dated April 15, 2021. In a press release issued earlier today, OFAC asserted the Russian Federal Security Service (“FSB”) “recruit[s] Ukrainian citizens in key positions to gain access to sensitive information, threaten the sovereignty of Ukraine, and then leverage these Ukrainian officials to create instability in advance of a potential Russian invasion.” OFAC also noted that Russian agents have sought to influence U.S. elections since at least 2016.

In today’s action, OFAC added two (2) current Ukrainian Members of Parliament – Taras Kozak and Oleh Voloshyn – to the Specially Designated Nationals and Blocked Persons List (“SDN List”) and labeled them FSB “pawns”. OFAC accused Kozak of amplifying false narratives regarding the 2020 U.S. elections and Voloshyn of undermining Ukrainian government officials and advocating Russian interests. OFAC also added two (2) former Ukrainian officials to the SDN List – Volodymyr Oliynyk and Vladimir Sivkovich. OFAC asserts Oliynyk gathered information about Ukraine’s critical infrastructure for the FSB and Sivkovich engaged in influence and disinformation campaigns targeting both the Ukraine and the U.S.

All four (4) SDN designations were made pursuant to EO 14024, which authorizes OFAC to impose sanctions on persons who act or purport to act for or on behalf of, directly or indirectly, the Government of the Russian Federation. As a result of the designations, all property and interests in property of these persons in the U.S. or controlled by U.S. persons must be blocked and reported to OFAC. U.S. persons are prohibited from sending or receiving any provision of funds, goods, or services to/from these newly designated SDNs. According to OFAC’s “50% Ownership Rule,” these sanctions also extend to any entities in which these SDNs directly or indirectly hold, either individually or in the aggregate with other SDNs, an ownership interest of 50% or more.

The U.S. has also recently signaled its readiness to impose additional sanctions if Russia proceeds with an invasion of Ukraine, but has not shared many details of its plans. On January 21, 2022, Deputy Secretary of the Treasury Wally Adeyemo in a conversation with Ukraine Minister of Finance Serhiy Marchenko “emphasized that the United States and its allies and partners are prepared to inflict significant costs on the Russian economy if Russia further invades Ukraine.” Some news reports have forecasted that restrictions on semiconductor exports to Russia, sanctions against Russian financial institutions, and controls on foreign-produced goods going to Russia are among the options under consideration by the White House. However, any additional sanctions beyond the four (4) SDN designations reported in this post are purely speculative at this time.

Husch Blackwell’s Export Controls and Economic Sanctions Team continues to monitor U.S. sanctions and export controls against Russia and will provide further updates if additional developments occur.

__________________________________________________________________

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office and is a member of the firm’s International Trade & Supply Chain practice team.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

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U.S. Sanctions Turkey’s Defense Procurement Entity Over Its Purchase of Russian Missile System

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The U.S. Department of State (“State Department”) announced the imposition of sanctions on Turkey’s Presidency of Defense Industries (“SSB”) pursuant to Section 231 of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”). The U.S. is sanctioning SSB over its procurement of the S-400 surface-to-air missile system from Russia’s Rosoboronexport (“ROE”). SSB is Turkey’s primary defense procurement entity and ROE is Russia’s main exporter of arms. As a result of Turkey’s actions, the U.S. is imposing full blocking sanctions on four SSB officials along with certain non-blocking CAATSA sanctions on the SSB entity.

CAATSA Section 231 requires the President to impose at least five sanctions from the menu of twelve available sanctions authorized under CAATSA Section 235 on any person determined to have knowingly engaged in a significant transaction with the defense or intelligence sectors of the Russian government. ROE is listed on the State Department’s List of Specified Persons (the “LSP”) and recognized as being a part of the defense sector of the Russian government, therefore the State Department determined that CAATSA required the imposition of sanctions on SSB.

The State Department and U.S. Department of Treasury (“Treasury Department”) have selected the following sanctions from CAATSA Section 235 to impose on SSB:

-“a prohibition on granting specific U.S. export licenses and authorizations for any goods or technology transferred to SSB (Section 235(a)(2));

-a prohibition on loans or credits by U.S. financial institutions to SSB totaling more than $10 million in any 12-month period (Section 235(a)(3));

-a ban on U.S. Export-Import Bank assistance for exports to SSB (Section 235(a)(1));

-a requirement for the United States to oppose loans benefitting SSB by international financial institutions (Section 235(a)(4)); and

-imposition of full blocking sanctions and visa restrictions (Section 235(a)(7), (8), (9), (11), and (12)) on Dr. Ismail Demir, president of SSB; Faruk Yigit, SSB’s vice president; Serhat Gencoglu, Head of SSB’s Department of Air Defense and Space; and Mustafa Alper Deniz, Program Manager for SSB’s Regional Air Defense Systems Directorate.”

