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Despite escalating sanctions, key machines imported from East Asia sustain Russia’s war effort in Ukraine

Advantages of XTJ CNC Machining Parts

When Russia launched its full-fledged invasion of Ukraine on February 24, 2022, it soon found itself under a series of regularly expanded economic and financial sanctions lead by Western countries, mostly the US and the European Union (EU). Democratic countries in East Asia soon followed as Japan, South Korea and Taiwan decided to join in the sanctions, despite having substantial trade with Russia. But notwithstanding those sanctions, Asia is now a major source of key imports for Russia’s war effort.

While multiple sanctions affect a growing number of areas, they are not always effective for a number of reasons: the nature of open world trade and the use of third countries as go-between to evade sanctions, the dual use nature of certain products that can be used for both civilian and military purposes, corruption, and legislation lagging behind new schemes. One of the products currently monitored by activists and sanctions experts are CNC machines. CNC stands for Computer Numerical Control, and refers to complex machines able to cut metal or other materials into a specific shape. They can be used for industrial goals, but are also essential to build and adapt military equipment from tanks to drone parts, thus falling under the dual use category of products.

Global Voices talked to Olena Yurchenko, a scholar of international relations, who currently works out of the Universities of Glasgow, Tartu, and Sarajevo. Yurchenko also works as an Advisor and Senior Analyst for the Economic Security Council of Ukraine (ESCU), is a member of the Balkan-Ukraine Cooperation Network (BUCN), and has vast experience in OSINT research.The interview took place in English over email and has been edited for brevity and style.
Filip Noubel (FN): Why is Russia shifting from Western to Asian CNC machine providers?
Olena Yurchenko (OYu): According to different sources, the share of imports of metalworking equipment from Taiwan increased almost 1.5 times (the increase in value amounted to over 17 percent, over USD 18 million). As for South Korea, in 2022, it increased its share in total shipments by more than 1.4 times (in value terms, an increase of 14 percent, that is more than USD 6 million).

Although newcomers to the CNC industry, South Korea and Taiwan have rapidly progressed, even though they still lag behind industry leaders in production capabilities. Nonetheless, their affordability and satisfactory quality, especially amid blanket sanctions imposed on Russia by the US and EU, make them an attractive partner for import-dependent countries like Russia.

In South Korea, Seoul’s initially lax dual-use restrictions and export control enforcement until early 2023 enabled Russia to significantly increase its imports of much needed CNC machines. Despite its close ties with the US, South Korea took decisive steps to enhance compliance with Western sanctions against Russia only a year after the full-scale invasion of Ukraine by Russia began, that is from April 2023.

Similarly, Taiwan is one of the world’s foremost producers and exporters of CNC machine tools. It initially refrained from tightening export controls following the Russian invasion, leading to a notable surge in Russian imports of metalworking equipment from the country in 2022. This increase garnered international attention, notably highlighted by the case of I Machine Technology, a Russian firm importing specialised equipment, which imported over USD 20 million worth of CNC tools from Taiwan since January 2023. Some of those imports potentially fell under dual-use goods subject to export control. Despite measures introduced by Taiwanese authorities in January 2023, transactions continued, reflecting lax enforcement.

A new set of Taiwanese measures was introduced in January–February 2024. Namely, on February 7, 2024, following the Washington Post investigation about I Machine Technology, the Taiwanese Ministry of Economic Affairs added 77 items to the list of machine tools restricted from being exported to Russia and Belarus, including CNC machine tools. The ministry also requested Taiwanese manufacturers exporting to countries such as Turkey and the United Arab Emirates, which are considered to have a high risk of reshipping the products, to agree not to redirect shipments to Russia and Belarus. In addition, the penalty for first-time violations of exporting to Russia has been increased by over 15 times to TWD 1 million (USD 32,055).

Turning to figures, in 2021, Germany was in first place in Russia in the supply of equipment (24 percent of total imports), followed by Italy (18 percent), China (11 percent), Taiwan (nearly 10 percent percent), and South Korea (9 percent). As a result of the imposed restrictions, the share of supplies from Western countries in total imports of metalworking equipment decreased almost 1.8 times to 39 percent in 2022. In contrast, in 2022, China’s share of imports increased to reach 43 percent, and Taiwan’s reached 15 percent.

FN: One key element is to identify the end buyer, is that practically achievable?

OYu: An essential aspect of the Russian military complex’s sustainability is its well-established supply chains of sanctioned goods. Those supply chains were established in 2014, after Russia invaded Crimea and eastern Ukraine, and are now amplified In 2022, Russians opened more than 1,300 companies in Turkey — 670 percent more than in 2021. In Kazakhstan, the number of companies with Russian capital increased by 70 percent over the year. In Georgia and Armenia, 2022 also saw a surging wave of Russian businesses — 21,000 and 6,500, respectively. Judging by the financial activities between China, the UAE, other Central Asian countries and Russia, the overall number of front companies may exceed 30,000 entities.

The trade statistics also uphold the claim about the continued Russian import of critical components via intermediaries — third countries neighboring or allied with Russia. While the value of EU exports of high-priority battlefield items to Russia in the first half of 2023, was down by 97 percent, the total value of EU exports of these items to China and Central Asia countries was up by 145 percent. In its turn, the export of goods from these countries to Russia was 17 times higher in the first half of 2023 than in the first half of 2021. For certain individual products, the share was much higher (e.g. 74 percent for signal generators and well over 100 percent for some electronic integrated circuits). This evidence at least points to a potentially high rate of re-exporting of goods originating in the EU or other countries.

Evidently, China dominates Russian imports in all product groups of sanctioned products, accounting for 70–80 percent of Russian imports in these product categories. There are also peculiar cases: among high-priority battlefield items, Malaysia in first half of 2023 accounted for nearly half of Russian imports of ball bearings and nearly a third of spherical roller bearings. Kyrgyzstan provided 34 percent of imports of electronic integrated circuits as amplifiers. Turkey provided 20 percent of imports of electrical apparatus for switching electrical circuits, while Israel supplied 18 percent of imports of certain apparatus for data transmission and recording.

FN: Japan has entered a recession, Taiwan’s CNC machine industry is now coming under suspicion by the US and Germany, and China is winning the market for exports to Russia. What can be done practically under such conditions to keep the industry ethical yet sustainable in Northeast Asia?

OYu: I am not a business development expert and can only discuss sanctions, which can be followed ethically through compliance and adherence to international sanctions. What I know is that there is no such thing as over-compliance. If conducted properly, internal compliance can keep companies out of trouble, earn them extra points in the eyes of competent authorities and boost their reputation.

In addition, there are many emerging markets where Asian CNC machines could be used — such as Ukraine that needs to build its military industry, which is unimaginable without CNC machine tools.

Moreover, economic plight is hardly a justification for continued trade in dual-use goods with an aggressor country. If the aggressor is empowered by the continued supplies of the critical goods, it will continue to wage its aggressive actions, while others may also follow suit. It is a choice between short-term complications and a long-term disaster.

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