CONTINUOUS ASSIGNMENT-3

SANCTIONS IN INTERNATIONAL TRADE

NATIONAL LAW UNIVERSITY, JODHPUR

WINTER SESSION

(JAN-MAY 2017)

Submitted By: Submitted To:

ABHA MEHTA Mr. Bipin Kumar
1154 Faculty of Law
Semester VI, B.B.A. LL.B
 TABLE OF CONTENTS

Introduction and Objectives of Trade Sanctions ........................................................................ 3

Compliance ............................................................................................................................ 3

Deterrence .............................................................................................................................. 3

Subversion.............................................................................................................................. 3

International Symbolism-....................................................................................................... 4

Domestic Symbolism-............................................................................................................ 4

Types of Trade Sanctions........................................................................................................... 4

1. Security Related Trade Controls ..................................................................................... 4

2. Export Control ................................................................................................................ 5

3. Multilateral Export Control Regimes (MECRs) ........................................................ 8

4. Economic Sanctions ........................................................................................................ 9

The Costs of Trade Sanctions .................................................................................................. 10

Conclusion ............................................................................................................................... 13

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 INTRODUCTION AND OBJECTIVES OF TRADE SANCTIONS

Trade sanctions can be defined as measures in which one country (the initiator) publicly

suspends a major portion of its trade with another country (the target) to attain political

objectives. The public nature of trade sanctions distinguishes them from covert economic

pressure. 1

The objectives of sanctions fall into five categories.

COMPLIANCE- To force the target to alter its behavior to conform with the initiator's

preferences. Thus Britain imposed sanctions on Italy in 1935 to compel Mussolini to

withdraw from Abyssinia. This use of sanctions rests on the belief that the resulting economic

costs will exceed the benefits the target leadership derives from the disputed policy.

DETERRENCE-To dissuade the target from repeating the disputed action in the future. In

announcing the Soviet grain embargo, President Carter declared, 'We will deter aggression'.2

The initiator also may use sanctions to deter nations other than the target. In pushing for

sanctions against Italy, British officials praised their value as a deterrent to German

aggression.3 Sanctions function as deterrents by demonstrating the initiator's willingness to

act and its ability to inflict economic pain, which presumably it can reapply in the future.

SUBVERSION- To remove the target's leaders (leaving the political system intact) or

overthrow the entire regime. Soviet sanctions against Yugoslavia illustrate the first variant of

subversion: Stalin sought to replace Tito with a pro-Soviet leader.4 When the US embargoed

Cuba, however, it hoped to replace Castro's regime with a non-communist one.5 The use of

1
Olson, 1979
2
The New York Times, 1980
3
Baer, 1973: 166; Barber, 1979: 369, 372
4
Dedijer, 1970: 35; Freedman, 1970: 18-19; Clissold, 1975: 50
5
(Doxey, 1971: 41)

3
sanctions to subvert assumes that economic denial and political disintegration are positively

related: greater levels of economic damage produce greater levels of political unrest.

INTERNATIONAL SYMBOLISM- To 'messages' to other members of the world community. The

initiator may seek simply to express its disapproval of a regime. The Reagan administration

embargoed Libyan oil to condemn Qaddafi's support for international terrorism.6 The initiator

also may use sanctions to signal its resolve or to protect its prestige. Jimmy Carter, for

example, hoped that the Soviet grain embargo would demonstrate American resolve. In these

cases, the costs that sanctions inflict on the target are irrelevant. The act itself generates the

symbolism.

DOMESTIC SYMBOLISM- to increase its domestic support or thwart internal criticism of its

foreign policies by acting decisively. The Eisenhower administration embargoed Cuba two

weeks before the presidential election, partly to improve Nixon's electoral chances.7

Similarly, Britain imposed sanctions on Italy in 1935 to appease domestic outrage at the

invasion of Abyssinia. 8

TYPES OF TRADE SANCTIONS

1. SECURITY RELATED TRADE CONTROLS

Security related trade controls are governmental measures which aim to achieve political

goals. Governments, individually or collectively, impose these types of controls in the pursuit

of national security and foreign policy interests, e.g. 9

human rights violations,

6
Weisman, 1982
7
Schreiber, 1973: 393
8
Baer, 1973: 167-168; Barber, 1979: 371
9
http://mauritsgorlee.com/security-related-trade-controls-export-controls-economic-sanctions/

4
 isolating particular nasty characters such as dictators, war lords or transnational

criminals,

disrupting military adventures or other military oriented threats (increasingly the

threat of cyber warfare),

proliferation of weapons of mass destruction, combating global terrorism, and

implementing United Nations Security Council economic sanctions as a response to

threats or breaches of international peace and security

2. EXPORT CONTROL

Throughout history world leaders and countries have applied trade restrictions through export

controls to defend their national security, sensitive commercial interests and foreign policy

goals. A misconception is that export controls only regulate military goods, i.e. wartime

materials, which is further than the truth.10

Export controls have traditionally also covered goods, services, since the twentieth-century,

technologies and software that are indirectly related to wartime materials (so-called dual-use

goods).