Although CAATSA Section 235 gave the State and Treasury Departments the discretion to impose full blocking sanctions on SSB, they chose not to do so and instead only imposed those blocking sanctions on the four previously-identified SSB senior officers.

In order to effectuate these sanctions, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) added SSB to its new “Non-SDN Menu-Based Sanctions” list with designations specifying the above-listed non-blocking, menu-based CAATSA Section 235 sanctions. Additionally, OFAC added the four individual SSB officers to its Specially Designated Nationals and Blocked Persons (“SDN”) list. As a result, all of their property and interests within U.S. jurisdiction are blocked and U.S. persons are prohibited from conducting transactions with them without an OFAC license.

State Department’s Directorate of Defense Trade Controls (“DDTC”) is responsible for issuing and administering export licenses under the U.S. International Traffic in Arms Regulations (“ITAR”).  DDTC issued the following notice on December 14, 2020 explaining how it will implement the new export licensing restrictions which are now applicable to SSB under these new CAATSA sanctions:

“[E]ffective immediately DDTC will not approve any specific license or authorization to export or re-export any defense articles, including technical data, or defense services where SSB is a party to the transaction. This prohibition does not apply to temporary import authorizations or to current, valid, non-exhausted export and re-export authorizations. However, the prohibition does apply to new export and re-export authorizations – including amendments to previously approved licenses or agreements and licenses in furtherance of previously approved agreements. This sanction does not apply to subsidiaries of SSB; however, licenses submitted to DDTC which name subsidiaries of SSB are still subject to a standard case-by-case review, including a foreign policy and national security review. We are not imposing a prohibition on U.S. Government procurement from SSB as part of this action.”

The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) is responsible for issuing and administering export licenses under the U.S. Export Administration Regulations (“EAR”). BIS also issued its own notice on December 14, 2020 which generally stated BIS “has implemented a policy of denial for export license applications to [SSB].”  However, BIS’s notice did not address whether these new CAATSA sanctions would affect existing BIS export licenses issued for SSB or transactions with SSB subsidiaries under the EAR.

_______________________________________________________________________

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

section 232
Archives, Global Trade Daily, Imports/Exports, In The News

Commerce Commences Section 232 Investigation on Imports of Vanadium

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The Commerce Department announced on June 2, 2020, that it is starting another Section 232 investigation that could result in the imposition of tariffs or potentially other restrictions on imports of vanadium. The agency stated that it will review and determine “whether the present quantities or circumstances of vanadium imports into the United States threaten to impair the national security.”

Vanadium is a chemical element with the symbol “V” and is assigned atomic number 23.  A general description of it is a hard, silvery-grey, malleable transition metal. It is an artificially isolated element, which is rarely found in its natural state, but one of its key properties once isolated artificially is to prevent oxidation. Various applications that rely on vanadium include use in the production of ferrovanadium, which is a steel additive. The chemical properties of vanadium also increase the strength of the steel and it is therefore used in products such as high-carbon steel alloys and high-speed tool steels for use “aircraft, jet en­gines, ballistic missiles, energy storage, bridges, buildings, and pipelines. Vanadium is a key component in aerospace applications due to its strength-to-weight ratio, the best of any engineered material,” Commerce said and “U.S. demand is supplied entirely through imports.”

This new 232 investigation is the result of the filing of a request by two domestic U.S. vanadium producers, AMG Vanadium and U.S. Vanadium, in November 2019. The allegation claims that the “domestic industry is adversely impacted by unfairly traded low-priced im­ports, limited export markets due to value-added tax regimes in other vanadium producing countries, and the distortionary effect of Chinese and Russian industrial policies,” according to Commerce’s press release.

