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Bark But Little Bite? Sanctions Don’t Appear To Put Brakes On Trade Between EU And Belarus

While Lithuania is one of the harshest critics of hard-line leader Alyaksandr Lukashenka, the small Baltic state continues to cash in on trade with Belarus — along with other EU nations and companies, despite several rounds of Western sanctions.

Lithuanian companies continue to ship Belarusian potash products, a key ingredient in fertilizer, through its rail network and port of Klaipeda to markets in the EU and elsewhere, despite the Belarusian state-run potash giant, Belaruskali, being sanctioned. The continuing trade with the Lukashenka regime has sparked a scandal in Lithuania, with even calls for the government to step down.

Lithuania is not alone. Fresh data shows that trade between the EU and Belarus almost doubled in 2021, triggering some to question whether Western sanctions are strong enough, including the exiled Belarusian opposition leader Svyatlana Tsikhanouskaya, who says Lukashenka has exploited “loopholes” to circumvent them.

And despite calls by Tsikhanouskaya and other Belarusian pro-democracy supporters for stronger EU sanctions, there appears little appetite for that. A European agro-giant, Yara, continues its purchases of potash from the Belarusian state-run giant, although technically through a subsidiary not under sanctions.

“I don’t believe we will see any stronger economic sanctions, unless Lukashenka steps over certain red lines,” said Pavel Slunkin, a policy analyst at the Brussels-based European Council on Foreign Relations, in a telephone interview with RFE/RL. “We are seeing now that countries like Italy, Hungary, Austria, and Belgium oppose tougher economic sanctions because it will hurt them.”

Lukashenka, in power since 1994, has benefited from skyrocketing commodity prices, meaning Belarus is selling its main exports: petroleum and potash products, as well as wood and metals, at much higher prices amid pent-up demand during the COVID-19 era.

“Lukashenka was lucky in the sense that Belarus was able to sell goods that in the past few years he was unable to sell and at much higher prices,” Slunkin said.

Belarusian strongman Alyaksandr Lukashenka (file photo)

Belarusian strongman Alyaksandr Lukashenka (file photo)

The Belarusian leader also got a hefty financial injection last year when the International Monetary Fund (IMF) allocated his government $1 billion in new funding meant to help countries navigate the COVID-19 pandemic, which Lukashenka had dismissed as a “mass psychosis” as he refused to institute lockdown measures.

Lukashenka, 67, has faced five rounds of punitive Western measures since an August 2020 election that was widely seen as rigged extended his decades-long rule, triggering an unprecedented wave of protests that the Belarusian strongman has brutally suppressed.

Thousands of his opponents have been locked up and several killed. Opposition leaders have been imprisoned or forced to flee, including Tsikhanouskaya, who left for Lithuania days after the presidential vote that supporters say she won. NGOs have been pressured, shut down, and independent media silenced.

The Numbers

In the first three quarters of 2021, the EU imported 96.1 percent more from Belarus than the same period in 2020, according to Belstat, the official Belarusian statistics agency. The EU’s statistics agency, Eurostat, doesn’t have a full set of comparable figures. But according to its data, imports from Belarus to the 27 EU states grew 58 percent in January to August 2021, compared to the same period in 2020, according to Bloomberg.

Data from the three Baltic states show some of the highest rises in trade with Belarus. Latvia imported nearly 407 million euros ($460 million) worth of goods from Belarus during the first 10 months of 2021, two thirds more than in 2020. More than half of the imports were wood and its products, according to data from Latvia’s Central Statistical Bureau. Estonia imported 522 million euros worth of goods from Belarus over the same time period, double the amount for the same period in 2020.

The production of potash at Belaruskali has a major bearing on Belarus's national finances. (file photo)

The production of potash at Belaruskali has a major bearing on Belarus’s national finances. (file photo)

Lithuanian imports from Belarus in 2021 reached 1 billion euros, an increase of 50 percent over 2020.

The robust trade between Belarus and the Baltics is striking given that two of them, Lithuania and Latvia, have accused Lukashenka of directing thousands of people — many flown into Minsk from Iraq, Afghanistan, and elsewhere — toward their common border, fomenting a migrant crisis that has angered not only the Baltic states but Brussels as well.

Lukashenka vowed to flood the EU with “migrants and drugs” after the EU passed in June 2021 a fourth and arguably toughest round of sanctions to date against him and key businesses for scrambling a military jet in May 2021 to force a Ryanair flight between Athens and Vilnius to divert to Minsk to arrest a popular blogger and critic, Raman Pratasevich.

