GLOBAL DIALOGUE Volume 2 ● Number 3 ● Summer 2000—Sanctions: Efficacy and Morality

The Many Faces of Economic Sanctions


MICHAEL P. MALLOY

Michael Malloy is professor of law and faculty director of international legal studies at the University of the Pacific, McGeorge School of Law in Sacramento, California. He is the author of the forthcoming book, Economic Sanctions: Theory and Practice (Kluwer Law International).


An anonymous US State Department official once remarked:

 

[I]n a world that frowns upon the use of brute force a young lawyer in the Department can make his or her career by finding a new economic sanction.1

 

Economic sanctions have become an increasingly prevalent feature of the United States’ international economic and foreign policy. However, contrary to the hopeful daydreams of young government lawyers, there is little substantially new in economic sanctions. Novelty arises in the particular array of elements in a sanctions programme, but the actual elements available for implementation have remained basically the same since Pericles’s Megarian import embargo in 432 bce, cited as one grievance in the Peloponnesian War. In the modern era, contemporary US practice is not appreciably different from the array of economic sanctions used against the Axis Powers and their occupied territories during the Second World War.

 

It is true, of course, that the general impermissibility of the use or threat of armed force has increased the relative importance of economic sanctions, a form of economic warfare. To a great extent, the rattling of sabres has been replaced by the jingling of coins in the pocket. This may explain the increased frequency of use of economic sanctions in US practice over the past twenty years. This is not necessarily a fortunate development. The less apparent costs of economic sanctions, as compared to those of armed force, may encourage a facile resort to economic sanctions that would have been intolerable in the case of military action.

 

In the present article, we confront a modest but still essential task: that of definition. We have already made frequent use of the term “economic sanction”, intuitively and without specification, as do most articles on this subject. The term is not an intuitive one, however, and we must therefore begin by specifying the scope of the term. For the purposes of this article, “economic sanction” will be treated as a term of art, not a purely descriptive one. In separating out a technical meaning for the term from descriptive ones, we must contrast the term with what might be called “normal” trade regulation, that is, governmentally imposed restrictions and penalties on international commerce that, despite certain resemblances to “economic sanctions”, serve defined objectives of trade policy distinct from the objectives of foreign policy typically served by “sanctions”. Likewise, we must distinguish economic sanctions, as the term is technically employed in this article, from the related phenomenon of denying favourable or preferential trade treatment.

Problems of Definition

Analytically, the problem of identifying the sense in which the term “economic sanction” has technical meaning is complicated by the fact that in common parlance the term “sanction” has a variety of connotations,2 and even within the context of international law, the term does not have an intuitive or immutable meaning.

 

Achieving a distinct technical meaning for the concept is of some practical importance. The less delimited the concept is, the more likely it is that superficially related but essentially distinct types of actions will be included in the analysis of such issues as the foreign policy objectives served by sanctions, the effectiveness of sanctions and perhaps even the legal limits of sanctions. Mischaracterisation of the scope of the term may lead, as in so many efforts at legal analysis, to judgements as to the permissibility of sanctions that are essentially misconceived.

 

While “economic sanction” may have a distinct meaning as a term of art, this is not to say that there is no blurring at the edges of this distinction. “Emergency” sanctions maintained over a long period of years may be assimilated into normal trade and foreign policy, official disclaimers notwithstanding; examples include US sanctions with respect to North Korea (1950–2000) and Cuba (1963–present). On the other hand, ordinary penalties available for violations of settled trade policy may reach such critical proportions that they appear to take on the quality of aggressive sanctions in a burgeoning trade war, as in recent US trade policy with respect to the European Union. These are some of the ambiguities that must be confronted in seeking to delimit the meaning of “economic sanction”. Similar problems exist when we consider attempts at denying favourable or preferential trade treatment, itself a feature of trade policy, on the basis of criteria other than those appurtenant to that policy. Economic sanctions may be viewed as existing on a spectrum in which related governmental actions may blend into “sanctions” at their outer edges.