The notice of initiation, of the 232 investigation was published in the Federal Register on June 3rd. Comments must be filed by July 20, 2020, and any rebuttal comments are due by August 17, 2020.  Those interested in submitting comments should ensure that it addresses the following:

-the quantity of imports,

-domestic production and capacity needed to meet national defense requirements, and

-the impact of foreign competition on the vanadium industry, among other things.

Husch Blackwell continues to monitor the Section 232 investigations and will provide further updates as more information becomes available.

_______________________________________________________________________

Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Turner Kim is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

peas
Archives, Global Trade Daily, Imports/Exports

Hungary’s Exports of Preserved Peas Halved over the Last Decade, Mainly Due to Low Supplies to Russia

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IndexBox has just published a new report: ‘Hungary – Preserved Peas – Market Analysis, Forecast, Size, Trends And Insights’. Here is a summary of the report’s key findings.

Hungary, the world’s largest importer of canned peas, suffers from a continued decline in its production and exports. Over the past decade, its exports fell sharply from $ 105.8 million in 2008 to $ 55.9 million in 2018, mainly due to low shipments to Russia.

Production in Hungary

Preserved peas production in Hungary amounted to 71K tonnes in 2018, declining by -14.1% against the previous year. Overall, preserved peas production continues to indicate a drastic reduction. The most prominent rate of growth was recorded in 2013 with an increase of 16% y-o-y. Preserved peas production peaked at 123K tonnes in 2008; however, from 2009 to 2018, production failed to regain its momentum.

In value terms, preserved peas production amounted to $55M in 2018 estimated in export prices. In general, preserved peas production continues to indicate a drastic deduction. The most prominent rate of growth was recorded in 2010 with an increase of 12% y-o-y. Over the period under review, preserved peas production reached its peak figure level at $100M in 2008; however, from 2009 to 2018, production stood at a somewhat lower figure.

Exports from Hungary

Preserved peas exports from Hungary stood at 58K tonnes in 2018, dropping by -5.6% against the previous year. In general, preserved peas exports continue to indicate a deep downturn. The most prominent rate of growth was recorded in 2016 with an increase of 15% y-o-y. Over the period under review, preserved peas exports reached their maximum at 90K tonnes in 2008; however, from 2009 to 2018, exports stood at a somewhat lower figure.

In value terms, preserved peas exports amounted to $56M (IndexBox estimates) in 2018. Over the period under review, preserved peas exports continue to indicate a deep slump. The pace of growth appeared the most rapid in 2011 with an increase of 13% year-to-year. Exports peaked at $106M in 2008; however, from 2009 to 2018, exports stood at a somewhat lower figure.

Exports by Country

Russia (17K tonnes) was the main destination for preserved peas exports from Hungary, accounting for a 30% share of total exports. Moreover, preserved peas exports to Russia exceeded the volume sent to the second major destination, Germany (7.1K tonnes), twofold. Italy (6.7K tonnes) ranked third in terms of total exports with a 12% share.

From 2008 to 2018, the average annual growth rate of volume to Russia stood at -8.5%. Exports to the other major destinations recorded the following average annual rates of exports growth: Germany (+2.4% per year) and Italy (+22.2% per year).

In value terms, the largest markets for preserved peas exported from Hungary were Russia ($16M), Germany ($8.7M) and Italy ($4.6M), with a combined 52% share of total exports. These countries were followed by Romania, Lithuania, Belgium, the UK, the Czech Republic, Latvia, France, Poland and Armenia, which together accounted for a further 33%.

Among the main countries of destination, Belgium recorded the highest growth rate of exports, over the last decade, while the other leaders experienced more modest paces of growth.

Export Prices by Country

The average preserved peas export price stood at $965 per tonne in 2018, surging by 6.2% against the previous year. In general, the preserved peas export price, however, continues to indicate a temperate contraction. The pace of growth appeared the most rapid in 2011 an increase of 14% y-o-y. In that year, the average export prices for preserved peas reached their peak level of $1,220 per tonne. From 2012 to 2018, the growth in terms of the average export prices for preserved peas remained at a lower figure.

Prices varied noticeably by the country of destination; the country with the highest price was Germany ($1,228 per tonne), while the average price for exports to Armenia ($493 per tonne) was amongst the lowest.

From 2008 to 2018, the most notable rate of growth in terms of prices was recorded for supplies to the UK, while the prices for the other major destinations experienced mixed trend patterns.

