Republic of Belarus and the Russian Federation: Sanctions and Tariffs

Iain Duncan Smith Excerpts

Wednesday 8th March 2023 Westminster Hall

[Siobhain McDonagh]

I agree with the hon. Member entirely.

This winter, the people of Ukraine carried on through the difficult war that they face, and we need to back their bravery by being brave and bold with sanctions and tariffs. However, the joint sentiments are worthless if things do not happen in practice, and sadly this is the case for a business group in my constituency. I recently met SGG Manufacturing Ltd, JDUK Ltd and Alunet Systems Ltd—a small group of wholly UK-owned businesses that I am glad to see represented here today. They are based in a number of MPs’ constituencies—particularly that of the hon. Member for Dewsbury (Mark Eastwood), who apologises that he is unable to attend, but he is absolutely on board with the case that I am about to raise.

Prior to the war, the businesses were, in part, the sole and exclusive distributors of a Belarusian manufacturer. They imported and distributed aluminium extrusions and products from Belarus. For example, they supplied components for roller garage doors—not the most glamorous of products, I agree, but over 10 years these British businesses had grown their revenue to £30 million per annum. Over 10 years, they had managed to supply 30% to 50% of roller garage doors in the UK using their components.

Then, the war in Ukraine happened. In response, the businesses did the right thing. They decided to abandon their exclusive contract with the Belarusian manufacturer and sourced their components from elsewhere in Europe—a decision that was expensive, risky and lengthy but nevertheless the right thing to do. The Government then introduced additional tariffs of 35% on Belarusian and Russian goods, which made it clear that the decision by those businesses was not just the moral thing to do but the right thing to do from a business perspective—that is, if the sanctions and tariffs were implemented effectively. Unfortunately, they were not.

The original Belarusian supplier is now managing to circumvent the sanctions and is continuing to import banned products. It is also able to pay the relatively low additional tariff of 35% with ease, so it can operate very competitively in the market. The British group, based in my constituency, has played by the rules and has had to find a more expensive manufacturer elsewhere in Europe.

[Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)]

I congratulate the hon. Lady on securing this debate. I am the co-chair of the all-party parliamentary group on Magnitsky sanctions, and we recently looked carefully at the implementation—the reality, as opposed to the Government’s rhetoric. We are discovering that there are big holes in what is actually happening, with far too little consideration given to the detailed implementation. We also sanction far fewer people who are guilty of transgressing our rules than the US does. The hon. Lady is on the right track, and I congratulate her on that, but perhaps she would like to press the Government further to increase the number of people and businesses they sanction and to make sure they do it properly.

[Siobhain McDonagh]

I thank the right hon. Gentleman and congratulate him on all the work he does on not only Russia but China. We often work together. This debate is not about the grand scope of the sanctions, but about the nuts, bolts and garage doors of how they are working on the ground for British businesses and Belarusian businesses.

The Belarusian company appears to be stealing the British company’s customer base by avoiding the sanctions, absorbing the additional tariff and undercutting the British company by supplying at a lower rate. Most people would call that dumping, and it has led to a loss of roughly £10 million in revenue for this British company based in my constituency.

As has been said many times in the Commons, Russia and Belarus are trying to get round sanctions on an industrial scale, and this seems to be a case in point. I have detailed evidence of how the Belarusian company is evading sanctions, and I would like to state it for Hansard so that it is in the public domain. I also note that, although the Office of Financial Sanctions Implementation at His Majesty’s Revenue and Customs is responsible for enforcing specific cases, the Foreign, Commonwealth and Development Office is responsible for drawing up the sanctions and tariffs legislation.

As I tried to explain to the Minister informally last night, the way the company is avoiding sanctions is unbelievable: it is starting some of its goods in Russia. There is a list of sanctioned products codes for Russia and one for Belarus, and in some instances, the two lists do not match. As a result, a product could be sanctioned in Belarus but not sanctioned if it comes from Russia. That is exactly what is happening. The tariffs apply to all iron and steel commodity codes starting 72 and 73 in Belarus, but they apply to only specific iron and steel products that begin with commodity codes 72 and 73 in Russia. That means that some of the goods that the Belarusian company supplies are sanctioned if they are imported from Belarus but not if they are imported from Russia.

The Belarusian company supposedly managed to move an entire factory’s worth to Russia so that it can still import the goods sanctioned from Belarus into the UK tariff free, all the while undercutting a British business. I have been able to get hold of an email from the Belarusian company to one of those customers to prove that. It stated:

“We would like to clarify the situation with regard to the current import of sectional doors and operators to the UK.”

The company says:

“Since the UK Government has introduced economic trade and transport sanctions on Belarus,”

it has

“imported garage doors from our Russian factory”.

It states that

“shipments fully comply with import restrictions by the Government of the United Kingdom in the last months.”

There we have it. Because of the way our sanctions list has been drawn up, Belarusian companies are avoiding sanctions. They are manufacturing and shipping products that were originally from Belarus, and are now supposedly from Russia, to avoid the sanctions. I am glad that the Foreign Office Minister is present today, and I hope that the sanctions list is updated, because it is costing a business in my constituency millions of pounds.

