Economic Security and Trade Practice (the Situation in Russia and Ukraine)

Sep 2022

Update	Sep 27, 2022
Practice Areas	Economic Security and International Trade

Update on the Situation in Russia and Ukraine

In connection with Russia's military aggression against Ukraine instigated on February 24, 2022, the Government of Japan has implemented economic sanctions against Russia beginning February 26, 2022, aligning itself thereby with the EU and other countries. The Government of Japan has since implemented additional sanctions.

For more information, please refer to the newsletter below.

Aug 19, 2022

Outline of economic sanctions against Russia resulting from the situation in Ukraine (4)

1. Expansion of Designated Persons Subject to an Asset Freeze
2. Export Ban
3. Import Ban
4. Ban on the provision of certain services

Jun 3, 2022

Outline of economic sanctions against Russia resulting from the situation in Ukraine (3)

1. Expansion of Designated Persons Subject to an Asset Freeze
2. Ban on New Investment and Long-term Loans to the Russian Federation
3. Import Ban

Apr 4, 2022

Outline of economic sanctions against Russia resulting from the situation in Ukraine (2)

1. Expansion of Designated Persons Subject to an Asset Freeze
2. Materialization of Export Control

Mar 15, 2022

Outline of economic sanctions against Russia resulting from the situation in Ukraine (1)

1. History of Sanctions against Russia
2. Outline of Japan's Economic Sanctions related to the Invasion of Ukraine
3. Foreign Sanctions and Russian Counter-Sanctions

Q&A on the Situation in Russia and Ukraine

Q1.

We have a supply contract with a Russian company to supply goods, but due to sanctions imposed by Japan, Europe and the U.S., it has become difficult for us to supply the subject goods. Can we be exempted from the obligation to supply under the supply contract on the grounds of sanctions, etc.?

A. Although it depends on the terms of each contract, foreign sanctions against Russia are basically not taken into account in relation to Russian domestic laws and regulations. Therefore, as of April 7, 2022, it seems unlikely that foreign sanctions can be a valid ground for exemption from obligations under the contract in Russia. On the other hand, in Russia, an amended bill has been submitted to the Diet (the lower house of the Diet). The amended bill would exempt companies from liability or allow them to terminate contracts if they are unable to fulfill their obligations due to foreign sanctions. The amended bill states that such immunity and the possibility of contract termination do not apply to "persons who have contributed to foreign sanctions." It remains to be seen how the scope of "persons who have contributed to foreign sanctions" will be defined in future deliberations and practice.

Q2.

Can the supply contract be terminated due to inability to perform due to sanctions or other force majeure reasons?

A. Depending on the terms of each individual contract, it seems likely that it will be difficult to terminate the contract on the grounds of foreign sanctions as of April 7, 2022, because, as in the above, foreign sanctions against Russia are not taken into consideration in relation to Russian domestic laws and regulations, and the content of force majeure is interpreted in accordance with Russian law. In this regard, the above-mentioned amended bill should be kept in mind.

Q3.

We have a subsidiary in Moscow. I have heard that a law has been enacted in Russia to nationalize subsidiaries of foreign companies. Is this true?

A. The bill has already been announced, but as of April 7, 2022, it has not yet been submitted to the Diet (the lower house of the Diet). It is unclear whether or not it will be enacted, but we need to keep a close eye on the situation. According to the content of the bill announced at this time, when a foreign company of a certain size abandons its business, it will be placed under the control of an external receiver upon a court decision, and the receiver will be able to take measures such as selling the company's business to another investor.
It is important to note that the introduction of measures to counter foreign sanctions, including this bill, is being discussed in Russia, and the situation is changing on a daily basis.

Recent Developments in Economic Security Legislation

Amidst the growing interest in economic security in many countries due to the spread of the coronavirus infection and the invasion of Ukraine by Russia, in addition to the trade dispute between the U.S. and China, the "Act on the Promotion of Security Assurance through Integrated Economic Measures" (the so-called Economic Security Act) was passed in Japan on May 11, 2022. The content of the Act and its impact on the business practice has attracted significant attention.

