25 March 1997
Journal of Commerce

Targeting Sanctions

Alarmed by a rising tide of unilateral trade sanctions, U.S. companies are fighting back - and not a moment too soon. Several major business groups are forming a coalition called USA Engage to fight the spread of punitive trade measures imposed by federal, state and even municipal governments across the United States.

These trade measures, usually intended to punish foreign governments for abhorrent social policies, tend to do the most damage here at home. It's high time some called the bluff of the sanctions promoters.

The counterattack is being organized by the National Foreign Trade Council in Washington. It makes the sensible point that, before pandering to special-interest audiences by proposing sanctions, politicians should weigh the widespread costs and generally poor results of such measures.

Of the many cases of U.S.-initiated sanctions - Congress passed 60 such laws in the past four years - only a handful produced progress toward the intended. The worldwide embargo on Iraq after its invasion of Kuwait and the global boycott of South Africa to protest apartheid policies are among the few success stories.

But in most cases, other governments do not participate in U.S.- initiated embargoes. For example, the rest of the world has shunned America's decades old embargo against Cuba and the more recent Helms-Burton law, which penalizes foreign companies doing business there. Nor have other nations followed Washington's lead in imposing trade and investment sanctions against Iran and Libya.

That has not stopped Congress from imposing penalties which, according to a National Association of Manufacturing estimate, affect countries that account for one-fifth of the world's $4 trillion in annual exports. U.S. states and cities also have gotten into the act. The state of Massachusetts and several municipalities have decided to boycott companies doing business in Myanmar the former Burma. Others have targeted Indonesia for civil rights abuses New York City was considering action against Swiss banks for their role in the Nazi gold dispute.

These trade measures are often used to score cheap political points by politicians who depict themselves as champions of human rights. Instead the sanctions end up costing U.S. companies and workers lost sales and lost jobs, while doing nothing for the purported beneficiaries. (See for example Michael Jordan's opinion columns on Page 7A concerning Westinghouse's experience with U.S. sanctions against China )

Caterpillar Co., which is helping to lead the anti-sanctions effort has a similar story to tell. In 1981 the Reagan administration tried to block construction of a natural gas pipeline from the Soviet Union to Western Europe in retaliation for Moscow's role in the imposition of martial law in Poland. That didn't stop the pipeline; Japanese companies built it. And, as often happens in sanctions cases, Caterpillar suffered the stigma of being an unreliable supplier through no fault of its own. The costs go beyond lost wages lost income-tax revenue and higher payments of unemployment benefits. When penalties are aimed at non-U.S. companies - as is the case with the Cuba and Iran- Libya programs - they are bound to sour U.S. relations with the foreign governments whose companies are affected.

As its name implies, USA Engage thinks there is a better way to persuade targeted governments to improve political and human rights policies: Engage them through diplomatic trade and cultural ties and through various forms of multilateral cooperation. The United Nations for example is a useful forum for discussing sanctions that are imposed for foreign policy reasons and for winning the broad backing that is necessary for their success.

Other international organizations including, those addressing labor standards also can be used for this purpose. Washington which was at the forefront of efforts to establish most of these organizations should make greater use of them and fight its tendency to go it alone.

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