Extensions of Russian Sanctions to Certain Imports May Not Allow Importing as Usual

Insights Extensions of Russian Sanctions to Certain Imports May Not Allow Importing as Usual Sandra Lee Bell · Extensions of Russian Sanctions to Certain Imports May Not Allow Importing as Usual Ivan Komaritsky · May 10, 2024

The prohibition of imported merchandise is a very rare occurrence in connection with sanctions issued by the United States through the Executive Branch. That practice, however, seems to be changing quickly with respect to imports from Russia.

Recently, the U.S. Department of the Treasury, Office of Foreign Assets and Control (OFAC), in coordination with the United Kingdom, issued two new prohibitions to disrupt the revenue that Russia earns from its export of aluminum, copper, and nickel.  On April 12, 2024, Treasury issued a new determination under E.O. 14068 as amended by E.O. 14114 of December 22, 2003, which among other things, prohibits the importation into the United States of aluminum, copper, and nickel of Russian Federation origin produced on or after April 13, 2024 (“Metals Import Prohibition”). See copy of Metals Import Determination here. In addition, Treasury issued a related determination under Executive Order (E.O.) 14071 which prohibits the exportation, reexportation, sale, or supply to any person located in the Russian Federation of (1) warranting services for the metals produced on or after April 13, 2024 on a global metal exchange and (2) services to acquire the metals produced on or after April 13, 2024 as part of the physical settlement of a derivative contract.  See copy of Metal Services Determination here

Notably, in FAQ 1171 (1171 | Office of Foreign Assets Control (treasury.gov)) which covered both the Metals Import Determination and the Metals Services Determinations, OFAC affirmed that previously in FAQ 1019, it clarified that the term “Russian Federation Origin” excludes “any Russian Federation origin good that has been incorporated or substantially transformed into a foreign-made product.”   As a result, neither imported metal products nor exported services relating to such products that have been substantially transformed from, or which incorporate, Russian Federation Origin aluminum, copper, and nickel, would be prohibited under either the OFAC Metals Import Determination or the OFAC Metals Services Determination. [1]

The interpretation of “Russian Federation Origin” by OFAC in FAQ 1171 and FAQ 1019, is contrasted to the implementation of that term under E.O. 14068, as amended by E.O.14114 and OFAC’s Seafood Determination, which parroted the E.O.  Specifically, pursuant to the above Executive Orders, OFAC determined on December 22, 2023, that importation of salmon, cod, pollock, or crab of Russian Federation origin would be prohibited notwithstanding whether such fish, seafood, and preparations thereof have been incorporated or substantially transformed into another product outside of the Russian Federation.” See Seafood Import Determination here.

The U.S. Customs and Border Protection (CBP) is the U.S. agency responsible for determining country of origin of goods imported into the U.S..[2] The above language in both the Executive Order 11414 and the Seafood Import Determination identifying seafood products that are prohibited from importation is inconsistent with the standard used by CBP for determining the country of origin of imported seafood in order to administer and enforce import requirements and restrictions based upon country of origin.  Essentially, when a product is not wholly produced, manufactured or grown in a single country, with the exception of products imported from Mexico and Canada, the country of origin is determined based on whether there has been a “substantial transformation” of materials or goods from a first country into a new and different article of commerce, having a new name, character or use, in the second country.  See 19 C.F.R. § 134.34.

The substantial transformation standard for purposes of determining the country of origin of imported seafood was applied by the Court of International Trade (CIT) over 46 years ago in the decision, Koru North America v. United States, 12 CIT 1120, 701 F. Supp. 229 (CIT 1988).  In Koru, fish had been caught off the coast of New Zealand in an exclusive economic zone (EEZ) by ships flying the flags of New Zealand, Japan, and the Soviet Union.  After the fish were caught, preliminary preparation was completed on the ship and eventually offloaded in New Zealand. The New Zealand Ministry of Agriculture and Fisheries inspected the fish and certified them as being of New Zealand origin. Citing fifty years of precedent, the CIT first held that on the high seas, the country of origin of fish is determined by the flag of the catching vessel, which in that case the CIT determined to be New Zealand.  But the court further found even after fish were beheaded, detailed, eviscerated and frozen aboard the ships in New Zealand they were substantially transformed when they were shipped to Korea for further processing, whereby the fish was thawed, skinned, boned, trimmed, glazed, refrozen and packaged for exportation to the United States.

“In finding a substantial transformation, the court noted that when the fish arrived in Korea, it had the look of whole fish, “albeit without heads, tails or viscera” whereas the fish exported from Korea no longer possessed “the essential shape of the fish” having been “trimmed of jagged edges, fat lines and impurities, glazed to preserve [its] moisture … frozen … and finally, packaged”.  Also significant was the fact that the fillets were considered discrete commercial goods and were sold in separate areas and markets.  The court found that such changes went to the fundamental nature and character of the fish transforming the fish and creating a new article of commerce.  Although not determinative, the change in tariff classification was considered by the court to be additional evidence of a substantial transformation.

See CBP Ruling 735084 dated August 17, 1993, at CROSS Customs Rulings Online Search System (cbp.gov).

Considering the longstanding judicial precedent for determining the country of origin of seafood, CBP issued the following guidance in CSMS 58813725 dated December 22, 2023, for importers of seafood that may be subject to E.O. 14068 (as amended by 14114) and the OFAC Seafood Determination:

Beginning on the effective date of EO December 22, 2023, all entry and certified from summary transactions as well as goods admitted into a Foreign Trade Zone (FTZ) that include the affected commodities will require a self-certification statement to be uploaded to the Automated Commercial Environment (ACE) Document Image System (DIS).

The self-certification must meet the following criteria:

    1. Be provided on official company letterhead in PDF format.
    2. Contain the statement:

“I certify that any such products in this shipment were not harvested in waters under the jurisdiction of the Russian Federation or by Russia-flagged vessels, notwithstanding whether such product has been incorporated or substantially transformed into another product outside of the Russian Federation.”

This guidance for the entry and admission into a FTZ of goods possibly affected by the E.O. and Seafood Determination is necessary because the country of origin that is required in declarations to CBP and on any packaging of imported seafood products that have been further processed similarly to that described in Koru, will likely be the country where such further processing occurred, notwithstanding that such seafood products may have been produced from fish or crab caught under a Russian Federation flagged vessels or harvested in waters under Russian jurisdiction.

Since importers are presenting the certifications, they may need to include in purchase agreements covering the covered seafood products, a condition requiring a similar certification from their suppliers to help support the certifications to CBP and provide a basis for contractual recourse if the supplier’s certification proves to be inaccurate.

In sum, importers of goods into the U.S. that may be linked to Russia now must pay close attention to the types of products being imported and the exact wording of the E.O. and/or OFAC Determination since there is no certainty that the standards therein will be aligned with the standards for determining Russian Federation country of origin under the customs laws.

[1] See also CSMS # 60167806 – OFAC Determination, Prohibitions Related to Imports of Aluminum, Copper,    and Nickel of Russian Federation Origin (govdelivery.com)

[2]See  International Trade: Rules of Origin (fas.org)