Source: IndexBox AI Platform

chicken egg
Archives, Global Trade Daily, Imports/Exports

Chicken Egg Market in Eastern Europe – Russia’s Production Is Growing Rapidly, Driven by Strong Domestic Demand and Expanding Exports

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IndexBox has just published a new report: ‘Eastern Europe – Hen Eggs – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The revenue of the chicken egg market in Eastern Europe amounted to $9.7B in 2018, surging by 6.6% against the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). Over the period under review, chicken egg consumption continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2013 when the market value increased by 13% against the previous year. The level of chicken egg consumption peaked at $10.8B in 2014; however, from 2015 to 2018, consumption stood at a somewhat lower figure.

Consumption By Country in Eastern Europe

The country with the largest volume of chicken egg consumption was Russia (2.6M tonnes), accounting for 54% of total consumption. Moreover, chicken egg consumption in Russia exceeded the figures recorded by the region’s second-largest consumer, Ukraine (898K tonnes), threefold. The third position in this ranking was occupied by Poland (345K tonnes), with a 7.2% share.

In Russia, chicken egg consumption expanded at an average annual rate of +1.6% over the period from 2007-2018. In the other countries, the average annual rates were as follows: Ukraine (+1.0% per year) and Poland (-3.8% per year).

In value terms, the largest chicken egg markets in Eastern Europe were Ukraine ($4.5B), Russia ($2.8B) and Hungary ($673M), together accounting for 82% of the total market.

The countries with the highest levels of chicken egg per capita consumption in 2018 were Ukraine (20 kg per person), Belarus (18 kg per person) and Russia (18 kg per person).

From 2007 to 2018, the most notable rate of growth in terms of chicken egg per capita consumption, amongst the main consuming countries, was attained by Russia, while the other leaders experienced more modest paces of growth.

Market Forecast 2019-2025 in Eastern Europe

Driven by increasing demand for chicken egg in Eastern Europe, the market is expected to continue an upward consumption trend over the next seven years. Market performance is forecast to retain its current trend pattern, expanding with an anticipated CAGR of +0.8% for the seven-year period from 2018 to 2025, which is projected to bring the market volume to 5.1M tonnes by the end of 2025.

Production in Eastern Europe

The chicken egg production amounted to 5.1M tonnes in 2018, therefore, remained relatively stable against the previous year. Overall, chicken egg production continues to indicate mild growth. The most prominent rate of growth was recorded in 2010 when production volume increased by 3.2% against the previous year. The volume of chicken egg production peaked in 2018 and is expected to retain its growth in the near future. The general positive trend in terms of chicken egg output was largely conditioned by slight growth of the number of producing animals and a relatively flat trend pattern in yield figures.

In value terms, chicken egg production stood at $11.3B in 2018 estimated in export prices. The total output value increased at an average annual rate of +1.4% from 2007 to 2018; the trend pattern indicated some noticeable fluctuations being recorded in certain years. The most prominent rate of growth was recorded in 2013 with an increase of 39% against the previous year. The level of chicken egg production peaked at $12B in 2014; however, from 2015 to 2018, production stood at a somewhat lower figure.

Production By Country in Eastern Europe

Russia (2.5M tonnes) constituted the country with the largest volume of chicken egg production, comprising approx. 50% of total production. Moreover, chicken egg production in Russia exceeded the figures recorded by the region’s second-largest producer, Ukraine (895K tonnes), threefold. The third position in this ranking was occupied by Poland (600K tonnes), with a 12% share.

From 2007 to 2018, the average annual rate of growth in terms of volume in Russia totaled +1.6%. In the other countries, the average annual rates were as follows: Ukraine (+0.9% per year) and Poland (+0.8% per year).

Producing Animals in Eastern Europe

In 2018, approx. 444M heads of producing animals were grown in Eastern Europe; approximately reflecting the previous year. This number increased at an average annual rate of +1.1% over the period from 2007 to 2018; the trend pattern remained relatively stable, with only minor fluctuations being observed over the period under review. The growth pace was the most rapid in 2012 with an increase of 5.3% y-o-y. Over the period under review, this number attained its peak figure level in 2018 and is likely to continue its growth in the near future.

