Russia’s imports of Taiwanese products increase as war approaches one-year mark
Taiwanese goods are still being sold to Russia despite official restrictions on exports to Russia and Belarus
As the Russia-Ukraine war approaches its one-year anniversary, Taiwan's Ministry of Economic Affairs (MOEA) announced new export restrictions to Russia and Belarus, Taiwan’s CommonWealth Magazine reports. In addition to the restrictions imposed last April and May on the export of 57 goods and products spanning the computer and telecommunications, sensors, lasers, and aerospace categories, new additions include nuclear energy materials, chemicals, and machine tools.
From the standpoint of the machine tool industry, the implementation of expanded sanctions was only a matter of time. The official notice issued last year only stated that precision five-axis CNC machines and high-end controllers capable of being used in aerospace military weaponry must be submitted for authorization. "Any kind of CNC machine is now off limits," says the manager of a machine tooling facility in central Taiwan, reflecting on a Bureau of Foreign Trade communique.
Machine tool exports to Russia have increased by 10% since the Ukraine war
Despite accounting for only 4% of Taiwan's machine tool exports in terms of value, Russia is the fourth-largest buyer of Taiwanese machine tools. Surprisingly, as the one-year anniversary of Russia's full-scale invasion of Ukraine war approaches, the value of Taiwanese exports to Russia increased by more than 10% last year.
Industry insiders estimate that, in contrast to the avalanche-like drop in Japanese and Euro-American machine tool exports to Russia, the increase in Taiwanese machine tool exports to Russia is caused by two factors: First, unlike high-end machines from major Japanese and European manufacturers, Taiwanese machine tools can be easily used in aerospace and weaponry; second, when major manufacturers in Europe, the United States, and Japan explicitly declared that they would stop sales to Russia, Russian buyers redirected their orders to Taiwan for civilian use, resulting in a steady increase in orders.
In reality, customs data understates Russia's demand for Taiwanese goods. Over the last year, Russian customers have adopted multiple identities in different countries, Taiwan’s economic news media says.
China is a favored safe haven
"Russian buyers keep coming to me," says a senior executive at a major auto parts manufacturer. Last year, shortly after the war began, major shipping companies and cargo service agents avoided doing business with Russia, putting a two- to three-month halt on exports to Russia. Then, in collaboration with customers, they devised a new strategy: make China the destination country rather than Russia, and collect payment first before dispatching shipments.
Statistically, this appears only as exports from Taiwan to Shanghai or Hangzhou, with the subsequent transport to Russia hidden.
According to this executive, orders have been steadily increasing since the second half of 2022. "Right now, all of our cargo bound for Russia is routed through China," he explains in an interview to CommonWealth Magazine.
Turkey makes a great landing location as well
"Turkish customers tell us that many Russians are establishing enterprises in Turkey these days,” a manager of a CNC tooling facility claims.
Customers from Russia buy partially assembled Taiwanese machinery parts and then buy top American, Japanese, and European controllers in Turkey for final assembly before shipping to Russia. The entire machine might also be kept in Turkey, where a production line would be established, and the final goods would be shipped to Russia.
However, Taiwan's accounting records only include sales to Turkey. Due to Turkey's geographical closeness to the European market, it has a flourishing manufacturing indusrty and is already the third-largest importer of Taiwanese machine tools.
"There are no sales on the records, it's happening covertly"
For complete openness, Taiwanese suppliers frequently state on estimates or order confirmations that sales to specific locations are forbidden. The CNC plant manager acknowledges that it may be challenging to pinpoint the final location if the goods spend several months in an intermediary zone before being resold.
According to data from Central Asian nations, Taiwan's exports of machine tools to Kazakhstan in the most recent few years came to less than USD 200,000. However, it rose to a record high of almost USD 3.7 million last year, which was 18 times higher than in prior years.
A sales representative for a European tech manufacturer says, "It's true that we have considered routing through Kazakhstan to access Russia, and we've also considered traveling through Uzbekistan, Mongolia, and China." Since the outbreak of the war, inspection delays for commodities have been endless, and export licenses are never granted. The departure of American rivals from the Russian market presents fantastic chances for Taiwanese enterprises, who must embrace the opportunity and move swiftly.
Trade lines passing via intermediary regions may potentially slow down after Taiwan tightened its restrictions. It may be challenging to explain if MIT equipment were discovered in Russia and opened up to reveal their Taiwanese origin. This is particularly true for machinery with unique characteristics and custom goods, where the risks are higher.
There are precedents for the detection of concealed countries of production.
"There was a case of a business in the industry selling machine tools to North Korea. Having received a tip from the FBI, the Taiwanese Bureau of Investigation visited and questioned people,” says the CNC factory manager. He acknowledges that sales to Russian customers in Turkey in the second half of 2022 increased steadily, but that this would soon have to end.
Is it really possible for small and medium-sized businesses to leave Russia and its population of over 146 million? “All I can say is that wherever there are a lot of people, there is a market,” reveals an executive at an auto parts and components manufacturer.
As long as something is not on the restricted list, businesses will not lose any opportunity to make money.