CBO Study Flawed, Inconsistent, and Underestimates Real Costs to U.S. of Unilateral Sanctions

The Congressional Budget Office study on unilateral sanctions is intellectually flawed, internally inconsistent, and misstates the real costs of unilateral sanctions to the United States economy and foreign policy, in both the short and long term.

CBO STUDY FAILS TO ADDRESS KEY QUESTIONS: ARE UNILATERAL SANCTIONS COST EFFECTIVE?

• The key question to ask regarding the use of unilateral sanctions is -- are the costs worth the benefits? These costs should be measured in terms of current costs as well as future ones...both current economic costs that are measurable, as well as opportunity costs that are harder to quantify.

DO UNILATERAL SANCTIONS ACHIEVE THEIR INTENDED RESULTS?

• Another important criterion that should be addressed is effectiveness. Study after study from respected foreign policy experts, economists, and think tank academicians all agree that unilateral sanctions are overused, ineffective, and counterproductive. These same experts agree that unilateral sanctions do little to help the United States in an increasingly competitive global environment where suppliers are numerous, and our ability to control the flow of goods and services limited.
• Unilateral sanctions do little to change the behavior of the offending country; in fact, oftentimes the reverse is true. Unilateral sanctions serve to bolster illegitimate regimes. Unilateral sanctions usually boomerang, hurting American workers and businesses and costing America standing in the worldwide community. Tragically, these sanctions often result in more harm to the very people these sanctions are designed to "help."

CBO EXCLUDES KEY FACTS FROM SCOPE OF ITS STUDY, INCLUDING:

• Unilateral sanctions fail to achieve their desired result;
• Unilateral sanctions are often an easy substitute for the harder work of finding more effective and long term responses to foreign policy problems and, therefore, create the false impression that these problems have been addressed;
• Unilateral sanctions deprive the U.S. of political and economic assets of long-term importance to our security and prosperity, by denying us access to strategic regions and resources;
• Unilateral sanctions have serious long-term costs to U.S. companies by allowing foreign competitors to establish their products in important foreign markets and therefore gain structural advantages for future business opportunities;
• The impact of unilateral sanctions falls most heavily on the poorest and most vulnerable populations in target countries;
• Unilateral sanctions enable repressive regimes in target countries to attribute their economic failures to the U.S.;
• Unilateral sanctions isolate the U.S. from societies in which we would like to see changes that are more successfully achieved through broad engagement with those countries.

THE CBO STUDY EXPLICITLY DOES NOT CONSIDER THE INEFFECTIVENESS OF UNILATERAL SANCTIONS AND AGREES WITH USA*ENGAGE THAT UNILATERAL SANCTIONS ARE LESS EFFECTIVE THAN MULTILATERAL SANCTIONS.

• The CBO study finds that "the effectiveness of U.S. sanctions may depend largely on the participation of other countries." Having said that, the study cites a number of reasons why multilateral sanctions are problematic, including the fact that foreign countries operate in their economic self interest. Indeed. But that is not an argument for unilateral sanctions, which the study concedes are even less likely to work.

THE CBO STUDY ACCEPTS THE USA*ENGAGE DATA ON THE AMOUNT OF U.S. EXPORTS LOST AS A RESULT OF UNILATERAL SANCTIONS. IT THEN IMPLIES THAT THE U.S. ECONOMY IS STRONG ENOUGH TO LOSE THAT AMOUNT FOR NO GAIN

• The CBO study does not challenge the finding of the 1997 Institute for International Economics Study that unilateral sanctions cost the U.S. economy $15 to $20 billion a year, and that 250,000 jobs are lost that would otherwise exist in the well-paying export sector of the economy. Although the study correctly says that this accounts for a small portion of the overall U.S. economy, it is by no means "negligible";
• The $15 to $20 billion cost to the economy is larger than the total foreign affairs budget of $13.4 billion for FY 99 of the U.S. government;
• $15 to $20 billion exceeds the estimated 1999 budgets of 41 individual states.
• The study agrees that exports are a critical and growing part of the U.S. economy and finds that exports are the most easily sanctioned economic activity, thereby implying that it is acceptable public policy to inflict damage on one of the strongest areas of our own economy for no gain so long as it is small in comparison to the overall economy. We should remember that most economic units, if compared to the overall U.S. total national income of $6.6 trillion, are small.

