JAPAN: An Introduction to International Trade

Recent Developments in Economic Sanctions of Japan Against Russia

Since the Russian invasion of Ukraine, Japan created and has gradually strengthened its economic sanctions against Russia, generally in line with those of other G7 countries, such as the US and EU. On the other hand, the economic sanctions of Japan are different from these countries in some aspects for certain economic reasons. For example, imports of liquefied natural gas and seafood from Russia are not generally prohibited, because such prohibitions, if levied, would have materially adverse effects on the life of Japanese people. The economic sanctions of Japan are mainly governed by the Foreign Exchange and Foreign Trade Act (FETA) and its subordinate regulations. The summary of these restrictions as of 10 January 2024 is as follows.

Restrictions on exports and imports 

Prohibition of exports to Russia 

Permission of the Ministry of Economy, Trade and Industry (METI) is required for an export to Russia if:

(i) the product is listed in Schedule 2-3 to the Cabinet Order on Export Trade Control (excluding those listed in  item 2 of said Schedule); or

(ii) the product is directly or indirectly exported to a specified person and entity listed in the corresponding notice of METI.

The above-mentioned permission of METI will not be granted unless a limited number of exceptions (such as food and medicine, humanitarian purpose, export to an entity wholly owned by company(ies) in Japan, etc) applies. METI has gradually increased, and will probably continue increasing, the number of listed products to strengthen the economic sanctions.

Prohibition of imports from Russia 

Temporary revocation of MFN treatment– Most-Favoured-Nation (MFN) treatment of Russia has been revoked until the end of May 2024, which is likely to be extended for at least one year. This revocation does not affect the import of LNG, palladium and coal, for which no import duty is applicable.

Prohibition of imports of certain products from Russia– Permission of METI is required for import of any product listed in the corresponding notice, such as diamonds for non-industrial use, alcohol drinks, wood, machines, crude oil exceeding the limitation price, oil products, gold and so forth. Such permission will not be granted except in the case of a limited number of exceptions.

Prohibition of exports to/imports from Ukrainian regions 

Any export to/import from the Ukrainian regions referred to by Russia as the Donetsk People’s Republic and Luhansk People’s Republic is generally prohibited.

Circumvention of prohibitions and restrictions through third countries

Circumvention of the above-mentioned prohibitions and restrictions through third country (or countries) will be considered to violate them if the exporter/importer has knowledge that the subject products are indirectly exported to/imported from Russia. The knowledge should be an actual, not constructive, knowledge; but such actual knowledge could be proved objectively based on the relevant evidence, such as e-mail correspondences, oral conversations, unusual elements of transactions, etc.

Prohibition of services 

Japanese residents shall not provide the following services to any persons and entities in Russia unless a limited number of exceptions apply, such as the provisions relating to an entity where Japanese residents own more than 10% of the shares:

(i) trust service;

(ii) audit, financial service;

(iii) analysis, guidance, training and research and development mainly for management;

(iv) services related to civil engineering and construction; and

(v) services related to plant engineering.

Prohibition of payments and capital transactions

Freezing assets of listed persons and entities 

The following measures are taken for the persons and entities listed in the corresponding notice of the Ministry of Foreign Affairs (MFA) (the “Listed Persons”):

(i) freezing assets of the Listed Persons;

(ii) prohibition of payments to the Listed Persons; and 

(iii) prohibition of capital transactions (deposit, trust and loan) with the Listed Persons.

These measures equally apply to any entity “directly” owned by the Listed Persons. Also, any transaction with third party(ies) to circumvent these measures could be considered to violate these measures.

Prohibition of direct investment, etc into Russia 

Prohibition of direct investment– Foreign direct investment to any of the following businesses by Japanese residents requires the permission of the Ministry of Finance (MOF):

(i) business in Russia; and

(ii) business outside Russia with a Russian entity or any entity substantially controlled by a Russian entity.

Foreign direct investment includes without limitation acquisition of 10% or more of shares or equity capital, certain types of loan, payment of fund for establishment or enlargement of branch, plant or other business location.

Prohibition of remittance– Remittance to any foreign country for funding the following businesses requires permission from the MOF:

(a) any partnership and association (other than corporation) in Russia; and

(b) any partnership and association (other than corporation) outside Russia with:

   (i) a natural person residing in Russia;

   (ii) a Russian entity; or

   (iii) any entity substantially controlled by (i) and/or (ii).

Prohibition of certain capital transactions– Certain capital transactions (such as loan and guaranty of more than one year for settlement of export/import and IP transfer) for the following businesses requires permission from METI:

(i) business in Russia; and

(ii) business outside Russia with a Russian entity or any entity substantially controlled by a Russian entity.

The prohibitions of direct investment, remittance and certain capital transactions, as described above, are also applicable to businesses outside Russia if the subject company is directly or indirectly controlled by a Russian entity(or entities) or the subject partnership involved a Russian entity or any entity directly or indirectly controlled by a Russian entity. To illustrate, using a hypothetical case: in 2010 (before the invasion), a partnership for developing metal resources in Indonesia was agreed between a Hong Kong company indirectly controlled by a Japanese company and a BVI company indirectly controlled by a Russian company. The said Japanese company shall not, without permission from MOF, make remittance from Japan to any foreign company for funding the partnership, even though such partnership had been agreed before the invasion for business outside Russia.

Strict operations of ordinary export/import control and foreign exchange control

Except for the above-mentioned economic sanctions specifically designated against Russia, export/import and capital transactions shall be subject to ordinary export/import control and foreign exchange control under relevant Japanese laws. The relevant parties, such as METI, MOF, customs officers and bank officers, will generally be careful in implementing these controls if the relevant transactions are related to Russia. For example, Japanese banks are unlikely to assist remittance to Russia without clear evidence that such remittance is allowed under Japanese laws. The examinations by MOF and/or METI will also be strict and time-consuming (sometimes more than several months).

Practical points to be noted concerning economic sanctions against Russia

As described above, most of the prohibited transactions can be performed with permission from MOF and/or METI. It is difficult to obtain such permission, but not necessarily impossible if the relevant parties can show that the relevant transactions are important for the economy or the life of Japanese people and the risk of funding Russia’s capability to continue with the invasion is low. For example, there would be a good chance of obtaining MOF permission for the remittance to fund the hypothetical partnership described in “Prohibition of certain capital transactions” above if the relevant Russian entity is not controlled by the Russian government or army and the developed metal resources are important for Japan. MOF and METI are generally open to prior consultations with the relevant parties. The applicants for the said permissions will generally be a Japanese entity as exporter/importer or payer, and foreign party(ies) usually assist such applicants in gathering relevant evidence and information. It is important to be well prepared and use experienced professionals to organise the reasons and grounds of application.