 

Nor is it particularly helpful to speak of economic sanctions as a function of “emergency” authority, as opposed to the normally applicable statutory scheme. For one thing, emergency authority does not replace the non-emergency statutory scheme: it augments it. More importantly, there are statutory sources of authority for what seem clearly to be “sanctions” that are not “emergency” statutes at all. For example, the United States imposed sanctions against South Africa under the Comprehensive Anti-Apartheid Act (1986), which was not an emergency statute. Clearly, then, there is a need to develop a technical definition of “economic sanction” to provide a focus to our analysis and to resolve, as far as possible, some of these ambiguities.

A Specialised Concept

In a broad, descriptive sense, a “sanction” may be said to include any sort of negative action or response to an action or inaction on the part of the target of the sanction. However, in the present context we are considering a narrower, more specialised concept of “sanction”. The term would seem to be most usefully defined so as to highlight its affinity with traditional international legal concepts such as “non-forcible reprisal”, “legitimate counter-measure”, or “retorsion”.3 The term “counter-measure”, in broader international practice, has often been preferred to “sanction” as a generic concept, while “sanction” has often been reserved to refer to counter-measures taken within an international institutional framework. Nevertheless, in this article we shall use the term “economic sanction” to refer generically to a range of non-forcible measures taken against a target state or person.

 

Several studies of economic sanctions have necessarily touched upon this conceptual issue, if only incidentally. In their very thorough empirical review of twentieth-century sanctions episodes, for example, Hufbauer, Schott and Elliott defined the term to mean “the deliberate government-inspired withdrawal, or threat of withdrawal, of customary trade or financial relations”.4 The breadth of this definition ensures that virtually all episodes involving the use of economic sanctions will be included for analysis, but it has the possible disadvantage of over-inclusiveness. Among other things, delineating what constitutes a “threat of withdrawal” from a relatively less hostile situation of tension in foreign relations does not appear to be an easy task. In addition, this definition would include instances of the imposition of commodity‑specific national security controls. Such controls, however, are more a function of trade policy concerned with the nature and implications of specific commodities in trade.

Coercive Measures

In a very thoughtful analysis, Barry E. Carter offers a more narrowly delineated definition of the term “economic sanctions” to mean “coercive economic measures taken against one or more countries to force a change in policies, or at least to demonstrate a country’s opinion about the other’s policies”.5 This definition has the advantage of highlighting the coercive aspect of true economic sanctions, as well as the affirmative nature of sanctions (i.e., “measures” as opposed to “threat”). It also suggests the inherent definitional significance of the objectives of sanctions. However, this definition may appear to limit to two the objectives that sanctions serve, namely, forcing a change in the target state’s policies, or demonstrating disapproval of its policies. In fact, the range of appropriate objectives implemented by economic sanctions is broader than this.

 

For the purposes of this article, we use the term “economic sanction” to refer to any country‑specific economic or financial prohibition imposed upon a target country or its nationals with the intended effect of creating dysfunction in commercial and financial transactions with respect to the specified target, in the service of specified foreign policy purposes. The term “sanction” in the present context therefore includes a range of trade and financial measures that may be imposed in varying combinations and administered by a number of agencies. For purposes of illustration, we advert briefly to the principal responsibilities of the US Departments of the Treasury and Commerce with respect to economic sanctions.

 

For example, the Treasury Department has traditionally been delegated authority by the president to administer restrictions with respect to most financial and commercial transactions, subject to US jurisdiction, that involve the interests of designated foreign states or other persons in time of war or declared national emergency. The most visible form of financial restriction typically imposed in this regard is the blocking or “freezing” of the assets of any enemy state or a state or other person designated under a presidential declaration of an emergency. These blocking programmes have been the focus of considerable judicial and scholarly attention. It has usually been the case that blocking programmes have been accompanied by trade embargo restrictions, though the respective initiation and termination of the blocking and embargo aspects have not often been coincident. (For example, US trade sanctions against China were lifted in 1971, but financial sanctions were not entirely removed until 1980.)

 

In the practice of the Commerce Department under the Export Administration Act (EAA), foreign policy controls would most comfortably fit our definition of the term “economic sanction”, as opposed to, for example, the relatively commodity-specific EAA national security controls imposed with respect to exports of goods with strategic significance. These commodity-specific prohibitions on trade with specified groups of countries have the intended effect of defensively restricting international access to specified sensitive goods.

