From Blunt Weapons to Smart Bombs: The Evolution of US Sanctions

 

 

Gary C. Hufbauer is Reginald Jones Senior Fellow at the Institute for International Economics, Washington, D.C. Barbara Oegg is a Research Associate at the Institute for International Economics.

Since the 1920s, the use of economic sanctions for foreign-policy purposes has increased decade by decade, regardless of frustrations over their implementation and efficacy. Not only has the frequency of sanctions episodes increased over several decades, but also the range of goals has expanded tremendously. Economic sanctions have been employed to promote democracy and human rights, to end civil war, to stop drug trafficking, to fight terrorism, to combat weapons proliferation and to promote disarmament. When military intervention is too costly and diplomacy too mild, governments increasingly resort to sanctions as a means of conducting foreign policy “on the cheap”.

Utility of US Sanctions

Although public controversy about the use and effectiveness of sanctions began after the First World War, the more frequent deployment of sanctions in the last decade has generated intense debate among policymakers, business firms and academics. Advocates regard sanctions as an important weapon in the arsenal of foreign-policy tools—a middle-of-the-road policy between diplomacy and military force. Opponents, on the other hand, draw attention to the ineffectiveness of economic sanctions in achieving major policy changes abroad and question whether the benefits derived are worth the costs of sanctions.

 

Preliminary findings based on a survey of 185 sanctions episodes¹ by the Institute for International Economics suggest that the effectiveness of economic sanctions in achieving their stated foreign-policy objectives has been declining over the past decades (see Table 1). In the early post-war period, about 50 per cent of United States sanctions, both unilateral and multilateral, were successful in at least partially achieving their stated objectives. Since 1970, however, the success rate of US sanctions has steadily dropped. Between 1970 and 1990, sanctions succeeded in just about a fifth of the cases. Even more striking is the decline in utility of unilateral US sanctions. Between 1960 and 1970, the success rate of unilateral US sanctions dropped from 62 per cent to merely 17 per cent. This downward slide continued even further in the 1980s when only 8 per cent of unilateral US sanctions were successful.

 

 

 

 

Source: Preliminary results from Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann Elliott, assisted by Barbara Oegg, Economic Sanctions Reconsidered, 3rd ed. (Washington, D.C.: Institute for International Economics, forthcoming).

 

a. Success score has two parts: policy result [1 (failed)–4 (success)] times sanctions contribution to a positive outcome [1 (none)–4 (significant)]; scores of 9 and higher are considered a success.

 

b. Includes unilateral US sanctions as well as cases involving United States as part of sanctions coalition.

 

c. Excludes sanctions episodes where there was considerable international co-operation with the sender country 

 

 

Yet, while the success rate of unilateral US sanctions has been declining, so has the frequency of unilateral US initiatives. In the 1970s the United States was involved in thirty-two sanctions episodes and 75 per cent of them were unilateral initiatives. By sharp contrast, and contrary to conventional wisdom, in the 1990s some 71 per cent of the thirty-eight sanctions episodes with US involvement were in conjunction with other co-senders or were cases in which the United States received substantial international support. Only 29 per cent of the cases in the 1990s were purely unilateral ventures.

 

A major explanation for the declining effectiveness of unilateral sanctions is globalisation. In 1995, by comparison with 1965, target countries found it much easier to tap into world trade and capital markets for alternative goods and finance. Unless other major OECD countries are willing to co-operate, it is nearly impossible for the United States alone to deny a target country vital markets and money. The same global forces may also have prompted the gradual shift from unilateral actions towards multilateral initiatives.

 

Another change in the post–Cold War era is the decline in new cases targeting Latin American countries and the rise of new cases targeting African countries. In broad terms, this reflects the swing of Latin America to democratic governance and the rising incidence of civil war, despotic leadership and large-scale killing in Africa. This shift in geographic locus—from the US backyard to the European backyard—is another factor in the decline of unilateral US sanctions and the rise of European initiatives.² In the 1970s and 1980s, Latin American countries were subject to twenty sanctions episodes, seventeen of which were unilateral initiatives by the United States. In the 1990s, fewer sanctions episodes were targeted against Latin American countries, and less than a third of these cases were unilateral US sanctions.

