ECON3315 – International ECON3315 – International Economic IssuesEconomic Issues

Instructor: Patrick M. CrowleyInstructor: Patrick M. Crowley

Issue 3: Trade sanctions and human rights

OverviewOverview

Sanctions - backgroundSanctions - background US sanctionsUS sanctions Success of sanctionsSuccess of sanctions Sanctions as a counter to terrorismSanctions as a counter to terrorism Trade and human rightsTrade and human rights China and the WTO: a case studyChina and the WTO: a case study

Sanctions - backgroundSanctions - background

Trade sanctions on countries have a long history…Trade sanctions on countries have a long history… First trade sanctions imposed in 432BC by Athens against First trade sanctions imposed in 432BC by Athens against

MegaraMegara US first imposed trade sanctions against Europe in 1807US first imposed trade sanctions against Europe in 1807 Japan in 1938 (led to attack on Pearl Harbor)Japan in 1938 (led to attack on Pearl Harbor) South Africa: during the apartheid era, many developed South Africa: during the apartheid era, many developed

countries imposed trade sanctions (UK, US, Europe)countries imposed trade sanctions (UK, US, Europe) Soviet Union (US, Europe) during cold warSoviet Union (US, Europe) during cold war Nicaragua (US) during sandinasta ruleNicaragua (US) during sandinasta rule Uganda during Idi Amin’s rule (UK)Uganda during Idi Amin’s rule (UK) Libya under Colonel Gaddafi (UK/US)Libya under Colonel Gaddafi (UK/US) Cuba under Fidel Castro (US)Cuba under Fidel Castro (US) Rhodesia under Ian Smith (UK)Rhodesia under Ian Smith (UK) Zimbabwe under Robert Mugabe (UK)Zimbabwe under Robert Mugabe (UK) Afghanistan under Taliban (US, UK)Afghanistan under Taliban (US, UK) Post-9/11 US sanctions against “axis of evil” statesPost-9/11 US sanctions against “axis of evil” states Most recently against Syrian regimeMost recently against Syrian regime

US sanctionsUS sanctions

US sanctions can comprise the following:US sanctions can comprise the following: Ban on sensitive technology exportsBan on sensitive technology exports Ban on export of weaponsBan on export of weapons Ban on foreign assistance (granting credit, loans, aid)Ban on foreign assistance (granting credit, loans, aid) Ban on financial transactions with sanctioned governmentsBan on financial transactions with sanctioned governments Ban on firms doing any business with countryBan on firms doing any business with country

Since 9/11 add to this:Since 9/11 add to this: Freezing of assets held in the US and abroadFreezing of assets held in the US and abroad 33rdrd party measures – if assets not frozen then sanctions on party measures – if assets not frozen then sanctions on

these countries toothese countries too Foreign Terrorist Asset Tracking Center in US TreasuryForeign Terrorist Asset Tracking Center in US Treasury

Under Bush administration “axis of evil” = Cuba, Iran, Libya, Under Bush administration “axis of evil” = Cuba, Iran, Libya, North Korea, Sudan, Syria. What changes have taken place?North Korea, Sudan, Syria. What changes have taken place?

Current US sanctions: Belarus, Burma, CAR, Cote D’Ivoire, Cuba, Current US sanctions: Belarus, Burma, CAR, Cote D’Ivoire, Cuba, DRC, Iran, Iraq, Lebanon, Libya, N Korea, Somalia, Sudan, DRC, Iran, Iraq, Lebanon, Libya, N Korea, Somalia, Sudan, Syria, Russia, Venezuela, Yemen, Zimbabwe.Syria, Russia, Venezuela, Yemen, Zimbabwe.

