We are conducting a short, anonymous survey to find out your thoughts on sustainable fuel sources in the transportation industry, including your understanding of the various options, potential challenges, and expected timings for full conversion to sustainable fuel sources. Please take 5 minutes to complete the survey.

We know this topic is top of mind for many of our trade clients, particularly with the increasing focus on decarbonization in supply chains and the EU’s Carbon Border Adjustment Mechanism (CBAM).

We look forward to sharing the results of this survey in a report in the next few months.

After many rumors of potential changes to the U.S. policy on Venezuela, on October 18, 2023 the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued four general licenses, representing a significant shift in its Venezuela sanctions program.  Most pertinent for the shipping industry, certain sanctions that were in place against Petróleos de Venezuela, S.A. (PdVSA) and the Venezuela oil, gas and mining sectors have now largely been relaxed.

Continue Reading Shipping briefing: Drill, baby, drill? A new Venezuelan wave for the shipping industry

After Venezuela’s government and its political opposition agreed on electoral guarantees for 2024 presidential elections, the Office of Foreign Assets Control (OFAC) issued four general licenses suspending select sanctions:

  • General License 44 temporarily authorizes all transactions related to Venezuelan oil and gas sector operations, including producing, lifting, selling, and exporting oil or gas from Venezuela and new investment in oil or gas sector operations. The authorization includes transactions involving Petróleos de Venezuela, S.A. (PdVSA) or any entity in which PdVSA directly or indirectly owns a 50% or greater interest.

    The license expires on April 18, 2024. OFAC will only renew the license if Maduro’s government follows through with its commitments and continues taking measurable steps toward democratic elections in 2024.
  • General License 43 authorizes transactions involving CVG Compania General de Mineria de Venezuela CA (known as Minerven), the state-owned gold mining company.
  • General License 3I and General License 9H remove the secondary market trading bans on buying certain Venezuelan sovereign bonds, as well as pre-2017 PdVSA bonds or equity.
Continue Reading Overview: U.S. eases Venezuela-related sanctions after election deal

At the forefront of addressing the global challenge of climate change is the effort to reduce carbon.

In their latest podcast, Pittsburgh’s energy transactional partner, Ryan Haddad and Brussels’ international trade and customs partner, Yves Melin explore how Carbon capture, utilization, and sequestration (CCUS) and the Carbon Border Adjustment Mechanism (CBAM) could interact in the U.S. and EU. Their discussion includes:

  • Economic incentives linked to carbon capture in the U.S.
  • Conditions imposed by the CBAM on U.S. exporters of goods to the EU
  • How the CBAM incentivizes the decarbonization of industrial processes beyond the EU

The full podcast is available for listening on reedsmith.com.

The recent English Court of Appeal judgment on Mints & others v PJSC National Bank Trust & PJSC Bank Otkritie Financial Corporation [2023] EWCA Civ 1132 (“Mints”) on 6 October 2023 discussed several fundamental issues pertaining to concepts under the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) and the secondary sanctions regulations thereunder, in particular the Russia (Sanctions) (EU Exit) Regulations 2019 (the “Regulations”). The judgment can be found here.

Continue Reading UK Sanctions – What is “Control”?

October 12, 2023, witnessed perhaps one of the most fast-paced days since the introduction of the price cap restrictions on Russian crude oil and petroleum products almost a year ago. Namely, the G7 and Australia (the “Price Cap Coalition”) issued a joint statement, which was followed by the issuance of a maritime advisory and the first sanctions imposed by the Office of Foreign Assets Control (“OFAC”) for breach of the Russian oil price cap. As we are nearing the one-year anniversary of the price cap, this should serve as an important reminder to operators across the industry that enforcement will be coming.

Continue Reading A little less conversation, more action

As a follow-on to last week’s quint-seal guidance, the Bureau of Industry and Security (BIS) published best practice guidance to help prevent high-priority items from being diverted to Russia. The latest guidance focuses on exports of the following high-priority items to counterparties in countries outside the Global Export Controls Coalition (GECC):[1]

HS CodeHS Description and Representative Part
8542.31Electronic integrated circuits: Processors and controllers, whether or not combined with memories, convertors, logic circuits, amplifiers, clock and timing circuits, or other circuits
8542.32Electronic integrated circuits: Memories
8542.33Electronic integrated circuits: Amplifiers
8542.39Electronic integrated circuits: Other
8517.62Machines for the reception, conversion and transmission or regeneration of voice, images, or other data, including switching and routing apparatus
8526.91Radar apparatus, radio navigational aid apparatus and radio remote control apparatus: Radio navigational aid apparatus
8532.21Other fixed capacitors: Tantalum capacitors
8532.24Other fixed capacitors: Ceramic dielectric, multilayer
8548.00Electrical parts of machinery or apparatus, not specified or included elsewhere in chapter 85