 

The collapse of the Soviet Union freed the United Nations from its Cold War straitjacket, allowing it to intervene more aggressively in international affairs, including the imposition of mandatory economic sanctions nine times compared to just twice prior to 1990. With the end of the superpower rivalry, the United States faces different foreign-policy challenges. In many cases, the new threats are no longer of paramount concern to the United States or its Western allies. Unwilling to commit substantial financial resources or military troops, the United States has often lobbied its allies to resort to sanctions.

Costs of Imposing Sanctions

While the success of a sanctions episode is often uncertain and the benefits elusive, the costs of sanctions are not. The intent of trade sanctions is, of course, to reduce trade—exports or imports or both. Financial sanctions and asset freezes also reduce trade by denying investment, foreign exchange or credit to the target country, or by raising the cost of borrowing new funds. In addition to the immediate impact on bilateral trade, sanctions may have a lingering afterlife because firms in the sender country are regarded as “unreliable suppliers”. Previously sanctioned countries may, for example, avoid buying from US exporters after sanctions are lifted, thus giving exporters in Europe and Japan a competitive advantage. Capital equipment exports lost today also mean lower exports in the future because markets are lost for replacement parts and follow-on technologies. Finally, foreign manufacturers of complex products, such as telecommunications systems, may design US intermediate goods and technology out of their final products for fear of being caught up in a future US sanctions initiative.

 

To measure empirically the impact of economic sanctions on bilateral merchandise trade flows, the Institute for International Economics used a common econometric method, the so-called “gravity model”. Combined with an equally common statistical technique, “ordinary least squares” (OLS) regression analysis, the gravity model permits analysis of the indirect as well as direct effects of economic sanctions across a large number of countries. Because sanctions take such a wide variety of forms, we first divided the cases into three categories according to their intensity.³

 

The study found that when they are in place, extensive sanctions have a large impact on bilateral trade flows, reducing them by around 90 per cent. There is more variation in the estimates of the impact of the second and third categories—moderate and limited sanctions such as restrictions of bilateral aid or narrowly defined export sanctions. However, on average they reduce bilateral trade by roughly a quarter to a third. Using the results from the gravity model, we estimated that US sanctions in 1995 may have reduced US exports to twenty-six target countries by as much as $15 billion to $19 billion. Since 1995, the United States has enjoyed full employment, and in a full employment economy lower exports do not translate into an overall drop in employment. They do mean, however, that fewer workers are employed in the export sector of the economy, and more workers are employed elsewhere. According to a 1996 US Department of Commerce study, in the year 1992, $1 billion of goods exported supported 15,500 jobs, both directly in the exporting firms and indirectly in their suppliers.⁴ Taking into account productivity growth, the figure in 1995 was probably about 13,800 jobs. Unless the $15 billion to $19 billion estimated reduction in US exports in 1995 was offset by exports to other markets, the loss of jobs in the export sector (if not in the economy as a whole) was between 200,000 and 260,000 positions.

 

Various studies have shown that jobs in the export sector pay better than average wages.⁵ Thus, even in a full employment economy, the loss of exports means a loss of wages—the export sector’s “wage premium”. Taking into account both direct and indirect employment, the export sector wage premium is about 12 to 15 per cent.⁶ In 1995, when the average wage in manufacturing was about $34,000, the premium paid by the export sector was about $4,000 per worker (12 per cent of $34,000). What these figures mean is that, as a consequence of US sanctions, American workers probably lost somewhere between $800 million and $1 billion in export sector wage premiums in 1995. Although these estimates are calculated for 1995, similar costs would be endured each year comparable sanctions are in place.

 
In the $9 trillion US economy such costs are not huge, but they mean a lot to the affected firms, workers and communities. Similarly, although we have found little evidence that the negative impact of sanctions lingers long after they are lifted, long-term effects of sanctions might be more severe for particular sectors, such as sophisticated equipment and infrastructure, than for exports in the aggregate.

Carrot or Stick?

