G7 tightens Russia sanctions, looks to cut China trade reliance

[May 20, 2023]  By Katya Golubkova and John Irish

HIROSHIMA, Japan (Reuters) -Leaders of the world's richest democracies acted on Friday to stiffen sanctions against Russia, while a draft communique to be issued after their talks in the Japanese city of Hiroshima stressed the need to reduce reliance on trade with China.

The Group of Seven (G7) leaders, to be joined this weekend by Ukrainian President Volodymyr Zelenskiy, pledged to restrict any exports to Russia that could help President Vladimir Putin's invasion of his neighbour and to stop sanctions-busting.

"Today’s actions will further tighten the vice on Putin’s ability to wage his barbaric invasion and will advance our global efforts to cut off Russian attempts to evade sanctions," U.S. Treasury Department Secretary Janet Yellen said in a statement accompanying a raft of new U.S. measures.

A statement issued by G7 leaders said restrictions would cover exports of industrial machinery, tools and technology useful to Russia's war effort, while efforts would be pursued to limit Russian revenues from trade in metals and diamonds.

On China, which G7 powers increasingly see as a threat to economic security, they were to agree that its status as the world's second largest economy necessitated efforts to foster cooperation, an early draft of the final communique seen by Reuters said.

"Our policy approaches are not designed to harm China, we do not seek to thwart China's economic progress and development," noted the draft, which is still subject to change, calling for "stable and constructive" ties with Beijing.

The draft nonetheless urged measures to "reduce excessive dependencies" in critical supply chains and counter "malign practices" in technology transfer and data disclosure.

It reaffirmed the need for peace in the Taiwan Strait and urged China to press Russia to end aggression in Ukraine.

NUCLEAR SYMBOLISM

The G7 - the United States, Japan, Germany, Britain, France, Italy and Canada - will use the three-day meeting to debate strategy on a Ukraine conflict that shows no sign of easing.

The summit venue, Hiroshima, was destroyed by U.S. nuclear bombings 78 years ago that ended World War Two. Japanese Prime Minister Fumio Kishida, who represents Hiroshima in Japan's lower house of parliament, said he chose it for the global gathering to focus attention on arms control.

Russia's threats of possible recourse to nuclear weapons, together with the nuclear programmes of North Korea and Iran, have all added to concerns about proliferation.

In the draft, G7 countries - among them nuclear-armed France, Britain and the United States - expressed their "commitment to achieving a world without nuclear weapons" through a "realistic, pragmatic, and responsible approach".

Having emerged as the world's wealthiest nations after World War Two, the G7 democracies have become increasingly challenged by an ascendant China and unpredictable Russia.

Indian Prime Minister Narendra Modi participates in a G7 working session on food, health and development during the G7 Summit in Hiroshima, Japan, Saturday, May 20, 2023. Susan Walsh/Pool via REUTERS

Amid evidence that existing Russian sanctions are being weakened by circumvention, they said the group was "engaging" with countries through which any restricted G7 goods, services or technology could transit through to Russia.

"Essentially, the aim is to provide for clarification in order to make circumvention more difficult," German Chancellor Olaf Scholz told reporters. While no countries were named in the G7 statement, a separate European Union statement said it had asked central Asian states to guard against circumvention.

Breakdowns of German trade data show its exports to countries bordering Russia have risen sharply, fuelling concerns about the re-exportation of goods from those neighbours.

It was not immediately clear how much the new sanctions effort would affect Russia, whose finances have already been squeezed by moves to cut revenues from its vast energy reserves.

"The wordings are quite open," a senior EU diplomat said of G7 language designed to allow different national approaches.

Ukraine has urged its Western allies to go further in isolating Russia, for example by tightening loopholes in the financial sector.

"Certainly, sanctions can be toughened on the (Russian) banking sector," said John Herbst, a former U.S. ambassador to Ukraine now with the Atlantic Council think tank. "They’ve gone after several of them, but others are able to operate."

DIAMONDS LEFT FOR LATER

Separately, the U.S. administration added dozens of entities to a trade blacklist and Britain published plans to ban imports of Russian diamonds, copper, aluminium and nickel, although data show Russia's UK imports of those commodities were small.

Reflecting the EU view that wider diamond sanctions would only shift Russia's trade elsewhere from the established gem capital of Antwerp in Belgium, the G7 draft merely referred to possible moves towards future restrictive measures.

Zelenskiy is due to arrive late on Saturday on a French jet after attending the Arab League summit in Saudi Arabia.

G7 countries promised him further military and financial help. U.S. President Joe Biden told fellow leaders he backed a joint effort with allies to train Ukrainian pilots on F-16 fighter jets, a senior administration official said.

(Reporting by Katya Golubkova, John Irish, Jeff Mason, Trevor Hunnicutt, Sakura Murakami, Kentaro Sugiyama, David Dolan and Andreas Rinke in Hiroshima; additional reporting by Chang-Ran Kim, Kantaro Komiya, Satoshi Sugiyama and Yoshifumi Takemoto in Tokyo, Jan Strupczewski in Brussels; writing by Mark John; editing by Robert Birsel and Mark Heinrich)

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