Yield in Eastern Europe

In 2018, the average chicken egg yield in Eastern Europe totaled 11 kg per head, remaining stable against the previous year. Over the period under review, the chicken egg yield continues to indicate a relatively flat trend pattern. The growth pace was the most rapid in 2009 when yield increased by 7% year-to-year. In that year, the chicken egg yield attained its peak level of 12 kg per head. From 2010 to 2018, the growth of the chicken egg yield remained at a lower figure.

Exports in Eastern Europe

In 2018, approx. 437K tonnes of chicken eggs were exported in Eastern Europe; rising by 6.8% against the previous year. Over the period under review, chicken egg exports continue to indicate resilient growth. The most prominent rate of growth was recorded in 2013 when exports increased by 91% year-to-year. The volume of exports peaked in 2018 and are likely to see steady growth in the immediate term.

In value terms, chicken egg exports amounted to $657M (IndexBox estimates) in 2018. In general, chicken egg exports continue to indicate a buoyant expansion. The most prominent rate of growth was recorded in 2013 when exports increased by 53% against the previous year. The level of exports peaked in 2018 and are expected to retain its growth in the immediate term.

Exports by Country

Poland prevails in chicken egg exports structure, finishing at 267K tonnes, which was near 61% of total exports in 2018. Belarus (40K tonnes) took the second position in the ranking, followed by Russia (33K tonnes), Latvia (23K tonnes) and the Czech Republic (20K tonnes). All these countries together occupied approx. 27% share of total exports. Bulgaria (15K tonnes) and Romania (12K tonnes) followed a long way behind the leaders.

Poland was also the fastest-growing in terms of the chicken eggs exports, with a CAGR of +21.8% from 2007 to 2018. At the same time, Russia (+19.2%), Bulgaria (+15.5%), the Czech Republic (+6.4%), Latvia (+5.8%), Romania (+5.6%) and Belarus (+2.5%) displayed positive paces of growth. From 2007 to 2018, the share of Poland, Russia, Bulgaria, Latvia, the Czech Republic and Belarus increased by +54%, +6.5%, +2.8%, +2.4%, +2.3% and +2.2% percentage points, while the shares of the other countries remained relatively stable throughout the analyzed period.

In value terms, Poland ($402M) remains the largest chicken egg supplier in Eastern Europe, comprising 61% of total chicken egg exports. The second position in the ranking was occupied by the Czech Republic ($43M), with a 6.5% share of total exports. It was followed by Bulgaria, with a 5.2% share.

From 2007 to 2018, the average annual growth rate of value in Poland amounted to +19.0%. The remaining exporting countries recorded the following average annual rates of exports growth: the Czech Republic (+2.1% per year) and Bulgaria (+11.2% per year).

Export Prices by Country

In 2018, the chicken egg export price in Eastern Europe amounted to $1,504 per tonne, picking up by 3.6% against the previous year. Over the period under review, the chicken egg export price, however, continues to indicate a noticeable slump. The growth pace was the most rapid in 2017 when the export price increased by 24% against the previous year. Over the period under review, the export prices for chicken eggs attained their peak figure at $2,301 per tonne in 2007; however, from 2008 to 2018, export prices stood at a somewhat lower figure.

Prices varied noticeably by the country of origin; the country with the highest price was Bulgaria ($2,219 per tonne), while Belarus ($733 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by Poland, while the other leaders experienced a decline in the export price figures.

Imports in Eastern Europe

In 2018, the imports of chicken eggs in Eastern Europe stood at 182K tonnes, jumping by 6.4% against the previous year. The total imports indicated strong growth from 2007 to 2018: its volume increased at an average annual rate of +4.6% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, chicken egg imports decreased by -6.8% against 2015 indices. The most prominent rate of growth was recorded in 2013 with an increase of 20% y-o-y. The volume of imports peaked at 196K tonnes in 2015; however, from 2016 to 2018, imports stood at a somewhat lower figure.

In value terms, chicken egg imports amounted to $383M (IndexBox estimates) in 2018. Over the period under review, chicken egg imports continue to indicate a relatively flat trend pattern. The growth pace was the most rapid in 2014 when imports increased by 20% y-o-y. In that year, chicken egg imports attained their peak of $489M. From 2015 to 2018, the growth of chicken egg imports remained at a lower figure.

Imports by Country

Russia represented the main importing country with an import of around 84K tonnes, which amounted to 46% of total imports. It was distantly followed by the Czech Republic (20K tonnes), Hungary (17K tonnes), Poland (12K tonnes), Lithuania (11K tonnes), Latvia (8.7K tonnes) and Romania (8.5K tonnes), together creating a 42% share of total imports.

