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Non poper outline of on initior package ol torgeted meosures in the oreas of access
Non poper
outline of on initior package ol torgeted meosures in the oreas of access to
copitol morkets, defence, duor use goods and sensitive technorogies
ln line with the
European council conclusions of 21 March and 21 June as well as of the statement of
the Heads of state
and Government on ukraine of 27 May, the 16 Jury European councir took a serres
of steps to reinforce
restrictive measures in view of Russia's action destabilising the situation in
Ukraine. These include:
the expansion of the rist
of designations to incrude persons and entities that ardsupporting
materially or financiaily
actions undermrning or threatening Ukraine,s territoriar integrity,
sovereignty and independence.
A further modification to the criteria with a view to ailow
individuars or
who actively provide materiar or financiar support to, or are benefiting from, the Russian
decision-makers responsibre
for the annexation of crimea or the destabilisation of Eastern-
The request to the ErB to suspend the signature of new financing
in the Russian
Federation and the call to EU Member states to coordinate their positions within the EBRD
Board of Directors with a view to also suspending financing of new operations.
' The invitation to the commission to re-assess
Eu-Russia cooperation programmes with a
viewto taking a decision, on a case by case basis, qn the
suspension ofthe imprementation
of EU bilaterar and regionar cooperation
programmes. However,
projects dearing excrusivery
with cross-border cooperation and civil society would be maintained.
' The adoption of additional measures in particular restricting trade with and investments in
Crimea and Sevastopol.
of these measures is underway with a view to finarising them by the end of Jury.
Further to taking these measures,
the Jury European councir recafled that,,the commission and EEAS
have been undertaking preparatory
work on targeted measures, as it requested in March, so that
further steps can be taken without delay"
At its meeting
on 22 JulY 2014, the Foreign Affairs Council also stressed its readiness ,,to introduce
without delay
a package of further significant restrictive measures,,. To this the end the councir
requested "the
commission and the EEAS to finarise preparatory work on possible targeted measures
and present proposars for
taking action, incruding in the areas of access to capitar markets, defence,
dual use goods, and sensitive
technorogies, incrudrng in the energy sector. The resurt ofthis work wiil
be presented on Thursday 24 July".
The Foreign Affairs Council also agreed to expand the restrictive measures with a view to
The Foreign Affairs Council also agreed to expand the restrictive measures with a view to targeting
individuals or entities who actively provide material or financial support to or are benefiting from the
Russian decision-makers responsible for the annexation of Crimea or the destabilisation
of Eastern
ln line with this reques! the non-paper outlines a number of measures that could be taken in the
areas set out by the Council conclusions and the procedure that should be followed to adopt the
relevant legal instruments.
The document builds on the preparatory work conducted by the Commission services, in cooperation
with the EEAS, in response to the mandate given by the March European Council. Different scenarios
were identified and.tested with regard to their impact on the EU economy and on the economies of
each Member States. This was the basis for the preparation of country fiches with an economic
impact assessment, which were shared with the Member States. ln light of the feedback received,
the analysis was further refined.
The work on the possible form of an initial set of EU sectoral sanctions has been guided by the
following principles:
Effectiveness lintensity of impact on the Russian economy)
Cost/benefit rotio (taking into account adverse impacts on the EU ecotpmy, indudingfrom
possible symmetric or asymmetric Russian retaliations)
Bolonce across sectors and across Member States
Coordinotion with sanctions adopted by the US, G7 partners and othercountries
Scolobitity / reversibility
over time;
Legol defensibility of the measures/eose ol implementotion
by economic operotoB.
Reflecting this preparatory work, the package of measures presented in this paper contains mearres
aimed at affecting Russian calculatlons of costs and benefits in the management of the sbb,
minimising adverse impact on the EU and maintaining space for diplomatic action and for scali.E up
or reversing the restrictions in light of developments on the ground.
It is for Member States to decide on the timing and the modulation they want to have for such
measures. The Commission is ready to table the necessary legislative proposals in all areas identified,
once so requested by the council.
Torgeted medsures in the oreos of access to copitol morkets, defence, dual use goods ond
Torgeted medsures in the oreos of access to copitol
morkets, defence, dual use goods ond sensitive
Russian companies and financial institutions are heavily dependent on EU
Restrictions oa dccess to Eat
capital markets:
copitol morkets lor Russion
stote-owned finonciol
Between 2004 and 2012 a total of USD 4g.4bn was raised
through lPOs in the EU by companies incorporated in Russia. Out
of those, USD 15.4bn was issued by state-owned financial
ln 2013, 47% ol the bonds issued by Russi*n public financial
institutions were issued in the EU's financial markets (€7.5bn out
of a totat of €15.8bn).
