How Russia Circumvents EU sanctions on machinery imports

1. How Russia Circumvents EU sanctions on machinery imports: the case of Deutz Fahr

2. This week the EU countries expect to agree on the 11th sanctions package against Russia for its invasion of Ukraine. The new measures will be primarily focused on closing loopholes to circumvent the previous restrictions. It is no secret that despite all existing bans, car dealerships in Moscow continue to sell the newest BMW and Mercedes models, restaurants serve Dom Perignon champagne, and clothing stores like TSUM provide the latest collections from top European brands. Loopholes also work in the opposite direction: Russia's oil exports, a key revenue stream generating over $380 billion for the national budget in 2022, have rebounded to pre-war levels, with a substantial portion still finding its way to the EU market via intermediary countries such as India and China. Russia's agricultural sector has also flourished as a significant revenue generator, raking in over $40 billion in 2022. This figure is on par with the proceeds from the country's metals exports and double the earnings from fertilizer exports. Obviously, even here, the EU sanctions were actually far from what they were meant for. Until February 2022, Russia imported more than a third of its fleet of agricultural equipment, purchasing approximately 3,000 tractors and up to 1,000 harvesters each year, amounting to around $1.5 billion. Despite having its own machine-building facilities like Rostselmash and Kirovets, Russia struggled to fulfill the significant demand for agricultural machinery necessary for cultivating over 80 million hectares of cropland (which surpasses the land area of France). The largest machinery suppliers to Russia were prominent global companies such as Deere, Claas and Deutz Fahr.

3. Following Russia’s attack on Ukraine, all three companies expressed strong disapproval of the military action and ceased the provision of machinery, spare parts, as well as the operation of their assembly plants within Russia. Subsequently, the supply of agricultural machinery faced limitations at the EU level due to the classification of certain parts and components as dual-use goods, with potential applications in weapon production. This had a tangible impact on agriculture in Russia: with the halt in supplies and unavailability of necessary parts, some farmers resorted to "cannibalism" which involved dismantling functional machinery to obtain the required components. Perhaps the shortage of equipment was one of the reasons why Russia announced that it plans to harvest 20% less grain in 2023 than the year before. In December 2022, the German newspaper Die Zeit published an investigation revealing allegations that Claas had developed a strategy to evade sanctions and continue exporting its products, which were restricted under European bans, to Russia.