Imports into Russia increased at an average annual rate of +6.5% from 2007 to 2018. At the same time, Hungary (+15.5%), Lithuania (+15.4%), Romania (+7.6%), Latvia (+3.7%) and Poland (+2.7%) displayed positive paces of growth. Moreover, Hungary emerged as the fastest-growing importer in Eastern Europe, with a CAGR of +15.5% from 2007-2018. The Czech Republic experienced a relatively flat trend pattern. While the share of Russia (+23 p.p.), Hungary (+7.3 p.p.), Lithuania (+4.6 p.p.), Romania (+2.6 p.p.), Poland (+1.6 p.p.) and Latvia (+1.6 p.p.) increased significantly, the shares of the other countries remained relatively stable throughout the analyzed period.

In value terms, Russia ($208M) constitutes the largest market for imported chicken eggs in Eastern Europe, comprising 54% of total chicken egg imports. The second position in the ranking was occupied by the Czech Republic ($35M), with a 9% share of total imports. It was followed by Hungary, with a 7.2% share.

From 2007 to 2018, the average annual growth rate of value in Russia amounted to +3.3%. In the other countries, the average annual rates were as follows: the Czech Republic (-4.1% per year) and Hungary (+10.6% per year).

Import Prices by Country

The chicken egg import price in Eastern Europe stood at $2,099 per tonne in 2018, picking up by 3.7% against the previous year. Overall, the chicken egg import price, however, continues to indicate a noticeable slump. The pace of growth was the most pronounced in 2017 an increase of 11% y-o-y. Over the period under review, the import prices for chicken eggs attained their maximum at $3,152 per tonne in 2007; however, from 2008 to 2018, import prices failed to regain their momentum.

There were significant differences in the average prices amongst the major importing countries. In 2018, the country with the highest price was Russia ($2,490 per tonne), while Latvia ($1,300 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by Russia, while the other leaders experienced a decline in the import price figures.

Source: IndexBox AI Platform

arms trade
Archives, Global Trade Daily, International Trade

GLOBAL ARMS TRADE HIGHEST SINCE END OF COLD WAR

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Hotter Since the Cold War

For obvious reasons, trade in arms is not governed by the same global trade rules as selling a doggy snood on Etsy. The rules of engagement are different and global flows of arms tell stories not of lighthearted fashion trends but of the enduring reality of global conflicts, the escalating and diffusing of tensions – the arming and disarming that reflects the current and projected state of international security.

Governments, formal military alliances and international organizations procure and sell arms for defense, for peacekeeping operations, and to engage in conflict. Conflicts today routinely intertwine regular military forces, militias and armed civilians. After a decade of steady increase, the volume of arms trade by 2012 had reached levels not seen since the end of the Cold War.

Up in Arms

2018 saw the continuation of armed conflicts throughout the Middle East and North Africa in Egypt, Iraq, Libya, Syria and Yemen. In sub-Saharan Africa, armed conflict raged in eleven countries including Nigeria, Somalia, South Sudan, the Central African Republic and the Democratic Republic of Congo. Afghanistan remains among the world’s most lethal states after decades of fighting.

India and Pakistan, Myanmar and other countries in Southeast Asia experienced armed conflict throughout the year and Russia’s annexation of Crimea from Ukraine remains unresolved. Colombia’s peace process hit rough patches, armed gangs threaten security in Central America, and Venezuela remains turbulent. This list is long, incomplete, and in flux, fueling demand for arms in conflict areas. At the same time, some sixty multilateral peace operations were active in 2018.

For fifty years, the Stockholm International Peace Research Institute (SIPRI) has gathered original data on world military expenditure and international arms transfers, analyzing trends in conflict, arms production and arms controls. In all, SIPRI estimates global military expenditure at $1.8 trillion and puts the total value of the global arms trade in 2017 at some $95 billion with weapons exports valued around $27.6 billion.

Arms transfers between 2009 and 2013 were 23 percent higher than in the period between 2004 and 2008. In the period 2014-2018, arms transfers reached the highest level since the end of the Cold War.

