Finland’s exports to Russia’s neighborhood grew explosively – products subject to sanctions remain in Russia or end up there through a detour, Customs says

Finlands exports to Russias neighborhood grew explosively products subject

Already last spring, Customs warned decision-makers that sanctions against Russia could be circumvented through countries located in Russia’s neighborhood.

Now it seems that this has also happened.

Finnish goods exports to Kyrgyzstan, Kazakhstan and Uzbekistan grew suspiciously strongly at the end of last year.

During the rest of the year, products that fall under sanctions, such as machinery and equipment and means of transport, were exported to these countries. In addition, a large part of the goods traveling from Finland to Kyrgyzstan, Kazakhstan and Uzbekistan traveled directly through Russia by road, trucks or trains.

– Some of that goods either stays on the way to Russia or ends up as re-exports from these countries to Russia, says the head of the Customs’ control department Sami Rakshit.

Kyrgyzstan and Kazakhstan together with Russia, Belarus and Armenia belong to the Eurasian Economic Union. This means that the movement of goods between these countries is easy and hassle-free.

Finland’s export of goods to, for example, Kyrgyzstan grew by more than 800 percent during the whole of last year. At the end of the year, a good 430 percent more products were exported than at the beginning of the year. However, in the entire scale of Finnish foreign trade, the value of exports to Kyrgyzstan was still small, around 29 million euros.

Who circumvents the sanctions?

While the export to Russia has collapsed, the export of goods to Central Asia has also increased from other Western countries.

European Bank for Reconstruction and Development EBRD published a report at the end of February (you will switch to another service)according to which EU countries’ and Britain’s exports to Armenia, Kyrgyzstan and Kazakhstan increased by 15–90 percent after the sanctions came into force.

Head of the Bank of Finland’s Emerging Economies Research Institute Iikka Korhonen also estimates that the background is very likely to be the circulation of sanctions. However, part of the growth can also be explained by the fact that companies have moved their production from Russia to these countries, says Korhonen.

He does not find it surprising that sanctions against Russia are circumvented through third countries.

But who circumvents the sanctions: the Russian state, Russian companies or Finnish companies?

Customs Sami Rakshit does not take a stand on the issue.

– Business takes place in such a way that, either intentionally or unintentionally, goods end up in a country, i.e. Russia or Belarus, where they should not end up.

According to Korhonen, the background could be the Russian state or Russian companies.

– If some components are missing from the production of private companies, they will certainly think about less legal ways to get them.

However, Korhonen stresses that the scale of the loophole is not huge. Only a very small part of the products subject to sanctions, which EU countries previously exported to Russia, has been replaced by exports from neighboring countries, says Korhonen.

Even more, the cycle of sanctions tells him about Russia’s desperation to get foreign components.

– Production in many industrial sectors has actually collapsed in Russia. The lack of foreign components is clearly visible there.

The new sanctions package has a loophole

Before last weekend, Customs could not, without clear evidence, intervene in such transports, which are suspected of evading sanctions. Getting a clear screen is difficult when crossing the border, says Rakshit.

The situation has changed, as concerns about the evasion of sanctions have also been heard at the EU level.

The EU’s tenth package of sanctions against Russia was approved over the weekend, and it deals with the circulation of sanctions at least partially.

The transit of dual-use products and weapons and ammunition through Russia is now prohibited. Dual-use products refer to products that can be used for both civilian and military purposes.

Customs authorities have also had more opportunities to intervene in suspicious shipments, Rakshit says. However, the concern about sanctions evasion has not completely disappeared.

– There is a very broad category of goods under sanctions, so these are only a fraction of it. For other products, the possibility of rotation does not change substantially.

Olli-Pekka Penttilä, Statistics Director of Customs, has also been interviewed for the story.

Hear more about the EU’s tenth sanctions package against Russia:

The subject can be discussed until February 4 at 11 p.m.

yl-01