Half a dozen EU members want new sanctions on Russia watered down

Half a dozen EU members want new sanctions on Russia watered down
Half a dozen EU members want new sanctions on Russia watered down / bne IntelliNews
By bne IntelliNews December 1, 2023

Half a dozen EU member states want new sanctions in the twelfth sanctions package watered down to limit the economic damage they will do to their economies, Reuters reported on November 30.

The EU is caught in a dilemma between trying to make the flagging sanctions regime on Russia more effective, and at the same time preventing the same sanctions bouncing back and doing more damage to EU economies than they do to Russia in a boomerang effect.

The six countries, there are unnamed, but likely Central European states, are resisting some of the European Commission's latest proposal for sanctions against Russia. Particularly contentious is  a "no Russia clause," retaliatory financial limits, and the enforcement of sanctions on personal-use goods, according to sources familiar with the matter, Reuters reports.

the twelfth sanctions package is currently being debated and is due to be approved at an EU summit in mid-December. Amongst other items on the docket is a ban on the sale of Russian diamonds and some aluminium products that is likely to hurt Belgium’s economy, which buys half of Russia’s diamond exports, and small- and medium-sized enterprises (SMEs) in Europe that rely on the import of Russian aluminium wire and pipes, according to The Federation of Aluminium Consumers in Europe (FACE).

The EU member states argue that the new proposal could have adverse consequences for global trade and ultimately fail in achieving its intended objectives, according to Reuters’ sources.

During an ambassadorial meeting this week, representatives from these countries highlighted problems with Article 12 G in the proposal, referred to as the "No Russia clause." Under the proposal, EU exporters would be required to implement a re-export prohibition to Russia across all items listed in the Commission's custom codes. This includes a wide range of daily-use items, extending beyond those of military significance for Russia.

Critics argue that implementing such a complex system would be burdensome for small entrepreneurs in countries like Brazil. They believe the focus should be on regulating critical goods rather than applying sweeping restrictions.

As bne IntelliNews has reported the West is increasingly playing a game of whack-a-mole as companies exports to intermediatory states on Russia’s list of friendly countries soars making it next to impossible to prevent significant leakage to the sanctions regime.EU exports to Central Asia of cars, machinery and technology have jumped by hundreds of percent in the last year, and in some cases by thousands of percentage points.

The latest version of the proposal was supposed to be released in mid-November, but now has now been delayed a month as wrangling continues. As a result of talks an exemption was added to exclude the use of sanctioned goods for personal use from the sanctions package. Some EU countries had started confiscating cars and luggage, even toothpaste, belonging Russians crossing EU borders, which was eventually ruled illegal. Border guards justify these confiscations based on a sanctions list of items that could potentially generate revenue for Russia if resold.

Critics of the proposed measures argue that requiring EU authorization for "any transfer of funds" by a Russian entity or national in Russia out of the EU is overly burdensome without clear transaction thresholds. Many countries are said to have objected to this provision.

An indirect ban on Russian diamond imports is more likely to go through, albeit in a watered down form that phases the ban in slowly. Also changes to how the G7 oil price cap on Russian oil is implemented have not been actively discussed. On controversial proposal was to ask Denmark to block the straits out of the Baltic Sea and check documents of Russian ships to ensure the terms of the oil price sanction cap were being adhered to. Some 70% of Russian seaborne oil exports pass through these straits. However, a naval blockade would be an act of war – and by a Nato member on Russian shipping, so this proposal is unlikely to make it into the final document. The EU is awaiting technical guidance from the G7 on these questions, expected in the coming weeks.

The EU and G7 are working to tighten controls on Russia’s oil exports, but despite initial success, the oil senctiosn are looking like a spent cannon as Russian oil revenues continues to rise due to a growing shadow fleet of tankers, mainly composed of aging Western vessels.

In addition to these measures, the EU is considering adding certain metals products and liquefied petroleum gas (LPG) to its list of banned products in the twelfth sanctions package. While the initial proposal included a three-month wind-down period for these items, the latest version extends the wind-down period to one year.