Economic Sanctions As A Mechanism For Foreign Policy


Economic sanctions are greatly preferred over military intervention or silent diplomacy from Iran and Venezuela to Russia and Syria. In this context, as a foreign policy tool, we examine economic sanctions and delve deeper into how various countries have been affected by them.
 
BACKGROUND:
  • Latest US economic sanctions: as of February 2020, the Balkans, Belarus, Burundi, Cuba, the Democratic Republic of the Congo, Iran, Iraq, Libya, North Korea, Somalia, Sudan, Syria and Zimbabwe are countries sanctioned by the United States (either unilaterally or in part).UPSC Prelims 2024 dynamic test series
o As the world's wealthiest nation, US economic sanctions have far-reaching effects and global consequences.
o As of August 2019, the Foreign Assets Management Office of the US Treasury Department had fined 16 firms almost $1.3 billion for sanction breaches in 2019 alone.
-Venezuela, Russia and Turkey are other countries sanctioned by the US.
  • Economic sanctions-Definition: Economic sanctions are defined as the removal, for the sake of foreign and security purposes, of customary trade and financial ties with the receiving country.
o Sanctions may be systemic, banning economic activity in relation to an entire country, such as Cuba's long-standing U.S. embargo, or they may be selective, blocking transactions with and by specific firms, organizations, or individuals.
  • Increase of secondary sanctions: secondary sanctions are intended to prohibit third parties from communicating with sanctioned countries on the ground that they lose access to the sanctioning country.
o A vast number of new enforcement and risk issues have emerged with the rise of secondary sanctions, especially for those considered to be non-US actors.
 
ANALYSIS:
As a foreign-policy instrument- 'Economic Sanctions':
  • In today 's foreign policy, trade sanctions are used prominently. In terms of size, depth and sophistication, their expansion as an instrument of foreign policy appears to be increasing at a constant rate.
  • For countries that are in the middle of a diplomatic conflict, military intervention is not the only option. Economic sanctions, instead, provide the U.S. with an instant way to clamp down on corrupt countries without putting lives on the line.
  • They are greatly favour as an instrument of foreign policy over military intervention or quiet diplomacy.
 
PENALTY-FACING COUNTRIES AND REASONS:

Iran
  • Trade embargo: The Western-friendly Shah of Iran was deposed in favour of a theocratic government following the Iranian Revolution of 1979. The Iranian hostage crisis and other incidents that followed forced the U.S. to place a trade embargo on Iran.
  • Reason: Sanctions on Iran continue as political relations with the US get more strenuous, the sponsoring of terrorism, and debates overenrichment of uranium.
  • Industries affected: the US targets the revenue sources used by the regime in Iran. Among others, they threaten the metals sector, including Iran's largest producers of steel, aluminium and iron.
 

Cuba

> Longest-standing: One of the U.S.’s longeststanding and most well-known sanctions is against Cuba. In February 1959, Fidel Castro became Prime Minister of Cuba, unseating a post-revolution Cuban government that was favoured by the US.

- Ironically, the previous Batista regime was defeated in part because of a U.S. imposed an arms embargo.

> Reason: Since Castro took power, the U.S. has had trade embargoes in place as a punishment for impediments to democratic rule.

- While Americans aren’t generally allowed to trade or travel with Cuban interests, the close geographic proximity—and large Cuban- American population—have ensured that a number of exemptions exist for humanitarian work and visiting relatives.

Syria

> Most comprehensive sanctions: The sanctions campaign applied to Syria by OFAC, HM Treasury, EU, UN, and several other regulatory entities is one of the most comprehensive ever implemented.

> Reason: Sanctions were imposed in response to the Syrian government’s support of international terrorism and violations against democratic and human rights in the country.

> Affected areas: Since first being implemented, the sanctions have been strengthened several times due to escalating violence in the region.

- Currently imposed sanctions include trade restrictions, travel bans and asset freezes on certain Syrian officials, as well as a ban on Syrian investment by US persons.

North Korea

> Most affected country: North Korea is arguably the country most brutally affected by U.S. economic sanctions. The U.S. imposed sanctions on North Korea began under President George W. Bush to impose trade and financial embargos. The UN also sanctioned the nation.

> Reason: North Korea’s battles with the U.S. started in the 1950s with the US’s entry into the Korean War—a move designed to counter the USSR’s support for a unified, communist Korea.

- North and South Korea continue to technically be at war—albeit under a ceasefire since 1953—and the U.S. maintains stringent trade restrictions on the country.

  • Panmunjom Declaration: In 2018, tensions eased between the two Korean nations, and the respective leaders signed the Panmunjom Declaration agreeing to greater cooperation between the two nations.

Venezuela

> Sanctions: For more than a decade, the US have imposed sanctions in response to activities of the Venezuelan government and Venezuelan individuals. Recently, the US State Department revoked visas of hundreds of Venezuelan individuals and their families.

- Sanctions were also imposed on Venezuela’s state oil company, government, and central bank.

> Reasons: Since 2006, the US Secretary of State has made an annual determination that Venezuela is not “cooperating fully with US anti-terrorism efforts.” It has imposed varied sanctions related to drug trafficking, financial sector, antidemocratic actions, human rights violations, and corruption.

