Executive summary
On 11 March 2022, United States (US) President Joseph Biden issued an Executive Order (EO) on Prohibiting Certain Imports, Exports, and New Investment with Respect to Continued Russian Federation Aggression.1 In conjunction with this EO, the White House also released a Fact Sheet that announced coordinated actions with the European Union (EU) and the Group of 7 nations (G7)2 that would revoke Russia’s most-favored nation (MFN) trade status and deny it borrowing privileges at multilateral financial institutions.3 The revocation of Russia’s MFN benefits under the World Trade Organization (WTO) framework requires Congressional action, specifically directed towards revoking Permanent Normal Trade Relations (PNTR) for Russia.
Detailed discussion
Section 1(a) of the EO prohibits:
(i) the importation into the United States of the following products of Russian Federation origin: fish, seafood, and preparations thereof; alcoholic beverages; non-industrial diamonds; and any other products of Russian Federation origin as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Secretary of Commerce
(ii) the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of luxury goods,4 and any other items as may be determined by the Secretary of Commerce, in consultation with the Secretary of State and the Secretary of the Treasury, to any person located in the Russian Federation
(iii) new investment in any sector of the Russian Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, by a United States person, wherever located
(iv) the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of US dollar-denominated banknotes to the Government of the Russian Federation or any person located in the Russian Federation
(v) any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States
According to the Fact Sheet issued by the White House on their agreement with the EU and G7 nations, the sectors of Russia’s economy targeted by this action will deny Russia more than US$1 billion5 in export revenues. The Fact sheet also estimates that the US export value of the products covered by luxury goods restrictions, which includes items such as spirits, tobacco, apparel and footwear valued over $1,000 per unit, glassware, jewelry and artwork, is nearly $550 million per year. The EO also establishes the legal authority for future investment restrictions in any sector of the Russian economy.
The US Department of the Treasury’s Office of Foreign Asset Control (OFAC) issued General License No. 17 along with the EO, allowing for importations of restricted merchandise under section 1(a)(i) of the EO through 25 March 2022, pursuant to written contracts or written agreements entered into prior to 11 March 2022. US Customs and Border Protection (CBP) issued subsequent guidance noting filers of entries or admissions into Foreign Trade Zones (FTZs) will be required to provide purchase orders, executed contracts and/or other documentation to evidence the date the order or contract went into effect (i.e., if the order or contract was executed prior to 11 March 2022).6
CBP will require such documentation to be provided prior to merchandise unlading from the method of conveyance into the US. Lastly, CBP notes direct delivery privileges for merchandise covered under the EO are suspended until further notice. Admission via a CBP Form 214 or electronic equivalent prior to authorization will be required for the duration of the EO.
In addition to issuing the EO, the Administration announced that President Biden will work closely with Congress to deny Russia the benefits of its WTO membership and ensure that Russian imports do not receive MFN treatment in the US economy. WTO rules generally require each member to provide unconditional MFN treatment (i.e., a member’s lowest tariff or best trade concession) to all WTO members. If Russia’s PNTR status were to be revoked, applicable duty rates on US imports from Russia would be rates set under column 2 of the US Harmonized Tariff Schedule (HTS), unless otherwise specified by law.7
Members of Congress have recently introduced legislation (e.g., H.R. 6835, H.R. 6905, H.R. 7014, S. 3725, S. 3717, S. 3786) that would remove PNTR status. S. 3786, sponsored by Senator Ron Wyden, includes the ban of import of energy products from Russia and the suspension of normal trade relations with Russia that, “reflects an agreement reached by the top Senate Finance Committee and House Ways and Means Committee leaders” according to a statement by Republican Senator Mike Crapo.8 Despite the introduction of multiple pieces of legislation, however, none has yet to pass either chamber of Congress.
Actions for businesses
Companies involved in the importation of any products from Russia into the US should begin mapping their complete, end-to-end supply chain to fully understand the extent of products impacted and review alternative sourcing options.
For those utilizing the US FTZ Program, specific focus should be given to subject importations under the EO and design of procedures to manage the additional documentation requirements, changes to non-Direct Delivery procedures and other considerations of supply chain impact and FTZ operations.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), Global Trade
- Michael Leightman, Houston
- Lynlee Brown, San Diego
- Michael Heldebrand, San Jose
- Nathan Gollaher, Chicago
- Justin Shafer, Cincinnati
- Sergio Fontenelle, New York
- Bill Methenitis, Dallas
- Doug Bell, Washington DC
- Armando Beteta, Dallas
- Bryan Schillinger, Houston
- Prentice Wells, San Jose
- Anand Raghavendran, Irvine
- Nesia Warner, Austin
- Jay Bezek, Charlotte
- Helen Xiao, Chicago
- Sharon Martin, Chicago
- Oleksii Manuilov, New York
- Parag Agarwal, New York
- James Lessard-Templin, Portland
- Sundar Markandan, Irvine
- Rodney Appling, Austin
- Jack Harvey, Cincinnati
- Justin Shields, San Diego
- Alexa Reed, Cleveland
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
