In 1996, the President's Export Council (PEC) submitted to the President a White Paper suggesting the need for better understanding of the costs and benefits of foreign policy-based unilateral economic sanctions. Subsequently, the White House requested the PEC to provide a more extensive report incorporating three elements:

1. A survey of existing unilateral economic sanctions;

2. An assessment of the impacts of sanctions on U.S. economic interests; and

3. Recommendations for improved policies and processes. This report responds to that request.

The United States has used unilateral sanctions more than other nations, but there have been important changes in the U.S. approach to their use.

Pre-1980 statutes reflect a cooperative relationship, generally allowing the President substantial discretion and flexibility in the use of authorized sanctions. The great cost and political embarrassment of the Soviet grain embargo and the extraterritorial Soviet-European gas pipeline embargo resulted in the virtual exclusion of agriculture from future sanctions, and extraterritorial measures were avoided until the mid-1990' s.

Recently, Congress has assumed a more directive role by adopting highly specific legislation often without reference to previous laws and sanctions already in place. Two major extraterritorial laws were enacted in 1996, including the mandatory application of secondary boycotts against our trading partners and allies who fail to abide by U.S. foreign policy.

Moreover, we see increasing impositions of sub-federal secondary boycotts against those who trade with foreign countries targeted by state or local governing bodies.

We do not question the objectives of existing U.S. unilateral sanctions. However, taken together, the sanctions comprise a complex and growing web of restrictions and legal impediments in the international trading system that extends well beyond the intent of the individual measures.

More importantly, the survey reflects the absence of transparent policies and disciplined processes for dealing systematically and effectively with the targets against which unilateral economic sanctions are being imposed.

The current federal sanctions laws and regulations are described in detail by Appendix I which is bound separately. Trade-based sanctions and standard national security-based export controls are not included.

Impact on U.S. Economic Interests

This report describes economic impacts based on the international marketplace experience of U.S. firms.

The direct impacts of sanctions include foregone sales and business relationships related to the targeted country. A recent econometric analysis estimates the value of lost exports in 1995 at $15 billion to $19 billion, affecting 200,000 to 250,000 export-related jobs .

The most important economic impact of unilateral economic sanctions is the cumulative weakening of U.S. competitiveness in friendly third-country markets, including those of our largest trading partners. Such indirect effects include:

• Special advantages created for foreign competitors in both U.S. and third-country markets;

• Uncertainty about availability of U.S.-origin goods, services and technology;

• Unreliability of U.S. firms and their affiliates as suppliers and as business partners;

• Retaliation by third country governments and trading partners against U.S. interference in their international market decisions.

These impacts occur when cooperation among our allies is not achieved. The latter three largely are the result of extraterritorial application of sanctions.

Our aim is to provide a better understanding of the nature of impacts on U.S. economic interests. We do not mean to imply a judgment about the appropriateness of unilateral sanctions. Rather, we hope that the report will aid in the design and implementation of improved policies for dealing with the targets at which unilateral economic sanctions typically are directed.

Appendix II provides anecdotal cases of both direct and indirect economic impacts of unilateral sanctions. Appendix III summarizes a report of the Institute for International Economics that assesses whether economic sanctions achieve their desired objectives.

Proliferation, terrorism, human rights (including worker rights) abuse, and drug trafficking by third world emerging nations are high priority issues for both domestic and foreign policy.

We conclude that the negative economic impacts of unilateral sanctions could be substantially reduced with no significant negative impact on the domestic and foreign policy interests of the United States. Such improvement could be gained by more thoughtful consideration of optional approaches and better design and implementation of sanctions when they are deemed to be required.
We recommend that the President establish guidelines for selection and implementation of unilateral sanctions and consult with Congress to ensure adherence to such guidelines.

Unilateral economic sanctions can be an appropriate tool of U.S. foreign policy when used in conjunction with the effective implementation of the other policies and processes recommended herein.

Policy Recommendations

• Justify unilateral economic sanctions in context of
  • other national interests and international obligations,

  • other measures appropriate for accomplishing the stated objective; and

  • the exhaustion of diplomatic efforts to obtain multilateral cooperation.

• Avoid inequitable impacts on citizens and unintended damage to competitiveness.

• Avoid extraterritorial measures and secondary boycotts.