Faced with the declining utility and relatively high costs of unilateral US sanctions, it is not surprising that various players have tried to reform US sanctions policy in the last few years. Particularly with respect to some long-standing unilateral US sanctions, such as those against Cuba, Iran and North Korea, it seems clear that despite their punishing effect on their targets, sanctions have not achieved US goals. Such sanctions have become more an instrument of retribution than a tool of persuasion. As David Cortright and George Lopez have stressed, “Coercion becomes dysfunctional … when it is unconditional, when it demands total submission as the price for an easing of pressure.”⁷

 

Economic ties between the United States and North Korea have virtually been zero since 1950. When in 1993 North Korea announced its withdrawal from the Nuclear Non-proliferation Treaty over a dispute about inspections of nuclear waste sites by the International Atomic Energy Agency, the United States had no remaining economic leverage on North Korea. The matter was referred to the UN Security Council, where the US-backed proposal to impose international sanctions was opposed by Russia and China. After a series of high-level negotiations and interventions by third parties, the United States, South Korea and Japan reached an agreement with North Korea in 1994. Under the “Agreed Framework”, North Korea agreed to freeze and eventually to eliminate its nuclear programme in exchange for the construction of two light-water reactors. The agreement also provides for the easing of restrictions on diplomatic and trade relations with the United States. In early 1995, President Clinton eased travel, communication and a few trade restrictions, but conditioned any further relaxation of bilateral trade restrictions on progress on nuclear and other US concerns. Faced with Russian and Chinese objections to UN economic sanctions, the Clinton administration could only offer the “carrot” of reduced economic sanctions as an incentive for North Korean co-operation on nuclear issues.

 

The United States seems to have offered an even bigger carrot to North Korea for its signature on the agreement reached with South Korea during the summit meeting in June 2000. Hours after the presidents of North and South Korea signed an agreement on future co‑operation between the two countries, Clinton administration officials announced a plan to lift a range of economic sanctions. The plan would allow North Korea to export raw materials and goods to the United States and open the way for US firms to invest in agriculture, mining, infrastructure projects and tourism in North Korea. Restrictions associated with North Korea’s designation as a state sponsor of terrorism remain in place, but the imminent easing of sanctions signifies a striking change in policy.

 

In the case of Iran, trade restrictions were recently eased in response to political changes in Iran. With the election in 1997 of a moderate president, Mohammad Khatami, relations between the United States and Iran entered a new phase. Signalling a desire to improve strained relations with the United States, President Khatami expressed regret for the 1979 hostage taking and called for increased unofficial exchanges between the two countries. In 1998, Iran officially renounced the death threat issued against the author of The Satanic Verses, Salman Rushdie, opening the way for the United Kingdom and other Western European countries to restore ties with Iran. In an effort to strengthen democratic forces inside Iran, President Clinton lifted restrictions on US exports of food and medicine to Iran in April 1999, and a year later eased the ban on Iranian non-oil exports such as carpets, caviar and pistachios. While lifting restrictions on non-oil exports offers only limited economic benefits to Iran, it sends an important signal of support for democratic forces in Iran.

 

In an effort to support the Cuban people without strengthening the Castro regime, the Clinton administration has also modified sanctions against Cuba in recent years. To encourage “people-to-people” exchanges between Americans and Cubans, President Clinton eased restrictions on travel to Cuba for educational, religious and human rights purposes in October 1995. In January 1999, the administration further relaxed restrictions on US trade with Cuba. These measures included the resumption of direct postal services to Cuba, authorisation for any US citizen to send as much as $1,200 a year to Cuba (a right previously reserved to family members) and the permission, on a case-by-case basis, to sell food and agricultural equipment to private and non-governmental organisations. The United States also authorised direct flights to Havana from Los Angeles and New York. By expanding contacts between Americans and Cubans, the United States hopes to promote the development of a civil society in Cuba and, eventually, to facilitate a democratic transition there.

 

The United States and the European Union have followed a similar approach in Serbia. At a NATO summit in April 1999, the United States and the European Union decided on an oil embargo against Serbia. However, under a programme called “energy for democracy”, the European Union later agreed to exclude Serbian cities governed by opposition parties from the embargo and to supply these cities with $5 million worth of oil. The objective of the “energy for democracy” programme is to support democratic forces in Serbia by shielding them from the impact of the sanctions.