THE STUDY UNDERSTATES THE TOTAL COST OF UNILATERAL SANCTIONS BY FAILING TO TAKE ADEQUATE ACCOUNT OF LONG-TERM, INDIRECT COSTS TO THE U.S. ECONOMY

• The study concedes a very important point, that unilateral sanctions can have "national costs if they undermine the reputation of U.S. businesses as reliable suppliers," but fails to understand its implications. The study references the Soviet Grain embargo to make its point.
• In actual fact the Soviet grain embargo is a superb example of the opposite argument: foreign producers received the contracts for the grain the U.S. embargoed and gained a long-term foothold in a new market. In much the same way, the sanctions on the Soviet gas pipeline project following the invasion of Afghanistan essentially created major new world competitors for embargoed U.S. capital goods and inflicted very lasting damage on U.S. exports;
• The reputation of U.S. firms as reliable suppliers is a far more serious issue than the CBO study concedes. The study concentrates on developing countries as the most likely to be sanctions targets. In fact, reliability is a far more serious issue with companies in the highly developed markets of Europe and Asia where U.S. companies may be precluded from consideration in business deals, i.e., partnerships and component supplier arrangements, because of uncertainty about possible foreign policy sanctions;
• The reliable supplier problem is greatly exacerbated by secondary boycotts and extraterritorial sanctions in recent legislation on Cuba and Iran that causes foreign firms to be very reluctant to expose themselves to potential U.S. sanctions retaliation resulting from involvement with a U.S. company.

THE STUDY MAKES THE VERY ODD ARGUMENT THAT MULTILATERAL SANCTIONS ARE MORE COSTLY TO THE ECONOMY, EVEN THOUGH THEY ARE MORE LIKELY TO BE EFFECTIVE, WHILE UNILATERAL SANCTIONS, ESPECIALLY IF DIRECTED AGAINST POOR DEVELOPING COUNTRIES, MAY NOT WORK BUT ARE LESS COSTLY

• The study in effect argues that the U.S. can afford to engage in symbolic policies that injure our economy, so long as those injuries only fall on a few sectors or regions and do not cross some imaginary threshold of "welfare losses to the overall economy." The study does not reveal what that threshold is nor does it tell us which American businesses are dispensable.

THE CBO STUDY IS APPARENTLY UNAWARE OF THE DEBATE REGARDING THE ALTERNATIVES TO UNILATERAL SANCTIONS. THIS DEBATE IS HAPPENING BOTH IN THE PUBLIC AND PRIVATE SECTORS BECAUSES THERE IS INCREASING AWARENESS OF THE INEFFECTIVENESS OF UNILATERAL SANCTIONS

• In conceding that "some thought about the sanctions' cost to the target country and likely effectiveness would also be important," (while re-emphasizing that that issue is outside the scope of the study), the study raises the issue of the relative costs of alternative policies. The CBO is able to imagine only a single alternative: "sanctions can have an economic cost and still be less expensive than, say, military interventi on;"
• Ignoring the extensive debate about multiple avenues of exerting influence by engaging other countries, the CBO study is able to conceive of only one non-coercive U.S. policy: "ultimately the prospects for U.S. businesses abroad may be well served by U.S. policies that, for example, aim to protect the rights of foreign workers;"
• In fact, last year the State Department's sanctions working group was able to imagine scores of alternative responses and arrayed them on a scale from cooperative to coercive, demonstrating the very rich arsenal of alternatives to unilateral sanctions.

REFERRAL INFORMATION

• In the last two years over 30 studies have been issued by well-respected think tanks of all ideological persuasions, trade associations and governmental organizations such as the International Trade Commission and the President's Export Council, on the issue of unilateral sanctions. These studies point to a common theme: that U.S. unilateral trade sanctions have been overused -- by Congress and the Executive Branch -- and that they are counterproductive, ineffective and often end up hurting U.S. interests more than the target country. To see a compete listing of these studies click here.
• A study by the American Petroleum Institute, "How Unilateral Economic Sanctions Affect the U.S. Economy: An Inter-Industry Analysis", illustrates the extent to which unilateral sanctions on specific industrial sectors can spill over to impact other areas of the economy. To view the API study click here.

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