In response to the recent round of sanctions and export restrictions imposed on Russia, Russian Federation President Putin signed a decree on 6 August 20141 (the “Decree”) effectively banning or limiting for a period of one year (beginning from 7 August 2014) the import of selected agricultural and food products from countries who have sanctioned Russia, specifically the U.S., the countries comprising the EU, Canada, Australia, and the Kingdom of Norway (the “Sanctioning Countries”). On 7 August 2014, the list of agricultural and food products (the “List”) subject to the Decree was published by the Russian Government. This latest action represents the most severe direct response to Western sanctions thus far by the Russian Government, and will certainly cause a number of repercussions for Russia and the Sanctioning Countries. Prior to today’s action, the Russian Government’s reaction to the sanctions has been one of restraint.
The Russian measures are likely to have a significant impact on agricultural exports to Russia, particularly on those coming from Europe. Agricultural/food sector companies should assess the impact of the measures and consider engagement with government officials in order to minimize the impact on their business. The EU has indicated that it is already analyzing Russia’s ban on imports from the EU and stands ready to appeal to the World Trade Organization to have the Russian agriculture import bans lifted. The EU Council is likely to convene an emergency meeting in connection with Russia's response to European sanctions.
Legal Basis for the Decree
The Decree refers to the provisions of the Russian Federal Law On Special Economic Measures2, which grants the president the right to impose economic sanctions on foreign countries if national interests so require, as well as the broad provisions of the Russian Federal Law on Security3 as its legal basis.
List of Agricultural and Food Products Subject to the Ban
According to the list published on 7 August 2014, the following products may not be imported for one year into the Russian Federation:
Cattle meat (fresh, refrigerated, and frozen)
Pork (fresh, refrigerated, and frozen)
Poultry meat and poultry by-products listed in “commodity position” 0105 (fresh, refrigerated, or frozen)
Salted meat, including by brine, as well as dried and smoked meat
Fish and shellfish, mollusks and other aquatic invertebrates
Milk and milk products
Vegetables (edible roots and tubers)
Fruits and nuts
Sausages and similar meat products, meat by-products or blood, as well as finished food products that are prepared using these products
Finished products, including cheese and curd made from vegetable oils
Food products such as those containing milk and those prepared using vegetable oils
The Federal Customs Service of the Russian Federation is charged with enforcing the ban. The Decree specifically notes that the ban does not cover baby food. Wine is also not included on the List.
Other than with respect to baby food, the Decree does not set out any exceptions for importing items from the List, nor does it explicitly provide for the ability of a Russian importer to apply for an import license on a case-by-case basis. Any changes to the List will need to be introduced into the text of the Decree. The Decree mentions that the Russian Government may petition the President to change the one-year term for which the ban has been established. Russian Prime Minister Dmitry Medvedev stated that the Russian Government is hoping that the ban will not last for the full year as currently prescribed, suggesting that Russia is prepared to lift the ban if sanctions on Russia are eased.
The Russian Government had recently banned the import of Polish fruits and vegetables citing health reasons rather than the sanctions as the basis for doing so. Restrictions on the import of agricultural products have often been imposed by the Russian Government for sanitary or health reasons and led to the banning of Georgian products several years ago. There are also calls to ban foreign fast food chains, specifically McDonalds, from operating in Russia and imposing excise taxes on soft drinks. In general, the Russian retail sector will be affected by these measures in trying to source new products and dealing with the fallout from contract disputes.
Looking for Alternatives
According to the Federal (Russian) State Statistics Service, Russia imported US$43 billion worth of food and agricultural products in 2013. The USDA Foreign Agricultural Service reported that the U.S. exported US$1.3 billion worth of food and agricultural products to Russia in 2013. The European Commission reported a much higher share, noting that the EU exported US$15.8 billion worth of food and agricultural products to Russia in 2013.
As an alternative to the food and agricultural products from the Sanctioning Countries, Russian authorities have begun discussing increasing the import of meats, poultry and other products from Latin American producers.
In addition to the import bans, on 7 August 2014, the Russian Government closed Russian airspace to Ukrainian airlines making transit flights to Azerbaijan, Georgia, Armenia, Turkey and certain other countries.
Moreover, in response to the EU’s sanctions against Dobrolet, a 100% subsidiary of Aeroflot and Russia’s only budget airline, the Russian Government is reportedly considering prohibiting or limiting its airspace over Siberia to European and U.S. carriers. In response to these rumors, EU officials have said the EU will close its airspace to Russian air carriers if Russia closes its trans-Siberian routes to EU flights. It is unclear at this stage whether these measures will be implemented as all sides would suffer additional costs/loss of revenue.