Lithuania called it a state hijacking and Brussels quickly moved to close off EU airspace to the Belarusian state airline, Belavia. A month later, the EU and United States slapped a fourth round of sanctions on Belarus, followed by Canada and Britain in what was a coordinated move.

However, at least one economist has questioned the degree to which trade between the Baltic nations and Belarus has increased, chalking up the higher numbers to a rise in commodity prices.

“Knowing what is imported from Belarus in general, they are mainly goods whose prices have risen very, very rapidly during 2021. They are timber, fertilizer, and fuels. Even if, in terms of physical volume, imports remained unchanged, the amounts could indeed be much higher last year, in terms of money,” Peteris Strautiņs, an economist at the Luminor Latvija bank, said in comments to Latvian public radio on January 5.

‘Too Many Loopholes’

Tsikhanouskaya and other opponents of Lukashenka say so far Western sanctions haven’t gone far enough.

“Too many loopholes have been left and Lukashenka and his thugs are using these loopholes, misusing international laws, and they know how to circumvent the sanctions,” Tsikhanouskaya said in an interview with Euractiv in December 2021.

Belarusian opposition leader Svyatlana Tsikhanouskaya (file photo)

Belarusian opposition leader Svyatlana Tsikhanouskaya (file photo)

For example, restrictions on EU imports of potash from Belarus, Minsk’s main foreign currency earner, were crafted to exempt the grade it mainly produces — potash with 60 percent potassium content.

“The sanctions on potash are limited in scope to only about 20 percent of Belarusian potash exports, and many EU countries like Belgium want to see even those sanctions lifted,” explained Kateryna Bornukova, a research fellow at the Belarusian Economic Research and Outreach Center, which has moved from Minsk to Kyiv amid the current crisis in Belarus.

“Those EU countries importing Belarusian potash (although in small amounts compared to world volumes where Belarus is among the largest players) are not ready to see even minimal profitability losses as they are forced to buy from more expensive suppliers,” Borunkova wrote in e-mailed comments to RFE/RL.

The Lithuanian port of Klaipeda, which is a major hub for the distribution of potash in the EU. (file photo)

The Lithuanian port of Klaipeda, which is a major hub for the distribution of potash in the EU. (file photo)

Harsh Lukashenka critic Lithuania is cashing in on trade with Belarus, particularly from shipping potash from Belaruskali that was sanctioned by the United States in August 2021. The ban on sales of potash took effect on December 8, 2021, after a four-month wind-down period, but potash continues to be transported via Lithuania.

A Lithuanian government commission said on December 21, 2021, that an agreement signed by the state-run railway in 2018 to transport potash from Belarus goes against national-security interests, opening the door for the government to terminate it.

The continuation of the deal caused a public outcry in Lithuania, prompting calls for Prime Minister Ingrida Simonyte to resign, although she announced on December 14, 2021, that she and her government would not step down.

“It looks like the Lithuanian government was hoping that the U.S. sanctions would cause Lithuanian companies to stop the transit, and yet it is completely incapable of stopping this transit on its own. That was really surprising,” said researcher Bornukova.

The Norwegian-based agro-giant Yara has faced calls and even an online petition to halt its purchases from Belaruskali. In December 2021, Tsikhanouskaya made a direct appeal in a telephone call with Svein Tore Holsether, the director-general of Yara, who reportedly told her that his business would review its cooperation with the Belarusian company.

Technically, Yara is not violating U.S. sanctions against Belaruskali, as its purchases are made through a subsidiary, BKK, which will not come under U.S. sanctions until April, explained analyst Slunkin.

Yara did announce on January 10 it will “wind down” its purchases of Belarusian potash by April 1.

Despite the apparent shortcomings, Western sanctions, in particular financial ones, are impacting the Belarusian economy, argued Bornukova, “significantly limiting the ability of Belarusian banks to seek financing.”

She pointed to a potassium-chloride mining and processing

plant in Belarus belonging to Slavkali, a company owned by Mikhail Gutseriyev, a Russian businessman and Lukashenka crony who has been sanctioned by the West. The plant, estimated at $2 billion, had been called the biggest investment project in Belarus. In December 2021, however, its Chinese backers pulled out, putting the project in limbo.

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