An Enduring Policy

Despite these efforts selectively to relax some long-standing US sanctions in recent years, economic sanctions will remain an important element in the policy toolkit for future presidents and Congresses. They will also remain an option for individual American states. In the lawsuit filed by National Foreign Trade Council against the State of Massachusetts challenging a law sanctioning companies doing business in Burma (Crosby v. National Foreign Trade Council), the United States Supreme Court held that the Massachusetts law undermined the president’s ability to conduct foreign policy and that it was pre-empted by federal law. The Court’s interpretation, however, focused narrowly on the specifics of the Massachusetts law and stopped short of prohibiting states from taking economic actions with foreign-policy implications. The ruling, therefore, leaves states free to pursue other methods to sanction a target country, such as sale by public pension funds of the stock of offending companies.

 

In most cases the effectiveness of economic sanctions is measured against the goal of changing the behaviour of the target country. But as David Cortright and George Lopez have pointed out,

 

In addition to their official or publicly declared objectives, sanctions can be imposed for symbolic purposes. These may include deterring future wrongdoing, demonstrating resolve to allies or domestic constituencies, upholding international norms, or sending messages of disapproval in response to objectionable behavior.⁸

 

These more symbolic purposes are less measurable than stated goals, but may be of greater importance to the sender country. It is clear that the sanctions imposed by the United States, the then European Community and Japan against China in the wake of the Tiananmen Square massacre in 1989 were principally designed to assuage domestic constituencies, to make a moral statement and to send a warning to future offenders against the international order, whatever their immediate effect on the target country. Similarly, the US administration’s sanctions against Burma are primarily in response to considerable domestic pressure to “do something” about the authoritarian regime in Rangoon.

 

Recent polling data on American public attitudes towards economic sanctions supports this approach. A survey conducted by the Program on International Policy Attitudes (PIPA) at the University of Maryland found that Americans “show a substantial readiness to favor limiting trade with other countries who violate standards on human rights [and] the environment” or who support “terrorists and the proliferation of weapons of mass destruction”.⁹

 

What is remarkable is the finding that—even when presented with the arguments that sanctions are ineffective and cost jobs—most Americans still favour limiting trade with countries for violating basic norms. While Americans appear to be divided on the question of whether sanctions are effective, the PIPA study found resilient support for sanctions even in the face of assertions that they only hurt the civilian population and that economic engagement is a better means of influencing foreign leaders. Interestingly, the argument that the United States should only impose sanctions with strong multilateral assistance also failed to gain much support. It seems Americans feel that regardless of whether economic sanctions are effective or not, they are an important way of taking a unilateral stand on issues and a necessary alternative to the use of military force.

 

American popular views probably differ from European and Japanese views for several reasons. First, Americans strongly believe in the justice of taking a stand for moral values. Second, they prefer to seek non-military rather than military solutions to international crises. Finally, they see the benefits from trade as marginal and hence easily overridden by other values. For most Americans, punishing the target country is itself sufficient reason to impose economic sanctions. This polling data seems to suggest that the effects of economic sanctions abroad are not decisive; what really matters is whether they satisfy domestic constituencies. Unless and until fundamental attitudes change, economic sanctions will remain a much-used US foreign-policy tool. The challenge for sanctions practitioners, therefore, is to devise “smarter” sanctions that limit their adverse impact at home and on innocent civilians abroad while still exerting pressure on foreign leaders in the target country.

‘Smart’ Sanctions

In recent years, business firms, human rights groups and academics have repeatedly voiced concern about the humanitarian effects of economic sanctions, their impact on third countries and their cost to the economy of the United States. As the collateral damage from the “blunt weapon” of trade embargoes becomes less acceptable, more specific and creative sanctions are being invented to address these problems. “Targeted sanctions” or “smart sanctions”, like “smart bombs”, are meant to focus their impact on leaders and political elites believed responsible for objectionable behaviour, while reducing costs to the sanctioning country and unnecessary damage to powerless civilians in the target country. Growing emphasis on the individual accountability of those in power for the unlawful acts of states (highlighted by the Pinochet case and the Bosnian war crimes trials) has made the concept of targeted sanctions all the more attractive.