Furthermore, outside the context of security related trade controls, there are numerous goods

subject to governmental controls, which are similar to security related trade controls, such as

medicines or narcotics. In this context, export controls do not only impact the defense

(security) sector, but many sectors of the civilian economy, e.g. freight-forwarding, R&D at

universities, civilian aerospace, automotive, energy, chemical, pharmaceutical, agriculture,

and telecommunications.

Throughout the ages security related export controls have been closely connected to the

evolution of weapons and evolving concepts of security. Therefore, these types of export

10
http://publications.gc.ca/Collection-R/LoPBdP/BP/bp346-e.htm

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controls do not only impact the defense (security) sector, but many sectors of the civilian

economy, e.g. transport (freight-forwarding), R&D at universities, civilian aerospace,

automotive, energy, chemical, pharmaceutical, agriculture, and telecommunications.

Currently, reasons for imposing export controls are: the proliferation of Weapons of Mass

Destruction (WMD), the unwanted proliferation of conventional military equipment (arms

embargoes to countries in a conflict), preserve regional stability (stop an arms race), prevent

global terrorism, protection of human rights (stop torture or invasion of privacy of political

opponents), threats related to cyber security, or enforcing arms embargoes adopted

through United Nations Security Council resolutions.

Unlike economic sanctions, export controls attempt to reconcile the need to maintain national

security with the need not to disrupt legitimate trade. In this context, export controls are

regarded as an exception to free trade, which is characterized, despite some international

cooperation, by significant unilateralism.11

In the twenty-first century, this balancing act is most pronounced in the export control

regimes of the U.S., given that America is the greatest producer and supplier of military

equipment and a crucial producer of sensitive technologies. For this reason, discussions

regarding export controls usually orbit around the U.S. perspective (concerns regarding the

dissemination of sensitive goods and technologies) and controversies how the U.S.

implements its controls, think of the debate regarding origin based jurisdiction.

What Is Controlled?

Security related export controls regulate the movements of so-called strategic goods. The

movement of strategic goods refers to cross-border movements of strategic goods. Strategic

11
Carlo M. Cipolla, Guns, Sails and Empires: Technological Innovation and the Early Phases of European
Expansion 1400-1700, New York: Pantheon Books, 1965, footnote 2, page 63

6
goods can cover not only military and dual-use goods, but also goods or precursors uniquely

sensitive for WMD proliferation, e.g. goods related to nuclear energy, missile technologies or

chemical or biological agents.

The movements can cover:

exports (between the country of exportation and the country of destination),

re-exports (e.g. shipments of a strategic good between third-countries),

transmissions of technologies or software (e.g. intangible transfers of technologies

through electronic means popularly known as intangible transfers of controlled

items), and so-called

deemed exports (e.g. a disclosure of a strategic good to a foreign national, which is

considered an export under the laws and regulations of the country of exportation

particularly important under U.S. export control regimes).

The concept of strategic goods also covers hardware, technologies/software, materials, and

services. For this reason, many commentators prefer to use the term item, instead of the

term goods. Services can cover activities directly related to the development, production, and

use of strategic goods, e.g. technical assistance, training. Services can also include particular

activities which have been deemed to be of a strategic nature, e.g. arms brokering.

Moreover, the controlled cross-border movement (temporary or permanent) can cover both:

Tangible (an item is physically transported across a border, method is not important,

e.g. cargo, hand-carried, per mail or information stored in a CD, memory-stick, or in a

laptop) and

Intangible movements (can cover uploads, downloads for technologies/software,

emails, information stored on intranet, visual disclosures or even verbal disclosures

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 through a telephone conversation). Further, the reasons for controlling a cross-border

movement is not so important, e.g. a sale, corrective or preventive maintenance, a gift

or transfers between company units. The focus of the control is the movement itself.

3. MULTILATERAL EXPORT CONTROL REGIMES (MECRS)

MECRs are a relative new. They were created during the Cold War as a result of the super-

power confrontation and because the United Nations was ineffective to manage global

security issues.

Although both super-powers developed MECRs, only the Western, i.e. U.S. dominated

regimes have survived. The original aim of the U.S. dominated regimes was to restrict or

deny the transfer of strategic goods and technologies to Communist countries, e.g. COCOM.