• Consult with affected private parties and the Congress prior to implementation.

• Stop sanctions when stated objectives are not being achieved after a reasonable time.

Process Recommendations

• Create a Policy Review and Oversight Interagency Committee under NSC/NEC to review all sanctions policy and implementation issues and prepare decision options.

• Assure inclusion of appropriate considerations for each optional approach, e.g., policy objective; comparison of likely impacts on the target, the United States and its allies. date certain for review and reauthorization; success/failure criteria; exit strategies.

• Implement a contingency planning process to develop approaches and decisions options for dealing with potential target countries.

• Request the International Trade Commission to conduct and update annually an analysis of the near and long-term economic impacts of existing sanctions, including direct and indirect effects; and estimate impacts of proposed or optional sanctions.

• Mitigate inequitable impacts on U.S. citizens and unintended damage to U.S. economic interests by
  • Preserving contract sanctity under clear guidelines and subject to Presidential national security waiver, or, if contract sanctity must be waived, providing for recovery of committed costs;

  • Avoiding unilateral extraterritorial controls on U.S.-origin goods and technology when comparable, substitutable goods are available otherwise to the target;

  • Allowing adjustment assistance for displaced workers;

  • Requiring that implementing agencies establish advisory committees comprised of parties affected by their regulations;

  • Publishing implementing regulations with opportunity for public comment;

  • Assessing whether a federal initiative is appropriate in respect to state and local government actions that impinge federal foreign and trade policy responsibilities.

This report comprises our response to your request. It was prepared by Mike Jordan's Subcommittee on Export Administration with help from staff members of Mike Armstrong, John Barry and George Becker and under the lead of Boyd McKelvain.

The basic laws authorizing economic sanctions for foreign policy purposes were enacted prior to 1980. These statutes are the International Emergency Economic Powers Act (IEEPA); the Trading With the Enemy Act (TWEA); the Foreign Assistance Act of 1961; the Export Administration Act of 1979 (although the EAA lapsed in 1994, its provisions have remained in effect through an executive order issued under IEEPA); the Arms Export Control Act (AECA); the Atomic Energy Act as amended by the Nuclear Non-Proliferation Act; and Section 247c of the United Nations Participation Act.

These statutes reflect a cooperative relationship between the Congress and the Executive Branch with respect to foreign policy generally and the use of unilateral economic sanctions in particular. Most pre-1980 legislation articulates the reasons for and circumstances in which sanctions may be imposed and establishes procedures to ensure timely communication between the Congress and the Executive Branch concerning their use. These statutes generally reserve for the Executive Branch some substantial discretion and flexibility concerning imposition or removal of sanctions measures in specific circumstances. Typically, they do not target individual countries for the imposition of specific sanctions.

In the early 1980's, the cost to the U.S. economy of unilateral sanctions became a matter of greater concern, as exemplified by the reaction to the U.S. grain embargo and extraterritorial restrictions on allies and trading partners' use of U.S. origin goods and technology in the Soviet-European gas pipeline. Agricultural products were virtually eliminated from eligibility for use in unilateral sanctions, and such extreme extraterritorial measures were avoided until the mid-1990's.

Recent Trends

Legislation enacted since 1990 reflects a new propensity for the Congress to take a direct hand in the direction and conduct of foreign policy vis-a-vis unacceptable behaviors of Third-World countries by utilizing unilateral economic sanctions in a much more prescriptive manner:

• Mandating, rather than simply authorizing, their use;

• Specifying a wider variety of target behaviors to trigger imposition of the sanctions;

• Identifying the precise conditions for their removal;

• Defining many different types of sanctions to be imposed; and

• Naming specific target countries.

More than 75 countries now are named as subject to, or under threat of one or more of some 21 specific sanctions based on 27 target behaviors. And in 1996, two major new extraterritorial laws were enacted, including the mandatory application of secondary boycotts against the citizens of our trading partners and allies who undertake certain energy investments in countries sanctioned by the United States.

While the use of foreign policy-based unilateral economic sanctions at the state and local government level was not included in the review at Appendix I, we observe that both Japan and the European Union have filed challenges in the World Trade Organization against U.S. sub-federal trade actions that are not consistent with obligations under the WTO Government Procurement Agreement.

