EU steps up efforts to crack down on Russian sanctions evasion

Good morning. You will receive my newsletter this week while Henry is away. We learned Azerbaijan and Armenia will resume peace talks in Brussels this weekend, after a recent increase in fighting on the territory of Nagorno-Karabakh.

Today, our Brussels bureau chief and trade correspondent are discussing the upcoming package of sanctions on Russia. And my colleague explains why EU requests on critical raw materials have been rejected by Australia.

Hit a mole

The 11th EU sanctions package against Russia is meant to be a gap-filling exercise. But that doesn’t mean it will be easy to land, write Sam Fleming AND Andy Limits.

Context: EU members want to further tighten the noose around key sectors of the Russian economy. But with little to hit therediscussions focused on tackling sanctions evasion via third countries.

Among the more radical ideas is a mechanism that would do this allow the EU to restrict sales of certain products to other third countries which then filter into Russia.

Critics, however, fear that targeting countries through which banned goods transit could alienate them. “We want to do it in a way that we don’t push those third countries towards China or Russia,” an EU diplomat said.

According to the text, which will have to be approved unanimously by member states, the bloc will first try to counter tax avoidance through diplomatic means, using more restrictive measures for some goods as a last resort.

The sanctions if approved, it would also explicitly target a handful of companies in countries including China, due to claims they are selling equipment that could be used in weapons. Member state representatives will discuss the draft on Wednesday and it could still change.

Other parts of the proposed package focus on smoothing out wrinkles and listing dozens of new individuals and entities.

Brussels, for example, has proposed to put an end to the temporary exemption from the Russian oil embargo for the Druzhba pipeline north to Poland and Germany.

The proposed sanctions also include an end to the transit of certain goods through Russia and new export controls for newly identified dual-use goods.

More controversial proposals such as imposing sanctions on Russia’s nuclear sector have not been incorporated into the current text.

However, expect long discussions. “Experience has shown that these proposals need to be studied in detail,” said a senior EU diplomat.

Chart du jour: (No) agreement

In March, Serbia and Kosovo reached an agreement that would have paved the way for Belgrade to recognize its former province as a sovereign state. But the deal began to fall apart.

Critical speeches

The EU and Australia are moving closer to a free trade deal, but a European push to safeguard commodity prices has received little attention in recent negotiations. writes Ian Johnston.

Context: Europe wants it diversify their supply chains of critical raw materials used in technologies such as electric cars, and Australia is a major producer of minerals such as lithium and cobalt. A trade deal could boost EU access to these products and reduce dependence on China.

The commission wants EU countries to extract at least 10 percent of the strategic raw materials they use by 2030. It also aims for 40% self-sufficiency in the processing of raw materials.

“Critical raw materials diplomacy” will be key to filling the current shortage, an EU official said last week. But those efforts hit a snag in a recent round of talks with Australian negotiators.

Australian officials have rejected calls by the EU to rule out implementing export price controls on its commodities, according to a person familiar with the negotiations.

A similar clause was included in the EU’s recent trade deal with Chile and would prevent Australia from charging EU buyers more for Australian raw materials than local buyers.

But Canberra didn’t want to “tie their hands,” the person said. Australian states and territories also have a say in resource management, complicating the request.

Other sticking points include EU access to Australian agricultural products. The bloc also wants Australia to accept its rules geographically protected productswhich would mean Australian producers of feta or parmesan would have to rebrand their products.

The chief negotiators will meet again at the end of May in Australia as the talks enter their final phase. “We aim to conclude by this summer, but only if substantial progress allows,” the commission said.

What to watch today

1. EU parliament opens the plenary session in Strasbourg.

2. German Economy Minister Robert Habeck and European Competition Commissioner Margrethe Vestager meet at talk about economic transformation.

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