For more information, see the AMT Newsletter entitled "The latest discussions on Economic Security Legislation in Japan" issued on March 2, 2022. READ MORE

Economic Security and Trade Practice at Our Firm

We have recently established our Economic Security and Trade Practice Group, which provides a wide range of economic security and trade-related services to domestic and foreign corporations, financial institutions, trading companies, and government agencies.

The field of economic security is a new area of legal practice that requires a broad range of responsiveness across numerous fields and jurisdictions in light of the rapidly changing international situation. We provide legal services that meet the needs and circumstances of our clients, backed both by the rich international diversity that we have cultivated since our establishment, and by our ability to respond quickly to our clients anywhere in the world thanks to seamless cooperation within our network of branch offices and affiliated firms. In particular, we have extensive experience in research, analysis, and strategic advice on foreign investment and direct investment regulations, security trade control regulations, economic sanctions, supply chains, cyber security, the business and human rights nexus, and on government transactions in Japan, the U.S., China, the EU, Russia, and other countries.

In the area of trade, the use of WTO agreements, Economic Partnership Agreements, and other rules as tools to resolve cross-border business issues faced by Japanese companies is becoming increasingly important. In this context we are able to take advantage of our extensive international network to offer a wide variety of services. Firstly, we provide investigation services, analysis resources, and smart policy recommendations on the international trade rules and trade regulations of numerous countries. Further, we furnish our clients with effective responses to anti-dumping, countervailing, safeguard, and other investigations in Japan, the U.S., China, India, and other countries, and provide legal advice on public procurement regulations. Finally, we advise and represent our clients on matters involving investment regulations, customs and import/export controls, trade regulations, and investment arbitration as a countermeasure against the violation of obligations of fair and equitable treatment, or expropriation, etc. in host country investments.

The following are examples of some of the work we have carried out for our clients in this area.

Economic Security Practices

1. Providing advice on Japan's economic security legislation

2. Investigating investment regulations from a security perspective and carrying out procedures related to investments

Investigation of investment regulations and handling of procedures related to the Japanese Foreign Exchange and Foreign Trade Act
Responding to procedures for CFIUS, etc. in the U.S.
Handling of similar procedures for major countries in Europe, China, etc.

3. Researching economic sanctions, assessment of risks from sanctions, and analysis of approaches

Investigation and response to economic sanctions imposed by the U.S. and Europe
Investigation and response to measures taken by China
Advice on economic sanctions taken against Russia and other countries

4. Human rights and risk governance-related

Establishment of basic policies, internal rules and regulations related to human rights
DD response related to human rights
Support for human rights risk management response in the supply chain

5. Investigation and providing responses related to export control

Establishment of internal rules for export control
Handling of foreign exchange law violation cases and internal investigations
Advice and risk response measures for export control legislation in the U.S. and China

6. Intellectual property and technology management

Advice on confidential patents, advice on the management of advanced technologies
Formulation of various internal rules related to intellectual property
Response to incidents of theft or leakage of trade secrets

7. Providing contract-related services from a security perspective

Managing risk in contracts from a security perspective
Advising on economic sanctions or on other factors that necessitate changes to a counterparty to a contract or contractual arrangements

8. Cyber data security-related

Research and providing responses related to regulations in major countries
Establishment of internal rules and regulations regarding cyber security and data handling
Establishment of internal rules and privacy policy, etc. regarding the protection of personal information
Support for response in the event of a cyber-attack

9. Defense-related business support

Trade Practices

1. WTO Agreements, Economic Partnership Agreements, etc.

Regulatory surveys and problem solving
Approaching governmental authorities

2. Responses to anti-dumping investigations, countervailing duty investigations, and safeguard investigations

Responses on behalf of Japanese companies and industries to investigations by foreign governments (China, India, U.S., etc.)
Petitions filed in Japan on behalf of Japanese industry

3. Investment agreements and investment treaty arbitration-related

Advice on the use of investment agreements and investment treaty arbitration
Filing and handling of investment arbitration claims against the host country

4. Various contracted services from government agencies

Providing advice on the use of investment agreements and investment treaty arbitration
Filing and handling of investment arbitration claims against the host country