Global sanctions outlook
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Economic sanctions are becoming increasingly complex worldwide. This article provides an overview of the current global sanctions landscape and key issues companies face in ensuring compliance.
In the past, the United Kingdom, the United States and the European Union all have maintained their own sanctions programs, each according to their own foreign policy aims, in addition to sanctions imposed by the United Nations Security Council. We saw a different approach in 2022, and the speed with which the sanctions response was agreed, developed and implemented showed an unprecedented level of cooperation.
Whether this trend will persist in other sanctions programs is an open question. Each of these sanctions authorities has its own foreign policy interests: that their interests aligned with respect to Russia is what led to the high level of cooperation. Accordingly we would not expect similar cooperation unless foreign policy interests are, again, aligned.
So far, the sanctioning authorities have adopted an incremental approach to prohibitions on business, moving not in lockstep but very consistently and inching towards a more comprehensive embargo on trade with Russia. There is a reluctance to get to that stage, but each new package of sanctions makes that prospect closer. As of February 2023, a coalition of the G7, the European Union and Australia has set a price cap on the price of Russian oil products, for example, in the latest escalation of restrictions. We do note Russia is heavily integrated into the global economy, and so the sanctions rules represent a tricky proposition for all those engaged in cross-border trade.
U.S.-China export controls
Most recently, the diplomatic tensions associated with the balloons flown over North America in early 2023 have heightened trading challenges between the two states. In February, the Biden administration added six Chinese companies to its export blacklist, accusing the entities of being linked to Beijing’s surveillance program. The companies will now be prohibited from gaining access to U.S.-origin goods or goods with U.S.-origin components, cutting them out of trading in American commodities, technology, and software.
Those restrictions came alongside rumors that President Biden was also going to prohibit the export of all U.S. goods to Huawei, the Chinese technology giant. Right now, exports to Huawei already are prohibited without a license, and there is a suggestion that a slowdown in the issuance of those licenses may be a precursor to an outright ban.
Towards the end of last year, it was reported that the U.S. Commerce Department had informed certain U.S. manufacturers of chips and chip-making tools that they could no longer export to China without a license, as the cooling of relations and ratcheting up of trade restrictions gathered pace.
The Biden Administration has also been active in getting the U.S.’ allies to align with its restrictions. Importantly, in January 2023, the Netherlands and Japan agreed with the U.S. to impose controls on the export of certain semiconductors and related products to China. Reportedly, the UK Government is also restricting the export of certain high-tech chips from the UK and the European Commission is looking at overhauling the regulation of export controls at the EU level.
Navigating trade restrictions
For companies engaged in cross-border business that might find themselves exposed to sanctioned entities or falling foul of other export controls, the key action is to conduct increased diligence on partners before entering into trading relationships. While counterparties may not always be willing to cooperate, as much diligence as possible should be done while recognizing there will always likely be some risks and unanswered questions. Contractual undertakings and remedies also should be considered for additional protection.
To this point, it is worth noting that there are anti-sanctions laws on the books in China. While still relatively new, and therefore not widely understood, some Chinese counterparties may therefore be reluctant to provide as much information on sanctions compliance as others might like.
In addition to diligence, businesses should look to build flexibility and termination rights into contracts, to make withdrawal without penalties possible should the legal position change. Again, it may not always be realistic to insert such provisions, but no company wants to find itself having to choose between violating UK, EU or U.S. law, losing a customer altogether or defending a lawsuit for breach of contract. Companies that can demonstrate the extent of their efforts to conduct due diligence and establish good contractual provisions will be best placed should they ever come before investigating agencies.
What the developments of the past 12 months illustrate is not only the souring of U.S.-China relations but also the increasing collaboration between global allies in relation to foreign trade. Sanctions may not have historically been a big focus for Taiwanese corporates conducting business worldwide, but they now look set to be a growing feature of the geopolitical toolkit and ensuring robust compliance policies are in place should be a number one priority.