VDMA: Russia must not become a second Iran

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Mechanical engineers disapprove of the new US sanctions resolutions against Russia

The new US sanctions against Russia are causing great political and economic discontent. The VDMA is particularly critical of the fact that the US government reserves the right to also impose sanctions against European companies.

The US sanctions package targets the energy trade with Russia. However, the measures are not only aimed at investments in Russian pipelines transporting energy resources to the West. They also affect companies involved in goods, technology and services or in the maintenance, repair, modernization or expansion of Russian pipelines for energy export. Business volumes from USD 1 million for single orders, or cumulated orders from USD 5 million within twelve months are affected.

This represents a potential risk for German and European mechanical engineers if they provide services for these pipelines. “There is also the risk of possible side effects on Russian trade in general such as new compliance audits by banks for all business with Russia. This would further exacerbate the already difficult situation in export financing,” warns Ulrich Ackermann, Director of the VDMA Foreign Trade Department.

The current situation in Iran shows how sensitively banks react to US sanctions. In spite of the nuclear agreement and a loosening of the sanctions, most commercial banks continue to refrain from doing business with Iran, for fear of US sanctions against the country. In contrast to the new sanctions in Russia, these are sanctions that are not explicitly extraterritorial.

VDMA rejects sanctions with extraterritorial claim

The VDMA principally rejects sanctions with extraterritorial validity, irrespective of who enacts them. “The VDMA calls on the German government and the EU Commission to counteract the extraterritorial application of American law in a resolute and categorical manner. Russia must not become a second Iran,” emphasizes Ulrich Ackermann.

With this single-handed action, the USA leaves the path of partnership-based coordination that it had pursued with the EU after the annexation of the Crimea and in view of the situation in East Ukraine. Moreover, the law places obvious trade-policy interests of the USA in the foreground. This undermines the credibility of the measures taken thus far and weakens the position of the West against Russia.

Machinery exports to Russia are recovering

After the oil price shock and the sanctions, German machinery exports to Russia had almost halved between 2013 and 2016, however, a recovery is emerging in 2017. Machinery exports increased by more than 20 percent in the first five months. Russia is now back from 10th place to 9th place in the ranking of the most important export markets for German mechanical engineering. The double-digit increase in exports is mainly due to the recovery in oil prices and the stabilization of the ruble. Russian companies again have money to buy capital goods abroad. Exports of agricultural machinery, food and packaging machinery, process engineering machinery and equipment, fittings and liquid pumps, drive and conveyor technology as well as construction equipment and building material machines have particularly grown.

The increasing flow of investments into agriculture, food production, the chemical industry and the gas and oil sector “sets an optimistic tone that the positive export performance of the first five months will continue in the second half of 2017. A prerequisite for this is that the framework conditions for the Russian economy remain stable,” says Monika Hollacher, Russia expert at the VDMA Foreign Trade Department.

Do you have any questions? Monika Hollacher, VDMA Foreign Trade Department, 069 6603 1448, monika.hollacher@vdma.org would be delighted to answer them.

The VDMA calls on the German government and the EU Commission to counteract the extraterritorial application of American law in a resolute and categorical manner.