Yermak-McFaul Group proposes complete embargo on metal products from Russia, EU ban on import of Russian diamonds – Interfax-Ukraine

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Yermak-McFaul Group proposes complete embargo on metal products from Russia, EU ban on import of Russian diamonds

The Yermak-McFaul International Sanctions Group proposes to introduce a complete embargo on all Russian ferrous metallurgy products without exception, but with long transition periods, as well as a ban on production of metal products in third countries from steel of Russian origin among all participants in the sanctions coalition.

“Countries should also close important loopholes in the current regime by extending full sanctions on metals companies that supply raw materials to the Russian military for armaments and fund the war through significant tax payments,” according to the Action Plan 2.0 “Strengthening Sanctions against the Russian Federation” dated April 24, published on the group’s website.

Such companies are Alrosa, Evraz, Mechel, Metalloinvest, MMK, Norilsk Nickel, NLMK, Polymetal, Polyus, Rusal, Severstal, TMK, Uralsteel, and VSMPO-Avisma.

The Group clarified that as transitional periods when introducing a complete ban on the import of Russian steel products, the example of a quota for importing slabs to the EU of 3.7 million tonnes per year until 2024 can be used, and recalled that a ban on production of steel products from Russian steel in the EU would be in force since September 30, 2023.

However, the EU sanctions did not include restrictions on trade in goods under CN codes 7201 – 7205 (including code 7202 – ferroalloys), as well as iron ore (code 2601). Moreover, Russian steel and iron products have not been sanctioned by some members of the coalition, though they were partially banned by the EU and UK.

It is indicated that such an expansion of sanctions will not only significantly affect Russia’s export earnings, but may also enable Ukrainian metallurgical products to become an alternative to imports from the Russian Federation for the EU and other markets. In particular, as noted with reference to data from Metinvest, Ukraine can partially replace the supply of cast iron, iron ore and billets if logistical problems are resolved.

The group also proposes to tighten sanctions on Russian diamond imports, noting that Belgium is the world’s largest buyer of Russian diamonds, for example, having imported 41% of all Russian diamonds worth $2.1 billion in 2021. “Although Belgium cut its imports by 22% in 2022, they remain significant,” the materials state.

Over the past year, the United States, Canada, the United Kingdom, New Zealand, and the Bahamas have sanctioned Alrosa, the main Russian producer of diamonds.4 Smaller Russian producers like Grib Diamonds were sanctioned because of sanctions on its owner, VTB Bank.

“Yet the EU did not impose sanctions on diamonds, nor on Alrosa. In addition, there is still a ‘country of origin’ loophole, because the importation of Russian diamonds that have undergone ‘substantial transformation’ by being cut and polished in other countries is still permitted. This major generator of revenues to finance Russia’s war in Ukraine must be reduced,” the group said.

According to the group, the EU should include Alrosa and Grib Diamonds on its list of sanctioned entities and impose individual sanctions on Alrosa’s top management. In addition, the EU should impose an import ban on all Russian diamonds (HS code 7102), plus sanction trade in Russian diamonds that are processed in third countries.

“The sanctions coalition should agree to a system for tracking the origin of rough diamonds and enhancing supply-chain traceability, as suggested by the Belgium government,” the Yermak-McFaul said.

According to it, the sanctions on Russian gold were well coordinated and comprehensive, therefore, they led to the visible consequences of reducing the volume of gold exports for the members of the coalition, however, in order to further increase the impact of these sanctions, it is necessary to extend the embargo on gold to jewelry of Russian origin by all members of the coalition.

In addition, the group proposes to impose a ban on the import of gold from countries with a high risk of resale of Russian gold, indicating in the first wave the UAE, China, India and Turkey, unless its absence is proven, as well as full blocking sanctions against ten leading Russian gold miners and manufacturers.

The Yermak-McFaul group also recommends that other countries of the sanctions coalition follow the EU in the most complete version of a ban on the export of services to the Russian Federation, especially in terms of legal, IT services, architectural and engineering.

Plan 2.0 also notes that different countries have imposed different sanctions on complementary goods, thereby creating loopholes.