Restricting access to capital markets for Russian state-owned
institutions would increase their cost of raising funds and constrairt.their
ability to finance the Russian economy, unless the Russian public
authorities provide them with substitute financing. lt would also foster a
climate of market uncertainty that is likely to affect the business
environment in Russia and accelerate capital outflows.
With regard to the scope ofthe restriction, the measure would consist in
prohibiting any EU persons from investing in debt, equity and similar
financial instruments with a maturity higher than 90 days, issued by
state-owned Russian financial institutions after the entry into force of the
restrictive measure anywhere in the world. lt would also be prohibited to
provide investment services and any service in relation to the admlssion
to trading on a regulated market or trading on a multilateral trading
facility with regard to the same financial instruments.
With regard to the entities targeted, the measure would tar €et Russian
credit institutions (banks with over 50% public ownership),
as well as development finance institutions.
The prohibition would extend both to primary markets (flrst issue) and
secondary (subsequent trading) market of the newly issued Russian
securities. Existing shares and bonds would not be covered. Transactions
other than those mentioned before with the targeted entities would
remain possible,
lmpact on Russian investors would consist in sharply increased costs of issuance, even if eventually
lmpact on Russian investors would consist in sharply increased costs of
issuance, even if eventually alternative financing sources in third markets
could be found.
Substitution would not be easy in the short term. Even if not cautht by
EU sanctions, third-country investors will likely be unwilling to participate
in new issuances by targeted entities or demand significantly higher
yields. This would push companies to seek State financing as a stop-gap,
further straining the govemment's budgeL
Within the EU, direct negative impac6 would be limited (opportunity
cost of new investment and related services) and concentrated in
.jurisdictions with high levels of financial intermediation or attractive
venues for issuance. The indirect impact wouldle distributed across the
EU as potential investors and holders of Russian securities are spread
out. Whilst the measure will cover only new issues of (selected) Russian
securities, it may affect indirectly the securities previously issued by
targeted entities, and already traded and held by EU investors. Adverse
effects could materialise in loss of revenue for operators,-Sepressed
value of existing securitles, loss of market positions, and as an unlikely
worst-case scenario risks of defauh on outstanding obligations from
targeted institutions. The Russian authorities, as maiority owners of the
targeted institutions, would have litde interest in seeing their finaflcial
institutions default on their obligations.
At an initial stage restrictions would not extend to sovereign bonds, as
Russia is a significant investor in issuance by several EU MS. Equity and
debt financing irom private se6or operators yould also not be affected.
Syndicated loans would also not be covered in tIrc piohibition, given the
posslble adverse effects of possible asymmetsical retaliations on the EU
subsidiarles in Russia, but it is technically possible to add them in
subsequent rounds.
The efficiency of the measure strongly depends on coordinatbn with the
US. EU and US investors constitute the major portion of market
participants investing or assisting the investment in these financial
instruments and their venues are the major hubs for issuance.
Other jurisdlctionsluch
as Switzerland, Singapore, Hong Kong or Tokyo
would only provide significant substitution capacity over time, but they
could not fully compensate for the loss of EU and US investors.
As a possible next step the restriction could be tied to other sanctions in
the package, prohibiting subscription of bonds and equities from
companies operating in the sectors subject to sanctions (e.9. defence
companies as done by the US on 15 July).
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ln addition, all Russian targeted investors could be prohibited from using EU stock exchanges or
addition, all Russian targeted investors could be prohibited from using
EU stock
exchanges or any other trading venues to list and quote newly
issued securities.
Emborgo on tode in orms
Russia is both an exporter and importer of arms to and from EU Member
States. Russian exports (excluding dual use technologies) are worth EUR
(exports and imports)
3.2 biilion whire EU exports to Russia are around EUR 300 miilion. An
embargo on trade in arms courd be imposed on the whore defence
sector, apprying to alr the products risted in the EU common miritary rist.
Export licenses are a competence of Member States,
a Council
common position on arms export contrors intrdduced harmonised
criteria. Some Member States have already suspended granting licenses
to Russia. The restrictions would require a Council decision based on Art.
29, with some provisions also introduced in the Council
Regulation, in
particular concerning related technical and financial assistance.
