2 July 1997
Financial Post
Peter Morton, Washington Bureau ChiefBy slapping sanctions on foreign countries, American governments are succeeding only in hurting U.S. business.
This tiny city in Maryland, a stone's throw from the U.S. capital, was fed up with human rights abuses in faraway Burma.
So late last year, the city council, representing 16,000 indignant citizens, imposed unilateral sanctions on Burma, the Southeast Asian country now known as Myanmar, and any U.S. company doing business there.
Until last year, PepsiCo Inc., which owns the soft drink and fast-food chain, also owned 40% of a bottling company in Myanmar, whose oppressive military government still refuses to recognize the result of a 1990 democratic election.
It is not as if Takoma Park does a lot of direct business with Myanmar, admits deputy city clerk Tom Espinosa. "But we have a Pepsi machine in the administration office and there's a Taco Bell down the street."
Takoma Park is among dozens of U.S. governments - cities, counties and states, all the way up to the federal level - caught up in a sanctions fad. They are using their government buying power to try to force political change in other countries.
According to the latest tally, U.S. governments have or are about to have 142 unilateral sanctions against 41 countries.
Aside from Cuba, the favorite bete noire of the U.S., sanctions are typically aimed at countries like Myanmar and Indonesia that have questionable human rights practices.
But the sanctions are spreading to other less obvious culprits. Brazil, for example, is being castigated for failing to protect sea turtles and the Maldives are under fire for not recognizing worker rights.
Even Switzerland is being threatened. Chicago, New York and the states of New York and New Jersey are upset with Switzerland's refusal to release the bank deposits and gold of Jews who died in the Holocaust.
Since 1993, U.S. President Bill Clinton has invoked the International Emergency Economic Powers Act 37 times against 31 countries, including Nicaragua, Haiti and Myanmar.
"The most ridiculous sanction is one now coming from New York City," says Todd Malan, executive director of Washington-based Organization for International Investment, which represents U.S. subsidiaries of foreign countries. "The city of New York will not do any business with any company that sells to a country that persecutes Christians."
Malan says such a description, depending on its interpretation, could include China, Saudi Arabia and most Muslim countries.
New York's sanctions are being proposed by Peter Vallone, chairman of city council and Democratic candidate for state governor.
Pro-Christian sanctions are also making their way through congress. Senator Arlen Spector (R - Penn.) and Representative Frank Wolf (R - Va.) have drafted a bill designed to ban the export of police equipment to countries where enforcement agencies might use it to torture Christians and other minority religions. Other economic sanctions are proposed, especially against reputedly notable offenders like Sudan. The bill is to be voted on this fall.
The motivation behind some sanctions are puzzling, says Dan O'Flaherty, vice-president of USA Engage, a new anti-sanction corporate lobby group.
"I was talking to a New York councilman the other day about the sanctions," says O'Flaherty. "And he was saying that Christians were being gunned down in the streets around the world every day."
O'Flaherty found the story a bit hard to swallow. "So I said, `Gee, you would think a guy would have heard something about that.' "
U.S. politicians are increasingly using sanctions as an easy and highly visible way to placate constituency groups, says Malan.
"We used to have an easy target with the Cold War, but that's gone now," he says. "Politicians are politicians and they want to be responsive, so they've latched on to this idea of sanctions."
"Politicians are always looking for vehicles, and this is a pretty good one," adds Gary Hufbauer, an economist at Washington's International Economics Institute.
Those walking along the darker side of the conspiracy trail insist sanctions based on religion are a bid to unite the right-wing Conservative Coalition with conservative Jewish groups.
Sanctions like Takoma Park's threat to yank the Pepsi machine may look benign and quaint. But they are beginning to take their toll, not on the targeted countries but on U.S. and foreign companies operating abroad.
A study by Hufbauer found U.S. companies are losing US$15 billion to US$20 billion a year in overseas sales because of sanctions. That translates into about 250,000 lost jobs.
