U.S. economic sanctions as a foreign policy tool

¶ … U.S. Sanctions

Economic sanctions are an important tool of U.S. foreign policy. They are used for a variety of reasons and often have substantial repercussions for countries on the receiving ends. Sanctions are used as a way to stop objectionable actions of foreign governments such as: to stop military adventures, arms proliferation, support of terrorism and drug trafficking, and human rights abuses among others. (Department of the Treasury website, 2002) "In conjunction with diplomacy and other measures, sanctions seek to demonstrate U.S. resolve and express outrage, change the behavior of the target country, and deter other countries from resorting to similar actions in the future." (Carter, 1988)

"Sanctions provide a middle road response between diplomacy and military action." (Day, 1992) Ineffective sanctions have led to U.S. military intervention in Panama, Haiti, Somalia, and Iraq, just to name a few places, and the consequences have been quite harsh. Not to mention the fact that they have not succeeded in changing the policies as they were intended for. "In Iraq, President Bush deemed the rapid deployment of troops necessary to counter Saddam Hussein's invasion of Kuwait; but in the other cases, the U.S. armed forces have intervened after sanctions made a bad situation worse." (ENGAGE, 2002)

In recent times, sanctions have served various purposes, including warning states that their behavior is unacceptable, influencing a modification of that behavior, and threatening stronger action should the offending state refuse to comply. Not until the end of World War I did states begin to explore the notion of employing economic sanctions as a substitute to a purely military response. The end of World War II ushered in a critical new element to sanctioning: the establishment of an instrument to provide for the collective security of all states. (Hufbauer, 1997)

Types of Sanctions

The federal government has discretion under a multitude of statutes to prohibit or otherwise restrict commercial relations, private and government-assisted commerce, and financing between the United States and other countries. When needed, the Congress can provide additional authority. Within those broad categories of commerce, seven major types of sanctions are possible under current laws: restrictions on international transport, personal travel, and communication; on current exports; on current imports; on foreign aid; on trade promotion activities by the government; on lending by international financial institutions, such as the World Bank and the International Monetary Fund; and on private financing of trade and investment. In many cases, sanctions against a particular country or sanctions to promote a particular policy include a collection of government actions to restrict different aspects of commerce, based on various statutes and regulations. (Carter, 1988)

At any time, the President can take a variety of diplomatic actions that affect all types of trade and investment by altering the basic environment for commercial relations. Those actions include changing the rules of special programs -- some of which were part of bilateral agreements -- that establish the rights of foreigners to dock their ships in U.S. ports or land their aircraft on U.S. soil. In addition, the government can impede the ability of businesses to communicate and make deals by prohibiting foreigners from visiting the United States and discouraging U.S. citizens from traveling abroad. (Department of the Treasury website, 2002)

Restrictions on the sale of U.S. goods and services abroad generally have one of two objectives. In some cases, the goal is to limit some or all trade with specific countries. In others, it is to limit trade in the technologies that underlie those goods and services -- technologies that could be used to the detriment of national security.

The President's control over imports is not as sweeping or direct as his control over exports. Authority exists to restrict the imports of certain goods through quotas and to raise tariffs on imports from certain countries. Import quotas are generally a tool of commercial policy, imposed to protect domestic industries by specifying maximum levels of imports. In the past, however, the government has revised quotas for various commodities to achieve foreign policy and national security goals. The same is true for tariffs, which are fees levied on imports from a particular country. Tariffs are also instruments of commercial or sometimes economic development policy that lawmakers can alter to pursue foreign policy ends. (Carter, 1988)

The government can directly influence trade and foreign investment through its spending on foreign aid and trade promotion, including its support of lending activities by international financial institutions. Restrictions on such spending do not constitute sanctions in some people's view because they withdraw a benefit rather than impose a cost. Access to government assistance is not a right, the argument goes. But many studies of sanctions do include actions to restrict government assistance, and some mistakenly identify those restrictions as a cost to the nation.

