Sanctions on international trade in goods

Introduction

International sanctions have evolved from comprehensive economic restrictions into targeted ('smart') sanctions focusing on specific individuals, entities, sectors, or products. Early comprehensive sanctions proved problematic due to severe humanitarian consequences and limited effectiveness. Modern sanctions regimes encompass asset freezes, trade restrictions on specific goods and sectors, prohibitions on services and technology transfer, investment limitations, and transport restrictions. These measures are deployed in conjunction to focus on and weaken specific capabilities of the target.

Within this evolving landscape, restrictions on trade in specific goods have gained particular importance. The European Union has been at the forefront of developing comprehensive sanctions regimes affecting trade in goods, which have reached an unprecedented level of complexity following Russia's full-scale invasion of Ukraine in 2022. Sanctions against Russia comprise detailed product lists, complex classification systems, nuanced exception mechanisms, and enhanced due diligence obligations that represent a significant evolution in sanctions policy and legislative technique.

Restrictions on trade in goods apply based on two factors that are analysed simultaneously: destination (whether goods are exported to or intended for use in a sanctioned jurisdiction) and product designation (whether goods fall into restricted categories). Operators^[1] must determine whether their goods are restricted by implementing appropriate compliance programmes that apply risk-based due diligence tailored to their business and exposure.

This article addresses the specific elements that determine when trade in goods is restricted and to what extent.^[2] We examine product destination and circumvention risks (section 2); different product designation systems employed by EU sanctions regulations (section 3); and types of restrictions that may apply once goods and destination are determined (section 4).

Product Destination and Circumvention

The first element in determining whether trade in goods is restricted is the jurisdiction of destination. Sanctions regimes define this as goods destined for export to the affected jurisdiction (such as Russia) or intended 'for use in' that jurisdiction.

The 'for use in' formulation is intentionally broad, applying regardless of route, intermediate destinations, or number of transactions involved. It is not sufficient to conclude that goods are not directly exported to Russia: goods exported to third countries remain subject to sanctions if ultimately intended for use in sanctioned territory. Therefore, operators must assess diversion risk —the possibility of the goods being re-routed or re-exported— particularly for exports to jurisdictions neighbouring Russia or commonly cited as circumvention hubs (e.g. Central Asian states, Caucasus, Turkey, or the United Arab Emirates).

As numerous circumvention schemes have been identified under the Russian sanctions regime —such as routing goods through third countries, using intermediaries to conceal sanctioned parties, or falsifying documentation—, Article 12 of Regulation 833/2014^[3] explicitly prohibits “knowingly and intentionally" participating in activities that have the object or effect of circumventing sanctions. The Court of Justice of the EU's Afrasiabi ruling states that 'knowledge and intent' includes situations where a person “is aware that their participation in such an activity can have that object or effect and accepts that possibility".^[4]

For operators, this creates significant due diligence obligations. The Commission emphasises that operators must apply risk-based due diligence adapted to their business, including assessing the diversion risk based on stakeholder checks, transaction checks, and red flag analysis.

Moreover, for specific especially sensitive goods designated as Common High Priority Items, additional obligations apply even if they are not exported to Russia. These include mandatory contractual clauses and enhanced due diligence requirements. In such cases, operators should still assess whether their goods are designated, even where no direct or indirect export to Russia is foreseen.

Product Designation in Sanctions Regimes

The second element is whether the goods are designated or listed in the sanctions regulations. These regulations employ three distinct approaches, each referring to different classification systems: (i) the Combined Nomenclature (CN) classification system; (ii) dual-use export control classifications; and (iii) autonomous technical descriptions. Operators must determine which designation approach applies and then correctly classify their goods within the relevant system.^[5]

The Combined Nomenclature System

Sanctions regulations often refer directly to CN codes to designate restricted goods.^[6] When goods are designated by CN code, all products falling within that CN classification are subject to restriction. Therefore, in such cases operators must determine the correct eight-digit CN classification of their product to establish whether it is restricted.

CN classification is a complex system regulated by Council Regulation (EEC) No 2658/87, based on the regularly updated Harmonised System, which comprises over 1,200 headings divided into more than 5,000 subheadings. Correct classification requires careful consideration of the CN nomenclature, explanatory notes, Commission classification regulations and decisions, and Court of Justice rulings. Operators may apply to the local customs authority for Binding Tariff Information (BTI) —an EU customs decision that fixes the tariff classification of a specified product for its holder across all Member States, typically for three years.

However, in some cases, even if designated by CN, the CN code alone is insufficient. When a CN code is preceded by 'ex', only goods corresponding to the specific product description are restricted, not all goods within that CN code. For instance, Annex X of Regulation 833/2014 establishes that not all machinery for liquefying gases under CN 8419.60 is restricted, but only that which is suited for liquefaction of natural gas. In these cases, operators must evaluate whether their goods meet both the CN classification and the technical description.

Dual-Use Items and Export Controls

Many sanctions regulations designate goods by reference to Regulation (EU) 2021/821 (the 'EU Dual-Use Regulation'), which lists dual-use items in ten categories: (0) nuclear materials; (1) special materials; (2) materials processing; (3) electronics; (4) computers; (5) telecommunications and information security; (6) sensors and lasers; (7) navigation and avionics; (8) marine; and (9) aerospace and propulsion. These categories are based on international export-control regimes (Nuclear Suppliers Group, Australia Group, Missile Technology Control Regime, and the Wassenaar Arrangement).

