EU steps up efforts to clamp down on Russia sanctions evasion

Good morning. You’ll receive the newsletter from me this week while Henry is away. We’ve learned Azerbaijan and Armenia will resume peace talks in Brussels this weekend, after a recent uptick in fighting over the territory of Nagorno-Karabakh.

Today, our Brussels bureau chief and our trade correspondent discuss the next package of Russia sanctions. And my colleague explains why EU demands on critical raw materials have been rebuffed by Australia.

Whack-a-mole

The EU’s 11th package of sanctions on Russia is meant to be an exercise in closing down loopholes. But that doesn’t mean it will be easy to land, write Sam Fleming and Andy Bounds.

Context: EU members want to further tighten the noose around key sectors of the Russian economy. But with little left to hit there, the discussions have focused on countering sanctions evasion through third countries.

Among the most radical ideas is a mechanism that would allow the EU to restrict sales of certain products to other third countries that then leak into Russia.

Critics, however, fear that targeting countries through which banned goods transit could alienate them. “We want to do this in such a way that we don’t push those third countries towards China or Russia,” an EU diplomat said.

According to the text, which will need to be unanimously approved by member states, the bloc would first try to counter circumvention through diplomatic means, using more restrictive measures for certain goods as last resort.

The sanctions would, if approved, also explicitly target a handful of companies in countries including China, because of claims they are selling equipment that could be used in weapons. Member state representatives will discuss the draft on Wednesday, and it could still change.

Other parts of the proposed package focus on ironing out wrinkles and listing dozens of new individuals and entities.

Brussels has, for example, proposed ending the temporary exemption from the Russian oil embargo for the north Druzhba pipeline to Poland and Germany.

The proposed sanctions also include ending the transit of certain goods through Russia and fresh export controls for newly identified dual-use goods.

More controversial proposals such as imposing sanctions on the Russian nuclear sector did not make it into the current text.

Still, expect lengthy discussions. “Experience has shown that these proposals need to be studied in detail,” one senior EU diplomat said.

Chart du jour: (No) deal

In March, Serbia and Kosovo struck a deal that would pave the way for Belgrade to recognise its former province as a sovereign state. But the agreement has begun to unravel.

Critical talks

The EU and Australia are edging closer to a free trade deal, but a European push for safeguards on raw material prices has received short shrift in recent negotiations, writes Ian Johnston.

Context: Europe wants to diversify its supply chains of critical raw materials used in technologies such as electric cars, and Australia is a leading producer of minerals such as lithium and cobalt. A trade agreement could boost EU access to these products and reduce reliance on China.

The commission wants EU countries to extract at least 10 per cent of the strategic raw materials they use by 2030. It is also aiming for 40 per cent self-sufficiency in raw materials processing.

“Critical raw materials diplomacy” will be key to making up for the current shortfall, an EU official said last week. But these efforts hit a stumbling block at a recent round of talks with Australian negotiators.

Australian officials rebuffed EU requests for it to rule out ever implementing export price controls on its raw materials, according to a person familiar with the negotiations.

A similar clause was included in the EU’s recent trade deal with Chile, and would prevent Australia from charging EU purchasers of Australian raw materials more than local buyers.

But Canberra did not wish to “tie its hands”, the person said. Australian states and territories also have a say on resource management, complicating the request.

Other sticking points include EU access to Australian agricultural products. The bloc also wants Australia to accept its rules on geographically protected products, which would mean that Australian feta or parmesan producers would have to rename their goods.

Chief negotiators will meet again at the end of May in Australia as talks enter the end phase. “We aim to conclude by this summer, but only if progress on substance allows this,” the commission said.

What to watch today

1. EU parliament kicks off plenary session in Strasbourg.

2. German economy minister Robert Habeck and EU competition commissioner Margrethe Vestager meet to talk economic transformation.

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