 

Targeted sanctions, such as arms embargoes, travel bans and asset freezes, as an alternative to comprehensive trade embargoes, are a relatively new concept. A survey of sanctions cases in the twentieth century shows that only in twenty cases were targeted sanctions imposed outside the framework of comprehensive embargoes, and even in these twenty cases targeted measures were almost always accompanied by selective export restrictions or aid suspensions.

Arms Embargoes

Since 1990, the UN Security Council has imposed ten arms embargoes in an effort to limit local conflicts.¹⁰ Targeted in the sense that their purpose is to sway military and political leaders by denying them access to weapons and other military equipment, arms embargoes also help to identify and stigmatise those who violate international norms. Yet the effectiveness of arms embargoes in ending conflicts is debatable. Weak enforcement, poor monitoring and dire conditions in bordering countries all work to undermine arms embargoes. The current sad story of disarray in countries bordering Sierra Leone is all too familiar.

Travel Bans

Travel or aviation bans fall into two categories: restrictions on all air travel to and from a target country, and restrictions on the travel of targeted individuals, groups or entities. In the case of blanket air bans against a target country, or against areas under the control of targeted groups (such as the Unita rebel movement in Angola), the assumption is that the flight ban will affect people in power substantially more than the general population. Similarly, travel bans and visa restrictions against designated individuals not only avoid the cost of imposing a trade embargo, but are also useful in denying legitimacy to political leaders, military officials and their supporters. An interesting case study is the EU “blacklist” of Serbian president Slobodan Milosevic’s supporters. The six hundred individuals on the blacklist are prohibited from travelling in Europe and their assets in European banks are frozen. While Milosevic and his supporters benefited from the trade embargo on Serbia by controlling the profitable black market, they do seem to mind personal international isolation. They find themselves hobbled in conducting business abroad as the travel ban cuts them off from their companies and bank accounts. In general, however, travel sanctions seem to be primarily symbolic measures

Financial Sanctions

Financial sanctions, such as asset freezes, limiting access to financial markets, restricting economic assistance or prohibiting new investment, have received the most attention from practitioners and academics. Unlike travel bans and arms embargoes, which are mostly symbolic in nature, financial sanctions can potentially harm the targeted group, company or individual, thus increasing the likelihood of success. Empirical evidence supports this argument. Economic sanctions cases analysed in the second edition of Economic Sanctions Reconsidered (1990) indicate that financial sanctions used alone contributed partially to the achievement of foreign-policy goals in 41 per cent of the cases, compared to only 24 per cent for trade sanctions alone.

 

Financial sanctions are attractive for a variety of reasons. Technical expertise—developed in international efforts against money laundering—in identifying and tracking financial assets can provide useful guidelines for the implementation of targeted financial sanctions. Furthermore, the United States has substantial experience in administering financial sanctions. The US Treasury Department’s Office of Foreign Assets Control (OFAC) has more or less continuously administered some form of asset freeze or other financial control since 1940.¹¹ The US predominance in international financial markets also provides additional leverage to exert pressure.

 

In recent years, OFAC has implemented UN-mandated freezes on foreign assets of specifically designated individuals, state-owned companies and governments in connection with sanctions against Haiti, Serbia–Montenegro, the Bosnian Serbs and Unita. New unilateral US initiatives include the creation of a “Specially Designated Narcotics Traffickers” (SDNT) programme that identifies and incapacitates the business of Colombia’s drug cartels by denying access to the US financial system and trade with US firms. OFAC director Richard Newcomb has called the SDNT programme

 

an excellent example of an effective use of targeted financial sanctions with clarity of scope and coverage, significant leverage on the target, continuing coordinated efforts for research and information sharing, and with a strong enforcement component.¹²

 

The programme seems to have been quite successful. According to reports from OFAC, nearly a third of the businesses identified by the programme between 1996 and 1999 have gone into liquidation. These companies have a net worth of more than $45 million and a combined annual income of over $200 million. Other effects, such as the cost to companies and individuals of having to find alternative sources of credit and suppliers for parts and inputs, etc., are real but much harder to quantify.