Actions that restrict government assistance are a particular concern for some supporters of the agriculture industry. The reason is that the United States sends a large dollar amount of agricultural products abroad as food aid or with the benefit of federal export subsidies. In 1997, for example, U.S. exports of food, feed, and beverages totaled over $50 billion. Foreign assistance paid for $0.8 billion of that as food aid, and new federally guaranteed loans helped finance another $2.4 billion of those agricultural exports. (Hufbauer, 1997)

Much of the United States' foreign assistance is bilateral -- provided directly to other countries. That assistance takes the form of supplying less developed countries with in-kind aid, grants to pay for the purchase of U.S. goods and services, and technical support. The U.S. government also funds the development activities of international organizations such as the United Nations. In all, the government spent nearly $11.2 billion on development, humanitarian, and security assistance in 1997. (Hufbauer, 1997)

Costs of Economic Sanctions to the United States

While the benefits of economic sanctions are elusive, the costs often are not. Trade sanctions deprive the United States of the gains from trade and frequently penalize exporting firms that are among the most sophisticated and productive in the U.S. economy. As American sanctions have expanded and proliferated over the past 20 years, they have also led to increasing tensions between the United States and its allies and trading partners around the world.

In a recent study, it was found that economic sanctions cost the United States $15 billion to $19 billion in forgone merchandise exports to 26 target countries in 1995. Lower exports of $15 billion to $19 billion would mean a reduction of more than 200,000 jobs in the relatively higher-wage export sector and a consequent loss of nearly $1 billion in export sector wage premiums. Though the estimates were calculated using trade in the base year of 1995, similar costs accrue each year that similar sanctions remain in place.

These effects could be overstated to the extent that exporters are able to redirect their goods to other markets. (Rennack, 1998)

Many American businessmen claim that the effects of even limited unilateral U.S. sanctions go well beyond targeted sectors and that the effects linger long after they are lifted because U.S. firms come to be regarded as "unreliable suppliers." Sanctioned countries may avoid buying from U.S. exporters even when sanctions are not in place, thus giving firms in other countries a competitive advantage in those markets. Exports lost today may also mean lower exports after sanctions are lifted because U.S. firms will not be able to supply replacement parts or related technologies. Foreign firms may also design U.S. intermediate goods and technology out of their final products for fear of one day being caught up in a U.S. sanction episode. (ENGAGE, 2002)

In a $7 trillion economy these costs may not be huge but they are tangible. Moreover, they are concentrated on sectors and firms involved in international trade and investment that are often the most sophisticated and competitive in the American economy. A rapidly changing global economy means that unilateral economic sanctions are decreasingly useful yet increasingly costly. If sanctions are to have any chance at all of producing favorable outcomes, they must be multilateral, they must be carefully formulated, and they must be vigorously enforced. (ENGAGE, 2002)

Effect of Sanctions on Iraq

Although food is available, sanctions have caused skyrocketing inflation and plunging wages. Skyrocketing inflation and plunging wages make it impossible for most people to buy on the free market, relying instead on the limited food rations the government provides at subsidized prices. As a result of sanctions, the economy has declined by an estimated 40%; Iraq's rate of inflation runs in the triple digits.

Furthermore, sanctions have cut living standards to half their pre-war level. The cost of living has increased drastically for Iraq. To keep inflation in check, the Iraqi government has periodically cracked down on merchants-- accused of fueling inflation by overcharging products. Increasingly as worrisome to price control is the plunging value of the Iraqi dinar. On the black market, it has plunged far below its official rate of U.S. $l = Iraqi Dinar 0.60. The price of the dollar on the black market is well over 1000 dinars and continues to rise. (Clark, 1996)

Although Iraq has sustained much damage from the sanctions, there has been some reconstruction. Much of the reconstruction which has gone on in Iraq has been temporary; Iraq has obtained the parts for its reconstruction by cannibalization of other industrial sectors. Rebuilding has been emphasized in areas visible to outsiders, thus, giving the impression that the sanctions are less deleterious than they truly are. Although civilian factories incurred little damage during the war, sanctions have forced most of the factories to either close or to drastically scale back their production. Sanctions have caused shortages of raw materials and spare parts used in production; as a result, unemployment is widespread. (Rennack, 1998)

Sanctions have reduced Iraq to becoming a poor nation: a nation unable -- with its rather meager funds -- to feed itself let alone take measures to protect Iraq's environment. Currently, in Iraq, water and sanitation services are said to be in a critical state of disrepair. This is because Iraq has a lack of spare parts to repair damages both caused by the Iran-Iraq War and breakdowns of equipment. Such disrepair has led to Iraqi water tables becoming contaminated. Posing as equally detrimental to Iraqi water sources is the dumping of sewage into all major rivers: the source of drinking water. (Wood, 1999)