However, since the 1970s, the focus of these regimes evolved to meet other security threats

beyond the U.S.-Soviet Union rivalry. In particular:

the proliferation of nuclear weapons (1974 Indias announcement that it had

successfully conducted a nuclear explosion)

the total failure of the global community to enforce export controls to prevent the use

of chemical weapons by Iraq during its conflict with Iran during the 1980s

the developments and unchecked proliferation of missile technologies to deliver

WMD.

Simply put, MECRs are an extension of the maintenance of international peace and security.

They form a part of disarmament, arms controls and non-proliferation efforts within the

United Nations Collective Security system. They fill gaps how certain conventions or

international initiatives should be implemented, especially in regard to WMD proliferation or

8
are initiatives of concerned countries regarding specific issues, e.g. the proliferation of

missile technologies (delivery systems for WMD).

Basically, they are vital intergovernmental cooperation platforms, where the participating

countries can adopt common control lists, but also discuss and exchange views and

information regarding security related export controls.

Although MECRs are not legally binding on the participating countries, the participants have

very real political and economic interests to comply. Note that the agreed upon common lists

are transposed into national laws and regulations, which causes some differences and, as in

the case of the EU regarding dual-use items, can be implemented at the regional level.

Their origins are somewhat complex, given the incremental evolution of international

disarmament. To a certain extent, their origins lie with the development of international

humanitarian law, e.g. the laws of armed conflict and the prohibition to use certain weapons.

Others are an initiative based on a trigger event, e.g. the Iraqi use of chemical weapons

during the 1980s or limited to geographic locations (ban on the use of WMD in outer space)

or political regions, e.g. Latin America/ Caribbean nuclear free zones Treaty of Tlatelolco or

the South Pacific Treaty of Rarotonga.12

4. ECONOMIC SANCTIONS

Economic sanctions aim to compel a change of conduct or policies through non-military

coercive measures to restore the relations between the Sender (country(-ries) imposing

sanctions) and the Target of sanctions.13

Because the aim of economic sanctions is to achieve a political goal, e.g. to stop or prevent

politically or legally noxious activities, this distinguishes economic sanctions from other

12
http://www.nti.org/learn/treaties-and-regimes/missile-technology-control-regime-mtcr/
13
Oskarsson, K. (2012). Economic sanctions on authoritarian states: Lessons learned. Middle East Policy, 19(4),
88102.

9
types of economic coercive measures, which for instance are imposed to achieve an economic

or trade related aim.14 This lastly can be confusing because Senders can apply similar

measures for both economic sanctions (politically oriented coercive measures) and trade

related economic sanctions.15

As there is no fixed definition under international law for economic sanctions, governments

apply different terms to describe their economic sanctions, i.e. imposed coercive economic

measures. For instance, restrictive measures (EU), country-based or list-based programs

(U.S.) or autonomous sanctions (how EU describes its unilateral sanctions).

In the absence of common political or legal definitions, academics have also attempted to

define economic sanctions, especially within the context of debating the effectiveness of

sanctions regimes. Academic definitions are based on comprehensive reviews on how

governments (and the United Nations) adopt and implement economic sanctions.16

THE COSTS OF TRADE SANCTIONS

Trade sanctions inflict several costs on the initiator. On the international side, sanctions often

stimulate political cohesion in the target country. This 'rally-round-the-flag' reaction was

noted in the subversion cases, but it also occurs when the initiator imposes sanctions to force

compliance. Mussolini used the sanctions 'to consolidate [his] personal rule'. 17 In the

Egyptian case, the sanctions fueled popular resentment of other Arab countries and increased

Sadat's popularity. 18

14
Parker, R. W. (2000). The problem with scorecards: How (and how not) to measure the cost-effectiveness of
economic sanctions. Michigan Journal of International Law, 21, 235294
15
http://mauritsgorlee.com/economic-sanctions/defining-economic-sanctions/
16
Rarick, C. A., & Han, T. (2010). Economic sanctions revisited: Additional insights into why they fall.
Economic Affairs, 6870
17
Baer, 1973: 178
18
Ajami, 1981: 105-107

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Second, sanctions prompt the target to strengthen its ties with the initiator's adversaries. Italy

increased its economic and political relations with Germany after Britain imposed

sanctions, and in October 1936 Hitler and Mussolini signed the RomeBerlin Pact.

YugoslavAmerican relations were hostile before 1948, but in 1950 the US provided Tito

with economic and military aid. 19 In the Cuban case, sanctions forced Castro to increase his

reliance on the Soviet Union.20

Third, sanctions may provoke target aggression. There is no single reason why sanctions

would trigger this response. In the Italian case, Hitler interpreted British and French

irresoluteness as one sign (among others) that they would not risk war to oppose German

expansion. In contrast, the US applied sanctions against Japan resolutely, and the Japanese

probably interpreted this as a sign that war had become inevitable. And in the Ugandan case,

Amin apparently hoped to create an external threat to divert attention from internal problems.

