EU sanctions envoy David O’Sullivan said at an event in Brussels on Wednesday that the move aims to block the flow of sensitive goods that may be aiding Russia’s military efforts.
He said: “A lot of the product going through China [to Russia] is coming from subsidiaries of western companies in Southeast Asia.
“We are focusing our efforts more on trying to stop the transshipment from there through to China.”
Since Russia's full-scale invasion of Ukraine, the EU has implemented 14 rounds of sanctions against Moscow. These include export restrictions designed to stop Russia from obtaining critical goods for its war machine.
The measures also prohibit the re-export of certain sensitive items through third-party nations.
However, further sanction proposals, which require unanimous agreement among all 27 EU member states, have become increasingly difficult to negotiate as they often risk negatively impacting the economies of individual member countries.
No resale clause
O’Sullivan mentioned that the idea of extending controls to subsidiaries of European companies was discussed in a recent meeting involving businesses and European Commissioners Valdis Dombrovskis and Mairead McGuinness.
“One of the ideas we had was to extend the no resale to Russia clause...which we now wanted to extend to subsidiaries,” O’Sullivan said.
This potential expansion of sanctions is expected to be a divisive issue within the EU as it would place additional burdens on the businesses involved. O’Sullivan said the European Commission is currently conducting an impact assessment to explore how such measures might be implemented, with the findings potentially influencing a future sanctions package.
The BBC reported in February that research suggested that millions of barrels of fuel derived from Russian oil were still being imported into the U.K. despite the sanctions.
Due to a loophole, Russian crude oil could be refined in countries like India, with the resulting products then sold to the U.K.
Two EU diplomats acknowledged that earlier attempts to extend the re-export bans on Russia were not well-received, the Financial Times reported. However, they suggested that the results of the impact assessment could offer a new basis for reviving the discussion.
Stricter regulations
Olena Bilousova, a sanctions expert from the Kyiv School of Economics Institute, highlighted the need for stricter regulations on subsidiaries.
“Stronger regulations for subsidiaries are crucial but should also be paired with monitoring and holding companies to account for negligence,” Bilousova said.
While these proposed sanctions would enhance the EU’s efforts, they would still not be as comprehensive as the U.S. system. The U.S. regulates any product manufactured using American technology or equipment, even if it is produced abroad by foreign companies.
In its latest sanctions package, introduced in July, the EU granted itself the authority to target financial institutions outside its borders if they are found to be facilitating trade with Russia.
This move mirrors a strategy previously employed by the U.S., the Financial Times reported.
“The U.S. threatened one bank in China, one bank in Turkey, and one bank in the UAE. And the mere threat of imposing the sanctions was sufficient for these financial institutions to stop all business,” O’Sullivan said.
Trade data analyzed by the Financial Times shows that exports of key war-related goods from China and Turkey to Russia plummeted after the U.S. took similar actions in December.
The EU and its G7 partners are scheduled to meet next week to review their financial sanctions strategies and share insights.