In other cases, this Belarusian company is assigning its products a new, intentionally incorrect but unsanctioned commodity code, enabling it to import to the UK sanction-free. I got hold of an email from this company to one of its customers to prove that. The measures are quite technical, so I hope hon. Members will forgive me if I go through them in a little detail. The company stated:

“We are looking for a way to supply you with roll tubes which are currently banned from entering the EU due to their commodity code 7308905900, and it seems like we have found an option. We can bundle the roll tubes with other items. This will have a different name and a commodity code which can be imported to the EU and the UK.”

The company can change the commodity code to one that is allowed to enter the UK from Belarus, and it can evade sanctions altogether. The most egregious part is that the Belarusian company is now approaching the former customers of the British business in my constituency and offering to supply them directly, profiting and expanding its business because of the war in Ukraine. It is just unbelievable. If that is happening in one company, surely it is happening in a number of businesses right across the UK.

It is important that President Zelensky comes to Parliament to speak, that our Opposition and Government leaders visit Kyiv and that we all get together to stress how strong our sanctions and tariffs need to be. However, it makes a difference only if the detail is correct. The sanctions are effective only if the product lists are drawn up effectively and we are able to target Belarusian and Russian businesses. Tariffs are effective only if they are high enough to make goods originating from a country uncompetitive. In the recent co-ordinated package of sanctions by the US, EU and UK, only the US increased tariffs on metals by up to 200%.

As we know, Putin and his cronies will be seeking every single loophole, omission and error to try to circumvent the sanctions. It is quite clear that Russia and Belarus are actively trying to get round sanctions and absorb tariffs on an industrial scale. Currently, companies are claiming that their goods originate in Russia to avoid sanctions. That is absurd. I hope that the Minister can provide more information about that and explain how we will close the loopholes that Russia and Belarus are using.

We can have the toughest regime on paper, but if Russia and Belarus are finding ways round it in practice and costing UK businesses, we have not done the right thing. I ask the Minister to address the detail and the consequences for British business. If he is in a position to do so, I would welcome it if he gave a few minutes after the debate to the businesses that are here today.

--- Later in debate ---

[David Rutley]

I will come on to what we are doing to tackle circumvention in a little more detail. The Russians are doing everything they can to try to avoid these sanctions, because they are biting on their economy. We continually need to refresh our sanctions approach to respond to that, and we are.

The hon. Member for Mitcham and Morden will be aware that a letter to the Foreign Secretary in January was passed to HMRC, as the lead enforcement authority for trade sanctions, for further review. As I am sure she will understand, HMRC cannot and does not comment on specific cases. However, I can assure her that the Government and HMRC take this and all reported alleged sanctions violations very seriously indeed.

I will take this opportunity to acknowledge the important role that businesses can and do play in providing us with information and intelligence about suspected sanctions breaches, such as by self-reporting. That is an important part of our sanctions enforcement architecture, and it is vital to help to inform the action that is taken.

The hon. Lady asked about steel and aluminium products. That issue relates to differences in the scope of the UK’s Russia and Belarus sanctions regimes, as has been highlighted by a number of colleagues. Different regimes serve different foreign policy objectives. Although there are links between Russia and Belarus sanctions, they are distinct. We keep our sanctions under review. Given Russia’s ongoing and outrageous actions in Ukraine, we have continued to bring forward new measures since the invasion last year.

[Sir Iain Duncan Smith]

I understand where the Minister is now, but is not the problem that there seems to be no exchange between Departments as to exactly how this works? It seems illogical to me that different countries now sanction different groups and industries in different ways. Surely, the key here—this relates to the measure that I raised earlier—is that we now sanction far fewer individuals than the United States does. On industrial sanctions, we seem to have no common purpose. With respect to the Minister, and I am a big supporter of his, he should surely go back to his Department and set out that it is not good enough to say there are different regimes. We know how involved Belarus is with Russia, and we know what the links are. We should treat them both exactly the same and get on with it.

[David Rutley]

I thank my right hon. Friend, who knows that I am also his fan, because we worked together—or, rather, I worked for him a long time ago; let us be clear about that. I respect him enormously on a range of issues.

I say gently that the UK has worked closely with our international partners to maximise the impact of our sanctions, and we have taken co-ordinated action to ratchet up economic pressure on Russia. It is not just about comparison, although I know my right hon. Friend is very hot on that issue; it is also about collective action to ensure we get maximum impact. We have demonstrated leadership in the most impactful areas. For example, we are the only international partners with designated top executives at Rosatom, the Russian state nuclear corporation—a key Ukrainian priority.

Let me come back briefly to sanctions circumvention, which is an important issue. We will continue to bear down on Russia and Belarus by implementing further sanctions and leaning in to tackle Russia’s attempt to circumvent measures that are already in place, as we have done over the past year. That means coming down hard on sanctions evaders, closing loopholes and working with our international partners to undermine Russia’s attempts to build global resilience to western sanctions. That includes through the G7, which reaffirmed unwavering support for Ukraine on 24 February, one year on from Russia’s illegal invasion.

We are also addressing the threat of third country circumvention—that is a point that the hon. Member for Mitcham and Morden made earlier—by using diplomatic channels to limit the size of the international market to which Russia can turn. The UK Government and our law enforcement agencies are using a range of tools to ensure that all forms of circumvention are identified and tackled, including by taking criminal enforcement action where appropriate.

We are taking action and having an effect, but I understand the points that have been raised. We will continually review our sanctions package and enforcement measures, and we will come down as hard as we can on those who seek to evade and avoid the sanctions regime.

Question put and agreed to.