June 5, 2024

Towards A New Affirmative Agenda: Transatlantic Export Controls and Technology Cooperation

Russian Foreign Ministry/Handout via Reuters/Scanpix
Russian Foreign Minister Sergei Lavrov and China's President Xi Jinping holding a meeting in Beijing. April 9, 2024.
Russian Foreign Minister Sergei Lavrov and China's President Xi Jinping holding a meeting in Beijing. April 9, 2024.

On 9 April 2024, Russia’s Foreign Minister Sergei Lavrov met with China’s Foreign Minister Wang Yi during a meeting in Beijing, declaring a commitment to tightened security cooperation. Deepening Sino-Russian ties beg fundamental questions about the deterrent capabilities of the transatlantic sanctions and export control packages, as well as to what extent they are restraining more profound Chinese security integration with Russia and potentially dissuading more aggressive action in the Indo-Pacific.

Transatlantic partners have long suspected material Chinese support of Russia. The 2022 NATO Strategic Concept explained that “The deepening strategic partnership between the People’s Republic of China and the Russian Federation and their mutually reinforcing attempts to undercut the rules-based international order run counter to our values and interests.” At the April 2024 G7 Foreign Ministers’ Meeting in Capri, Blinken accused China of being the “primary contributor” of Russia’s capabilities and warned Beijing that it cannot “have friendly relations with countries in Europe, at the same time, fuelling the biggest threat to European security since the end of the Cold War.” Chinese support of Russia puts an uncomfortable spotlight on the inability of export controls to deter further bilateral engagement.

Russia has approximately 322 operating banks and 37 non-bank financial institutions. Interestingly, China is not currently banking with any of the entities listed as part of the “western” sanctions packages. This decision suggests that China is either pursuing a relatively low-risk approach to financial engagement for fear of incurring a separate tranche of sanctions or simply that transactions are not visible to allied governments. Regardless, it is important to question which message China is deriving from the allied “de-risking” approach and which additional steps allies might consider pursuing.

Sino-Russian Resiliency: Worrying Indicators about Export Controls

The SIPRI Arms Transfers Database from 2017 to 2022 demonstrates that Russia remains the foremost arms exporter between the BRICS countries, specifically supplying advanced weaponry to China, such as naval guns, ship engines, aircraft, tanks, land-attack missiles, anti-tank missiles, among others. Moreover, China remains an important supply point and transit country for Russian access to western military technology. US intelligence staff has disclosed that approximately 90 percent of Russia’s microelectronics in 2023 originated from China, meaning Chinese inputs likely sustained various Russian weaponry. Data demonstrates that Russian imports of critical dual-use technologies subject to sanctions, such as microelectronics, wireless, and satellite navigation systems, were rehabilitated to a monthly run rate of $900 million in the first nine months of 2023, almost near pre-2022 levels, mostly thanks to trade with China.

Oil and gas have also featured prominently in the China-Russia relationship. As one of the main targets of transatlantic sanctions against Russia, these sectors have been increasingly securitised since the war. China is the largest global oil importer and has benefitted from cheaper Russian oil and gas following the invasion of Ukraine, with relevant increases in energy imports. This has diminished the effectiveness of transatlantic sanctions on Russian gas producers.

However, recent Kommersant reports suggest that China is beginning to make it more difficult to facilitate payments with Russians, particularly if the Russian entities are military-affiliated. Even with a more cautious approach to financial transactions, overall bilateral sustainment begs important questions about which additional policies could facilitate enhanced transatlantic cooperation, while potentially deterring additional Chinese support of Russia.

Cars waiting for export at the port of Yantai in China on June 1, 2023. AFP/Scanpix

Transatlantic Supply Chain Security: Advanced Technologies

In an evolving geoeconomic landscape, it is critical that partner economies evaluate additional trade and investment tools that could bolster power. One way to achieve this is through targeted scaling up of advanced technologies. The United States and its partners have begun an ambitious rethink of global trade relations, attempting to minimise geopolitical disruption throughout supply chains. While allies have been tremendously successful in reimagining global engagement — which Putin’s actions have undoubtedly accelerated — it is time for allied and partner economies to begin crafting the next chapter of economic integration strategies.

Comprehensive free trade agreements (FTAs) will most likely remain a feature of the past. Moreover, an institutionally broken WTO that was not designed to arbitrate national security matters calls into question the suitability of current rules for the economic security era. Thus enter the sectoral supply chain agreement. The United States and its partners are currently conducting deep-dive exercises to assess supply chain vulnerability to potential Chinese weaponisation. The net effect of these analyses will likely be to produce new strategies for moving supply chains to high-trust economies, focusing primarily on advanced technologies. Estonia is a high-trust partner with whom the United States should look more frequently for joint technology cooperation.

As of December 2022, Estonia saw the founding of 1 452 tech startups, making it the country with the most startups and unicorns per capita in Europe. Moreover, Estonia is the top destination for venture capital investments in Europe. Estonia has already partnered with Finland, Sweden, Denmark, Latvia, and Lithuania to lead the “quantum revolution” in Brussels, pushing for the creation of projects, institutes, and centres aimed at scaling up ground-breaking innovation in quantum and bridging the gaps between governments and the private sector.

Former Italian Prime Minister Enrico Letta recently explained in a report on EU single market priorities that research and innovation should constitute the “fifth freedom” of the European Union. Estonia’s technology ecosystem can play an integral role in advancing this objective, particularly with additional transatlantic support that prioritises: 1) research security, 2) investment strategies, and 3) additional cost-offset mechanisms for restrictive trade policies. Overall, advancing cooperative supply chain agreements at the US-Estonia bilateral level should focus on transparency, information-sharing, and execution from the trade facilitation perspective. This cooperation will produce new streams of innovation and advance the de-risking agenda, potentially while serving a greater deterrent quality if China and Russia regard the transatlantic alliance as a powerful bloc with enhanced emerging technology capabilities.

The Economic Security Era

The most urgent security threat globally is Russia’s continued war in Ukraine and allied reluctance and political inability to support Ukraine more wholeheartedly. Given the mounting evidence that suggests that export controls and sanctions are far from a panacea, perhaps a more effective strategy to deter additional Russian aggression and deepening tensions in the Indo-Pacific is for the United States and partner countries like Estonia to craft targeted, high-tech supply chain agreements that advance mutual goals in a high-trust security environment. In short, while traditional security discussions have centred around defence and deterrence, it is important for allied economies to better calibrate a technology doctrine for the economic security era.

This article was written for the Lennart Meri Conference special issue of ICDS Diplomaatia magazine. Views expressed in ICDS publications are those of the author(s).

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