Penalties

Economic sanctions, in the sense the term is used throughout this article, should be contrasted with certain other types of governmental action which might in common parlance be described as “sanctions”. In particular, they should be contrasted with penalties imposed on any exporting nation that violates the basic rubrics of trade with the United States. These penalties differ from “economic sanctions” in at least two respects. First, such penalties are usually country-specific only when applied to particular cases of alleged violations of the rubrics of trade; potentially they apply to any US trading partner. Second, penalties are not specifically intended to induce dysfunction in the international trade system, but rather to redress distortions in trade on account of alleged violations of the rubrics of trade.

 

The distinction between economic sanctions and trade regulation penalties has been somewhat complicated by the markedly more aggressive approach to trade policy mandated by the Omnibus Trade and Competitiveness Act of 1988 (OTCA). The mandatory action authority delegated by OTCA to the US Trade Representative has heightened the confrontational context of Trade Act section 301 and “Super-301” proceedings.

 

Obviously, if one believes that a particular proposed penalty or a programme of prospective penalties is in fact actuated by, for example, retaliatory motives, the penalty as applied begins to take on the character of an economic sanction, in the sense used in this article. It would then have the intention, albeit unstated, of itself distorting patterns of trade in a dysfunctional manner. However, the present article does not contemplate this sort of argumentative critique of what remain, as a formal matter at least, penalties rather than sanctions.

 

Another conceptual problem to be considered in light of our technical definition of economic sanction is the status of actions denying or withdrawing favourable or preferential trade treatment. There are a variety of such actions to be found in both the trade and financial contexts. While the motives for denying such treatment may be ambiguous, withdrawal of such treatment would certainly seem to be country-specific in its orientation. Analytically, one may question whether such actions exhibit an intention to create a dysfunction in commercial and financial transactions with respect to a specified target state. Taken at face value, denial of preference maintains the current contours of the international system of trade and finance. Even withdrawal of a current preference, it might be argued, does not operate as a cognisable dysfunction, to the extent that “normal” (or default) expectations are restored as a result. These arguments may be disingenuous, however, in that they ignore the fact that a system of preferences is itself now an accepted element of the expectations of international trade.

 

Nevertheless, to include such actions within the scope of the term “economic sanction” is to imply that it is dysfunctional for a state to refrain from exercising its discretion to accord favourable or preferential treatment to another state. This implication strains credibility. The management of the discretionary elements of a state’s international economic policy with respect to preferential treatment may simply be too remote from the set of foreign policy objectives that generally inform economic sanctions programmes. In any event, denial or withdrawal of a preference may be insufficiently dysfunctional to come within our definition of economic sanction.

Trade Policy

What, then, is the relationship between economic sanctions and US trade policy? In a narrow sense, economic sanctions are not a part of US trade policy and are antithetical to its basic rules. In section 1001 of OTCA, for example, Congress made the specific finding that “there has arisen a new global economy in which trade, technological development, investment, and services form an integrated system ... [I]n this system these activities affect each other and the health of the United States economy”. In light of this situation, Congress found it to be essential “to ensure future stability in external trade of the United States”. Obviously, the imposition or the threat of imposition of economic sanctions does not, in the short term, reinforce stability in external trade.

 

In support of the stability of US external trade, among other objectives, Congress reaffirmed the need for the president to be encouraged to negotiate trade and related agreements, and thus one of the purposes of OTCA was to authorise the negotiation of reciprocal trade agreements. In this connection one may observe further evidence of the fundamental antithesis between trade policy and economic sanctions. Among the principal trade negotiation objectives enunciated by section 1101 of OTCA is the principle of free movement or transparency in international trade. Yet the application of economic sanctions may occlude patterns of trade. Indeed, the intended dysfunctional effects of economic sanctions depend upon an underlying expectation that international trade should be, and to a large extent is, transparent across national borders. Certainly, there are obstructive elements in trade policy, particularly in the nature of penalties, but their intention is generally corrective rather than dysfunctional.