The U.S. National Association of Manufacturers says it found, between 1993 and 1996, 61 actions by the U.S. administration hit 35 countries - the list has since grown - that represented 2.3 billion potential customers, or 42% of the world's population. (China does tend to skew the numbers.)
The association says that translates into a market worth US$790 billion, or 19% of total global trade.
The Canadian government rarely uses sanctions and even then only with the participation of other countries. (Its most recent action was against Haiti.) But Canadian companies can find themselves caught up in the U.S. phenomena.
Calgary's Bow Valley Energy Ltd. received a nasty letter from U.S. Senator Alfonse D'Amato, objecting to Bow Valley's bid to be part of a US$140-million oilwell contract in Libya.
D'Amato, a Republican from New York, accused Bow Valley of being a "pariah company known for supporting rogue states" and paying hard currency to help Iran build nuclear weapons.
"For the principle of profit, you are aiding and abetting the terrorist regime of Iran," D'Amato wrote in a recent letter to Bow Valley vice-president Rod Blair.
Bow Valley president Walt DeBoni has denied the company was doing anything illegal under Canadian law and says the company's contract does nothing to support terrorism.
D'Amato sponsored one of the Clinton administration's two most famous unilateral sanctions. The Iran-Libya Sanctions Act (ILSA) became law late last year, imposing sanctions on any foreign company operating in either country.
ILSA is not as onerous as the Helms-Burton law, passed in March 1996 after Cuban President Fidel Castro shot down two American aircraft outside Cuban airspace.
So far, only one Canadian company, Sherritt International Corp., has felt the effects of Helms-Burton. Its 11 top executives have been barred from the U.S. until the Toronto-based mining company abandons its nickel operations on what was once U.S.-owned property in Cuba. Sherritt says it has no intention of doing so.
There is little proof sanctions have any real impact, says policy analyst Robert O'Quinn of the Heritage Foundation, a conservative think-tank.
"Unilateral economic sanctions have been a growth industry in Washington, D.C., since the end of the Cold War," he says. "They have caused few foreign governments to change their objectionable policies, however."
Both the European Union and Canada have continued to complain to the U.S. about the sanctions, arguing that unless many countries are involved, as with the anti-apartheid boycott of South Africa, such actions usually backfire.
"Trade is a right of nations, and governments really need compelling reasons to interfere with it," says Stephen Wright, the deputy chief of the British embassy in Washington. "It's not really possible to design a blanket sanction policy."
The 500-member USA Engage, headed by Seattle's Boeing Corp., simply points to the grain embargo against the former Soviet Union after its invasion of Afghanistan in 1980.
Instead of forcing the Soviets out of Afghanistan, it ended up costing U.S. farmers about 25 million tons in sales worth about US$2.3 billion.
Not only did that increase the U.S. budget deficit, because the government was forced to buy unsold stock, it also cost future sales to Russia. Canada and the EU, which had maintained sales to the Soviet Union at traditional levels during the embargo, became favored customers.
In another case, the U.S. government banned the sale of satellite equipment to China in 1993 because China sold missile technology to Pakistan. Hughes Electronics Corp. immediately lost US$400 million in contracts in China to Deutsche Aerospace.
Aside from the loss of business for U.S. and foreign companies, the helter-skelter imposition of sanctions throughout the U.S. is sending confusing signals about U.S. foreign policy.
"Who is a Canadian minister supposed to talk with about foreign policy?" asks Malan. "Secretary of State Madeline Albright or New York Mayor Rudolph Guiliani?"
Hufbauer lays the blame for sanction fever squarely on Clinton. "Clinton used sanctions in Helms-Burton and that is letting all the flowers blossom," he says.
Malan also sees no end to the popularity of sanctions until the U.S. administration either makes a bold move to quash them or they are challenged in court as being unconstitutional. "This thing has just exploded."
In Takoma Park, they don't see their behavior as excessive, just another form of participatory democracy.
"Pepsi no longer sells products in Burma," says Espinosa in the Takoma Park clerk's department. "We still have the Pepsi machine and sometimes now we go to Taco Bell."
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