Trade as a Weapon

A. 1914-1999: a century of sanctions

In 1919, Woodrow Wilson declared: " A nation boycotted is a nation in sight of surrender. Apply this economic, peaceful, silent, deadly remedy and there will be no need for force." Prior to the First World War, however, sanctions almost always accompanied warfare-as a junior adjunct to military campaigns. Only after the First World War was attention given to the idea that economic sanctions might be an alternative to war. In the 1990s, the role of sanctions has again been reconsidered. Increasingly they are viewed as part of an escalating "force-curve" that extends from diplomatic protest, to sanctions, to military intervention. Within the sanctions toolbox moreover, there are several instruments. Besides merchandise trade, many kinds of economic transactions can be sanctioned. For example sports events, civil aviation, telecommunications, and finance can all be interrupted.

Research by the Institute for International Economics (IIE) shows that the use of sanctions is increasing, despite various frustrations with the deployment of sanctions. IIE research also shows that, while the U.S. is the prime "sender", it is not the only sender country. In particular, since the demise of the Soviet Union, coalitions revolving around the United Nations play a bigger role in sanctions diplomacy. In addition, IIE research demonstrates that, in hard cases, sanctions are slow to retire (see Figures 1 and 2).

B. What have we learned?

IIE research suggests a declining utility of economic sanctions as a foreign policy tool, especially when used in isolation from other instruments. Table 1 indicates that the success rate of U.S. sanctions, both unilateral and multilateral, has declined sharply from the early postwar period. Prior to the 1970s, U.S. sanctions were successful in about half of the cases. Between 1970 and 1990, however, U.S. sanctions succeeded in just over one-fifth of the cases. Many factors contribute to these results. Globalization makes it easier for target countries to tap into international trade and capital markets for alternative sources for goods and finance. This highlights the importance of multilateral coalitions. Diverse security interests of potential coalition countries, however, complicate the task of building multilateral coalitions. Recent examples are French and Russian objections to U.S. efforts at maintaining a full array of sanctions against Iraq.

Although successful sanction episodes are infrequent, certain conditions appear to enhance the chances for success. Sanctions are more successful in achieving modest policy goals, while they seldom work as a substitute for military force in achieving major goals. A very recent illustration was Qadafi's decision to deliver the two suspected Pan Am 103 terrorists for trial in the Netherlands. Sanctions are also more likely to succeed if the target country is relatively small and weak: Liberia is a better target than Libya. Another lesson learned is that target countries with semi-democratic regimes sensitive to world opinion are more susceptible to sanctions than isolated authoritarian regimes. In other words, sanctions worked better against South Africa and Switzerland than Iran and Cuba. The likelihood of success also increases if sanctions are applied quickly and decisively (the threatened trade and financial boycott of Paraguay in the wake of an attempted military coup a few years ago comes to mind). This prescription poses a dilemma. Decisive action usually requires multilateral cooperation, which takes time to arrange. The tortuous paths of diplomacy, sanctions and military strikes both in Bosnia and Kosovo illustrate the problems of coalition management.

Research shows that countries with substantial trade, investment and financial ties with the United States (or another sender country) are more vulnerable to sanctions. But close ties with the target country also raise costs to the sender country. As a general matter, the costs of sanctions to the sender country (or coalition) can be significant in terms of lost exports. An IIE study estimated that economic sanctions now in place cost the United States some $20 billion in exports annually-not a big amount for a $9 trillion economy, but a significant sum for impacted firms and communities. The costs of sanctions to their senders also arrive in the form of harmful propaganda, such as reports on starving children in Iraq, or in the form of abrasion to allies, exemplified by the dispute with Canada and Europe over the Helms-Burton legislation.

C. What's new in the 1990s?

The collapse of the Soviet Union has allowed the United Nations to play a bigger role in international disputes, including the imposition of mandatory economic sanctions nine times compared to just twice prior to 1990.

The targets of choice have also changed in the 1990s. The Soviet Union or its allies were targets of Western sanctions twelve times in the 1970s and 1980s. In the 1990s, Western sanctions against the Former Soviet Union (FSU) sharply diminished, but the new FSU states were subject to six sanctions initiatives by Russia. The other striking change is the decline in new cases targeting Latin American countries and the rise in new cases targeting African countries. This shift in locus-from the U.S. backyard to the European backyard-is one factor in the decline in unilateral U.S. sanctions and the rise in European initiatives (see Table 2).

The end of the Cold War has meant the diffusion of power, not only from Washington and Moscow to Beijing, London, Paris, and Bonn, but also to congressional and subfederal players, and to nongovernmental organizations (NGOs). The business community, which mobilized under the banner of USA*Engage, too has become an important player in U.S. sanctions policy.

Three recent developments are of particular note: The Lugar-Crane bill, which seeks to reform the U.S. sanctions process and could be a useful first step towards better matching the costs of sanctions to their anticipated results; secondly, the constitutional challenge to Massachusetts sanctions against firms that do business in Burma citing federal government supremacy over foreign affairs and international commerce; and finally, the increase of private litigation, an example being the lawsuit against Swiss banks over the dormant accounts of Holocaust victims.

In recent years, the international community has become increasingly concerned about the humanitarian impact of sanctions. Many observers are advocating pinpoint sanctions against government leaders and bad actors, such as terrorists and drug dealers. When sender countries (notably the United States) views sanctions as an expression of values and as a demonstration of moral outrage, advocates of pinpoint sanctions hope that they will achieve much of the intended purpose at lower economic and political costs.

Table 1. Use and Effectiveness of Economic Sanctions as a
Foreign Policy Tool

a. These numbers will differ slightly in some periods from what a calculation using the numbers in the other columns would suggest. This is because assessments are not yet complete for several new cases, which are included in the total but not in the number of successes.

b. Cases added since the second edition was published in 1990, which covered episodes initiated through 1990.

Source: Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann Elliott, Economic Sanctions Reconsidered, 3rd ed., revised. Washington: Institute for International Economics, forthcoming.

Table 2: Senders and Targets in Sanctions Cases Initiated, 1970-98

*FSU = Former Soviet Union; this category also includes Soviet bloc members.

a. These numbers are based on cases in which one or more sender country played a leadership role. They do not include senders that cooperated in a sanctions effort but without taking a leading role. UN cases are not included in the count of cases initiated by individual sender countries.

b. Two UN cases initiated in the 1960s were ongoing in this period: Rhodesia and South Africa.

c. This count includes the threat of UN sanctions against North Korea in the mid-1990s and the authorized but not mandatory actions against the Khmer Rouge faction in Cambodia.

Source: Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann Elliott, Economic Sanctions Reconsidered, 3rd ed., revised. Washington: Institute for International Economics, forthcoming. *Extrapolated from 1990-97 data.