The question on how to deal with prior contracts, needs to be addressed
politicarry by Member states. There are a number of
to dear
the issue, such as a clause of safeguard for the execution of contracts
signed before a certain date, which could
exports and imports and to spare parts
be equally applied to both
and servicing for existing
equipment. The embargo would be reversible.
Restrictions on exports oI Russian companies value access to dual use technologles and goods duol
Restrictions on
exports oI
Russian companies value access to dual use technologles and goods
duol use goods
produced in the EU. EU dual use goods exports to Russia amount to
around EUR 20 billion per year (military and civilian end users) Restricting
exports of certain categories of dual use goods could be an effective and
targeted measure. Such a measure has already been put in place by
some Member States on an individual basis.
The restriction would consist in an export ban for all dual goods for
military use, military end users or mixed end-users (companies active in
both the military and civilian sectors).
Restrictions could take the form of a prohibition to export to the
identified end users. National public authorities should refuse granting
the requested license when there are grounds t!
believe that it is for
military use or the end user is a military or a military/civilian company. To
perform the trade exporters should prove that it is not for a prohibited
The envisaged restriction would be reversible but also sdlable. lf
necessary, as an incremental step, it could be considered to restrict
export to all end users (including civilian end users) for a narrowly
defined set of highly sensitive dual use goods.
As an example this could concern:
special materials
quantum key distribution systems,
some machine tools,
high performance computers and electronics.
Total EU exports ofthe dual use technologies identified above amount to
around EUR 4 billion per year (20% of the total dual use exports to RU).
Dual use goods/technologies for which backfilling from third countries is
possible should not be included in the list.
Restrictions on exports ol
Russia needs EU technologies to develop some of the most competitive
and export-oriented sectors of its economy, including energy and steel
including in the field ol
production. EU exports of energy related technologies for non-
conventional oil and gas projects amountto approx. EUR 150 million per
year. The restriction to technology transfer in the field of energy would
only target long term production, so it should not disrupt current supply
and trade in energy products.
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The possibility for Russia to substitute such products and technologies originating from the EU or
The possibility for Russia to substitute such products and technologies
originating from the EU or US is low in view of the likely unavailability of
similar products (of similar degree of sophistication and quality)
For these key, high tech, high value added technologies, which are not
dual use goods, restrictions would take the form of a authorization
regime based on a Council decision and implementing
Regulation with a
prohibition to export the identified items when they are destined to
specific projects.
There would be a system of prior authorization for the sale, supply,
transfer or export, directly or indirectly, of the technologies listed in the
Council Regulation, whether or not originating in the-onion, for use in
Russia. Public authorities would deny export authorization of pre-
identified technologies when there are grounds to determine that the
products are destined for proiects in deep sea drilling, arctic exploration
and shale oil. Gas related projects would not be affected. An indicative
list of possible concerned items is annexed. The licensing system is to
ensure that the ban is selecilve, limiting the impact for exporilng
with international partners (US considering same type of
restrictions) as well as other non EU countries (Norway) would be
required to make the EU measure effective.
To note, that US only sanctions would still affect EU producers via the de
minimis rule according to which products with at least 25% of US content
would fall underthe export prohibition.
Restridions on
This restriction would cover the provision of technical and financial
reloted findncing in the
assistance like export credi! re-insurance
or other financial services
associated with trades in commodities which are themselves subject to
restrictions. lt is therefore a standard ancillary measure aimed at
assisting the enforcement of sanctions.
The measure would negatively impact on Russia by increasing the cost of
accessing to those services in alternative markets (cost increase
estimated to around 1-2%). There could be negative impacts for service
providers, although a loss of revenue would occur anyway due to the
restriction of the related trades. The US are ready to take a similar
measure. lf sanctions only apply to some categories of dual use
technologies, it would have a very modest impact.
fuoeedumttiixcts Trade and financial seMces measures - including those targetiag dual use goods and sensitive
Trade and financial seMces measures - including those targetiag dual use goods and sensitive
technologies - may be adopted through a CFSP council Decision based on a,t. 29 TEU (unanimity,
based on a EEAS proposal) and then a Regulat'ron based on artkle 215(1) TFEU (by qualified majority,
EP informed, based on a joint HR/COM proposal).
An:arms embargo iivould require a CFSP CqrrncilBecision basedonart.29
TEU (unanimity, baed on a
EEA5 proposau and th €n a Regulation based on aiticle 215(1) TFEU (by qualified maiority, EP
informe4 based on a,oint HR/COM proposal).