As detailed in our newsletter of September 17, 2014, the European Union ("EU") has extended the scope of the sanctions against Russia.
In its turn, Russia enacted on August 6, 2014 Decree No. 560 prohibiting the importing of certain listed agricultural products, raw materials and foodstuffs to Russia from the USA, EU Member States, Canada, Australia and Norway, following the restrictive measures imposed on Russian legal and natural persons by those countries. The concerned initial import ban list of agricultural products, raw materials and foodstuffs was officially published by the UK government. Recently, Russia decided to somewhat ease the concerned import ban list in relation to the EU agricultural products by allowing imports of salmon and trout hatchlings, potato and onion seed, sugar maize hybrid and peas for planting, lactose-free milk, flavour additives and food fibers.
Due to the quick enactment of Decree No. 560 by Russia, the EU agricultural industry had little time to take any measures in view of its trade with Russia and, more specifically, its ongoing agreements with Russian distributors, customers and end-users. In 2013, the trade value, for e.g. the Netherlands, represented an import value from Russia of €20.6 billion while the export value of Dutch products to Russia almost reached €6.9 billion. This resulted into Russia becoming the third most significant export destination (after United States and China) for the Netherlands outside the EU.
Having regard to the impact of the Russian import sanctions to the EU agricultural industry, the European Commission decided to introduce market support measures by means of offering financial aid with a budget foreseen of €125 million to growers of perishable fruit and vegetables in order to keep several of their products off the market to avoid a price collapse. Due to an "overkill" of requests for the set budget of €125 million, the concerned market support measures were temporarily suspended from September 10 to September 29 in order to introduce a more targeted scheme of market support measures. On September 29, the approved scheme with a budget of €165 million was announced by the European Commission and legally based in Commission Delegated Regulation (EU) No 1031/2014 of 29 September 2014 laying down further temporary exceptional support measures for producers of certain fruit and vegetables.
Another manner to counter the impact on the agricultural sector of the Russia import sanctions would be to grant national subsidies. These national subsidies have to be notified to the European Commission because they have the potential of a market distortion and fall under the state aid regime (art. 107-109 Treaty on the Functioning of the European Union (TFEU). Subsidies will only be given to products not covered by the aforementioned Regulation 1031/2014.
Article 9 of Regulation 1031/2014 on Application for and payment of Union financial assistance explicitly states in paragraph 4:
"The applications referred to in paragraphs 1, 2 and 3 shall be accompanied by supporting documents justifying the amount of Union financial assistance concerned and contain a written undertaking that the applicant has not received and will not receive any double Union or national funding or compensation under an insurance policy in respect of the operations qualifying for Union financial assistance under this Regulation."
The scheme in Regulation 1031/2014 is meant to be a safety net to prevent a severe or prolonged market disturbance in the agricultural sector due to the Russian import sanctions.
Moreover, it should be noticed that the agricultural state aid rules have recently been revised:
- Regulation 1408/2013, de minimis aid in the agriculture sector: aid granted to a single undertaking over a given period of time that does not exceed a certain fixed amount is deemed not to meet all the criteria laid down in art. 107(1) TFEU [Pb. 2013, L 352/9];
- Regulation 702/2014, agricultural block exemption regulation declares certain categories of aid compatible with the internal market [Pb. 2014, L 193/1];
- Guidelines for state aid in the agricultural sector [Pb. 2014, C 2014/1].
The regulations do not apply to aid for export-related activities towards third countries or EU Member States directly linked to the quantities exported. As a consequence, aid given to products which cannot be exported due to the import sanctions of Russia, are not covered by the general rules of the regulations. Therefore if an EU Member State wants to support agricultural companies suffering from the import sanctions, the aid requires individual notification to the European Commission. Support schemes that are not notified are considered illegal and received subsidies must be paid back.
In short, be aware that certain obstacles, risks, compliance and aid measures need to be taken into account when trading with Russia, especially where the restrictive measures and bans in place may be softened or aggravated by both EU and Russia on a daily basis. In case where such restrictive measures lead to market pressure and trade loss, EU businesses should determine whether any market support measures are available or have been set in place by the EU in view of submitting a claim. Businesses should also be mindful of the potential risks created by the restrictive measures and implement compliance program(s) in order to be able to monitor, screen and take appropriate measures regarding any activities, goods, services and transactions performed in relation to Russia.