"No re-export to Russia": compliant export contracts, Perspectives, INN.LAW

Introduction

On 18 December 2023, the European Council adopted the 12th sanctions package against Russia. The aim is to combat circumvention of EU export bans, in particular situations where goods exported to third countries are re-exported to Russia. One of the centrepieces is a so-called "no re-export to Russia" clause (the "No-Russia" clause). Under Article 12g(1) of Regulation (EU) No 833/2014 (consolidated version of 23 February 2024), companies are required from 20 March 2024 to include a clause in their contracts on the sale, supply, transfer, or export of goods and technologies to third countries that contractually prohibits re-export to Russia and re-export for use in Russia.

Scope

The "no re-export to Russia" clause has to be included only for the sale of the following goods and technologies:

Annex XI (in particular goods for use in the aerospace industry)
Annex XX (in particular jet fuels and fuel additives)
Annex XXXV (firearms and other weapons)
Annex XL (including circuits, semiconductor devices, certain electrical equipment)
Annex I to Regulation (EU) No 258/2012 (firearms and ammunition)

The duty applies to contracts with companies not established in the EU. Exceptions currently exist for the following partner countries: USA, Japan, the United Kingdom, South Korea, Australia, Canada, New Zealand, Norway, and Switzerland (see Annex VIII of Regulation (EU) 833/2014).

Legacy contracts

Contracts concluded before 19 December 2023 do not have to include a "no re-export to Russia" clause under Article 12g(2) of Regulation (EU) 833/2014 if they are performed by 19 December 2024. If they are performed only after 20 December 2024, they have to include the clause.

Contracts concluded after 19 December 2023 must include the "no re-export to Russia" clause from 20 March 2024 onwards.

EU Commission FAQ

On 22 February 2024, the EU Commission published FAQs (in English only) on Article 12g of Regulation (EU) 833/2014. They are well worth reading and include a model "no re-export to Russia" clause that complies with Article 12g (see below). Deviating wording is said to be possible and, under German law, also required (see the comments below). In the Commission's view, the clause must be an essential part of the contract and must contain appropriate remedies (left unspecified). Breaches of the re-export prohibition must be reported to the competent national authorities (in Germany, the Federal Office for Economic Affairs and Export Control, BAFA).

EU Commission model clause

(1) The [Importer/Buyer] shall not sell, export or re-export, directly or indirectly, to the Russian Federation or for use in the Russian Federation any goods supplied under or in connection with this Agreement that fall under the scope of Article 12g of Council Regulation (EU) No 833/2014.

(2) The [Importer/Buyer] shall undertake its best efforts to ensure that the purpose of paragraph (1) is not frustrated by any third parties further down the commercial chain, including by possible resellers.

(3) The [Importer/Buyer] shall set up and maintain an adequate monitoring mechanism to detect conduct by any third parties further down the commercial chain, including by possible resellers, that would frustrate the purpose of paragraph (1).

(4) Any violation of paragraphs (1), (2) or (3) shall constitute a material breach of an essential element of this Agreement, and the [Exporter/Seller] shall be entitled to seek appropriate remedies, including, but not limited to: (i) termination of this Agreement; and (ii) a penalty of [XX]% of the total value of this Agreement or price of the goods exported, whichever is higher.

(5) The [Importer/Buyer] shall immediately inform the [Exporter/Seller] about any problems in applying paragraphs (1), (2) or (3), including any relevant activities by third parties that could frustrate the purpose of paragraph (1). The [Importer/Buyer] shall make available to the [Exporter/Seller] information concerning compliance with the obligations under paragraph (1), (2) and (3) within two weeks of the simple request of such information.

Comments on the model clause

Paragraph 1 contains the counterparty's duty to refrain from sale, export, or re-export to Russia. There is no need to expand or adjust this paragraph.

Paragraph 2 only contains a best-efforts obligation. It would make more sense to require the counterparty to pass the obligations on along the supply chain.

Paragraph 4 sets out the remedies available to the exporter if the counterparty breaches its obligations.

Language-wise, a few adjustments are needed:

A serial (Oxford) comma has to be added throughout the clause at key points (see the highlighted positions below). This is not only a stylistic matter; in a dispute, the missing comma can have legal and economic consequences (as in this case).
In paragraph (1), it should read "shall not sell, export, or re-export"
In paragraph (4), "Any violation of paragraphs (1), (2), or (3)"
In paragraph (5), "problems in applying paragraphs (1), (2), or (3)"
And further in paragraph (5), "obligations under paragraph (1), (2), and (3)"
Paragraph (4) could also be redrafted; in particular, the phrase "of an essential element" seems superfluous.
Finally, modern contract drafting uses "may" rather than "shall be entitled".