Global Weapons Exports

Who Sells and Who Buys in the War Economy

Official reporting is scant. Government to government transfers occur through varying types of complex and opaque arrangements. Pinning down numbers is also complicated by the existence of covert trade in arms. Within the realm of what SIPRI can track, the market is dominated jointly by the United States and Russia. According to SIPRI’s numbers, 202 states, 48 non-state armed groups, and five international organizations received arms shipments sometime in the last five years.

The United States, Russia, France, Germany and China are the five largest exporters of major arms, accounting for 75 percent of all arms exports, but SIPRI has identified as many as 67 countries that exported major arms in the last five years. The United States and Russia together comprise 57 percent of the total. The five largest importers were Saudi Arabia, India, Egypt, Australia and Algeria, together accounting for 35 percent of total arms imports between 2014 and 2018. The political alignments can be seen by matching the buyers and sellers.

Buyers and Sellers of Arms

Notably, advanced combat aircraft accounted for more than half of all U.S. major arms exports over the last five years and will remain the main driver with nearly 900 orders in the pipeline. Guided missiles accounted for 19 percent of U.S. major arms exports and the United States is the primary exporter of ballistic missile defense systems.

Russia’s exports declined over the last five years as sales to India and Venezuela dropped by 42 percent and 96 percent respectively. Over the same period, Russia’s sales to the Middle East increased 19 percent, mainly to Egypt and Iraq. SIPRI reports that China supplies relatively small volumes of major arms spread across 53 countries, up from 41 five years ago. At the same time, China is the world’s sixth largest importer of arms. Russia supplied 70 percent of China’s arms imports over the last five years.

Under Control

Seven of the world’s largest defense companies by arms sales are American. They include Lockheed Martin with international arms sales worth $40.8 billion in 2016, and Boeing at a distant second with $29.5 billion in sales. Raytheon, Northrop Grumman and General Dynamics come in the next tier with sales between $19 and $23 billion. Among the top 100 firms, U.S. companies accounted for 58 percent of total global arms sales in 2016.

When it comes to production and trade in military supplies, the WTO steps out of the way. Article XXI of the General Agreement on Tariffs and Trade provides a national security exemption:

“…nothing in this Agreement shall be construed…to prevent any contracting party from taking any action which it considers necessary for the protection of essential national security interests…relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment.”

Trade in conventional arms and dual-use goods and technologies (those with both military and commercial applications) is regulated through other policies that include government defense procurement regulations, national export control licensing regimes and embargoes. In the United States, under the Arms Export Control Act and the International Traffic in Arms Regulations, exports of defense materials and services by U.S. firms are tightly controlled through licensing approvals.

Wassenaar Arrangement

Forty-two member countries maintain national export controls in conformance with items included on the 1996 Wassenaar Arrangement’s two control lists. As part of the Arrangement, members also agree to voluntarily and confidentially exchange information about transfers to non-Wassenaar countries of conventional weapons and dual-use goods and technologies on these lists. Weapon categories to be reported include armored combat vehicles, large-caliber artillery, military aircraft, missile systems, small arms and light weapons.

Wassenaar members are encouraged to use non-binding criteria to help determine whether potential arms exports could lead to “destabilizing accumulations,” and to guide their disposal of surplus military equipment. Wassenaar and other efforts to restrain arms transfers through international treaties and multilateral embargoes suffer, however, from low levels of national government engagement by important producers and importers of weapons.

Military-Industrial Complex-ity

Governments seek to procure technologically advanced weaponry for their own national security. At the same time, they must prevent the sale of such weapons to others who would use them against the state or who would deploy them to fuel conflicts that run counter to national security interests.

In balancing these objectives, national export control regimes have struggled against the pace of technological innovation and the proliferation of technologies that have dual commercial and military applications. The defense industry itself is defined by this paradox – it is propelled forward by government protected from competition but also shaped by market forces that induce innovation, specialization and consolidation.

As the costs and complexity of developing and manufacturing advanced weapons increase, firms specialize in facets of production. Interdependence among firms has deepened as global supply chains tend to be anchored by a handful of large tier-one firms. The industry has consolidated, including by merging across borders. In circular fashion, these developments make it harder for governments to regulate foreign investment and maintain appropriate controls on arms transfers.

Adding the complexity of this unique industry, firms that enjoy a special status under trade rules for military production also have commercial products and sales for which the normal rules apply. It’s a heavy invisible hand in the market for arms. Global trade rules need not apply.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fourteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.