- Sanctions have increased economic pressure on the Venezuelan government, accelerating a decline in oil production.

Russia

> Sanctions: Recently, sanctions were imposed in 2014 by the US, EU and other countries and international organisations against individuals, businesses and officials from Russia and Ukraine

> Reason: International sanctions were imposed on Russia during the Ukrainian crisis by a large number of countries following the Russian military intervention in Ukraine.

> Russia’s response: Russia responded with sanctions against a number of countries, including a total ban on food imports from the EU, United States, Norway, Canada and Australia.

Turkey

> Threat to impose sanctions: Recently, US Congress threatened to impose sanctions on Turkey, a NATO ally, in order to punish the government for a military assault on Kurdish regions in northern Syria. Delivery of state-of-art F-35 stealth fighter jet has been stopped because Turkey acquired S-400 missile defence system from NATO adversary Russia.

- In addition, US arms embargo on the Republic of Cyprus, which has been in conflict with Turkey since 1974, would be lifted.

- Companies involved in the Turkish Stream pipeline project are to be sanctioned.

- US House of Representatives passed a resolution to recognize the mass murder and displacement of Armenians at the end of the Ottoman Empire as genocide.

> Turkey’s response: Turkish President threatened to close down the Incirlik Air Base, where US troops are deployed, and Kurecik Radar Station, which is used by NATO, should the United States impose sanctions.

 
Why do we place economic sanctions on countries?
  • Way of voicing disapproval: Economic sanctions are a common way for large governments to disapprove of each other.
o The United States sanctions countries that support terrorism or commit abuses of human rights against their citizens.
  • For the nation enforcing it, less expensive and concrete: while wars are expensive, economic sanctions seem to be much less concrete, both economically and politically, at least for the country doing the sanctions.
  • Intensive effects on the recipient country: Outcomes can be immense and long-lasting for the country being prohibited. This foreign policy and economic pressure tool is favour over military intervention and is likely to hit worse.
 
Implications for sanctioned nations:
  • Economic costs for companies: Under the sanction regime, doing business is not easy. There are several cases of businesses being heavily punished for participating in business with countries that have been economically restricted.
o A company has recently been fined nearly $ 1 million for infringement by third-party vendors who imported some North Korean products.
 
o Sanctions may also have detrimental economic effects on firms.
 
o A company's penalty breach will cause public humiliation, reputational harm and the loss of its loyal customer base.
 
As the richest nation in the world, economic and trade sanctions levied by the US can have far-reaching effects on the recipient country. A number of them are below:
 
o Negative effect on the economy's growth.
 
o Reduce the flow of foreign investment into the country.
 
o Minimize the availability of goods and services that are required.
 
o The business process has an adverse effect.
 
o The product of labour and capital outflows.
 
o At a global level, reputational harm.
 
o International exchange and sales losses etc.
 
Issues relating to enforcing economic sanctions:
  • Lack of clarification: The efficacy of unilateral sanctions is challenged by ambiguity, lack of detail, and conflicting laws involving sanctions.
  • Effects on global markets: Foreign trade plays an important role for every country in today's globalized world. Global supply chains may be cut by the imposition of sanctions. The implementation of sanctions on oil-producing nations has more severe implications as it creates shortages in the entire energy market.
  • Overuse of sanctions: If a country is irritated by the actions of another country, there is a potential danger of overuse of sanctions.
  • Questions of legal sovereignty: It can be seen as a tyrant to resort to sanctions by a wealthier and larger country, and raises the issue of the legal sovereignty of the nations to which sanctions are applied.
  • Secondary sanctions: new secondary sanctions applied to North Korea as part of the 2020 National Defense Authorization Act may have an impact without a US footprint on Asian businesses.
  • Reactionary threat: Recent US sanctions, on the one hand, are designed to increase pressure on Iran. On the other hand, it is becoming increasingly difficult for the so-called E3 (the United Kingdom, Germany and France) to retain Iran's nuclear agreement in its current form.
o In reaction to the US back-out, Iran announced that it would no longer comply with those obligations under the 2015 agreement under which it agreed to restrict its nuclear-sensitive activities.
 
o Such reactionary threats may have serious implications and trigger a never-ending war of sanctions.
  • Unintended consequences: sanctions, even if targeted at governments or particular groups, end up impacting the general population of the world, which must bear the overall cost of enforcing sanctions.
Way ahead
  • Enforcement: In order to be competitive in today's economic climate, all industries must follow robust programmes to comply with sanctions and invest in the creation of compliance officers.
  • Following with rigour: If companies avoid loopholes and follow the sanctions with rigour, they can help deprive those who are subject to sanctions—in some cases, terrorists, organized crime groups, and those carrying out human rights abuses—of the resources that keep them in business.

  • Clarity: Countries must devise sanctions with clarity, and not make them complex. Complexity can lead to loopholes. The clarity in sanctions will hit those for whom the sanctions are intended without having unintended consequences.

  • Justified exemptions: Sanction protocols must have justified exemptions so that the wider population is not denied the supply of essential goods and services, such as foodstuffs, medical supplies, etc.
 

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