 

While economic sanctions do not constitute an affirmative element of trade policy, this is not to say that US trade policy does not contemplate the possibility of sanctions. Sections 1911 and 2502 of OTCA itself implicitly acknowledged a place for economic sanctions in time of war or declared national emergency. Furthermore, the EAA, even as amended by OTCA, explicitly contemplates the imposition of not only commodity-specific national security export controls but also country-specific foreign policy controls. Nevertheless, economic sanctions remain, at least in principle, an exceptional feature of US trade policy, and in its essential orientation neither OTCA nor the EAA is an economic sanctions authority.

Economic Policy

We may raise much the same question over whether economic sanctions are a part of US international economic policy. As is the case with trade, economic sanctions are not a part of US economic policy and are antithetical to the basic rubrics of that policy. Once again the provisions of OTCA may serve as a focus for discussion. For example, Congress made specific findings in section 3002 of OTCA with respect to international financial policy that stress the need for improved co-ordination in the macroeconomic policies of the leading industrial nations; and in section 3004, better co-ordination was an express goal of international negotiations on economic policies. Obviously, given the unfavourable attitudes of US trading partners towards unilaterally imposed sanctions, economic sanctions are unlikely to be consistent with the goals of closer co-ordination of economic policies.

 

In addition, the imposition of economic sanctions impedes the progress of any principle of transparency in the free flow of private international financial services and transactions. This renders economic sanctions inconsistent with the stated US policy in favour of non-discriminatory, “national treatment” of private participants in international financial services. This inconsistency is, of course, part of the potency of sanctions; without its dissonance in relation to the expectations of the international financial system, a programme of economic sanctions would lose much of its potential for inducing dysfunction in the service of its foreign policy objective.

Objectives

Confusion over the policy objectives behind economic sanctions programmes can significantly hinder any attempt at a rational critique of their effectiveness and worth. It is therefore important to identify and distinguish the policy objectives which guide the type of sanctions chosen from the particular choices that may be available. Sanctions in themselves are not policy objectives, and their effectiveness cannot be adequately assessed except in relation to an articulated policy goal. On the other hand, one must be sensitive to the further distinction between the foreign policy objective informing the choice of economic sanction techniques, often broadly stated, and the particular instrumental objective of the specific techniques themselves. Sanctions are rarely mobilised in isolation from a broader foreign policy context; it is therefore a rare instance in which the instrumental effectiveness of an applied sanctions technique can be fairly assessed, in the abstract, on the basis of the overarching stated foreign policy objective.

 

In general, it has been said that economic sanctions “are an instrument of economic policy designed to serve several, not necessarily mutually exclusive, foreign policy, military or strategic objectives”.6 However, one may quibble over the sense in which sanctions are instruments of “economic policy”. Sanctions are typically utilised not in the service of economic policy per se, but rather as an induced dysfunction of the normal expectations of economic policy and interjected for reasons extraneous to any single-minded conception of “economic policy”. Indeed, instrumentally, the historical objective of “most sanctions imposed by Western countries [has been] to induce change in another country’s behaviour by inflicting economic damage”.7

Generic Elements

Hence, one generic policy objective behind economic sanctions can be said to be directive: to create economic pressure calculated to alter the behaviour of a target state. Another generic policy objective may be termed defensive: in the trade embargo context, for example, this might be expressed as the objective of slowing the development of a target’s strategic capabilities by raising the economic cost of acquiring necessary imports or import substitutes.

 

These policy goals are in a sense susceptible to objective measurement: economic damage does or does not alter target-state behaviour; economic costs do or do not impede the target’s capabilities. Other objectives may be more impressionistic and hence less susceptible to measurement. One such generic category that is often cited may be termed communicative: sanctions may be imposed “to send a message” of displeasure with the target state’s behaviour (or, just as likely, to send a message to one’s own electorate or to one’s allies).

 

This is a particularly problematic category, for two reasons. First, virtually any sanction, even one appropriately categorised as directive or defensive, is to some extent communicative as well, at least implicitly. Attempting to direct the target to make a modest or major change in policy naturally communicates displeasure with the behaviour of the target state arising from that objectionable policy. Thus, the communicative policy objective has no life of its own; analytically, it is indistinguishable from the directive or defensive objective that it accompanies.

