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Sanctions on third country processed imports containing iron and steel originating in Russia

Guidance on third country processed iron and steel measures


On 30 September 2023, legislation entered into force prohibiting the use of Russian steel inputs within third-country or multiple-third-country processing. This further addressed the ban on third country processed iron and steel set out in Regulation Regulation 46IA and 46IB, which can be found in Chapter 4CA of Part 5 of the 2023 Regulations.


The reason for the prohibition is that third country processing can be a means of concealing Russian origin of iron and steel products, and the measure is targeted at reducing circumvention of sanctions on Russian iron and steel. As an example, steel industry professionals may be aware that certain producers in the European Union may have purchased and stockpiled significant quantities of Russian billets prior to the invasion of Ukraine which have been subsequently processed into steel bars for concrete reinforcement (rebar). It is no longer possible to import products that have been processed accordingly into the market of the United Kingdom.


The exception to this rule is that there is the ability to apply to the Department for Business and Trade for a licence to continue to import products which have been processed using Russian steel after 30th September 2023, providing that the activities are consistent with the sanctions set out in Russia sanctions: guidance and this may include the import of iron and steel that left Russia before 21 April 2023


Alinea Customs' legal consultancy team can advise on implementing assurances into supply chain agreements to ensure that the processing obligations are complied with. Other areas that we can assist with include reviewing Mill Test Certificate (MTC) to determine within appropriate information has been provided, as there is no standardised format within the MTC model, and preparation of supplier’s declarations. We also recommend for companies to review and internally audit their supply chain to ensure appropriate compliance prior to importing steel products into the market of the United Kingdom. A failure to comply with the legislation could result in forfeiture of the goods through seizure by Border Force, in addition to a fine and potentially criminal charges.


For traders that discover that they are in breach of any of the trade prohibitions or licensing prohibitions, the irregularity should be reported to HMRC through a ‘voluntary disclosure’ at the earliest opportunity. Guidance is available on how to make a voluntary disclosure.

HM Revenue and Customs (HMRC) is responsible for enforcing the licensing restrictions and investigating suspected offences.


For goods and associated services, if you discover that you have breached any of the trade prohibitions or licensing provisions, you should report the irregularity to HMRC (sometimes known as ‘voluntary disclosure’) as soon as possible. If the irregularity was found on an Export Control Joint Unit compliance audit, the compliance inspector will have informed HMRC and you are strongly advised to do the same. Guidance is available on how to make a voluntary disclosure.


For accounting, advertising, architectural, auditing, business and management consulting, engineering, IT consultancy and design, and public relations services, if you discover that you have breached any of the trade prohibitions or licensing provisions, you should voluntarily disclose the irregularity by reporting it to DBT.


Evidence and proof of origin of iron and steel input


Traders should be prepared to have documentation available to demonstrate evidence of a good’s supply chain, which must be consistent with the prohibitions under the regulations. An example of evidence may include, but is not limited to, a Mill Test Certificate (MTC), or Mill Test Certificates (MTCs) where the relevant information cannot be summarised in a single document.


There is no concrete standardised format for the MTC and It is the importer’s responsibility to maintain appropriate information and to submit these to the customs authorities upon request.


Evidence requested to be provided through documentation could include:


· the country of origin of the iron and steel products processed in the third country (or third countries) after the fact

· the date that the iron and steel product left its country of origin

· the country(s) and facility(s) where processing has taken place


The following documents may be considered as sufficient evidence of the country of origin of the iron or steel used as inputs:


a) In the case of semifinished products:


The mill test certificate (MTC) - establishing the name of the facility where the production is taking place, the name of the country corresponding to the heat number (country of the ladle of melting) together with the classification at subheading level (six-digit code) of the product.


