Canada Imposes New Trade Restrictions on Russia's Oil Exploration and Extraction Sector

On Friday, December 19, 2014, the Government of Canada announced amendments to the Special Economic Measures (Russia) Regulations to impose product-specific restrictions on the supply of certain goods to Russia's oil sector, specifically with respect to deepwater, Arctic, and shale exploration and production. The prohibitions apply to any person or entity in Canada or by any Canadian person or entity outside of Canada. The amendments mark the first product-specific restrictions under Canada's Russia sanctions regime and are similar to prohibitions being imposed by the United States and the European Union.

Goods that are listed on the new Schedule 4 to the regulations cannot be exported, sold, supplied or shipped to Russia or any person in Russia, nor can any financial, technical, or other services related to the goods be so supplied, where the goods are to be used in any of the following applications:

• offshore oil exploration or production at a depth of greater than 500m;
• oil exploration or production in the Arctic; or
• shale oil exploration or production.

The prohibition covers a wide range of oil industry products, including various pipe, pumps, drills and boring tools, machinery, parts and technology. A full list of prohibited items, including corresponding Harmonized System codes, is available on the Department of Foreign Affairs, Trade and Development (DFATD) website. The prohibition only applies to new agreements to supply entered into after December 19, 2014; obligations to supply under previously existing contracts are exempt.

Listed goods, technology or related services that are not "for use in" in any of the three listed applications are not covered by the prohibition. However, anyone wishing to supply such products to Russia for other applications would be well advised to ensure they have adequate documentation regarding the end use of the goods in order to avoid export clearance delays.

The amendments also expand the scope of the prohibition on debt financing to designated persons to include all "bonds, loans, debentures, extensions of credit, loan guarantees, letters of credit, bank drafts, bankers' acceptances, discount notes, treasury bills, commercial paper and other similar instruments". (The prohibition applies to instruments with a maturity of longer than 30 days or 90 days, depending on which schedule the designated person is listed on.) The scope of the prohibition on equity financing was also expanded to capture all new securities.

Finally, the amendments add new individuals, mostly senior members of the Russian State Duma or officials of the "Donetsk People's Republic", to the list of designated persons under the Special Economic Measures (Russia) Regulations and the Special Economic Measures (Ukraine) Regulations with whom it is prohibited for Canadians to engage in most business dealings. The full list of newly sanctioned individuals is available on the DFATD website.

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