LawFlash

US Announces New Restrictions on Export of Luxury Goods to Russia

March 15, 2022

Dear Retail Clients and Friends,

President Joseph Biden issued Executive Order 14068 on March 11 expanding prohibitions on trade with Russia and announcing new restrictions on Russian imports, exports, and investments—including luxury goods. This executive order, implemented through regulations issued by the Department of Commerce’s Bureau of Industry and Security, directly impacts many retailers, as it effectively restricts US retailers and businesses from suppling any luxury items, as defined by the regulations and the customs tariff codes to Russia. This edition of Morgan Lewis Retail Did You Know? analyzes the executive order—the latest in a series of regulatory actions targeting Russia as a result of the crisis in Ukraine—the Department of Commerce’s implementing regulations under the executive order, and the practical impact both have for retailers.

SUMMARY OF PROHIBITIONS

Executive Order 14068 (EO) prohibits exportation, reexportation, sale, or supply (either directly or indirectly) of “luxury goods” from the United States or by a “United States person,” wherever the person may be located, to any Russian person in Russia.

Following the norm for such executive orders, the EO broadly defines “person” to mean an individual or entity, with “entity” meaning a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization.

“United States person” means any US citizen, lawful permanent resident, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.

The EO also prohibits importation into the United States of “any production of Russian Federation origin,” including fish, seafood, alcohol, and non-industrial diamonds. Each of these categories is further defined in Frequently Asked Questions (FAQs) or proposed regulations. Of importance is the fact that the EO and the implementing regulations define the term “luxury goods” on the basis of specific criteria requiring a case-by-case assessment of whether the EO and the regulations will limit trade-related activity.

IMPLICATIONS FOR RETAILERS

The EO broadly prohibits supplying or importing “luxury goods” to or from Russia, which may impact many US-based retailers who may receive orders from individuals located in Russia. Although the EO expressly defines “person” and “United States person,” the critical term “luxury goods” is undefined in the EO, but defined in the Bureau of Industry and Security (BIS) regulations. In an effort to inform industry of the scope of goods that may be restricted, BIS regulations identify the luxury goods by Harmonized Tariff Number (HTSUS) and related descriptions. While still somewhat subject, since exporters are permitted to identify what HTSUS applies to the goods being exported, the list of items provides a specific framework against which companies can determine what is subject to restriction.

On March 14, the Department of Commerce released its final rules implementing these new import/export prohibitions, which are effective as of March 11 (the rules will be published in the March 16 edition of the Federal Register). Although the EO only references Russia and Russian persons, the final rules more broadly apply to Russia and Belarus.

The final rules define “luxury goods” to include (but not necessarily be limited to) the following categories:  

  • Beverages, spirits, and vinegar
  • Tobacco and manufactured tobacco substitutes
  • Essential oils and resinoids; perfumery, cosmetic, or toilet preparations
  • Plastics
  • Leather
  • Fur and artificial fur
  • Wood
  • Printed materials (including books and newspapers)
  • Silk
  • Fabric and textiles
  • Apparel, shoes, and accessories
  • Ceramic and glass/glassware
  • Metals and precious metals
  • Machinery
  • Vehicles
  • Clocks and watches
  • Musical instruments
  • Art

Coupled with the EO, these regulations identify the scope of restrictions that may apply. The final rules also expand the licensing requirements for these goods and note that the license requests will be reviewed on a case-by-case basis with a policy of denial. This is consistent with other Russia-related restrictions imposed by BIS in other contexts. Practically, the rules establish a high bar to obtaining an authorization, thereby acting effectively as a ban on licenses.

Combined with the broad range of US and multilateral sanctions already issued, these bans further tighten restrictions on commercial activities with Russia and are designed to impact Russia’s wealthiest citizens most directly by ensuring that these luxury products are no longer available to them. The numerous persons subject to direct sanctions, and who have been added to the Office of Foreign Assets Control’s list of specially designated nationals are already cut off directly from these goods and services. The EO and accompanying restrictions act to further restrict the supply of goods into Russia.

UKRAINE CONFLICT: HOW TO MAINTAIN GLOBAL BUSINESS CONTINUITY

Our lawyers have long been trusted advisers to clients navigating the complex and quickly changing global framework of international sanctions. Because companies must closely monitor evolving government guidance to understand what changes need to be made to their global operations to maintain business continuity, we offer this centralized portal to share our insights and analyses. To receive the latest updates, subscribe to our Ukraine Conflict: How to Maintain Global Business Continuity mailing list.

HOW WE CAN HELP

Morgan Lewis has extensive experience advising retailers on the obligations imposed by executive orders impacting trade and business and ensuring that their practices comply with these constantly evolving restrictions.

Contacts

If you have any questions or would like more information on the issues discussed in this Retail Did You Know?, please reach out to your Morgan Lewis contact, the article authors, or any of our retail team leaders:

Retail Industry
Gregory T. Parks
Anne Marie Estevez
Christina Edling Melendi
Nick Bolter
Ezra D. Church
Rachelle A. Dubow
Leni D. Battaglia
Melissa C. Rodriguez
Joseph Duffy
Michelle Pector
Kristin M. Hadgis
Emily S. Kimmelman
Brett A. Lovejoy, PH.D.

Ukraine Task Force
Giovanna M. Cinelli
Joanna Christoforou
Bruce Johnston
Grigory Marinichev
Michael Masling
Kenneth J. Nunnenkamp
Georgia M. Quenby
Christina Renner
Melanie Ryan
Vasilisa Strizh
Carl A. Valenstein
Heather C. Sears
Alexey Chertov
Jiazhen (Ivon) Guo
Katelyn M. Hilferty
Nicola Kelly
Christian Kozlowski
Charles C. Rush
Eli Rymland-Kelly