Additionally, shortages of equipment have forced Iraq's cities into becoming garbage dumps. With a shortage of spare parts to repair garbage trucks, garbage piles up in the cities. These garbage dumps pose as health hazards to the cities' poor, because the poor often forage through them looking for food. The shortage of equipment caused by sanctions has also made Iraq more prone to oil spills. Nonetheless, on the upside, sanctions, in some regards, may have been good for the Iraqi environment. This is because Iraq's exports of oil have been banned. Without a market to sell petrol, Iraq's chances of an oil spill are presumably less likely. Whether the chances of an oil spill has been decreased, when taking into consideration the shortage of equipment, is as of yet to be determined. (Wood, 1999)

Effects of Sanctions on Libya

The United States established economic sanctions against Libya in 1986 charging Libyan involvement in international terrorism. These sanctions prohibit U.S. citizens from buying or selling to Libya; any financial dealings with Libya; entering any contracts benefiting Libya; and travel to Libya. The 1992 U.N. sanctions severed international air links and banned arm sales to Libya. In 1993, tougher sanctions were imposed including the freezing of all Libyan financial assets abroad, closing all foreign offices of the Libyan airline, as well as prohibiting oil refining and pipeline equipment exports to Libya. In August 1996, the U.S. Congress sought to discourage foreign firms from having commercial contacts with Libya by passing the Iran and Libya Sanctions Act. (Libya, 2002)

The effects of sanctions on Libya have been quite staggering. Some 15,750 persons living in the Jamahiriya are suffering from serious medical conditions (cardiovascular disease; fractures of the spinal column and thorax; fractured skulls; chronic eye diseases; detached retinas: serious burns; cancer and malignant tumors) which require emergency treatment. Because of the continuation of economic sanctions, these individuals, who could not be treated in local hospitals and health-care facilities, could not be evacuated by air for treatment in other countries or for necessary medical examinations and surgery in hospitals and specialized health-care facilities with modern equipment. Because they could not obtain treatment, most of these patients died in tragic circumstances. (Libya, 2002)

There have been 1,135 stillbirths and 514 women have died in childbirth in the various hospitals owing to the shortage of medicines, serums and vaccines. Prior to the sanctions, such supplies had been imported regularly by air, with the usual precautions being taken to preserve their efficacy and usability. The Libyan Arab Jamahiriya was able in that way to meet its needs in this area, particularly in emergency situations. (Libya, 2002)

There has also been a rise in the number of road accidents. As Libyans have had to take to the roads linking the major cities in the country, hundreds have been involved in accidents in which they have been killed or suffered permanent disability. There have been some 15,260 victims of road accidents, including 2,560 fatalities. The remaining 12,700 victims are suffering from serious injuries or permanent disabilities. (Libya, 2002)

As economic sanctions continue to be enforced against Libya, particularly the latest American-sponsored Iran and Libya Sanctions Act, they will strike a serious blow to the Libyan economy, as it is dominated by the oil sector. Under such sanctions it will be difficult for Libya to expand and revitalize its non-oil sectors of the economy.

Conclusion

The number of ongoing sanctions cases has grown steadily over time. The United States has instituted new sanctions cases more and more cases in recent years, currently engaged in more than 30 cases (both unilateral and with other allies) where U.S. trade and/or finance is being restricted in pursuit of specific foreign policy objectives. U.S. sanctions are authorized under a variety of statutes and executive orders. Over the past decade, there has been a proliferation of sanctions laws, at both federal and state/local levels, with differing requirements and waiver provisions. These laws are not always applied consistently and thus often send muddled signals of U.S. intent. (Department of Treasury website, 2002)

Successful cases have become increasingly rare as globalization has made it easier for target countries to tap international trade and capital markets and find alternative suppliers of goods and capital. The success rate for U.S. sanctions cases has declined sharply from the early postwar period.

Table 1. Effectiveness of Economic Sanctions as a Foreign Policy Tool

Number of successes

Number of failures

Success ratio

(successes as a percentage of total)

All cases

40

75

35%

Cases involving U.S.

as a sanctioner

1945-90

1945-70

1970-90

26

16

10

52

14

38

33%

53%

21%

Unilateral U.S.

sanctions:

1945-90

1945-70

1970-90

16

11

5

39

5

34

29%

69%

13%

Table 2. Effects of Sanctions of Libya

Sector Financial losses

Libyan Arab Airlines 719-680 000

Socialist Airport Company 65-962 500

Light Air Transport Company 22-337 000

Libyan Arab Air Freight Company 179-300 000

General Board for Civil Aviation 49-000 000

National General Maritime Transport Company 56-034 000

Socialist Ports Corporation 4 000

General Postal and Telecommunications Corporation 49-210 000

Road network 12-000 000

Total financial losses 1 157-523 500