Distributors of electronics components and a manufacturer of printed circuit boards may fall under EU sanctions
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Chinese large distributors of electronics components and a manufacturer of printed circuit boards, allegedly working with the Russian Federation, may fall under the next EU sanctions. Lawyers note that until now the EU has been hesitant to introduce restrictions against Chinese businesses, unlike the United States, but market participants are managing to bypass such measures by changing their work patterns. Experts say the problems with paying for supplies through Chinese banks are much more serious.
The 13th package of EU sanctions against Russia may include Chinese distributors and manufacturers of electronics – Guangzhou Ausay Technology, Shenzhen Biguang Trading and Yilufa Electronics, reported on February 21 “RIA News” with reference to EUObserver. According to the latter, the EU suspects Chinese companies of helping the Russian Federation bypass sanctions when purchasing prohibited weapons technologies. AFP, citing sources, writes that companies from Turkey, Sri Lanka, Serbia, Thailand and Kazakhstan may also be blacklisted. The EU will finally approve the package of sanctions on February 24, reported Interfax.
Previously, the EU introduced a mechanism to counter the circumvention of sanctions and export restrictions. Within its framework, persons from third countries who help circumvent sanctions are blacklisted. This entails trade restrictions: European entities will not be able to supply certain goods to members of the list, explains Maria Udodova, a lawyer in the compliance and sanctions law practice of BGP Litigation.
Since the implementation of the mechanism within the 11th package of sanctions, the EU has been consistently expanding the list of jurisdictions that affect the restrictions, adds Ms. Udodova.
So, in December 2023, for example, companies from Iran, Hong Kong and the UAE fell under them for the supply of dual-use goods, says Denis Primakov, head of the Sanctions Law and Compliance practice at AB KIAP.
Mergen Doraev, partner at the EMPP law office, emphasizes that “until now the EU has not decided to introduce sanctions against Chinese business”: “Previously, such a threat came only from the United States, which, for example, introduced trade restrictions against Zhongxing Telecommunications Equipment Corporation (ZTE) and even criminal cases were opened because ZTE management was developing measures to circumvent sanctions in order to supply American equipment to Iran. However, the question remains open whether the potential subjects of sanctions are large companies, or whether we are talking about so-called dummies created specifically for such trading operations.”
The companies that are now mentioned do not look like dummies. Guangzhou Ausay Technology, according to its own data, was founded in 2003, and is engaged in the production of printed circuit boards of various classes. Shenzhen Biguang Trading and Yilufa Electronics (founded in 2020 and 1994, respectively) are distributors of electronic components, including controllers, microcontrollers, diodes, transistors, etc.
Meanwhile, Mr. Doraev emphasizes, China already has “extensive experience in trading high-tech goods with sanctioned jurisdictions, and to reduce risks, constantly changing structures are used, which makes it difficult to track the direct producers.”
The lawyer doubts that the EU will be ready to impose sanctions against really large and well-known Chinese technology companies: “In the current conditions, the Europeans do not need a trade war; rather, we are talking about a simple signal to demonstrate to the PRC its position on the issue of expanding military-technical cooperation with Russia.”
Russian companies have also accumulated extensive experience in “carefully working with friendly jurisdictions” over the past two years. Thus, Kommersant’s interlocutor at a large electronics manufacturer says that foreign distributors take into account the risks of falling under restrictions and therefore ask counterparties to establish “one or more layers.” “Yes, I leave part of the profits abroad, but these are not such large amounts – 1-2% of the profits,” emphasizes the Kommersant source.
The growing problem today seems to be not commodity logistics, but financial logistics, ARPE General Director Ivan Pokrovsky is sure: “In general, now the situation with restrictions on financial logistics is close to critical, Russian companies are experiencing difficulties paying for supplies from China, it is necessary to find a solution to this problem.” The expert confirms that sanctions designed to simply limit the supply of certain goods do not pose serious threats: “We have already learned to overcome them.”
Kommersant’s interlocutor at one of the electronics manufacturers agrees with this assessment. According to him, in recent weeks, Russian companies have rather felt the sanctions due to refusal a number of Chinese banks to work with Russian counterparties: “But a method for circumventing these restrictions will be developed in the near future.”
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