Substantively, the exporter's right to terminate the contract under paragraph 4(i) is essential. No adjustment needed here.

The contractual penalty in paragraph 4(ii), however, is, under German Standard Terms law, invalid.

The penalty clause is drafted as strict (no-fault) and is therefore, under Section 307(2) No. 1 BGB, invalid even in B2B (see BGH, judgment of 21 March 2013 – VII ZR 224/12).
The penalty also fails to differentiate between a breach of paragraph 1 (the prohibition on sale, export, or re-export to Russia), paragraph 2 (best-efforts obligation), or paragraph 3 (monitoring). In the BGH's view, the unreasonableness of a penalty clause can already follow from setting a flat amount as a blanket sanction without differentiation by the type, weight, and duration of the breach. Such a sanction would only be permissible if the amount were still reasonable for the typically lightest breach (see BGH, judgment of 31 August 2017 – VII ZR 308/16; BGH, judgment of 20 January 2016 – VIII ZR 26/15).
Independently of that, the exporter has to think carefully about the amount of the penalty. The amount itself can also be an unreasonable disadvantage to the counterparty, particularly where the sanction is disproportionate to the weight of the breach and its consequences for the counterparty (see BGH, judgment of 20 January 2016 – VIII ZR 26/15).
The invalidity of the penalty could even pull all of paragraph 4 down with it. In a dispute, however, the exporter could argue that the rest of paragraph 4 can stand on its own linguistically and substantively (the "blue-pencil test").
The consequences of the penalty being invalid would not, at first glance, be dramatic. The exporter could not claim the penalty itself in a dispute, but could still claim damages under Section 280(1) BGB. The exporter would then have to plead and prove the amount of the loss in detail, which is often difficult or impossible in practice.
How could the penalty be drafted safely?
One obvious move is to make the penalty fault-based. The consequence, however, is that the counterparty can exonerate itself if it breaches, and the penalty does not apply. The amount of the penalty would also still have to differentiate by the type of breach.
Another option is a penalty along the so-called "Hamburg practice", under which the exporter sets the amount of the penalty in its reasonable discretion, with the reasonableness reviewable by the competent court in a dispute (Section 315 BGB). It is also possible to name an amount in the contract that is meant to reflect reasonableness. However, such a clause is essentially an invitation to litigation (already implicit in the wording).
A further alternative is liquidated damages, but the amount has to be proportionate to the exporter's potential loss, which is hard to forecast at the drafting stage.
An individually negotiated agreement (with the consequence that the rules on Standard Terms do not apply) is not a real option, because the exporter (the user of the Standard Terms) cannot seriously put the "no re-export to Russia" clause up for negotiation. That, however, is what the BGH's case law requires (see BGH, order of 19 March 2019 – XI ZR 9/18) — a fact many businesses are not aware of.
A different approach is to address the Standard Terms problem of the penalty clause and other provisions of the contract (in particular the exporter's limitation of liability) through an appropriate choice of law. Before reaching for Swiss law or other regimes, it is worth looking at the UN Convention on Contracts for the International Sale of Goods (CISG) as part of German law. If the CISG is not — as so often in practice reflexively and out of unfamiliarity — excluded, two aspects are interesting. First, a strict (no-fault) penalty is possible, because the CISG does not require fault. Second, the "material breach" referenced in paragraph 4 of the "no re-export to Russia" clause can be read as a "fundamental breach" within the meaning of Article 25 CISG. The exporter could then both claim a valid penalty and terminate the contract under paragraph 4 of the clause or Article 64 CISG. An arbitration clause instead of a forum-selection clause should accompany this.
The phrase "appropriate remedies" used in paragraph 4 could, under German law, be considered not clear and intelligible (non-transparent) within the meaning of Section 307(1) sentence 2 BGB, which could render the clause invalid. It therefore makes sense to redraft paragraph 4, for example to list the remedies specifically and exhaustively. Another option is to include a dedicated fallback rule in a separate paragraph (for the "blue-pencil test").

Paragraph 5 should be coupled with an audit right for the exporter.

