1 Mar 2022

Sanctions will drive business rethink on dealing with Russia - international trade lawyer

2:24 pm on 1 March 2022

Companies who do business with Russia are struggling due to sanctions imposed on the country by nations around the world for its invasion of Ukraine.

No caption

Dairy products - primarily butter - made up the bulk of New Zealand's exports to Russia last year. Photo: RNZ / Eva Corlett

The sanctions - imposed by the United States, the UK, the EU, Australia, Canada and Japan - have what is called extra-territorial effect, which means the restrictions extend beyond their own borders.

A lawyer who specialises in international trade law at Minter Ellison Rudd Watts, Sarah Salmond, said New Zealand businesses were already restricted in how they could deal with Russia.

''There are a lot of banks that they are going to struggle to deal with going forward. It is going to be very difficult now to get paid."

She said a number of big Russian banks had been blacklisted, which meant "you just can't deal with them".

Companies were now prohibited from exporting items to Russia if they contributed to the Russian military's objectives.

''That's having a direct impact on a number of New Zealand businesses, who will have to rethink what they are doing with the Russian market.''

Salmond said some businesses dealing with Russia would pull out of the market because trading would be too difficult.

''Not the case for all businesses as some are exposed to much more risk than others, but certainly I think there will be certain types of business where you know the international sanctions restrict the ability to deal with the Russian market and are likely to do so for the forseeable future and therefore it is better left alone.''

Retaliatory sanctions from Russia were very likely to be imposed, as happened previously in response to Western sanctions imposed after the annexation of Crimea in 2014.

''There is every reason to believe that Russia will impose more import bans if it feels aggrieved by western sanctions.''

Salmond said New Zealand businesses needed to look very carefully at who they were doing business with and how they were getting paid, and they needed to make arrangements - particularly to change how they were getting paid at short notice, should that be necessary.

Business NZ is advising companies which trade with Russia to make sure they do not contravene any international sanctions imposed on the country.

New Zealand exports about $270m worth of goods to Russia, with imports totalling about $150m.

Business NZ's chief executive, Kirk Hope said businesses needed to be proactive.

''I think it is really important that they contact their counterparts in Russia to ensure that they can continue to do business legally and they are not in breach of any sanctions, because that is equally important.''

He said the biggest impact on New Zealand companies would be the increase in the price of global commodities, such as oil.

''That will have a more direct impact on prices at the pump, in an already difficult time.''

He said Russia was not a significant trading partner with New Zealand.

''I think if Russia behaves in this way, then reputationally it becomes really difficult for New Zealand businesses to do business in that way.''

A Ukrainian armoured personnel carrier (APC) BTR-4 destroyed as a result of fighting not far from the centre of Ukrainian city of Kharkiv on 28 February, 2022.

A Ukrainian armoured personnel carrier that was destroyed in the city of Kharkiv. Russia's actions over Ukraine make it difficult to justify doing business with it, a business leader says. Photo: AFP or licensors

Sanctions will hurt - academic

Professor of International Affairs at Otago University Robert Patman believed sanctions would hurt Russia quite substantially and quite soon but they would also have implications globally.

''We are already seeing a surge in oil prices because Russia is a major oil and gas exporter and we are seeing a rise in the global price of wheat, and sanctions will have effects that go beyond Russia.''

Patman said Russia was placing a lot of faith in China helping it to cushion any sanctions.

''I don't think Russia should put all its eggs in the China basket but at the moment it is running out of options and [Russia's President] Mr [Vladimir] Putin has created an international crisis and is now going to have to deal with the consequences.''

Get the RNZ app

for ad-free news and current affairs