1 December 1997
Financial Times
Willard Berry
Why sanctions don't work
Congress must reassess its trade relations, says Willard Berry
Many economists, policymakers and pundits have observed that popular sentiment in the US has turned against free trade and investment, in spite of the apparent inevitability of a more globalised world economy.
Opposition to trade liberalisation is demonstrated, for example, the struggle by Bill Clinton, the US president, to convince Congress to renew fast-track trade negotiating authority. A less obvious sign of the lack of understanding of the benefits of global trade is the renewed tendency of US legislators at federal, state and local levels to try to impose unilateral, often extra- territorial, economic sanctions.
Congress, the Clinton administration, and state and local governments seem to believe that the best way to influence foreign behavior is by threatening to cut off trade. Proponents of sanctions, opting for short-term political gains at the expense of sound long-term policies, have been successful only in limiting US exports, discouraging inward foreign investment, reducing US business activity and employment, and enraging allies whose co- operation is needed to maintain an effective foreign policy.
In the past four years, the US has enacted 81 sanctions laws and executive actions against 36 countries. Congress may pass new laws this year to impose sanctions against countries permitting religious persecution or child labor. Numerous other measures, procurement sanctions for the most part, are being considered by state and local governments.
What is disturbing to the business community is the attitude of legislators in promoting the sanctions measures. Few have had the courage to say in public what most will acknowledge in private - that unilateral economic sanctions rarely achieve their goals. In many cases companies have been blocked from doing business in target countries, but rarely has a foreign government changed its policies because of US sanctions.
Many legislators seem to believe that voting for sanctions is good politics with little cost. Others consider the harm done by sanctions to US interests as the cost of "doing what's right". Even if sanctions have no effect they still make a statement, say many lawmakers.
These views are too often held without any understanding of the harm caused by sanctions and without knowledge of other, more productive, policy options. Sanctions proponents often expect each new measure to be "the next South Africa", even though the sanctions applied to South Africa were but part of a multilateral approach to tackling apartheid. A more accurate analogy for unilateral sanctions would be "the next Soviet grain embargo" - a colossal failure that sacrificed US market share and competitiveness for no foreign policy gain. lleana Ros-Lehtinen, a Florida Congresswoman, argued that sanctions help companies by creating stable governments that lead to good business environments. With friends like her, the business community does not need enemies. The Helms-Burton law, which Ros-Lehtinen so vigorously defends, has done nothing to create a hospitable environment for business in Cuba, and has done nothing to help its oppressed people. The main consequence of Helms Burton has been to sour trade relations between the US and Europe.
Existing US sanctions have hurt the global operations of 80 per cent of the companies participating in a recent study by the European-American Business Council. Forty-four per cent of companies have had to forego a business opportunity to comply with a sanction law. And 18 companies said they had missed business opportunities worth a total of $ 1.9bn (L1.lbn).
The survey found that the most common effects of sanctions on companies are a loss of joint venture opportunities, a reduction in US employment, and severed supply relationships. Sanctions that most threaten a variety of economic interests are those that would deny foreign executives US visas, bar bank loans and credits, ban imports or exports, and deny most-favored-nation status to strategic countries.
A large proportion of companies also reported that US sanctions against Iran, Libya and Cuba have harmed them, even though the sanctions authorized under those laws have been applied sparingly. The Iran and Libya Sanctions Act harmed 66 per cent of respondents, while the Helms-Burton Act hurt 64 per cent. Now some members of Congress are proposing legislation for more aggressive enforcement, which would affect even more companies. The Council study also found that 70 per cent of companies had been harmed by US state and local sanctions.
By enacting sanctions that violate our global obligations, Congress and state legislatures raise another problem. The administration, which might otherwise oppose many ill-considered sanctions, knows it may be forced to defend them in a World Trade Organisation dispute settlement case, and so is reluctant to take a hard line in public.
The administration's opposition to sanctions aimed at religious persecution stands as an exception, following its weak response to a Massachusetts Burma sanction law, a legislative proposal targeting Indonesia and Mr Clinton's politically motivated support of the Helms- Burton law and Iran and Libya Sanctions Act.
The administration should understand the need to protect the multilateral trading system. Since the WTO was established in 1995 it has proved an effective tool for the US to eliminate foreign trade barriers including tariffs, unscientific standards, and poor intellectual property protection. When the US flaunts its own WTO obligations by erecting secondary boycotts such as Helms-Burton, it puts the entire system at risk and limits the ability of US companies to create high-paying jobs by boosting exports.
Rather than cutting off economic ties with problem countries, the US should promote engagement, which is more likely to be effective. When the US feels that engagement will not work, and that sanctions are the best avenue, policymakers should still consider all other options before sanctions are imposed. The US should also make every effort to build multilateral cooperation before acting unilaterally.
Senator Richard Lugar has helped introduce legislation that requires Congress to weigh the economic cost of sanctions against their potential effectiveness. The bill would not ban the use of sanctions; it would offer Congress more information to make decisions.
The bill would also require sanctions laws to allow for a presidential waiver. New sanctions would have to be written to expire unless renewed by Congress and the administration. This common sense reform proposal would maximize US foreign policy flexibility and minimize the harm done to US workers and companies. Congress should move quickly to enact it.
Meanwhile, the business community must do something about public attitudes toward trade. Not only will we help win fights, such as fast-track, but we will protect our companies from the harmful effects of some well-intentioned but ill-advised legislators who fail to understand who the real target of sanctions usually turn out to be.
The author is president of the European-American Business Council
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