It’s been over a year since Russian tanks started amassing Ukraine’s border, and few could have predicted the reverberating impact it would have on the global trading ecosystem. Since those fateful days, the international community responded with a significant round of international sanctions, banning imports and increasing tariffs on several Russian products. Yet despite those headwinds, the cold hard truth is that we’re still seeing a plethora of restricted goods find their way into Russia.
It’s not a complete surprise. Sanctioning goods is one thing, but effectively enforcing them is something else entirely. When you add a global superpower with a history of resilience to the mix, the task becomes all the more complicated. When targeted, closely coordinated and multilateral sanctions tend to work, but they lose potency over time as their targets learn to evade them. Russia’s tactics have increasingly served to expose the core insufficiencies of trade policy. The reality is that Moscow has long anticipated its business isolation from the West, cultivating several strategies aimed at retaining the inflow of basic consumer goods including Coca-Cola, sophisticated high-tech and everything in-between.
Legislating mechanisms like parallel imports where shipments are routed through intermediary points to illegally redirect restricted items to the country, has allowed Russian companies to buy goods from any foreign entity who earlier purchased those goods legally. Luxury goods, cigarettes and pharmaceutical drugs are popular traded gray market items due to their varying pricing strategies, taxation requirements and stubborn demand.
India, China and Pakistan have all provided Russia ample support, while various sanctioned dual-use electronics that include advanced semiconductors are being diverted into the country through other friendly third parties. It was certainly no mystery when Belarus, Serbia, Kazakhstan, China, Kyrgyzstan, Armenia, Uzbekistan and more recently Turkey and the UAE, all abruptly changed their high-tech trading habits following the onset of conflict.
Additional niche items have required some added creativity. This is where the deregulation of product trademarks, third-party trade agreements and Russian nationals re-locating to neutral free trade zones to funnel goods homeward has found value. The Middle East has become an effective transaction hub for Russia, with new Russian-owned entities popping up in a region embracing its role as an offshore trading destination. In this vein, countries like the UAE are helping to protect Russia’s sourcing ability of sophisticated technologies that include artificial intelligence in the long term.
Online marketplaces have also now moved into a territory of usefulness for procuring fake and forged goods, especially since they utilize creative resellers and don’t fall under the same jurisdiction as conventional branded platforms.
As the conflict continues to develop, so will these mechanisms. Even when some form of geo-political stability has been reached, the infrastructure that has been set up will likely endure. It also impacts the wider ecosystem – when you create a flourishing illicit infrastructure where more fake and inferior goods are produced, they eventually assimilate into the wider supply chain, compromising global product quality and further raising the counterfeit threat level.
Sharing the Burden
What can we do about this predicament? It should be obvious by now that trade policies in their current guise remain seriously short of the mark and since Russia remains anything but isolated, there are no quick fixes. Governments now need proper enforcement mechanisms, especially with producers struggling to keep tabs on their own goods when exiting a particular market, and this is where sharing the burden with the private sector can help.
New innovations in AI and data-driven technology, alongside new behavioral approaches to shipment data, can provide governments with fuller visibility into the supply chain. Private innovation using smart data and analytics has now reached a critical point of value for the public sector and private innovation technology can digitally inspect 100% of customs.
