In his second visit to the countries of the region this year, EU Sanctions Envoy David O’Sullivan traveled to Kazakhstan and Uzbekistan this week. In Astana, he noted positive change. “We are grateful to the Kazakh authorities for decreasing the re-export of items, which are likely to end up in Russian military equipment,” he said.
In late March, O’Sullivan traveled to Kyrgyzstan, and then in April to Kazakhstan and Uzbekistan. The headline message at the time was that the EU respected “the opinion of countries that do not support sanctions against Russia.” But, he went on at a briefing in Bishkek on March 28, “we wouldn’t want them to become a platform for circumventing sanctions”
In the wake of Russia’s 2014 annexation of Crimea, Moscow was targeted by a range of sanctions by both the United States and the European Union, among others. Sanctions were considerably expanded following Russia’s late February 2022 invasion of Ukraine and continue to expand amid the ongoing war.
The aim of the sanctions is political, to force a change in Russian behavior. Thus, evasion of sanctions – that is, finding ways to route sanctioned goods around the restrictions – is of paramount concern for the sanctioning countries. Put another way: Closing and locking the front door does little good if the back door is left wide open.
Central Asia features prominently in conversations about sanctions evasion and the possibility of secondary sanctions – essentially, sanctions for helping another country avoid sanctions – due to the region’s deep economic and political ties to Russia. This issue is particularly acute for Kazakhstan, which as a member of the Eurasian Economic Union (EAEU) is in a customs union with Russia. Trade and people flow freely across the Kazakh-Russian border, complicating the kind of scrutiny necessary to enforce sanctions. Kyrgyzstan is also a member of EAEU.
In April, O’Sullivan summarized what the EU had observed so far regarding trade flows: “We have observed unusual trade flows from a range of countries where we see that the exports, which we were previously sending to Russia, appear now to be going to countries where we did not substantially export these products. And exports from these countries of those products to Russia have also risen extremely.”
In June 2022, Russia had legalized “parallel imports” – the import of goods without the copyright holder’s permission – in a bid to circumvent sanctions by routing goods through third countries. Another trade term often used in relation to evading sanctions is “re-export” – that is, goods that are exported to one country, say Kyrgyzstan, and then re-exported to another, like Russia. Sometimes re-exports entail further processing of a good, but in this context it’s generally meant to disguise the country of actual origin.
All of this showed up in the trade data. Trade fluctuates, of course, but the leaps in exports from Kazakhstan to Russia, for example, are difficult to explain otherwise. Take washing machines as a case in point: by the end of 2022 exports of washing machines from Kazakhstan to Russia, reported the Moscow Times, had risen to almost 100,000 units, “although in 2021 there were no exports at all.”
Following O’Sullivan’s April trip, a delegation of American officials led by Assistant Deputy Secretary of the Treasury Elizabeth Rosenberg visited Astana in early May. And in the wake of that visit, it appeared that Kazakhstan had begun to crack down on parallel imports. Vladimir Matyagin, head of Russia’s Gruzavtotrans freight association, told Izvestia, “The country creates difficulties at the border for such products; suppliers have actually closed the border.”
Thus the stage was set for an improved assessment when O’Sullivan returned to Central Asia this week.
“In April, Kazakh authorities made it very clear that they didn’t wish Kazakhstan to be used as a jurisdiction for the circumvention of sanctions, and in particular, for the circumvention of sanctions related to military equipment,” O’Sullivan said.
“We are grateful to the Kazakh authorities for decreasing the re-export of items, which are likely to end up in Russian military equipment,” he said during a press conference after his meetings in Astana on November 28. But, he continued, “On the other hand, we have seen that for some products, there has been an increase in the re-export to Russia.”
He pointed to advanced technology as being of particular concern to the EU, naming a series of goods – integrated circuits, chips, flash memory cards, optical readers – and commenting that “none of them are actually produced in Kazakhstan.”
Once again, O’Sullivan stressed that the EU respects “the decision not to align with our sanctions.” But he added that “it is also true that for countries such as Kazakhstan, which wish to trade with the EU and attract investments, acquiring a name as a place for evading sanctions is not good for the reputation, or for the likelihood of people who want to invest in trade here.”
Essentially: If Kazakhstan wants to continue to increase its trade volumes with Europe, it should mind its reputation on the global stage. And Kazakhstan arguably does. According to the Kazakh Foreign Ministry trade turnover between Kazakhstan and the EU reached a record high in 2022: $40 billion out of the $134 billion in annual foreign trade. Those figures are set to rise. While Russia may be Kazakhstan’s top single country destination for exports, all of the EU combined is a far larger market.
“The EU is Kazakhstan’s main trade and investment partner. We have many ambitious projects and plans together, and we want to continue to promote our relations in a positive and productive way,” O’Sullivan said. Although the EU is not happy about sanctions evasion via Central Asia (and this is a sentiment shared by the U.S.), it remains committed to working with partners like Kazakhstan to confront the issue without damaging the wider bilateral trade relationship.
“We do not want sanctions to hinder our closer and deeper cooperation,” O’Sullivan said.
There have been a few discrete cases of Central Asian private companies that have been subject to secondary sanctions – in Uzbekistan and Kyrgyzstan, for example – but broad sanctions have not directly targeted Central Asia. That said, sanctions on Russia have had economic consequences in the region and the geopolitical questions force the region into a difficult position.