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European Union set to add luxury goods, steel, iron to Russia sanctions

  • ASSOCIATED PRESS / 2008
                                The Manezh exhibition hall where the Extravaganza 2008 exhibition, a luxury lifestyle show, opened outside the Kremlin in Moscow. Amid global economic turmoil, lower oil prices and world credit crunch, Russia is being increasingly pinched, leading many to wonder whether the country’s fabulously wealthy will be able to maintain their reputation as wild spenders on luxury goods.

    ASSOCIATED PRESS / 2008

    The Manezh exhibition hall where the Extravaganza 2008 exhibition, a luxury lifestyle show, opened outside the Kremlin in Moscow. Amid global economic turmoil, lower oil prices and world credit crunch, Russia is being increasingly pinched, leading many to wonder whether the country’s fabulously wealthy will be able to maintain their reputation as wild spenders on luxury goods.

The European Union is set to approve banning the sale to Russia of luxury goods worth more than 300 euros ($329.58), as well as the purchase of many Russian steel and iron products as part of the fourth round of sanctions over the invasion of Ukraine, according to a draft obtained by Bloomberg.

EU diplomats on Monday teed up the stricter measures, which also include a ban on new investments in Russian energy projects, after several days of closed-door debate. They could be formally adopted as early as Tuesday morning.

The bloc is banning the sale of luxury cars, boats and planes valued at more than 50,000 euros, which would apply to models from several European car brands, including Audi, BMW, Mercedes, Ferrari and Porsche. It also covers motorcycles worth more than 5,000 euros, as well as parts and accessories. Many European carmakers have already voluntarily suspended sales to Russia. The package also blocks access for Russia to credit rating services.

The EU is also set to sanctions more wealthy Russians and to join allies in backing a push to remove Russia’s most favored nation status at the World Trade Organization. The WTO’s principle of most-favored-nation nondiscrimination requires its members to offer the same tariff rates equally to all of the organization’s 164 members, which makes it a cornerstone principle of the WTO and a key reason for nations to participate.

The new sanctions package does include some exemptions, particularly related to energy and metals. For example, it won’t ban transactions needed for purchasing or transporting Russian fossil fuels. It also exempts titanium, aluminum, copper, nickel, palladium and iron ore from the restrictions.

While most finished Russian steel products are included in the sanctions, precursors like slabs and billet aren’t. Many EU mills rely on Russia’s exports for those materials and would struggle to replace them if the country’s supplies were restricted.

Still, the measures will serve to further tighten the EU steel market which is already suffering from the loss of Ukrainian shipments. Russia provides about a fifth of the bloc’s steel imports.

The debate Monday behind closed doors among EU ambassadors was sharply split, according to a person familiar with the meeting. Poland and the Baltic nations pushed for a stricter set of penalties, but countries led by Germany successfully pushed to exclude a number of valuable products from the EU’s list, the person said.

LUXURY GOODS

When it comes to luxury goods, the ban applies to the sale of certain products with a value of more than 300 euros per item to anyone in Russia or for use in Russia. The list of restricted items includes caviar, truffles, beer, champagne, cigars, perfumes, handbags, leather and fur apparel, overcoats, suits, shoes, shirts and other assorted clothing items, pearls, diamonds, gold and precious stones.

The EU’s export ban targets a list of nearly 400 European export categories to Russia worth around $25 billion per year, according to Bloomberg calculations based on data from the International Trade Center.

The EU’s most valuable exports on the list include cars and parts, computers, machinery, smartphones, turbojets, makeup, women’s clothing, wine, spirits, shoes and leather bags.

The level at which to set the threshold was the subject of much debate among member states, with lobby groups pushing several governments to agree on high values, separate documents seen by Bloomberg show. The catch-all 300-euro threshold means that some of the categories will be mostly unscathed by the ban.

As with earlier trade penalties imposed on Russia, existing contracts are shielded from some of the measures included in this package, with the implementation dates delayed by several months.

Some of the moves carry more symbolic weight than economic bite. For example, Russia represents about 2% of global sales for Europe’s major luxury vehicle brands, and robust global demand could compensate for lower exports to Russia, according to Bloomberg Intelligence.

Mercedes, BMW and Porsche and Audi parent Volkswagen AG already announced stops on exports to Russia earlier this month.

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