 

The OFAC programmes also highlight the considerable challenges facing financial sanctions, such as the identification of funds belonging to the targeted individuals, governments and companies. Although the means of tracking financial assets have greatly improved, so have the means of deception. Even when individual funds can be identified, secrecy and speed are crucial to prevent targets from moving assets to numbered accounts in offshore banking centres. Sanctions authorities need to monitor compliance, to research and share information, and to co-ordinate enforcement mechanisms.

Other Uses

Targeted sanctions, at times, are also imposed for domestic purposes. US Secretary of State Madeline Albright’s decision to delay the Export–Import Bank loan to Russia over the conflict in Chechnya (although other reasons were invoked and Chechnya was not explicitly mentioned) falls into this category.

 

A recent EU proposal to lift the general flight ban on Serbia while at the same time tightening sanctions against the supporters of President Milosevic illustrates a new use of targeted sanctions. As support for broader sanctions wanes, alternative measures targeted at the political elite offer a way to maintain pressure while reducing the impact on the general population. During the long hostilities involving Serbia, the European Union has been able to identify entities and individuals linked to President Milosevic, thus increasing the accuracy of targeted measures. The EU proposal represents a compromise between the US opposition to removing any sanctions, and the more accommodating EU stance (some EU members, such as Italy, Greece and France, favour lifting all sanctions on Serbia, and the European Union as a whole has in recent months lifted part of the sanctions package). In other words, targeted sanctions allow the anti-Milosevic coalition to remain united.

 

Sanctions diplomacy in Serbia could be a prelude to developments in Iraq and Cuba. Comprehensive sanctions may gradually be replaced by targeted measures. Just recently, UN Secretary-General Kofi Annan suggested a move along these lines for Iraq. Despite their shortcomings, targeted sanctions may serve the important purpose of satisfying the need in sender states to “do something”, while imposing limited to no costs on the domestic economy, on third states and the civilian population in the target countries.

Endnotes

1. Gary Clyde Hufbauer, Jeffrey J. Schott and Kimberly Ann Elliott, assisted by Barbara Oegg, Economic Sanctions Reconsidered, 3rd ed. (Washington, D.C.: Institute for International Economics, forthcoming). This number does not correspond to the number of actual cases because it includes assessments of multiple goals in some sanctions episodes as well as multiple phases of some prolonged sanctions cases.

 

2. Kimberly Ann Elliott and Gary Clyde Hufbauer, “Same Song, Same Refrain? Economic Sanctions in the 1990s”, American Economic Review 89, no.2 (May 1999), pp. 403–8.

 

3. Gary Clyde Hufbauer, Kimberly Ann Elliott, Tess Cyrus and Elizabeth Winston, US Economic Sanctions: Their Impact on Trade, Jobs, and Wages (Washington, D.C.: Institute for International Economics, 1997).

 

4. US Department of Commerce, US Jobs Supported by Exports of Goods and Services (Washington, D.C., November 1996).

 

5. J. D. Richardson and K. Rindal, Why Exports Matter: More! (Washington, D.C.: Institute for International Economics and The Manufacturing Institute, 1996).

 

6. US Department of Commerce, US Jobs. Richardson and Rindal found that the export wage premium was about 16 per cent for workers employed directly in producing manufactured exports (see footnote 5 above).

 

7. David Cortright and George A. Lopez, The Sanctions Decade: Assessing UN Strategies in the 1990s (Boulder, Colo.: Lynne Rienner Publishers, 2000), p. 28.

 

8. Cortright and Lopez, The Sanctions Decade, p. 16.

 

9. Program on International Policy Attitudes (PIPA), “Americans on Globalization: A Study of US Public Attitudes”, School of Public Affairs, University of Maryland (28 March 2024).

 

10. Iraq (1990), Yugoslavia (1991), Somalia (1992), Libya (1992), Liberia (1992), Haiti (1993), Angola (1993), Rwanda (1994), Sierra Leone (1998) and again against the Federal Republic of Yugoslavia (1998) over the Kosovo conflict.

 

11. R. Richard Newcomb, “Targeting Financial Sanctions” (paper presented to Expert Seminar on Targeting UN Financial Sanctions, Interlaken, Switzerland, 17–19 March 1998) [www.smartsanctions.ch/int1_papers.htm].

 

12. Ibid.