It also makes sense to add a new paragraph 6 containing an indemnity obligation of the buyer towards the exporter for cases where the buyer breaches its obligations under the "no re-export to Russia" clause. The Standard Terms issues flagged above for the penalty apply here too.

Regardless of Standard Terms validity, the exporter should not only include the "no re-export to Russia" clause in its general terms of sale but also in the other contract documents (contract, offer, and so on). In international trade, terms often do not become part of the contract because they are not (validly) incorporated or because of a "battle of forms", with the consequence that the "no re-export to Russia" clause would not apply.

Practical recommendations

Companies should first check whether the scope is even triggered: whether the goods at issue are on the listed annexes and whether the counterparties are based outside the EU or partner countries.

Where the scope is triggered, companies must include a "no re-export to Russia" clause in their contracts. The EU Commission's model clause can be adopted, but should be redrafted both in wording and in substance and supplemented with additional provisions (audit, indemnity, and so on). Under German law, the Standard Terms requirements also have to be observed.

Further information

Article 12g of Regulation (EU) No 833/2014 (consolidated version of 23 February 2024) reads:

(1) In selling, supplying, transferring or exporting to a third country, with the exception of partner countries listed in Annex VIII to this Regulation, goods or technology as listed in Annexes XI, XX and XXXV to this Regulation, common high priority items as listed in Annex XL to this Regulation, or firearms and ammunition as listed in Annex I to Regulation (EU) No 258/2012, exporters shall, as of 20 March 2024, contractually prohibit re-exportation to Russia and re-exportation for use in Russia.

(2) Paragraph 1 shall not apply to the execution of contracts concluded before 19 December 2023 until 20 December 2024 or until their expiry date, whichever is earlier.

(3) In applying paragraph 1, exporters shall ensure that the agreement with the third-country counterpart contains adequate remedies in the event of a breach of a contractual obligation concluded in accordance with paragraph 1.

(4) Where the third-country counterpart breaches any of the contractual obligations entered into in accordance with paragraph 1, exporters shall inform the competent authority of the Member State where they are resident or established as soon as they become aware of the breach.

(5) The Member States shall inform each other and the Commission of any detected breach of a contractual obligation entered into in accordance with paragraph 1 or of a detected circumvention of such an obligation.

Adapted model clause

The adjustments to the model clause depend on many factors in each case (chosen governing law, negotiating position, and so on). The wording below is not a substitute for advice from specialized counsel.

No re-export to Russia

(1) The [Importer/Buyer] shall not sell, export, or re-export, directly or indirectly, any goods supplied under or in connection with this Agreement to the Russian Federation or for use in the Russian Federation, as covered under Article 12g of Council Regulation (EU) No 833/2014.

(2) The [Importer/Buyer] shall ensure that the prohibitions in paragraph (1) are not circumvented by any third parties in the commercial chain, including by possible resellers.

(3) The [Importer/Buyer] shall establish and maintain effective monitoring mechanisms to detect and prevent any actions by third parties that would contravene paragraphs (1) or (2). This includes keeping detailed records and documentation of compliance efforts, which must be retained for at least [X] years after this Agreement's termination.

(4) The [Importer/Buyer] shall promptly inform the [Exporter/Seller] of any difficulties in applying paragraphs (1), (2), or (3), including any relevant third-party activities that could undermine the objectives of paragraphs (1) or (2).

(5) The [Importer/Buyer] shall provide the [Exporter/Seller] with the necessary information and documentation to prove its compliance with its obligations stated in this clause within two weeks upon request.

(6) The [Exporter/Seller] may audit the [Importer/Buyer]'s business and production premises at any time to verify the [Importer/Buyer]'s compliance with its obligations stated in this clause. Audits shall be conducted with reasonable notice and within the [Importer/Buyer]'s usual business hours. The [Exporter/Seller] shall protect any confidential information or business secrets encountered during such audits.

(7) Any violation of paragraphs (1) to (5) constitutes a material breach of this Agreement, and the [Exporter/Seller] may seek appropriate remedies, including, but not limited to: (i) termination of this Agreement without notice; and (ii) liquidated damages of [XX]% of the total value of this Agreement or the price of the goods exported, whichever is higher, unless the [Importer/Buyer] is not responsible for the breach.

Reference: Poleacov, P. (2025). "No re-export to Russia": compliant export contracts. INN.LAW. https://inn.law/en/perspectives/no-russia-clause/