In October this year, the Economic Security Council of Ukraine published its first report on the role of Western CNC machines in the Russian defense industry.
After a month of even deeper analysis and investigation of the issue, as well as based on close communication with the governmental stakeholders and experts in the field, the ESCU introduces an updated version of its previous research.
A new white paper presents additional data and insights, as well as detailed and comprehensive recommendations for addressing the issue. Nevertheless, the key conclusion remains unchanged. CNC machines are the strategic choke point of the Russian military industry and a window of opportunity for trying to stop the aggressor.
Please see the executive summary and the full research below.
Being fully automatized industrial tools, which require almost no human intervention, Computer Numerical Control (CNC) machines have revolutionized manufacturing processes around the globe. Nowadays, CNC machines offer industrial manufacturers the highest precision, efficiency, and resilience, which makes them an indispensable and cost-effective method to produce sophisticated components regardless of the final product.
CNC machine tools are used in various industries contributing to the production of complex and high-precision components, from aircraft and ship parts to surgical instruments, to orthopaedic implants, etc.
Due to their unique features and accuracy, CNC machines are widely used in military production around the globe, especially in the production of weapon hulls, aircraft parts, internal missiles components, UAVs components, critical microelectronics etc. It is hard or even impossible to find a type of modern weaponry that does not require the employment of CNC machines to be produced.
Given that fact, certain types of CNC machines, depending on the level of their precision or specific features, are classified as dual-use goods. Unfortunately, such limitations are not comprehensive. Lots of types of CNCs are still not under export controls. Existing national and international regulations and restrictions continue to target high-accuracy specifications while excluding less precise CNC machines often used for military purposes. Combined with constant evasion efforts, those loopholes leave the CNC sector insufficiently controlled.
Yet, the opportunity and tools for such a control still remain. Most global exports of CNC machinery originate from just a few advanced nations in Western Europe and East Asia, notably Switzerland, Italy, Germany, and Japan, with the last two standing as the world's unequivocal industry leaders. The United Kingdom and the United States, though have witnessed declines in their industrial production capacities, maintain their positions among the biggest CNC producers and consumers globally. Taiwan and South Korea are successfully narrowing the technology gap with the biggest players on the market.
Such relative monopoly of Western and Western-allied states on the CNC machinery market makes other countries and their industries dependent on the imported equipment. One of those countries is the Russian Federation.
Russia's dependency on foreign CNC machine tools (70%) and their components (80-95%) has developed and deepened for years. Its sources lie in the absence of a domestic CNC machine-building industry and other factors such as market size, economic changes in the 1990s, and a lack of qualified personnel. Despite several attempts of import substitution, the overall dependence of Russian industry on the western CNC machinery remains to this day, being the most striking within the military-industrial complex.
Weapons producers are the key consumer of CNC machines in the Russian Federation. Between 70% and 80% of all machines in Russia are used by the military complex. Such a dependency presents a unique opportunity for Western and Western-allied states to use the strategic vulnerability of the aggressor to curb its military capacity.
Equally or even more important in the long run, is the fact that the Russian Federation is not the only rogue state for which the "monopoly" of Western and Western-allied countries on the CNC market is a vulnerability. Iran, North Korea, and China have a similar dependence to varying degrees.
The full-scale Russian invasion of Ukraine exposed the weak points of Russia's (as well as other rogue states’) reliance on Western and Western-allied CNC machines, components, and software. However, despite sanctions and export controls, Russia's CNC machine market remained stable in 2022, raising concerns about the effectiveness of these measures. Consequently, the Russian military complex retained access to the critical equipment. The situation with Iranian, Chinese, and North-Korean weapons producers may be the same.
The key factors contributing to Russia's ongoing access to foreign CNC machines and technology include export control deficiencies, gray import and sanctions evasion schemes, as well as lenient and outdated compliance by CNC machines producers.
Even more crucial factor is the lack of capacity of the enforcement bodies as well as the lack of their focus on leveraging Russia’s dependence on Western machinery. Being a crucial and weak point of the Russian military industry as well as being used in the production of all kinds of modern weaponry, CNC machine tools along with their global supply chains still remain only one of the numerous targets on the list of the relevant national enforcement authorities.
To address all these challenges, a set of specific measures should be taken by governments and market representatives. In particular, states should enhance their national export regulations, review collectively the international export control regime in the CNC machinery sector, increase liability for the manufacturers not in control of their supply chains, launch a full-fledged technological decoupling from violators of international law, as well target regularly and systematically the intermediaries and procurement companies responsible for the illicit supply of CNC machines and their components.
Recommendations for CNC manufacturers mainly focus on changing their approach to the due diligence, compliance and KYC practices, which includes implementing mandatory remote control systems for CNC machinery, controlling gray imports of their products and reporting on the unauthorized and irresponsible resellers, shifting to a risk-based approach, conducting trade exclusively with authorized partners, ensuring clear compliance rules, withdrawing from sanctioned markets, and implementing sanctions circumvention markers.
These recommendations aim to enhance the effectiveness of export controls, reduce vulnerabilities to sanctions evasion, and create a more responsible and secure environment for the international trade of dual-use technologies, particularly CNC machines and the relevant components. These recommendations are universal and aimed at preventing the acquisition of CNC machines and technologies by states that violate international law, terrorist groups, and illegal armed groups.
The full analysis of the role that CNC sector plays in curtailing Russian military capacity and sustaining international peace is available via link below.