Specific types of sanctions in current federal legislation include the following:

• Deny benefits, such as OPIC insurance, allowed under the Foreign Assistance Act

• Withdraw eligibility for Export-Import Bank programs

• Deny U.S. participation in nuclear power projects

• Deny U.S. participation in defense trade

• Deny U.S. participation in communication satellite launch programs

• Vote against approval of assistance by international financial institutions

• Withhold payments to international institutions that override U.S. opposition

• Deny U.S. participation in financial transactions with the target

• Prohibit eligibility for loans from U.S. financial institutions

• Prohibit serving as a primary dealer of U.S. bonds or as a U.S. funds repository

• Curtail air transportation

• Withdraw sugar import quota

• Deny transfer of spoils of war

• Prohibit all imports into the United States

• Prohibit exports and re-exports of U.S. goods, services and technology

• Deny participation in procurement programs of the United States

• Prohibit imports of fish, fish products and fishing equipment

• Deny dealing in U.S. government debt instruments

• Deny benefits under tariff programs (GSP)

• Permit U.S. claimants to confiscated property to bring suit in U.S. courts against "traffickers" in confiscated property

• Deny entry of officials and their families to the United States

Appendix I presents the requested Survey of U.S. Unilateral Economic Sanctions. This document contains a comprehensive summary of current U.S. laws and regulations that authorize or mandate U.S. unilateral economic sanctions to achieve foreign policy purposes. The survey does not encompass trade-based sanctions (e.g., Section 301 of the Trade Act of 1974), and it does not cover unilateral export controls for defense articles and services nor for other goods and services based on their specific qualities or specified end uses (i.e., based on national security, anti-proliferation, etc.).

The survey reflects a significant body of law authorizing or mandating unilateral economic sanctions. Of particular concern are the apparent ad hoc processes followed in enacting and implementing the laws, the absence of any visible coherent rationale or guiding principles for their existence, and the lack of any methodology to assess whether any substantive objective is being achieved and at what cost to other national interests.

The survey identifies all unilateral sanctions programs that target individual countries and that target a particular activity. More than 75 individual countries, from Angola to Zaire, are specifically identified in the survey as subject to or threatened by one or more unilateral foreign policy sanctions. (See survey index pp.50-55.) Many sanctions target particular activities on the basis of a determination that a country or entity has engaged in a particular target activity.

The survey places unilateral measures within twelve categories based on the reason for imposition of the sanctions. These categories are:

• Communist Government

• Environmental Activity

• Expropriation of U.S. Property

• Harboring War Criminals

• Human Rights Violations

• Military Aggression

• Narcotics Activity

• Proliferation of Weapons of Mass Destruction

• Support of International Terrorism

• Restrictive Trade Practices

• Undemocratic Government

• Worker Rights Violations

The survey covers more than 40 separate legislative acts in which unilateral foreign policy sanctions have been mandated, including several annual departmental appropriations or authorization laws. The survey and its index (pp.56-58) catalogue the specific sanctions measures according to the reason for enactment. Some statutes are identified with more than one reason; e.g., IEEPA, Foreign Assistance Act.

Sanctions Targeted at Individual Countries

The body of the survey is organized into five sections that reflect the variety of U.S. unilateral foreign policy sanctions. The first section covers sanctions targeted at individual countries. Iran, Iraq, Cuba, North Korea, and Libya are obviously prominent in this section. However, this is also where one finds programs authorizing or requiring imposition of sanctions against persons in third countries; e.g., Title III and Title IV of the Cuban Liberty and Democratic Solidarity Act of 1996, and Section 106 and 111 of that Act (p.11), and the Iran and Libya Sanctions Act of 1996 (pp.12-13).

The sanctions against the People's Republic of China in 1990, contained in the Foreign Relations Authorization Act for 1990-91, as amended, which continue in effect, also are found in the first section of the survey, at p.16. Likewise, the most recent legislation in the survey, the 1997 Omnibus Appropriations Act (September 30, 1996), is found in this section of the survey. This Act includes provisions targeted against Burma; countries not in compliance with United Nations Security Council sanctions against Iraq or Serbia and Montenegro; the Palestine Liberation Organization; Cuba; Iran; Iraq; Libya; North Korea; Serbia; Sudan; Syria; China; Guatemala; Haiti; countries not taking steps to implement educational programs to prevent the practice of female genital mutilation; and any country whose duly-elected head of government is deposed by military coup or decree, until a democratically-elected government takes office. Not every one of the various provisions of the 1997 Omnibus Appropriations Act requires imposition of sanctions at the date of enactment. Most provisions specify certain circumstances or conditions that will trigger a requirement for sanctions.