Fourth, sanctions diminish the initiator's future economic leverage over the target. Targets

normally respond to sanctions by diversifying their trading partners and by increasing their

self-sufficiency. Italy increased its imports from Austria, Germany, and the US after the

League imposed sanctions.21 In the Yugoslavian, Albanian, Cuban, and Rhodesian cases, the

initiator's economic relations with the target became negligible. Moreover, the imposition of

sanctions may stimulate alternative sources of productions.22 This would tend to reduce the

initiator's economic leverage over both targets and potential targets.

Finally, sanctions may irritate the initiator's allies. This cost has been peculiar to US

sanctions in the 1980s. American allies often view US sanctions solely as domestic

symbols. They particularly resent unilateral US impositions of sanctions. The divisive impact

19
Freedman, 1970: 23, 37
20
Schreiber, 1973: 401-402; Theriot, 1982: 42
21
Renwick, 1981: 95
22
Moyer and Mabry, 1983: 152-153

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of sanctions may be the greatest cost to the US. It damages American leadership and

complicates other relations with Europe and Japan.

The initiator faces four possible domestic costs. First, sanctions inflict a direct financial loss

on firms that trade with the target. British exports to Italy fell $19 million while the sanctions

were in place23 and the Soviet grain embargo nullified the sale of $2.6 billion worth of farm

products.24 These losses may be offset by sales to other countries, but they probably remain

high in the short term. If the initiator tries to defray the losses of private firms (though this is

uncommon), the cost can be high. The US spent $5 billion to stem the collapse of farm prices

during the grain embargo.25

Second, sanctions may incur costs to the economy as a whole. This cost is especially high

when the country imposing sanctions is both economically weak and borders the

target. Sanctions against Israel have caused Jordan 'considerable economic harm, both in

terms of . . . projects which have been foregone and in terms of a rerouting of its trade'. 26

The cost to the economy is also significant if the sanctions force a shift from a

(sanctioned) lower-cost supplier to higher-cost suppliers. The Rhodesian sanctions compelled

Britain (and the US) to switch to more expensive sources of chrome.27

Third, sanctions may diminish future trade, as countries deem the initiator an unreliable

supplier. Although it is impossible to measure this loss, the diversification strategies that

targets pursue and the growth of alternative sources of production suggest that it exists.28 The

US probably has felt this cost more than any other initiator because of its frequent resort to

sanctions.

23
Renwick, 1981: 95
24
Paarlberg, 1980: 146
25
Von Amerongen, 1980: 163
26
Losman, 1972: 666-667
27
Strack, 1978: 158-159
28
Moyer and Mabry, 1983: 152-155; Neal, 1983: 147; Saunders, 1983: 120-122

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Fourth, sanctions may generate a political backlash against the initiator's leadership when

they fail to modify the target's behavior. This happened in both cases of US sanctions

against the Soviet Union. The American Farm Bureau withdrew its support for t he

grain embargo in April 1980, citing the failure to protect farmers from the

embargo's adverse effects. This appears to have been a factor in Carter's re -election

defeat. Similarly, the pipeline sanctions irritated the American business community,

which faced a $2.2 billion loss in trade with the Soviet Union. As a result, Republicans in

Congress pressured the Reagan administration to lift the sanctions.29

CONCLUSION

Trade sanctions generally fail when aimed at the goals of compliance and subversion though

the record improves somewhat if they are required only to enhance companion policies.

Sanctions certainly have not proven to be substitutes for the use of force. Too often they fail

to inflict economic pain on the target. Even when they do, these costs usually do not exceed

the benefits the target leadership derives from the disputed policy. This problem is at its worst

in attempts at subversiongovernments will bear extremely high costs to stay in power.

Nor do trade sanctions have a substantial value as deterrents. The threat of sanctions may

deter the faint-hearted by raising anticipated costs, but it is doubtful that these costs are

high enough to forestall leaders dedicated to the disputed behavior. Moreover, unlike military

force, sanctions usually are not reusable policy instruments. A sanction substantial enough to

inflict substantial costs on the target may exhaust future threats against the target.

What remains is that there are, and probably will continue to be, situations where

governments believe that domestic or international audiences expect them to react strongly

to the target's behavior. Trade sanctions provide the means of making this demonstration

29
Gwertzman, 1982

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without incurring the dangers that attend the use of force. Critics may deride the symbolic

uses of trade sanctions as empty gestures, but symbols are important in politics. This is

especially so when inaction can signal weakness and silence can mark complicity.

14