Withdrawal of MFN duty rates on imports from Russia

In light of the international situation surrounding Ukraine, a set of sanction measures against Russia ("The proposed act partially amending the Temporary Tariff Measures Act" and "The proposed act partially amending the Foreign Exchange and Foreign Trade Act") was implemented by Japan on 21 April 2022. These sanctions bring Japan in line with measures taken by the international community including the G7 countries. Those measures resulted in the withdrawal of the Most-Favored-Nation (MFN) duty rates on Russian imports.¹

Measures regarding duty rates imposed on Russian imports²

On 20 April 2022, a plenary session of Japan's House of Councilors approved an act partially amending the Temporary Tariff Measures Act, which was enforced on 21 April 2022. As a result, the application of the MFN tariff rates to World Trade Organization members, as stipulated in General Agreement on Tariffs and Trade Article I, Section1, was suspended for all imports from Russia, and the general rate (with temporary Rate, if applicable) will be imposed on them. The measure affects tariff rates especially on seafood and lumber imported from Russia, with snow crab tariffs increased from 4% to 6%, sockeye salmon from 3.5% to 5%, and pine (lumber) from 4.8% to 8%. Tariff rates on liquefied natural gas, nonferrous metals, and coal are not affected because they are tax-free at the general rate.

In addition to these changes in import duty rates, there has been various other export- and import-related measures related to Russia that have been introduced as of publication of this Alert. Some of the sanction measures are summarized below.

Prohibition on imports of certain goods from Russia³

The importation from Russia of certain goods specified in the Ministry of Economy, Trade and Industry (METI) Notification are subject to approval from 19 April 2022 onwards. Examples of prohibited items include alcoholic beverages, wood (chips, logs and veneer), machinery and electrical machinery.

Export prohibitions to Russia and Belarus

On 26 February, 1 March, 3 March, and 8 March 2022, Japan's Cabinet approved the introduction of measures to tighten screening procedures and prohibit exports to Russia and Belarus of items subject to the international export control regime and of general-purpose items and services that may contribute to strengthening military capabilities. Based on the Cabinet decision, the Cabinet also approved a Cabinet Order partially amending the Export Trade Control Order, and a set of sanction measures, such as the prohibition of exports of the subject items to Russia, that have been in effect since 18 March 2022.

Furthermore, based on the Cabinet decisions of 25 March and 29 March 2022, a prohibition on the export of luxury goods to Russia⁴ was introduced. The export prohibition on banknotes, among others, was also introduced by the amendment of the Ministry of Finance Notification based on Article 8, Paragraph 1 of the Foreign Exchange Order. These measures have been in effect since 5 April 2022.

Introduction of stricter screening procedures

Japan will amend the requirements for comprehensive permits as well as documents to be submitted for the export of goods that are destined to Russia and Belarus. In principle, exports are prohibited with some exceptional goods and those for a specific purpose. Provisions include;

1. The special general comprehensive permit, specific comprehensive permit and specified subsidiary comprehensive permit will no longer be available for said goods. Application and individual examination are also required for each export.
2. Document submission requirements for a permit application are to be amended.⁵
3. Permit applications are to be submitted to the Ministry (head office) in principle.

Export prohibitions to Russia and Belarus⁶

Export prohibitions include:

1. Prohibition on exports of listed items subject to international export control regime (arms and military-usable goods falling under items 1-15 of Appended Table 1 of the Export Trade Control Order)
   * Examples of prohibited items: machine tools, carbon fiber, high-performance semiconductors
2. Prohibitions on exports to specific organizations
   * Target organizations: Russian Ministry of Defense, Russian aircraft manufacturers, among others
3. Prohibition on exports of general-purpose goods that contribute to strengthening the military capabilities
   * Examples of subject items: semiconductors, computers, general purpose products such as telecommunications equipment and its related technologies
4. Prohibition on exports to and import from the self-proclaimed "Donetsk People's Republic" and the "Luhansk People's Republic"
5. Export Prohibition of Luxury Goods (Export Prohibition under the Export Trade Control Order)
   * Subject items: alcoholic beverages, tobacco products, perfumes, cosmetics, leather goods, fur clothing, footwear (exceeding 100,000 yen), hats (exceeding 100,000 yen), carpets, jewelry, ceramics, glassware, diving apparatus, passenger cars (exceeding 6 million yen), motorcycles (exceeding 600,000 yen), laptop computers, watches (using precious metals), grand Pianos (over 200,000 yen), works of art, and works of artifacts
6. Export prohibition of certain regulated luxury goods based on Notification issued by Ministry of Finance)
   * Subject items: paper money, gold coins, gold bullion
7. Prohibition of exports of Advanced Goods and Technology (Implemented on 20 May)
   * Examples of prohibited items: quantum computer,3D printer and related technology.

Japan's import and export regulations for Russia are constantly changing day by day to align with other countries. Therefore, it may be said that it is becoming increasingly important for companies operating in Japan that have businesses with Russia to establish internal procedures to constantly monitor and assess new restrictions and to build a supply chain network that is more resilient that can adapt to such new restrictions.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Co., Chiyoda-ku

• Yoichi Ohira | yoichi.ohira@jp.ey.com

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ENDNOTES

¹ "The proposed act partially amending the Temporary Tariff Measures Act" and "The proposed act partially amending the Foreign Exchange and Foreign Trade Act."

² Withdrawal of MFN tax rates on imports from Russia
https://www.mof.go.jp/about_mof/councils/customs_foreign_exchange/sub-of_customs/proceedings_customs/material/20220328/kana20220328siryo1.pdf.

³ Prohibition of imports of certain goods from Russia
https://www.meti.go.jp/policy/external_economy/trade_control/01_seido/04_seisai/downloadCrimea/20220412sanko.pdf.

⁴ Export prohibition of luxury goods to Russia
https://www.meti.go.jp/press/2021/03/20220329007/20220329007-5.pdf.

⁵ The documents required for application are published on the METI website.
https://www.meti.go.jp/policy/external_economy/trade_control/02_export/17_russia/russia.html.

⁶ Amendment of the Export Trade Control Order, etc. pursuant to the Foreign Exchange and Foreign Trade Act
https://www.meti.go.jp/press/2021/03/20220315007/20220315007-1.pdf.