 

Second, to the extent that a communicative objective is pursued independently and in isolation from any other generic category—that is, if symbolism is in fact the only significant policy motivation behind the imposition of a sanction—the sanction programme is likely to be trivial or disproportionate. Pounding the table or speaking rudely to the target state’s representatives might serve the communicative objective just as well, and with considerably less cost to third parties who may be caught between the sanctioning state and the target.

 

One further problem follows from these two. Where a communicative objective is explicitly stated as the raison d’être of an economic sanctions programme, one may suspect that imposition of the sanction is in fact motivated by domestic political considerations, rather than the needs of foreign policy. Such suspicions are unlikely to receive explicit confirmation from the public record. However, if actions still speak louder than words, one may expect that a programme of economic sanctions that seems so poorly constructed or administered as to accomplish little more than public display is a likely candidate for suspicion. Hence, the “communicative” objective is of questionable appropriateness as a policy justification for economic sanctions.

Instrumental Purposes

The foreign policy purposes that inform economic sanctions programmes are a basic source of direction and understanding in this area. If US statutory provisions and implementing regulations have in many instances been drafted in a markedly broad fashion, with an extremely high degree of discretion left to the administrator, it is in the policy purposes behind these regulations that we may find the rationality of this broad discretion. If regulations drafted in this fashion are to be upheld in the face of legal attacks in litigation, here also the underlying governmental purposes served by sanctions are central.

 

Often the policy purposes are directly identified in the provisions of statutory authority. In many statutory provisions authorising directive programmes of economic sanctions, such as those seeking to alter target-state behaviour on human rights (as was the case with sanctions against South Africa), the purpose of the economic sanctions is explicit. In the area of defensive sanctions, pertinent statutory provisions may clearly identify the underlying purpose, as can be seen in the anti-terrorism and international drug control policies of recent years. This phenomenon of statutory drafting is also evident in the related area of commodity‑specific, defensive export controls imposed for national security considerations.

 

More often, however, in the area of general statutory authorities for economic sanctions, statements of purpose are given in very broad terms and are open to further executive specification of directive or defensive purposes as circumstances require. It may be that, as a practical matter, it must be left to the particularised discretion of the executive to supply this further specification. Thus, the congressional declaration of purpose with respect to foreign policy export controls (EAA section 2402) speaks only of “restrict[ing] the export of goods and technology where necessary to further significantly the foreign policy of the United States or to fulfill its declared international obligations”. Similarly broad expressions of purpose are found in the primary statutory authorities for economic sanctions in times of war (the Trading with the Enemy Act of 1917) or declared national emergency (the International Emergency Economic Powers Act of 1977).

 

Given the breadth of such policy statements, what is it precisely that a programme of economic sanctions is supposed to do? Even assuming that, in accordance with the terms of these broad statutory grants of authority, the president further specifies a directive or defensive policy goal necessitating the imposition of economic sanctions, how is that programme of sanctions supposed to further that goal instrumentally? For example, in a directive programme of sanctions, it would probably be very difficult, and very naive, to project a direct, linear causal relationship between sanctions and state behaviour. In fact, the specific programmatic objectives of economic sanctions operate at the level of instrumental objectives (the “how”), and below the broadly specified directive or defensive policy objectives identified by the president (the “why”). Further, one should note that, as with every major programme from the Second World War sanctions to the Iraqi sanctions, there will probably be more than one instrumental objective, and the relative importance of these objectives may well shift over time, as contingencies unfold.

Sanctions in Action

A variety of instrumental objectives of economic sanctions regulations has been identified by courts and commentators. These objectives obviously may respond to a wide range of foreign policy concerns and directive and defensive goals. In contemporary practice, they have emerged over the entire Second World War and post-war period. However, five primary instrumental purposes can be identified which generally apply, to a greater or lesser extent, to many of the programmes:

 

1. Historically the earliest purpose behind the modern programmes was to prevent the conversion of the US assets of foreign nationals through duress or extortion by officials of a hostile foreign government. This purpose dates to the period immediately prior to the entry of the United States into the Second World War. At that time, with the invasion of Norway and Denmark by Nazi Germany, there was considerable fear that officials of the occupying power might extort transfers of the US property of nationals of those countries. “Blocking” the assets of nationals of occupied areas was the obvious method of implementing this instrumental purpose. More recently, this purpose was also evident in the blocking of Kuwaiti property during the international response to the Iraqi invasion of Kuwait in August 1990.

