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Using "Sanctions" as foreign policy tools
Read more on - Polity | Economy | Schemes | S&T | Environment
- Sanctions as policy: American policy experts often contemplate how their country had, over decades, “refined our capacity to apply sanctions effectively”. But there is a warning too: overuse can undermine US leadership position within the global economy, and the effectiveness of sanctions themselves.
- What Trump did: If the learning was “proceed with caution”, it was lost on Donald Trump, who became president in 2017. The screw was turned against China, Iran, Russia, Venezuela and others. The steady increase in sanctions “proved to be a rare constant” on Mr Trump’s watch. During Mr Trump’s four-year term, the Office of Foreign Assets Control (OFAC), which oversees American sanctions programmes, targeted roughly twice as many entities and individuals a year as it had during the two-term presidencies of George W. Bush and Barack Obama.
- What about Biden: Those who thought Joe Biden would sound a retreat were quickly set straight. True, his administration, hoping to revive a nuclear deal with Iran struck by Mr Obama but abandoned by Mr Trump, is talking to the Islamic Republic about easing his predecessor’s “maximum pressure” sanctions. However, his first few months in office have also seen a host of new sanctions.
- On April 15th 2021, America announced sweeping measures against Russia for election-meddling, cyber-attacks and more.
- In March, America and Western allies had imposed asset freezes and travel bans on several Chinese officials for their role in human-rights abuses in Xinjiang. Since Mr Biden took office America has also sanctioned officials deemed to have undermined Hong Kong’s autonomy; announced curbs on China’s access to American technology for supercomputers; and targeted companies linked to the junta behind Myanmar’s coup.
- Such measures show how sanctions have become a central tool of foreign policy. Governments increasingly see them as a way to try to change other states’ behaviour in situations where diplomacy alone is insufficient, but military intervention is seen as too risky or heavy-handed.
- Variety of sanctions: As the use of sanctions has grown, so has their variety. What was once a smattering of trade embargoes has become a global mesh of coercive tools, some covering countries or whole economic sectors, others single firms or individuals. Mr Trump’s targets included Huawei, a Chinese 5G-network provider, and TikTok, a video app; Mr Biden’s sanctions cover a Russian troll farm and a Pakistan-based firm that allegedly creates fake IDs used by trolls.
- Legal angle: Mr Biden is likely to make use of America’s Magnitsky Act (named after a lawyer who died in a Russian prison) to move against foreign officials accused of corruption or serious human-rights abuses. Western countries—including Britain as it looks to forge a post-EU sanctions policy—are increasingly adopting “thematic, values-based policies” that target such miscreants. This sophistication is partly a matter of necessity. Targets were once mostly economic small fry, such as Cuba and North Korea; now they include much bigger fish, such as China and Russia. As targets have grown, so has the potential for collateral damage. A blanket embargo on China for locking up Uyghurs, say, could produce intolerable economic blowback.
- Size of targets: Large targets, however, also feel more emboldened to hit back. China responded to the Xinjiang sanctions with counter-measures against European politicians, diplomats and a think-tank. Its growing economic clout means it can wound when it retaliates. It may also, over the longer term, have a corrosive effect on sanctions: the more the large targets respond by seeking to reduce their reliance on American finance and technology, the weaker America’s global economic leverage becomes—and the less potent sanctions’ impact.
- History: The first recorded use of sanctions was in 432BC, when the Athenian Empire banned traders from Megara from its marketplaces, thereby strangling the rival city-state’s economy. However, not until the 20th century did modern concepts of international sanctions—a collective denial of economic access designed to enforce global order—become prominent. The League of Nations led in forging multilateral sanctions in the early 20th century. The UN later did the same against obnoxious regimes from white-supremacist Rhodesia to Saddam Hussein’s Iraq. America, for its part, stepped up its unilateral sanctions after the second world war. OFAC was created in 1950, a decade after a forerunner had been set up to freeze the US assets of the Danish and Norwegian governments, in order to stop the Nazis seizing them. During the cold war, Congress gave the president new powers to impose sanctions. Cuba was a favourite target. Use intensified in the 1990s, with America targeting Iran as it flirted with nuclear-bomb-making. But the most dramatic shift in America’s approach followed the 9/11 terror attacks in 2001. The Patriot Act, passed soon after, targeted terrorist coffers. Thus began an era of more carefully tailored, or “smart”, sanctions that sought to hamstring terrorists, dictators and others by restricting their access to American-owned or influenced financial plumbing (an example of the latter being the SWIFT interbank network). This change of tack “made sanctions so much more powerful than they were before”.
- Secondary sanctions: Another inflection point came around 2010, as America upped its use of “secondary sanctions”, which target not only the perceived bad guys but also threaten anyone doing business with them with financial excommunication. Their power was most apparent in Iran: European firms saw golden opportunities there after the 2015 nuclear deal but backed away in droves after Mr Trump reimposed sanctions, and added secondary ones, in 2018.
- Latest: American policy has undergone two further shifts over the past decade. The first, sparked by Russia’s annexation of Crimea in 2014, was to go after bigger fish. America and other Western powers unveiled sanctions against dozens of Russian agencies, companies and members of Mr Putin’s circle. In doing so they were taking on an economy more than twice the size of any other previously targeted with such comprehensive sanctions. The second shift was Mr Trump’s splattergun approach. So varied were his targets and so devoid of diplomacy his manner (he once threatened to “obliterate” the economy of Turkey, a NATO ally, during a spat over Syria) that sanctions wonks were left wondering if there was any method in the madness.
- Countering sanctions: Sanctions provoke counter-measures. The most direct way is for the target country to issue counter-sanctions. An alternative is to use legal mechanisms to negate sanctions. “Blocking statutes” aim to shield domestic companies by prohibiting them from complying with another country’s sanctions. The EU’s statute dates back to the 1990s, and was strengthened after Mr Trump pulled out of the Iran accord. It has sparked litigation in Britain, Germany and the Netherlands, and several cases are before the European Court of Justice (ECJ). In Britain, Metro Bank is being sued by a group of Iranian clients who argue that the bank’s closure of their accounts without warning—after Metro found it had breached American sanctions—violated the blocking statute. The outcomes will have big implications for European firms operating in Iran, or wishing to, but caught between competing sanctions regimes. The biggest long-term threat to sanctions’ effectiveness involves efforts by targets to circumvent them. A time-honoured way to do this is to trade through sanctions-busters: black-marketeers using shell companies, fake trade paperwork and other dark arts. Turkey and Dubai—particularly the latter’s trading houses and free-trade zones—have been weak links in enforcing Western sanctions on Iran.
- Digital escape: Digitisation might help it do so. China’s central bank is a world leader in developing a digital currency, which is being tested in several cities. It could fundamentally change how Chinese companies do business by 2022 or 2023. China would also like to loosen America’s grip on the cross-border payments infrastructure. It has its own version of SWIFT, called CIPS, which simplifies cross-border payments in yuan. Europe, too, is seeking to strengthen its single currency’s role in global commerce. The euro is now used to settle some international oil shipments, for instance by commodities firms buying from Russia. (The oil trade has traditionally been denominated in dollars.)
- Summary: China will also continue to try to turn Western sanctions to its advantage. They have helped it advance its interests abroad, for instance by filling the economic void left by American sanctions on Iran and Venezuela. In March China reportedly signed a $400bn, 25-year deal to invest in Iran’s energy sector and upgrade its transport and manufacturing infrastructure. The world of sanctions surely is becoming less unipolar.
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