RONDELI BLOG

2023 / 06 / 26

 

Within a year of Russia's military intervention in Ukraine on February 24, 2022, the European Union adopted 10 packages of sanctions against Russia. However, this did not significantly reduce the Kremlin’s bellicose stance. Moreover, in 2022, the Russian economy decreased by only 2%, and in 2023, according to the International Monetary Fund forecast, it may even increase. In addition, about 770 parts produced in the European Union have been found in the military equipment and weapons used by Russia against Ukraine. These facts "expose" the shortcomings of the EU's methods of fighting against Russia, and raise doubts about the existence of new "intermediate links" in trade, which ultimately undermine the purpose and effectiveness of the restrictive measures imposed through the sanctions.

The 11th package of sanctions was officially approved in Brussels on June 23, 2023, to "fill the gaps" in the international sanctions regime. In the West, they believe that the new sanctions, developed on the basis of the past year’s experience, will have better results.

According to the opinion expressed during the work on the 11th package, the sanctions could have been spread to include the South Caucasus region, incorporating Georgia, along with the Central Asian countries. However, this did not happen.

In our blog, we will briefly outline the content of the 11th package of EU sanctions, the anticipated inclusion of Georgia, and the forecast looking ahead.

What does the 11th package of sanctions contain?

The purpose of imposing EU sanctions within the framework of the 11th package is to fill the "gaps" that have reduced the effectiveness of the sanctions imposed on Russia thus far. With the 11th package, on the one hand, the existing restrictions were extended and tightened, and on the other, third countries appeared on the sanctioned list, that is, those countries who have been helping Russia avoid the embargo imposed by the European Union.

In particular, a new "anti-circumvention" mechanism was developed which prohibited the selling of, supply, transfer, or export of certain sanctioned goods and technology to third countries whose jurisdiction is considered to carry a high risk in terms of facilitating the circumvention of the sanctions. In addition, the transit through Russia of certain sensitive goods (eg, advanced technologies, aviation-related materials, etc.) exported to third countries was prohibited.

87 new entities have been added to the list of direct supporters of the Russian military and industrial complex in the war against Ukraine. They will now be subject to stricter export restrictions on dual-use and advanced technology goods. Along with Russian and Iranian organizations, this list also includes entities registered in China, Uzbekistan, the United Arab Emirates, Syria, and Armenia.

In Brussels, they expect that the 11th package will "fill in the gaps" by preventing the supply of goods and technologies vital to the Kremlin's military endeavors from countries trading with the European Union. All this, in the end, will contribute to the weakening of the Kremlin's military capabilities.

Why was Georgia considered among the potential recipients of the latest sanctions?

After Russia's military intervention in Ukraine, the economy of several countries, including Georgia, suddenly grew. According to the data of the International Monetary Fund, in 2022, the growth of the Georgian economy reached the double-digit mark and amounted to 10.1%. In 2023, this mark is expected to decrease to 4%. Despite the slowdown, according to some analysts, the driving factor for economic growth is still in place, which leaves Georgia in the spotlight. The driving factor can be easily identified - the Georgian economy benefits from Russia's isolation.

Georgia has not joined the US and EU sanctions, however, formally, it does not violate its obligations to its Western partners by having relations with Russia. The opinion that Georgia could be included on the list of suspicious third countries was supported by the analysis of several factual circumstances:

1. The unusual and unexpected visit of Georgian Finance Minister Lasha Khutsishvili to the United States. On April 11, 2023, the minister met with Jim O'Brien, head of the Sanctions Coordination Office at the US State Department. The declared superficial information in the official agenda of the meeting increases the probability that Khutsishvili was "summoned" because of the suspicion about Georgia’s helping Russia evade the sanctions. Kelly Degnan, the US Ambassador to Georgia, responded to this meeting and emphasized the importance of Georgia's cooperation with the West in increasing the effectiveness of the sanctions imposed on Russia.
2. According to Jim O'Brien, the United States views Georgia among the countries that cause a problem with sanctions evasion. Along with Georgia, Turkey, Kazakhstan, United Arab Emirates, and Armenia were included on this list. According to O'Brien, European companies sell their products to other countries, and, in turn, these countries supply Russia. In this way, the export of key microchips and electronics needed for Russian "war machines" is promoted. The United States supports the development of new mechanisms against non-EU countries for sanctions evasion.
3. The upcoming visit of David O'Sullivan, the EU Special Representative for Sanctions, to Georgia, with a warning and on a fact-finding mission, which will take place in a few weeks. According to Politico, O'Sullivan has already visited such dubious third countries as Turkey, Uzbekistan, and Kazakhstan, and, on May 11, he met with the President of Serbia. It is presumed that O'Sullivan will hold a serious conversation with the Georgian government in terms of changing the state policy.

From the Georgian government, Lasha Khutsishvili responded to the rumors about the imposition of sanctions by the European Union, calling them "false information" and "groundless accusations". According to the minister, no evidence confirming violation of sanctions has yet been presented. According to the official statement of the Ministry of Finance, Georgia fully complies with the international sanctions and actively cooperates with its partner countries. The opposite is indicated by the fact that Tbilisi's position regarding the sanctions imposed against Russia is baptized as "balanced" and is welcomed in Moscow.

Is there still a threat of Georgia being sanctioned?

According to the information disseminated during the work on the 11th package of sanctions, the European Union developed a two-step mechanism against suspicious third countries:

First of all, the bloc was going to focus on strengthening bilateral cooperation with such countries, which would be achieved through diplomatic engagement and technical assistance. In case such action proved ineffective, a list of high-risk third countries whose jurisdiction is used to circumvent the sanctions imposed on Russia were to be defined. Such countries, their citizens, and legal entities registered there were to become the targets of the 11th package of sanctions. Indeed, O'Sullivan visited several such suspicious third countries (Kazakhstan, Armenia, ...). Companies registered there were among the recipients of the new sanctions and, as such, we can conclude that with the governments of these states, the first step of the mechanism turned out to be ineffective.

O'Sullivan's upcoming visit to Georgia suggests that the European Union is trying to deepen bilateral cooperation with Georgia, to diplomatically promote changes in Georgian policy to reduce relations with Russia (especially in terms of direct flights) and, ultimately, to remove Georgia from the list of suspicious third countries. If the Georgian government is not ready to make changes in this direction and refuses to strengthen bilateral cooperation with the European Union, it is likely that Brussels will switch to the second step of the mechanism.

Conclusion

Despite the existing doubts, Georgia and Georgian companies were not among the recipients of the 11th package of EU sanctions. However, the arguments that raised these doubts remain relevant. O'Sullivan's visit will be an opportunity for Georgia to diplomatically neutralize the doubts and change the state policy in a timely manner. Otherwise, Georgian companies operating direct flights with Russia and engaged in flight services may be among the sanctioned entities in the future. It is a fact that by deepening relations with Russia, Georgia has already suffered significant reputational damage in the eyes of the West.

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