By Chris Devonshire-Ellis
Unsanctioned Russian companies are rushing to their US and European suppliers to demand HS code changes after ‘secondary use’ issues with sanctions prohibit their export to Russia.
“Secondary use” penalties apply when a particular product is deemed to have potential military applications. This has trapped many products for ordinary household and commercial use whose HS codes – a description of a particular product and its uses, typically used by customs around the world to determine dutiable value – are too broad in nature. .
This has resulted in a ban on the import of chemicals used in the dry cleaning process for example, or the types of electrical generators used in factories in Russia, even if the products have no military capability. Russian importers are requesting changes to HS codes to specify exact commercial use to steer products away from military applications.
Changing HS codes requires an official request to the world customs organization based in Brussels. These are prepared by the local customs administrations of the country of origin of the product and/or manufacture.
There are downsides, as the WCO only reviews HS codes every five years, with the last change being January 1, 2022. The WCO reviews HS numbers to ensure they reflect changes and technology updates and provide visibility into new product feeds and emerging global issues. It remains unclear whether the WCO is able to speed up the changes, as it is evident that the rapid imposition of globally applicable sanctions on Russia has rendered the new 2022 list somewhat obsolete for many products. In any event, the United States would almost certainly interfere with any such change.
Russian importers facing HS code limitations regarding unauthorized use of products should discuss the matter with their suppliers who, in turn, may wish to discuss the matter with the relevant local customs administration and legal departments in their breast to determine if room for maneuver is possible. The issue will also be important for suppliers who will be reluctant to lose Russian exports and revenue.
Briefing Russia is written by Dezan Shira & Associates. The company has 28 offices across Eurasia, including China, Russia, India and ASEAN countries, assisting foreign investors in the Eurasian region. Please contact Maria Kotova at [email protected] for Russian investment advice or assistance with market information, legal, tax and compliance issues throughout Asia.