Legislation Targeted At Particular Activity

Unilateral sanctions legislation targeted at particular activities covers a range of problems including terrorism (nine separate statutes), proliferation of weapons of mass destruction (five separate enactments, not including IEEPA and the EAA), and environmental concerns (four separate statutes), including the High Seas Driftnet Fisheries Enforcement Act (p.29), pursuant to which the United States has identified Italy for possible sanctions. In the environmental area, limited import embargoes are now in effect against Mexico, Venezuela, Columbia, Panama, Vanuatu, Belize, Costa Rica, Italy, and Japan, pursuant to the Marine Mammal Protection Act of 1972, as amended, and against shrimp imports from countries not certified as having a regulatory program against incidental take of sea turtles pursuant to Section 609 of the Departments of Commerce, Justice and State, the Judiciary and Related Agencies Appropriations Act of 1990.

Four separate statutes authorize sanctions against countries that are not cooperative with respect to prevention of narcotics trade and related money laundering and public corruption (pp.24-25). Sanctions measures are imposed against countries that are not "certified" by the President as either cooperating or where "vital national interests" of the United States favor certification.

Other unilateral sanctions provisions address the harboring of war criminals (two statutes) and forced labor (one statute). Certain imports from Mexico and China are now subject to restrictions under the forced labor provisions of the Smoot-Hawley Tariff Act of 1930 (p.38).

Sanctions Pursuant to Authority to Restrict Imports or Exports of Particular Goods

The Arms Export Control Act and the EAA authorize or require unilateral sanctions against specific countries relating to activities with respect to munitions or dual-use goods. More than a dozen countries are under some form of restriction under these authorities (pp.39-40).

Restrictions Under the Foreign Assistance Act

The Foreign Assistance Act contains provisions covering a multitude of circumstances and pursuant to this legislation, unilateral sanctions are in effect or required based on subsequent findings against Pakistan, Burma, Syria, Saudi Arabia, Qatar, the United Arab Emirates, and the New Independent States of the Former Soviet Union, in addition to measures against Cuba, North Korea, Iraq, Iran, and the Palestine Liberation Organization (pp.41-42).

Restrictions on Favorable Trade Status

Four separate statutes include provisions that allow for, or require restriction of, favorable trade status for foreign policy reasons. In addition to the well-known annual review process for most-favored nation tariff treatment for Communist countries under the "Jackson-Vanik" provision of the Trade Act of 1974, as amended, the Generalized System of Preferences Renewal Act, as amended, the Caribbean Basin Economic Recovery Act, as amended, and the Andean Trade Preference Act, as amended, all restrict benefits based on certain foreign policy findings with respect to a beneficiary country (pp.41-45).

Restrictions on Activity of Financial Institutions

Five separate statutes contain unilateral sanctions provisions that call for U.S. actions or opposition within multilateral financial institutions or the Export-Import Bank (pp.46-49). China in particular has been a target of these provisions.

The Survey of U.S. Unilateral Economic Sanctions is a resource for understanding and appreciating the current scope and extent of unilateral economic measures enacted to achieve foreign policy objectives.

The objectives reflected by these measures are ones that all of us strongly agree are appropriate goals. However, the survey demonstrates that the sum of all of these unilateral measures for achieving the goals constitutes a complex web of restrictions and legal impediments in the international trading system that extends well beyond the legislative intent of the individual statutes. This at least in part is due to a growing propensity for Congress to assume a direct role in the conduct of foreign policy by adopting highly specific legislation often without reference to previous laws and sanctions already in place.

The compilation also suggests the absence of a disciplined, consistent process for creating, imposing, and maintaining rational foreign policy-based economic sanctions. More importantly, it reveals the absence of any prudent provision for attempting to understand whether the sanctions serve to achieve or to damage the interests of our nation.