Kazakhstan-based businesses have used the sanctions of the western countries against Russia in its favour. In January-October 2022, trading companies of Kazakhstan sold electronics and mobile phones to its neighbour for over 575 million dollars. This is 18 times more than that in the same period of 2021.
The authorities of the United States have already noted this information. The Financial Crimes Enforcement Network (FinCEN) of the American Department of Commerce has included Kazakhstan into the list of the so-called transhipment points, which are used for restricted exports to pass before reaching destinations in Russia. Can this story lead to the cooling of relations between Kazakhstan, which promised not to violate sanctions against Russia, and western countries, which are the main buyers of Kazakh oil?
Not a producer, but a seller
The generalised statistics of the foreign trade prepared by the Bureau for National Statistics (BNS) of Kazakhstan for January-October 2022 shows that trade and economic relations between Kazakhstan and Russia remained strong despite the general turbulence. The trade turnover grew by 7 per cent up to 21.1 billion dollars. However, the imports of Russian goods to Kazakhstan did not actually change in terms of their value, and amounted to 14.2 billion dollars. But Kazakhstan significantly increased delivery of goods to Russia, plus 22 per cent to the similar period of 2021. The growth varied from 5.7 billion to 6.9 billion dollars.
In the structure of the exports of Kazakhstan, many key items have increased significantly – nonferrous metals and inorganics, cars and equipment. The so-called “sanctioned goods” fall under the last category.
According to the BNS, Kazakhstan sold electronics, household appliances and mobile phones to Russia for 575.1 million dollars for 10 months of 2022. Compared to 2021 (30.7 million dollars for the same period), the growth was tremendous, especially taking into account that Kazakhstan does not produce the appliances it exports.
The biggest amount in these product categories was received for reselling computer equipment, monitors and projectors to Russia, 375.4 million dollars. The growth per year is more than 400 times. The five-fold increase was observed in the selling of smartphones – 140 million dollars. Kazakhstan-based companies sent household appliances to Russia for the amount exceeding 59 million dollars (vs. 2.6 million dollars in January-October 2021).
“Sanctions are sanctions”
The official position of Kazakhstan about indirect re-export is the prohibition of sale of sanctioned goods to Russia. This position was voiced by President Kasym-Zhomart Tokayev in the interview to Russia 24 channel. The prohibition enforcement procedure was determined by the Ministry of Finance of Kazakhstan in the special order, whose draft was published by the agency last summer. But the document was removed from the legal acts base later. According to the State Revenue Committee of the Ministry of Finance of Kazakhstan, the order was returned for revision as there were several comments and suggestions to it. In its message, representatives of the committee wrote that “despite the growing export of certain groups of commodities to Russia, there have been no facts of re-export of goods via Kazakhstan, which were restricted for export to Russia by some countries.”
Then how do Kazakhstan-based companies manage to increase the export of electronics to Russia?
Logistics companies working in the transportation market of Europe-Kazakhstan-Russia can use various bypass schemes for re-export. Forbes.ru writes about it with reference to logistics experts. Among such logistical decisions there are “fake transit” and “resale en route.” In such schemes, trucks containing goods bought by a Kazakhstan buyer in Europe do not even reach Kazakhstan. The goods are sold to a Russian company en route. Not only closed channels, but also carriers on their websites advertise their logistical services in violation of western sanctions via Kazakhstan.
Despite the assurances made by representatives of the Committee, the trade turnover statistics shows that Kazakhstan has significantly increased the export of electronics to Russia, which is not produced in Kazakhstan, but imported from other countries. However, it is difficult to prove producers of equipment sold in Russia and whether its origin is Europe or the United States.
Based on the analysis of open data provided by the State Revenue Committee of the Ministry of Finance of Kazakhstan, it is not possible to determine the country of origin of goods exported from Kazakhstan to Russia. The statistical data of the electronics import shows that Kazakhstan imports mobile phones, computers and household appliances not only from the United States and Europe, but mostly from Asian countries – China, Vietnam, Türkiye.
The share of “western” products in the imports of various commodity groups is different. For example, based on the data for January-October 2022, the share of phone imports from the European Union and United States was as low as 7 per cent in the total volume of delivery of such goods to Kazakhstan, 16 per cent for computers, and 24 per cent for refrigerators. Thus, it is quite difficult to prove that European, not Chinese, goods have been exported from Kazakhstan to Russia without the risk to disclose internal business information of retail chains.