b) In the case of finished products


The mill test certificate (MTC) or mill test certificates (MTCs) – if all relevant information cannot be summarized in one single MTC or the MTC accompanied with other documents: - establishing the name of the country and the name of the facility corresponding to the heat number (country of the ladle of melting) together with the classification at subheading level (six-digit code), and - the name of the country and the name of the facility where the following processing operations are carried out, as relevant:


• Hot-rolling

• Cold-rolling

• Hot-dipped metallic coating

• Electrolytic metal coating

• Organic coating

• Welding

• Piercing/extruding

• Drawing/Pilgering

• ERW/SAW/HFI/Laser welding


Supplier’s Declarations


It may also be advisable to extend the scope of the request to include a supplier’s declaration identifying non-originating materials.


This could potentially include but not be limited to the following data fields:

Description of the goods supplied

Description of non-originating materials used

Country of origin of inputs

HS heading of non-originating materials used

Value of non-originating materials used

​……………….

……………….

……………….

……………….

……………….


Customs Obligations


Customs agents are required to submit appropriate information requests to importers to confirm that the goods are exempt from the prohibitions, or have secured the appropriate licence to confirm entry into the market of the United Kingdom. The use of the codes constitutes a legal declaration that the customs agent has seen the appropriate documentation to confirm sufficient eligibility and that it can be submitted to HMRC upon request.




Explanation of Regulations


For the purpose of this sanction, a relevant ‘iron and steel product’ is defined as anything specified in Schedule 3B of the Russia Sanctions Regulations. The HS codes for the relevant products are also set out at the end of this guidance.


The regulations prohibit the import into the UK of an iron and steel product, when it meets all the following criteria:


· is listed in Schedule 3B of the Russia Sanctions Regulations

· has been “altered, transformed in any way; or subjected to any type of operation or process” in a third country (see Regulation 46IA)

· incorporates one or more Schedule 3B iron and steel product/products of Russian origin

The following scenarios provide examples of how these rules may be applied in practice (where Country X and Country Y are countries that are not the UK, the Isle of Man, or Russia):


Scenario 1


A product of Russian origin that is a good listed in Schedule 3B when it leaves Russia is then processed in a third country into another good listed in Schedule 3B. Importing this product into the UK is prohibited.


For example, steel slabs (HS 7207) of Russian origin are exported from Russia and enter Country X. Here, they are transformed into hot rolled coils of alloy steel (HS 7225 - 7226) and are of Country X’s origin before being imported into the UK.

The import in this example would be prohibited.


Scenario 2


A product of Russian origin that is a good listed in Schedule 3B when it leaves Russia then undergoes multiple stages of processing in one or more third countries, such that it loses its Russian origin before it is incorporated in the final transformation step, but remains a Schedule 3B good. Importing the final Schedule 3B product into the UK is prohibited because it contains a Schedule 3B good that has been of Russian origin at some point during its lifespan.


For example, steel billets (HS 7207) of Russian origin are exported from Russia and enter Country X. Here, they are transformed into steel rods (HS 7215), such that they are now of Country X origin. These enter Country Y, where they undergo processing into steel wire (HS 7223), before being imported into the UK.

The import in this example would be prohibited.


Scenario 3


A product of Russian origin that is not a good listed in Schedule 3B when it leaves Russia is then processed in a third country, such that it becomes a good listed in Schedule 3B. Importing this to the UK is not prohibited under the Russia Regulations, because the product now entering the UK has incorporated non-Schedule 3B items.

For example, some pig iron (HS 7201) leaves Russia and enters Country X. Here, it is transformed into slabs (HS 7207), before being imported into the UK.

The import in this example would not be prohibited under the Russia Regulations.


Scenario 4


A product of Russian origin that is a good listed in Schedule 3B when it leaves Russia is then processed in a third country into an entirely different product (a good not listed in Schedule 3B). Importing this into the UK is not prohibited under the Russia Regulations.

For example, coils of stainless steel (HS 7219 – 7220) of Russian origin are exported from Russia and enter country X. Here, they are used to manufacture a car (HS 8703), which is now considered to be of country X origin and is imported into the UK.