In such cases, operators must determine whether their goods fall within the categories listed in the EU Dual-Use Regulation. Classification requires technical analysis comparing product specifications against detailed technical parameters, thresholds, and performance characteristics. Like the CN system, dual-use classification is supported by guidance notes and national authority decisions. To assist operators, the Commission publishes correlation tables showing CN codes that may correspond to dual-use classifications, although these are non-binding and for information purposes only, and final assessment must always be based on technical analysis.

While the EU Dual-Use Regulation generally requires a licence for the export of listed items, sanctions regulations typically impose outright prohibitions on export to sanctioned destinations. However, both regimes apply in parallel: if a derogation applies under Regulation 833/2014, a licence may still be needed under the EU Dual-Use Regulation.

Lastly, the EU Dual-Use Regulation establishes certain anti-elusion provisions relevant for classification. For instance, a non-controlled item will be subject to restrictions if the main element of the goods is a controlled component that can feasibly be removed or used for other purposes. The main element is determined using 'factors of quantity, value and technological know-how involved'. This criterion may require additional analysis of the goods at stake.

Autonomous Designations

In some cases, sanctions regulations define restricted goods through autonomous technical descriptions created specifically for sanctions purposes. Operators must determine whether their product meets the technical criteria through detailed analysis comparing specifications, capabilities, and performance characteristics against the regulatory definitions. The Commission publishes non-binding correlation tables that suggest relevant CN codes, but definitive determination must be based on whether the product meets the technical description.

An example of such designation is the Annex VII to Regulation 833/2014, which lists advanced technology items, such as microprocessors, microcircuits, equipment for the manufacture of specific electronic components and equipment for the assembly of integrated circuits.

Common High Priority Items

Common High Priority Items feature specifically in sanctions programmes against Russia. These are goods identified through analysis of components recovered from Russian military systems deployed in Ukraine as being critical to Russia's military capabilities. The list is set out in Annex XL to Regulation 833/2014 and includes integrated circuits and microelectronics, electronic components (capacitors, resistors, connectors), radio frequency components, printed circuit boards, testing and measuring equipment, and certain machine tools.

Once items are classified under this category, specific obligations apply to their trade even if they are not exported to Russia.^[7]

Type of restrictions

Once it is determined that the destination is a restricted jurisdiction and the goods themselves are designated as restricted, different types of restrictions may apply:

Strict prohibition, trade in listed goods with sanctioned destinations is outright prohibited, regardless of the buyer's identity or intended end-use. For instance, Article 2aa of Regulation 833/2014 prohibits exports of firearms, their parts and essential components and ammunition.

Exceptions specify activities that are not prohibited, although the goods as such are listed. When an exception applies, no authorisation is required (although some information may have to be provided to the authorities). For instance, Article 2(3) of Regulation 833/2014 establishes that the prohibition on exporting dual-use equipment does not apply to non-military use and non-military users for humanitarian purposes or health emergencies.

Derogations recognise that absolute prohibitions may produce unintended consequences. When a derogation applies, transactions remain prohibited unless a Member State's competent authority grants authorisation under the conditions laid out in the relevant regulation. For example, Article 2(4) of Regulation 833/2014 allows authorisation for the export of dual-use goods for non-military use and non-military users, including, inter alia, cooperation in intergovernmental space programmes or for maritime safety.

In some cases, and for specific goods, there are transitional provisions that allow contracts concluded before specified cut-off dates or until a certain date to be executed.^[8]

Understanding which type of restriction applies is critical, as each carries different legal effects and compliance requirements that should be factored into the supply-chain flows and timings.

Conclusion

EU sanctions affecting trade in goods have evolved into sophisticated instruments requiring operators to navigate a dual-factor framework: determining whether the destination is restricted and whether goods are designated as subject to restrictions. Once both elements are established, operators must determine which type of restriction applies —absolute prohibition, exception, derogation subject to authorisation, or transitional provisions— as each entails different legal effects.

Effective compliance under this complex framework requires robust, risk-based due diligence programmes tailored to operators' specific circumstances, including comprehensive screening procedures, appropriate contractual provisions, and thorough documentation.

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^[1] Throughout this article, the term “operators" refers to companies, traders, and other economic actors engaged in international trade in goods.

^[2] Other restrictions may apply to a given transaction (for example, asset freezes affecting designated persons).  

^[3] Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine. 

^[4] Judgment of the Court of Justice of the EU rendered on 21 December 2011 in Case C-72/11, Criminal proceedings against Mohsen Afrasiabi and Others, EU:C:2011:874. 

^[5] Prohibitions on trade in goods are typically accompanied by parallel prohibitions on related services, technical assistance, brokering, financing, and insurance, recognising that restricting goods alone would be ineffective if sanctioned actors could obtain necessary services indirectly. 

^[6] Regulation 833/2014 uses this system extensively across multiple annexes, for instance for oil refining and LNG equipment (Annex X), aviation and space goods (Annex XI) or iron and steel products (Annex XVII). 

^[7] The export of Common High Priority Items to any destination requires operators to include contractual 'no Russia' clauses prohibiting re-export to Russia when selling to specific jurisdictions, to conduct enhanced due diligence to identify and assess risks of exportation to Russia, and to include in licensing contracts provisions prohibiting the licensee from using the licensed intellectual property or trade secrets for the production of Common High Priority Items in Russia (Articles 12g, 12ga, and 12gb). 

^[8] The Commission has provided guidance clarifying certain aspects of such provisions, for instance, that a contract is 'concluded' when it becomes binding under applicable law (not when negotiations begin), all essential terms must be agreed before the cut-off date, framework agreements benefit from grandfathering only for orders placed before the cut-off date, and amendments extending scope or value are treated as new contracts not covered by transitional provisions.