Republic of Belarus and the Russian Federation: Sanctions and Tariffs

Siobhain McDonagh Excerpts

Wednesday 8th March 2023 Westminster Hall

[Yvonne Fovargue (in the Chair)]

I will call Siobhain McDonagh to move the motion and then the Minister to respond. There will not be an opportunity for the Member in charge to wind up, as is the convention for 30-minute debates.

[Siobhain McDonagh (Mitcham and Morden) (Lab)]

I beg to move,

That this House has considered sanctions and tariffs on Belarus and Russia.

It is a pleasure to serve under your chairship, Ms Fovargue. Sanctions and the war in Ukraine have been given a great deal of attention, and rightly so. It is fitting that just downstairs in Westminster Hall, Volodymyr Zelensky, the President of Ukraine, was able to address parliamentarians from both sides of the House. Members of all parties have been united in their response to the illegal invasion of Ukraine, and I hope we can continue that cross-party consensus today.

I want to make it clear that I have not held this debate to undermine the Government’s policies on sanctions and tariffs against Russia and Belarus. I am on board with the policy. I agree that we must isolate both Belarus’s and Russia’s economies and target the key industries that support President Putin’s illegal war in Ukraine.

[Jim Shannon (Strangford) (DUP)]

I commend the hon. Lady for securing the debate, and I concur with her comments. Does she agree that, although we have huge compassion for the Russian and Belarusian people, who are paying the price for their dictators’ decisions, we must increase the pace of our sanctions on these nations and ensure that the price for those decisions is paid where it hurts—in the pockets of the oligarchs?

[Siobhain McDonagh]

I agree with the hon. Member. The sanctions regime is integral to Britain’s role in supporting Ukraine and holding Putin’s regime accountable for the acts of violence that it continues to perpetrate against civilians across Ukraine.

[Hywel Williams (Arfon) (PC)]

I am grateful to be able to add my voice, and that of my party, to the hon. Lady’s comments. Our concern is that the sanctions regime is not being extended far enough and specifically to countries in the developing world that are being seduced by Russia to trade with it.

[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.

[Matt Rodda (Reading East) (Lab)]

rose—

[Yvonne Fovargue (in the Chair)]

Order. If the hon. Member wishes to speak, did he obtain the permission of the Member in charge and the Minister prior to the debate?

[Siobhain McDonagh]

I am happy for anyone to contribute to the debate.

[The Parliamentary Under-Secretary of State for Foreign, Commonwealth and Development Affairs (David Rutley)]

indicated assent.