Last year, Russia purchased at least one third of its critical battlefield components abroad from US-based companies and their allies. This was largely due to the fact that production facilities were outsourced to states with weaker export controls.
According to an analysis conducted by , the Kyiv school of Economics, these goods — totaling $7.3bn in value — were manufactured mainly in countries not included in the US-led coalition for export control. These goods, worth $1.9bn on average, were mainly produced in China.
The analysis includes semiconductors, computer components, electronic, automotive parts and bearings. This list is based on an analysis of the components that Ukrainian officials found in Russian equipment used on the battlefield.
The analysis covers $22bn in Russian imports for the first nine-month period of 2023. It shows how outsourcing production can allow Russia to purchase controlled goods from countries where customs officers won’t conduct border checks.
Data also show the crucial role China plays in Russia’s supply network, which includes goods produced by companies outside of the coalition. The majority of goods listed were produced in China, which is a country that has been forming a deeper and stronger partnership with Moscow.
Olena Bilousova is a senior research at KSE. She said: “It has been a common business strategy in the west for technology companies to build manufacturing facilities throughout Asia for many years.” These factories must be subject to the same export controls as domestic ones.
Only the US insists that goods produced in a foreign country can be subject to domestic controls. The “foreign direct product regulations” are extraterritorial, and they can cover goods produced in a third country if software, content or technology from the US was used in their production.
FDPR provisions are applicable even if the manufacturer is not American. The FDPR is particularly relevant to the semiconductor industry, given that it is dominated by US technology.
Emily Kilcrease is a sanctions specialist at the Centre for a New American Security. She said, however, that the FDPR can be difficult to apply. It is “one of the more difficult mechanisms to use, just because, by definition the activity does not take place at home”. China is one our most difficult enforcement environments”.
The data reviewed indicates that the goods were sold via distributors and middlemen to Russia. Kevin Wolf, partner at Akin Law Firm in Washington, and former assistant commerce secretary, stated that the US companies would not be breaking American law if they had no knowledge and were not responsible for the export.
He said that adding “distributors” and “other middlemen” to the US sanctions list was “a very effective method of combating diversion of semiconductors, and other items”. This would prevent shipments from any company to the listed entities, even if they are located outside of the US.
US Treasury officials also brought attention to the new executive order that was issued in December, targeting banks involved in this type of trade. They hoped it would disrupt such networks. Washington has warned that it may target institutions that “conducted or facilitated significant transactions, or provided services, involving Russia’s military industrial base”.
KSE data suggest that Russia is importing more products from western producers, such as Analog Devices a US chipmaker. Russian imports rose from $123mn to $269mn during the first nine-month period of 2023. In 2023, only $20mn Analog chips entered Russia were listed as being made in the US. $93mn was made in China.
The Ukrainian government’s sanctions agency lists analog chips as being recovered from various Russian weapons. The components of this rocket have been found in the 9M544 Tornado S, a multi-launch rocket launcher as well as the Russian versions of the Iranian Mohajer-6 drone and Shahed drone.
Analog stated that it has ceased sales to Russia and Belarus. It also “instructed our distributors not to ship our products in these regions”. “Any shipment of ADI products after the sanctions is a violation of our policy, and results from an unauthorised resale of ADI product.”
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