31.03.2022

On 25 March, BusinessEurope sent a communication to the European Commission's Directorates-General - DG Trade, DG Growth, DG Taxation - on the application of sanctions, the main challenges and their impact on companies.

Main challenges companies are facing 

a)     We appreciate that some guidance on the sanctions and restrictive measures is starting to be available from DG Taxud, DG Trade and DG FISMA. We are trying to support the work by collecting questions from our members, filtering them and passing them to the Commission especially to DG FISMA that covers most of the issues raised. Our companies want to ensure full compliance with the measures and this remains the key priority for everyone. So guidance remains the most pressing issue. Many companies are reporting that the longer it takes to get the answers the more the damages accumulate and reach substantive values in orders of millions of Euros in many cases. We are organising a meeting with DG FISMA and our members the 29 March and we hope this can really help to get more answers to the many questions that exist impacting different sectors from automotive and spirits to energy. I want to underline what I referred in the previous e-mail the 4th package of sanctions has been particularly problematic and remains the most challenging so far in terms of impact and doubts in implementation. Moreover it is also extremely urgent to have consolidated legal texts. The piecemeal approach with different packages of sanctions and different legal texts is creating an headache to companies even the ones with robust legal departments. 

b)     The situation in Russia remains quite complex. We have an increasing number of European companies leaving but this means the legal and financial issues are also increasing. As mentioned already before most companies keep paying Russian employees and sometimes it is not so easy to ensure this is done in a way that protects the employees. Legal advise is challenging as our companies come from unfriendly countries and many fear retaliation if they support us. Regarding additional measures taken by Russia, apart from the announcement that payments for the supplies of gas would be done in roubles from now on, the 23 March the State Duma created a commission to investigate cases of foreign interference in Russia's affairs. The commission's tasks include "studying and analyzing the facts and circumstances of foreign states' interference in Russia's internal affairs" and "preparing proposals for legislative measures to counter foreign interference". We will be keeping an eye on the possible outputs of this exercise. We also understand that the legislation on “external administration of foreign controlled businesses” that could potentially lead to the nationalization of European companies’ assets is still at the drafting stage. However we are aware that local authorities are making enquiries and trying to obtain the maximum information regarding foreign companies operating in Russia. 

c)     Concerning Ukraine our members draw our attention to a draft law in the Verkhovna Rada (in annex translation in English), which seeks to expand existing legislation on the seizure of assets of legal entities owned by the Russian Federation and of individuals who are the citizens of the Russian Federation, to also allow the Ukrainian Government to seize assets from non-Russian entities that have operations in Russia. This could potentially impact European companies that are present both in Ukraine and Russia. 

Main impact of the measures so far

The major disruptions/impact remain similar in terms of scope but they are growing in terms of importance as time goes by. 

  • strong increase in energy prices remains among the top concerns as it covers a number of industrial sectors but also logistics and transport.
  • problems to access and the increasing cost of raw materials is also a prevailing issue affecting an increasing number of sectors. This week we are bringing a concrete example raised by our Polish member regarding their ceramic sector that depends on particular clay that comes from certain regions in Ukraine- see in annex. We are also hearing from many sectors that for some raw materials prices have increased to almost 300%. In this context we welcome the steps taken by the Commission to avoid that Member States start adopting export restrictions that would make the situation even worse.  
  • problems in complying with existing contracts related to lack of access to credit insurance and difficulties in payments. The payment difficulties in particular has been raised this week as a key concern for many companies especially SMEs that could be confronted with cash problems soon. Some companies had a strong exposure to the Russian market and if they cannot get paid they could be an extremely difficult situation in the short term.
  • difficulties in customs- this remains a problem signalled by many especially in what concerns the implementation of the 4th package of sanctions and what constitutes a luxury good. There are still delays and some customs ‘authorities are simply not processing any goods destined to Russia or coming from Russia which also creates problems from an internal market point of view.
  • problems in identifying ownership of some companies, to avoid doing business with individuals that are sanctioned. This remains one of the most challenging points as necessary due diligence procedures to ensure compliance are not easy especially for smaller companies.
  • problems in transport and logistics. We have a growing number of shipping companies stopping deliveries to and from Russia and not many alternatives which is pushing prices further up. Overall we are also starting to assess the impact in transport to and from Asia that was already disrupted by COVID19 and the very strict policies of some countries especially China. The lack of truck drivers that was already mentioned before is becoming an increasing problem also for transport operations within Europe.

Date: 31.03.2022

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