BIS recommends that exporters ask counterparties for a signed export control certification that includes the following information:

  • Customer’s full name, address, website, and role (e.g., purchasers, intermediate consignee, ultimate consignee, end user).
  • Activity the customer intends to take with the item (e.g., consumed, transformed into a different item, maintained for stock, resold, etc.).
  • Name and address of the known end user (if not the customer).
  • List of items covered by the transaction.
  • Customer confirmation that the item requires a license to export or reexport to Russia or Belarus.
  • Confirmation the customer will comply with the Export Administration Regulations (EAR).
  • Confirmation the customer will flow the EAR requirements down to its customers and other parties in subsequent transactions, including:
    • Screening subsequent parties against the Consolidated Screening List before any reexport or transfer (in-country) and comply with any restrictions on the parties;
    • Not providing the item for end use by or to end users of Russia’s or Belarus’s military, intelligence, or national police;
    • Not providing the item for end use by or end users tied to nuclear weapons, chemical and biological weapons, or missiles or unmanned aerial vehicles capable of a range of at least 300 kilometers (or when such range is unknown); and
    • Not providing the item for ultimate end use in Russia or Belarus or the temporarily occupied Crimea region of Ukraine or the so-called DNR or LNR regions of Ukraine.
  • The name, title, phone number, email address, and signature of the customer’s representative making the certification.

The guidance includes a sample written certification, which can be for the exporter’s industry. Exporters can also incorporate these items into their existing customer certifications or end-user statements. Exporters should review the information provided by the customer for errors, omissions, or “red flags.”


[1] The GECC countries are 27 EU member states, Australia, Canada, Iceland, Japan, Liechtenstein, New Zealand, Norway, South Korea, Switzerland, Taiwan, the United Kingdom, and the United States.

On Saturday (September 30, 2023), new UK and EU trade sanctions tightening the restrictions on the import of Russian-origin iron and steel products will come into effect.

While certain measures are already in place in relation to a number of listed iron and steel products (Listed Iron and Steel Products) that are of Russian origin, the new measures prohibit the import (UK and EU) or purchase (EU only) of Listed Iron and Steel Products that are processed in third countries and incorporate Listed Iron and Steel Products that are of Russian origin, in order to reduce sanctions circumvention.

The UK’s Guidance on third country processed iron and steel measures (UK Guidance) explains that the new UK sanctions prohibit an import of such Listed Iron and Steel Products into the UK if it meets all of the following criteria, being that the product:

  1. is listed in Schedule 3B of the Russia (Sanctions) (EU Exit) Regulations 2019;
  2. has been “altered, transformed in any way; or subjected to any type of operation or process” in a third country (i.e., a country that is not the United Kingdom, the Isle of Man or Russia); and
  3. incorporates one or more Schedule 3B iron and steel products of Russian origin.

Importantly, given the new measures were first announced in April 2023, there are no exceptions or transitional periods for any goods caught by them.

Helpfully, the UK Guidance also contains scenarios which provide examples of how the rules may be applied in practice and sets out the tariff codes for the relevant iron and steel products caught by the new measures.

According to the UK Guidance, traders can apply for a license if they want to import banned iron and steel processed in a third country into the UK after September 30, 2023 and can refer to statutory guidance on Russia sanctions for information on license applications and penalties for sanctions violations.

In the UK Guidance, the government advises all parts of the supply chain for third country processed iron and steel imports to the UK to undertake necessary due diligence to ensure sanctions compliance and importers to include assurances regarding import origin in contractual agreements. Traders are also advised to be prepared to have documentation available to demonstrate a good’s supply chain history.

It is therefore recommended that companies potentially caught by the new measures consult the UK Guidance carefully and seek legal advice if necessary.

The EU is imposing a phased introduction of the new measures, with the restrictions being implemented in three phases – from September 30, 2023, April 1, 2024 and October 1, 2024 – depending on the specific tariff code of the imported iron and steel products.

The European Commission has issued guidance (in the form of FAQs) on documents that may be considered as sufficient evidence of the origin of the inputs. However, since the customs authorities of EU member states may require additional evidence in the event of reasonable doubt, there is discussion in the EU about the uncertainty as to how each member state is going to apply these restrictions.