The import in this example would not be prohibited under the Russia Regulations.


Licensing Provisions


Traders seeking to import banned iron and steel processed in the third country into the UK after the 30 September 2023 can apply for a licence. The Secretary of State for Business and Trade is ultimately responsible for decisions to grant or refuse a trade sanctions licence in any individual case. There are some specific activities that DBT considers are likely to be consistent with the aims of the sanctions, and thus may be eligible for a licence. These are set out in the statutory guidance on Russia sanctions and may include the import of iron and steel that left Russia before 21 April 2023.





HMRC Inspection


Traders may be requested to present evidence of a good’s supply chain at the border. In some cases, customs may require further information relating to the goods to be produced. This could include, but is not limited to any invoice, bill of lading or other book or document whatsoever relating to the goods.

HMRC are also responsible for enforcing the licensing requirements and investigating suspected offences.


The Department for Business & Trade advise all parts of the supply chain for third country processed iron and steel imports to the UK to undertake the necessary due diligence to ensure that sanctions are not being circumvented directly or indirectly. Not complying with the sanctions could constitute one of a number of criminal offences. See the statutory guidance on Russia sanctions for more information on penalties.

Importers are also advised to include assurances that imports are not of Russian origin in contractual agreements.


Trade sanctions


Any breach of the trade sanctions prohibitions in the Regulations is triable either way and carries a maximum sentence on indictment of 10 years’ imprisonment or a fine (or both). Any breach of the trade licensing provisions is also triable either way and carries a maximum sentence on indictment of 2 years’ imprisonment or a fine (or both).

HM Revenue and Customs (HMRC) is responsible for enforcing the licensing restrictions and investigating suspected offences.


For goods and associated services, if you discover that you have breached any of the trade prohibitions or licensing provisions, you should report the irregularity to HMRC (sometimes known as ‘voluntary disclosure’) as soon as possible. If the irregularity was found on an Export Control Joint Unit compliance audit, the compliance inspector will have informed HMRC and you are strongly advised to do the same. Guidance is available on how to make a voluntary disclosure.


For accounting, advertising, architectural, auditing, business and management consulting, engineering, IT consultancy and design, and public relations services, if you discover that you have breached any of the trade prohibitions or licensing provisions, you should voluntarily disclose the irregularity by reporting it to DBT.

Ofcom is responsible for monitoring compliance with trade sanctions in relation to internet services, and for assessing suspected breaches. It has the power to impose monetary penalties for breaches of these sanctions.


Where appropriate and where permitted by law, Ofcom may share relevant information with parts of government, supervisory bodies and regulators.

By exception within trade sanctions, OFSI enforces civil penalties relating to the supply or delivery by ship of oil and oil products under the commodity codes 2709 and 2710 from Russia to and between third countries and services associated with that supply or delivery (such as financial services and brokering). OFSI can be contacted by emailing oilpricecap.ofsi@hmtreasury.gov.uk. Full guidance on the Russian Oil Services ban can be found on the OFSI website.


Further information


Russian Import Sanctions: Notice to Importers


The European Union


The European Union have enforced similars sanctions on inputs from Russia. A list of the restrictive measures is available from: https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:02014R0833-20231001


On 2nd October 2023, the European Commission published a paper highlighting frequently asked questions concerning EU sanctions on Russian steel: https://finance.ec.europa.eu/system/files/2023-10/faqs-sanctions-russia-listed-goods_en.pdf


If the sanctions on imports from third countries containing processed inputs originating in Russia has an impact on your business that you would like to discuss with Alinea’s consultancy team, please call Alinea Customs on +44 (0) 207 101 4242 or email: customs@alineacustoms.com to schedule an appointment.


© Materials in this article have been copied from the Department for Business & Trade

Contains public sector information licensed under the Open Government Licence v3.0.

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