Data indicate Korea exporters dodge sanctions by shipping to Russia via Central Asia, South Caucasus

Data indicate Korea exporters dodge sanctions by shipping to Russia via Central Asia, South Caucasus
South Korea may amount to another flashing red light on the map for Western sanctions enforcers. / bne IntelliNews
By bne IntelIiNews April 17, 2023

A boom in South Korean exports to Central Asian and South Caucasus countries appears linked to efforts by Korean exporters to circumvent Ukraine war sanctions against Russia.

The latest sanctions leakage scenario was outlined by The Korea Times  on April 17. It may amount to another flashing red light on the map for Western sanctions enforcers looking to crack down on countries that are serving as conduits for Russia-bound sanctioned goods, particularly “dual-use” technology that can be used in arms production by the Russian defence industry.

Notably, while Korean exports to the countries have leapt since the start of the Ukraine war around 14 months ago, shipments to Russia have dropped sharply.

The newspaper cited data compiled by Korea International Trade Association. It showed Korea's exports to Russia last year fell 37% to $6.3bn and in 1Q23 declined 20.2% y/y to $1.7bn.

In contrast, Korea's exports to Kyrgyzstan in 2022 jumped 231.4% y/y to $373mn and in 1Q23 boomed by 480% y/y. In particular, said the publication, Korea's first-quarter exports of smartphones to Kyrgyzstan in February were 294 times larger y/y. Exports of consumer goods, such as toothpaste, also showed big increases.

Further Korea International Trade Association data showed Korea's exports to Kazakhstan up 115% y/y to $1.66bn in 2022 and higher by 121% y/y to $468mn during 1Q23. Exports of used cars were the standout growth category in Korean consignments sent to Kazakhstan.

Uzbekistan, Azerbaijan and Georgia, also saw expanded imports from Korea, the data showed.

Jeong Min-hyeon, head of the Russia and Eurasia Team at the Korea Institute for International Economic Policy (KIEP), was quoted by The Korea Times as saying that it was difficult to rule out the possibility of Korean products transiting into Russia via neighbouring countries.

The KIEP researcher said: "Amid the setback in direct trade with Russia, its neighbouring countries can be used as detours. For each Korean exporter, this can be a strategy to maximise profits, while reducing risks."

Jeong was also reported as saying that it will not be easy for Korean manufacturers to pull out of Russia, considering fixed costs and sales networks they have formed in the country.

Korean companies have largely stuck with operations in Russia, while remaining hesitant about any condemnation of Russia's invasion of Ukraine.

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