The EU’s new requirement for a “No Russia Clause” in supplier contracts with third countries enters into force on 20 March 2024

Article 12 g of the Regulation includes an obligation for EU companies exporting certain goods and technologies to countries outside the EU to include a so-called “No Russia Clause” in contracts with their counterparties, in other words a provision that prohibits re-export to Russia and provides for effective sanctions in the event that the purchaser violates the prohibition (“re-export clause”). The new obligation applies from 20 March 2024 and aims to further strengthen the impact of EU sanctions against Russia and reduce the ability to circumvent them.

Which products are included?

The obligation to introduce a re-export clause applies to commercial agreements including sale, supply, transfer or export to countries outside the EU of products/technologies suitable for use in aerospace as well as products such as aviation fuel, fuel additives, weapons and ammunition, which are already subject to EU sanctions as well as a list of products, annex XL, that were not previously subject to sanctions. Annex XL is aimed at certain so-called “high priority” products, including electronic components such as integrated circuits and devices for receipt, conversion and transmission or regeneration of speech, images or other data, including devices for connection and routing as well as products necessary for the manufacture of the electronic components. The full list of the products included is set out in annexes XI, XX, XXXV and XL to the Regulation and in annex 1 to Regulation (EU) 258/2012.

Does the requirement for the re-export clause apply to exports to all countries outside the EU?

As a general rule, yes. However, exports to a so-called “partner country” outside the EU, i.e. the USA, Japan, the United Kingdom, South Korea, Australia, Canada, New Zealand, Norway or Switzerland, are excluded.

What does the obligation include?

• Exporters of goods subject to sanctions to third countries with the exception of so-called “partner countries” are required to contractually prohibit re-export to Russia and re-export for use in Russia.
  
  

• The exporter must also ensure that the agreement with the counterparty from the third country contains appropriate legal remedies that will take effect in the event that the counterparty is in breach of the re-export ban, for example penalties and the right to terminate the contract.
  
  

• The exporter is also required to notify the relevant authority in the Member State as soon as it becomes aware of a breach of the re-export ban. As of today’s date (14 March 2024), the Swedish Government has not yet announced which authority will be responsible for receiving such notifications. Until the Government has delegated the task, notifications pursuant to Article 12g must be addressed to the Swedish Government.
  
  

• Breach of the sanction rules may result in fines and imprisonment for Board members or the CEO.

Entry into force and impact on existing agreements

Article 12g enters into force on 20 March 2024, which means that all contracts must include a re-export clause from that date. However, a grace period up to 19 December 2024 is granted for contracts entered into before 19 December 2023, during which period they do not need to include a re-export clause (but if their term extends beyond that, a clause needs to be introduced after that date).

Recommendations

It is recommended that EU companies affected by these rules review and update their contract templates according to the requirements. It is also important to review existing agreements to ensure that they are in line with Article 12g. On 22 February, the European Commission published a FAQ with some clarifications on how the requirements under article 12g must be applied, including a draft standard clause for the re-export ban.

You are welcome to contact Mårten Lindberg if you would like to discuss how Lindahl can assist with the introduction of re-export clauses.