On Tuesday, the U.S., UK, Australia, Canada, and New Zealand—known as the “Export Enforcement Five” or “E5”—issued joint guidance to industry and academia on how best to identify Russian export control evasion tactics. The E5 coordinates with other members of the Global Export Control Coalition (GECC) on export controls specific to Russia. In addition to the E5, the GECC countries are the 27 EU member states, Iceland, Japan, Liechtenstein, Norway, South Korea, Switzerland, and Taiwan.

The joint guidance identifies 45 six-digit Harmonized System (HS) codes containing items Russia needs for its weapons systems. When exporting goods listed in one of these HS codes, exporters are encouraged to conduct additional due diligence to ensure the end user is not attempting to evade export controls or sanctions. The HS codes are divided into four tiers based on priority:

  • Tier 1: Integrated circuits (also referred to as microelectronics)
  • Tier 2: Electronics items related to wireless communication, satellite-based radio navigation, and passive electronic components
  • Tier 3: This tier is divided into electronic and non-electronic items to provide greater clarity to the different industries that may work with these items
  • Tier 4: Manufacturing, production and quality testing equipment of electric components and circuits

As part of a company’s risk-based customer and transactional due diligence, the joint guidance outlines the following potential “red flags” that may indicate attempted export control or sanctions evasion:

  • Transactions related to payments for dual-use or defense items from a company incorporated after February 24, 2022 and located in a non-GECC country;
  • A new customer trading in Tier 1 or Tier 2 products, based in a non-GECC country, and incorporated after February 24, 2022;
  • An existing customer who only started receiving exports of Tier 1 or Tier 2 products after February 24, 2022 and is now exporting or reexporting the goods to known transshipment points;
  • An existing customer located outside the E5 who requests or receives a significant increase in Tier 1 or Tier 2 products after February 24, 2022;
  • A customer who cannot or will not provide details on banks, shippers, or third parties (e.g., end-users); intended end-use; or corporate ownership;
  • Transactions involving smaller-volume payments from the same end-user’s foreign bank account to multiple suppliers of dual-use products;
  • Parties listed as the ultimate consignee or in the “consign to” field who do not typically engage in business involving the goods being shipped (e.g., other financial institutions, mail centers, logistics companies);
  • A customer paying significantly more than the known market price for a good; or
  • A customer or address similar to one of the parties sanctioned by one or more of the E5.

This joint guidance builds on the Tri-Seal Compliance Note released by the U.S. Commerce, Treasury, and Justice Departments earlier this year.

With less than two weeks until the start of the Carbon Border Adjustment Mechanism (CBAM) transitional period (1 October 2023 – 31 December 2025), the European Commission published the CBAM Implementing Regulation on the reporting obligations in the Official Journal of the European Union on 15 September 2023. During the transitional period, declarants are required to submit quarterly CBAM reports to the CBAM Transitional Registry no later than one month after the end of the relevant quarter. Below, we explain the key elements of the CBAM Implementing Regulation.

Background

The CBAM Regulation entered into force on 17 May 2023. During the transitional period (1 October 2023 – 31 December 2025), declarants must submit quarterly CBAM reports that include: (i) the total quantity of imported goods; (ii) the direct and indirect emissions embedded in the imported goods; and (iii) any carbon price effectively paid in the country of origin for the embedded emissions.

On 13 June 2023, the European Commission communicated a draft Implementing Regulation on reporting obligations and conducted a public consultation until 11 July 2023. After reviewing comments from interested parties, on 17 August 2023, the Commission published the final text of the Implementing Regulation, two CBAM guidance documents, and an Excel template for reporting embedded emissions. On 15 September 2023, the Implementing Regulation was officially published in the Official Journal of the European Union.

Key elements of the Implementing Regulation

General comments: Compared to the draft Implementing Regulation, there are no major changes in the final text. However, with respect to the calculation of embedded emissions, the Commission deleted references to the “weighted average across all used production routes”. This means that operators can calculate actual embedded emissions by separating production processes without the weighted average of the embedded emissions.

Quarterly reports: Declarants placing CBAM goods on the European Union (EU) market must submit quarterly CBAM reports. Those reports must be submitted by a reporting declarant, who could be one of the following persons: (i) the importer lodging the customs declaration to release CBAM goods for free circulation; (ii) the person with authorisation to lodge a customs declaration who declares the import of CBAM goods; or (iii) the indirect customs representative.

