Other production and trade through neighbors

Intended impacts

Knowledge gap

A major challenge is the decision-making process at border controls regarding which goods to prioritize or refuse passage. The high-priority lists are often too specific, glossing over many important complementary or near-substitute goods. Intelligence and mass data sharing, especially using Open Source Intelligence (OSINT), have become crucial for customs operations.

Effects on Russia

The existence of the Eurasian Economic Union, which allows goods to circulate freely, renders some Western efforts to limit sanctions circumvention less effective.

Effects on sending countries

Highlight difference between sanctioned and non-sanctioned good categories. The ethical and reputational and some of the legal risks/consequences are there even for non-sanctioned. “the prohibition against indirect dealings with restricted goods and/or parties also targets inadvertent (negligent) breaches. This places an obligation of due diligence on companies to ensure that they do not inadvertently export goods to, or for use in, Russia.”

All trade restrictions are welfare-reducing by definition. In the extreme, we could imagine a world split into separate blocks that do not trade with each other, similarly to the cold war. The 2023 IMF WEO provides simulations of this scenario, where the blocks are split along the lines of voting in support or against the resolution … in the UNGA. The conclusions from this exercise are that the loss would be minimal (expand, make comparisons). Moreover, the loss would be larger for the russia-china-et al. bloc. 2 big caveats: LICs would suffer more; and probably the green transition would be delayed. It is very hard in practice to split the world in watertight blocs, even if we wanted to. Leakages and third parties exploiting arbitrage would reduce the impacts.

B4Ukraine: As of November 1st, 296 global firms have completely pulled out of Russia by selling or liquidating business, and 1,208 are in the process of leaving, according to the Kyiv School of Economics. Instead, the majority or 58% of international companies with ties to Russia at the start of 2022 continue to do business within the aggressor state. 20 months after the full-scale invasion and almost ten years since the beginning of Russia’s aggression, this is far too little progress!

Swedish chamber of commerce promotes business with “eurasia”, for example Uzbekistan, make it attractive, reduce permits licenses and taxes, promises access to local and regional markets…but risks?

Calculations based on EEC and EDB data show that, over the first 8 months of 2023, Azerbaijan increased supplies of goods to Russia by 46%, Kazakhstan by 20%, Uzbekistan by 4.5%, and Armenia more than twofold. At the same time Russia increased export to those countries substantially. The contribution of trade with CIS countries to Russia's GDP is now ~7%.

The private sector faces unprecedented challenges in navigating sanctions, highlighting the importance of regulatory expertise, direct communication channels with regulatory bodies, and comprehensive compliance programs. Public-private cooperation is vital for identifying and mitigating sanctions evasion and ensuring compliance.