Partnership amid sanctions
Can grey logistical schemes harm political and economic relations between Kazakhstan and western partners? CABAR.asia has asked expert Lidia Parkhomchik of the Institute of World Economics and Politics of Kazakhstan to evaluate this risk.
-Sanctions imposed on Russia by western countries do create a whole range of difficulties for trade cooperation. Close economic contacts with Russia have caused Kazakhstan to be put on the list created by the U.S. government because of available opportunities to transport restricted or controlled exports to Russia and Belarus. It is a question of joint alert from the Financial Crimes Enforcement Network and the Bureau of Industry and Security of the U.S. Department of Commerce, which specifies Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan as often used transhipment points through which sanctioned goods pass.
Uzbekistan has already had a precedent, when the American company has applied sanctions to the Uzbek company. Kazakhstan makes every effort to avoid such situations. Firstly, the tool has been created for Kazakhstan-based businessmen, which contains the list of restricted goods specifying the FEACN codes. Secondly, the State Revenue Committee of Kazakhstan carries out constant monitoring of imports and exports of goods put on the sanction list.
It should be emphasised that significant quantities of goods stopped being delivered to Russia not because they were on sanction lists, but because cooperation with Russian companies became very toxic. Transhipments of this group of goods via Kazakhstan being the third country is a justifiable decision.
Although, it should be admitted that the increased logistic leverage (the goods must be imported to the territory of Kazakhstan) and the need to pay VAT twice (upon arrival to Kazakhstan, and then upon arrival to Russia) make this route more expensive. However, the use of the so-called “false transhipment” schemes followed by resale of goods by means of the customs warehousing procedure carries extra risks.
In the current situation, Astana is going to remain committed to the previously-declared course – to develop interaction with Moscow by minimising the threat of secondary sanctions.
- Lidia, do you agree with the opinion that the leadership of western countries is aware of the current situation of re-exported sanctioned goods, but deliberately takes no measures not to quarrel with such a strategic partner as Kazakhstan?
- The situation around the re-export of banned goods to Russia, just like the implementation of sanctions in general is under special control of Western countries. The relevance of this situation is proven by the growing number of public statements made by officials, as well as the number of publications in such analytical media outlets as The Wall Street Journal, Bloomberg, and others.
However, we should understand that the countries that have imposed sanctions on Russia still have commercial relations with Moscow, yet truncated. As a result, availability of trade flows with Russia is not a sufficient ground to expose interstate relations with regional partners, including Central Asian states, to a risk.
The situation can change if any particular country violates the sanction regime imposed on Russia materially and on a going basis. For example, they will deliver dual use goods that would be used in the Russian military production.
- Do you think that economic relations between the European Union and Kazakhstan have changed after February 2022? Can we speak about weakened trade and economic relations with Europe?
- The relations between Kazakhstan and EU are on the rise now. By results of January-November 2022, the total trade turnover between Kazakhstan and European countries amounted to 36.4 billion dollars vs. 25.9 billion dollars in the same period of 2021. Thus, the European Union remains one of the largest and significant trade partners of Kazakhstan, whose share in the country’s foreign trade is nearly 30 per cent.
The last months of the previous year were intense in terms of high-level meetings between Kazakhstan and EU representatives. Thus, the president of the European Union Charles Michel visited Astana in October, and Josep Borrell, High Representative of the European Union for Foreign Affairs and Security Policy, visited the country in November.
The parties are obviously intending to expand the areas of cooperation. Thus, prime minister of Kazakhstan Alikhan Smailov and president of the European Commission Ursula von der Leyen have signed the memorandum of understanding and strategic partnership on sustainable raw materials, batteries and renewable hydrogen value chains during the climate change conference (COP27). It is no coincidence that the German company Svevind Energy Group has entered into the agreement for construction of the green hydrogen generation plant in Mangistau region, which will be exporting hydrogen to European countries. The 50-billion-dollar project is going to be launched by 2030. In fact, it is about the new sector created in the country. As a result, Kazakhstan will continue to work over strengthening of integration of strategic production chains to the European countries.