Reporting elements: The CBAM report must include the following information:

  • Imported goods: (i) the total quantity of imported goods; and (ii) the type of goods, as identified by the EU Combined Nomenclature code.
  • Embedded emissions: (i) the country of origin of the imported goods; (ii) the installation where they were produced; (iii) the production route used and information on specific parameters qualifying the indicated production route chosen; (iv) for steel goods, the identification number of the specific steel mill; and (v) the amount of specific direct emissions of the goods (see Annex III).
  • Indirect emissions: (i) electricity consumption; (ii) confirmation of whether the declarant is reporting actual emissions or default values; (iii) the corresponding emissions factor; and (iv) the amount of specific indirect emissions (see Annex IV).
  • Carbon price paid in the country of origin for the embedded emissions: (i) the form of carbon price; (ii) the country of origin; (iii) any rebate or other form of compensation available in the country that would have resulted in a reduction of that carbon price; (iv) reference to the legal provisions that form the basis for the carbon price, the rebate or any other form of compensation; (v) the type of product, as identified by the CN code; (vi) the quantity of embedded emissions covered by the carbon price; (vii) the quantity of embedded emissions covered by any rebate or other form of compensation, including free allocations, if applicable; and (viii) the monetary amount.

Calculation of embedded emissions: The Implementing Regulation provides flexibility regarding the methods that can be used to calculate embedded emissions of CBAM goods during the transitional period. Reporting declarants will have the choice of reporting in one of the following three ways (but as of 1 January 2025, only the EU method will be accepted):

  • Reporting according to the EU method (see Annex III), using (i) the calculation-based approach or (ii) the measurement-based approach (the mandatory approach as of 1 January 2025);
  • Reporting based on equivalent third country national systems, which can be used until 31 December 2024; or
  • Reporting based on another method (e.g., default values to be published by the Commission), which can be used until 31 July 2024.

Default values: Default values, or estimations by non-EU operators, may be used for precursors of complex goods contributing up to 20% of the total for complex goods. At the time of writing this alert, the Commission has not published the default values, but it is expected that they will be published in the coming days before the transitional period starts.

Review of CBAM reports: The Commission may review CBAM reports to assess compliance with the reporting obligations within three months after the last CBAM report is submitted. Further, the competent authorities of EU member states where a reporting declarant is established must review and assess the data, information and list of reporting declarants. After 31 December 2025, the competent authorities may initiate a correction procedure in cases of incomplete or incorrect CBAM reports or failure to submit a CBAM report.

Penalty: A penalty will be imposed if the reporting declarant has not taken the necessary steps to comply with the reporting obligations or to correct the CBAM report. The penalty for each tonne of unreported embedded emissions will be between €10 and €50. This is significant, especially when compared with the price paid by EU producers for actual emissions: the price for a tonne of carbon under the EU Emission Trading Scheme is around €100, but most allowances are given out free of charge.

CBAM Transitional Registry:The Commission will establish an electronic database, the CBAM Transitional Registry, to collect the information reported during the transitional period. The CBAM Transitional Registry will enable communication, checks and information exchange between the Commission, the competent authorities, the customs authorities of the member states and reporting declarants.

Guidance documents and webinars

On 17 August 2023, the Commission published two guidance documents on the reporting obligations for EU importers of CBAM goods and non-EU installation operators, as well as a reporting template. The guidance documents explain the CBAM requirements for EU importers and non-EU operators of installations producing CBAM goods during the transitional period. Further, while the use of the reporting template in Excel is voluntary, the Commission stresses that the use of a common template greatly simplifies the communication.

Additionally, the Commission will host six online webinars in the coming weeks, which will cover general and sector-specific features of the CBAM. Interested stakeholders can register to participate in the webinars and will be able to ask questions, which will be answered live. The registration links, when active, will be available here.

  • Cement: 15 September 2023, 10am-11:30am (CET)
  • Aluminium: 21 September 2023, 2pm-3:30pm (CET)
  • Fertilisers: 26 September 2023, 11:30am-1pm (CET)
  • Electricity: 28 September 2023, 9:30am-11am (CET)
  • Hydrogen: 3 October 2023, 3:30pm-5pm (CET)
  • Iron and steel: 5 October 2023, 4pm-5:30pm (CET)

Looking ahead                                                        

When the transitional period starts on 1 October 2023, non-EU manufacturers of products currently in the CBAM scope will have to calculate accurately the emissions embedded in the goods they import and submit this information to EU importers. Using this information, EU importers will have to submit a quarterly CBAM report by 31 January 2024 for the period of October 2023 – December 2023.


Our previous publications on CBAM

Any questions? Please do not hesitate to get in touch with Reed Smith’s international trade, environment or ESG teams in Brussels, or your usual contact at Reed Smith.