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Russia strikes back, levels counter-sanctions on US and unfriendly nations (Part II)

The new measures will not affect goods that individual citizens bring into the country for their personal use

As promised earlier, here is the second part of the Russian counter-sanctions situation. The Russian Parliament (State Duma) on May 22 passed in its third and final reading the Law on reciprocal sanctions against the US and nations “unfriendly to Russia”.

The law has established the legal framework allowing the president to suspend cooperation with individual foreign states and organizations that are directly or indirectly under their jurisdiction. In addition, Russian authorities will be able to restrict the export and import of foreign companies’ products and prohibit them from participating in state procurement and privatization.

The new law also, and this is key, allows the president the legal right and power to take “other measures” as and when he deems necessary in responding to “unfriendly actions towards Russia.” Any such counter-sanctions reciprocal restrictions cannot touch vital goods and medicines, if similar equivalents are not produced in Russia. The new measures will not affect goods that individual citizens bring into the country for their personal use.

Business, trade experts and certain specialized state organizations criticized the first two readings, but largely supported the third and final one. The parliamentarians made it more comprehensive, and generalized the terms. When discussions first began, the bill referred to specific groups of goods, the import of which can be banned, also possible work restrictions in Russia of foreign specialists and the export ban of Russian titanium.

The list of companies that may fall under the bill has in fact expanded in this third and final reading in part due to the more generalized language. If in the first version of the document restrictive measures were to be extended to companies with a share of foreign participation of more than 25%, now sanctions can concern all legal entities “directly or indirectly controlled” by unfriendly countries.

The bottom line is that the legal framework has been established and approved. This counter-sanctions law by itself is mild. It does not allow anything, and does not prohibit anything. What it does do, and this is key – it allows the government, if directed to do so by the president, to promptly take measures it feels are appropriate and reciprocal in response to sanctions taken against the Russian Federation. Similarly, the government, with the agreement of the president can promptly remove sanctions at any time if they feel it is the right thing to do.

The law grants the government the legal basis to protect the interests of Russia in this hostile and largely unipolar “sanctions environment” with a flexibly responsive tool. This then becomes both a carrot and a stick without the burdensome bureaucratic wrangling and mass, which have made sanctions part of the newly starched fabric of western diplomacy.

Sanctions from Russia can be turned on or off with the stroke of a pen. In the US, UK and EU the process can take years, especially turning sanctions off, as such measures acquire a life of their own once instituted – remember the Jackson-Vanik Act? If not, do look it up – it was essentially morphed into today’s Magnitsky Act, and so it goes, seemingly forever.

It is worth noting that the Duma set aside a proposed draft law, which would consider it a criminal matter, punishable by law to comply with US or other unfriendly nation’s sanctions inside the territory of the Russian Federation. It was adopted in the first reading, but was also roundly criticized by Russian businesses. After such criticisms parliament decided to discuss the matter some other time.

The legal basis is now established, and the Russian government has a legislatively approved mandate. Now we wait and see what counter sanctions will be specifically taken against the US and other nations considered unfriendly by Russia, and restricting the principles of free and open trade. This should be interesting, and moreover it was undertaken with thought, restraint and due process.

Paul Goncharoff is an American business executive working in Russia.

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