 

2. As occupation by the Axis Powers spread, and as the United States became directly involved in the war, other purposes emerged. There was an “economic warfare” cast to the prohibitions at this point, and a primary goal of the sanctions became the denial to hostile foreign governments and their nationals of foreign exchange and access to US-situs assets. This purpose had obvious application to the wartime situation, but it continued to be an important objective in post-war emergencies. Thus, among other things US courts have often identified an instrumental purpose “to limit the flow of currency to specified hostile nations” and to “deny [a target country] an outlet for its goods in the United States market”. Again, this second instrumental purpose was evident in the sanctions imposed after the Iraqi invasion of Kuwait.

 

3. Related to this purpose was the desire to effect the economic and political isolation of hostile foreign governments through trade and financial prohibitions—in part in service of a communicative policy objective, but also in service of directive and often defensive objectives in particular cases. This, too, has continued as an instrumental purpose of many current programmes, although such isolation is more difficult to achieve in a world where there is no international consensus as to who is the so-called enemy. Stated most broadly, US courts have spoken of an instrumental purpose as being “to prevent [target countries] from receiving any economic benefit from transactions with persons subject to the jurisdiction of the United States”.

 

4. Another goal comes into focus more often in circumstances where active hostilities are no longer proceeding, or where the first flush of national emergency is receding. This instrumental purpose is to retain a pool of blocked assets, or an array of other economic sanctions, as “bargaining chips” for any future negotiations with the target country on achieving the broader directive or defensive policy objectives. Most recently, this purpose was reflected in the blocking of Iraqi governmental property.

 

5. Finally, there is a more specific instrumental purpose, related to the “bargaining chip” rationale, that often emerges in the closing stages of a sanctions episode. There is a desire to secure a pool of blocked assets against the contingency that they may be used, directly or indirectly, in satisfying claims of US nationals against the target state. Again, sanctions against Iraq serve as an example.

Conclusions

In considering any article on this issue, keep in mind the following considerations and caveats: What does the author mean by “economic sanction”, the subject of his or her article? How does that particular meaning affect the accuracy of the analysis or the persuasiveness of the argument being made? What policy objectives does the author recognise for economic sanctions? Does the author understand the difference between broadly stated policy objectives and the actual instrumental purposes that economic sanctions can serve as a practical matter? Too often, policy makers neglect these conceptual distinctions, and the result may be an economic sanctions programme that cannot function effectively, or that can only operate at an unacceptable or inefficient cost to the international financial and trading system.


Endnotes


1. Quoted in David A. Caron, “International Sanctions, Ocean Management, and the Law of the Sea: A Study of Denial of Access to Fisheries”, Ecology L. Q. 16 (1989), p. 311.

 

2. For a discussion of historical definitions of economic sanctions, see M. S. Daoudi and M. S. Dajani, Economic Sanctions: Ideals and Experience (London: Routledge and Kegan Paul, 1983), pp. 3 7.

 

3. While “reprisal” or “counter-measure” usually connotes an action that would otherwise be impermissible for the acting state to take but for, inter alia, a prior breach of a duty by the target state, a retortive action would “not involve an infringement of international obligations”, though it “may be restricted by treaty”. See Omer Yousif Elagab, The Legality of Non-forcible Counter-measures in International Law (Oxford: Oxford University Press, 1988), pp. 6–35.

 

4. Gary C. Hufbauer, Jeffrey J. Schott and Kimberly A. Elliott, Economic Sanctions Reconsidered, 2nd ed. (Washington, D.C.: Institute for International Economics, 1990), p. 2.

 

5. Barry E. Carter, International Economic Sanctions: Improving the Haphazard US Legal Regime (Cambridge: Cambridge University Press, 1988), p. 4.

 

6. Thomas O. Bayard, Joseph Pelzman and Jorge Perez-Lopez, “Stakes and Risks in Economic Sanctions”, World Economy 6 (March 1983), pp. 73–4.

 

7. Ibid., p. 74.