Success of sanctionsSuccess of sanctions

Pre-1973Pre-1973 1973-841973-84

Policy goalPolicy goal SuccessesSuccesses FailuresFailures SuccessesSuccesses FailuresFailures

Modest policy changes Modest policy changes 99 33 99 2323

Destabilization Destabilization 99 66 11 33

Disruption of military Disruption of military adventures adventures

55 88 11 44

Military impairment Military impairment 22 66 00 22

Other policy changesOther policy changes 22 1111 11 33

TOTALTOTAL 2727 3434 1212 3535

Record shows that even under fairly modest goals, more failures than successes

Also record shows that the failure rate of trade sanctions has been increasing

Source: Bruce Bartlett, Cato Institute, 1985

Success of sanctionsSuccess of sanctions

Source: Hufbauer and Oegg, 2003: International Economics Policy Brief, IIE.

What is the effect of sanctions on trade?What is the effect of sanctions on trade?

Scope of Scope of sanctions sanctions imposed imposed

All All countries, countries, exports plus exports plus importsimports

OECD OECD countries, countries, exports onlyexports only

United United States, States, exports onlyexports only

LimitedLimited -15-20-15-20 -21.5-21.5 -15-20-15-20

ModerateModerate -31.2-31.2 -31.1-31.1 -68.0-68.0

ExtensiveExtensive -91.9-91.9 -78.0-78.0 -96.8-96.8

Source: Kimberly Elliott, evidence given to House Subcommittee on Trade, 1997.

From previous slide, total US trade lost is estimated in 1999 to have been $11.5bn

Evidence is that trade sanctions are effective in reducing trade to sanctioned countries.

But often effect is to make country more “self-sufficient”, with negative impacts on sanctioned country citizens and on US firms

What is the effect of sanctions on trade?What is the effect of sanctions on trade?

Hufbauer and Oegg (2003) find that: Hufbauer and Oegg (2003) find that: Limited or moderate sanctions increase tradeLimited or moderate sanctions increase trade Effectiveness of sanctions has decreased slightly Effectiveness of sanctions has decreased slightly

from 1995-1999from 1995-1999 No “after-effect” once sanctions have been liftedNo “after-effect” once sanctions have been lifted They account for problems with gravity model They account for problems with gravity model

and estimate $25bn reduction in tradeand estimate $25bn reduction in trade Note that this does not include services…Note that this does not include services…

International agreements on trade sanctionsInternational agreements on trade sanctions

Export controls have been put in place by 40 countries for Export controls have been put in place by 40 countries for conventional arms and “dual use” goods and technologiesconventional arms and “dual use” goods and technologies

Called the Wassenaar Arrangement and signed in 1995 in the Called the Wassenaar Arrangement and signed in 1995 in the NetherlandsNetherlands

Missile Systems Control Regime – established 1985Missile Systems Control Regime – established 1985Also Australia group – limits exports of goods that could be used to Also Australia group – limits exports of goods that could be used to

make chemical and biological weaponsmake chemical and biological weaponsApart from this, little coordination of trade sanctions except Apart from this, little coordination of trade sanctions except

through the UN Security Councilthrough the UN Security CouncilUN sanctions are currently in place against (Sept 2013):UN sanctions are currently in place against (Sept 2013):

Belarus, Burma, Cuba, Iran, Libya, North Korea, Somalia, Sudan, Belarus, Burma, Cuba, Iran, Libya, North Korea, Somalia, Sudan, Syria, Zimbabwe.Syria, Zimbabwe.

For example, Canada currently has trade sanctions against:For example, Canada currently has trade sanctions against:Burma, Belarus, Cote d’Ivoire, DR of the Congo, Eritrea, Guinea-Burma, Belarus, Cote d’Ivoire, DR of the Congo, Eritrea, Guinea-Bissau, Iran, Iraq, Lebanon, Libya, Liberia, North Korea, Sierra Bissau, Iran, Iraq, Lebanon, Libya, Liberia, North Korea, Sierra Leone, Somalia, Sudan, Syria, Tunisia and Egypt, ZimbabweLeone, Somalia, Sudan, Syria, Tunisia and Egypt, Zimbabwe

Sanctions as a counter to terrorismSanctions as a counter to terrorism

Post 9-11 measures are appropriate in broad US Post 9-11 measures are appropriate in broad US policy context, but some skepticism of success is in policy context, but some skepticism of success is in order as:order as:

History of sanctions against state sponsors of History of sanctions against state sponsors of terrorism shows little successterrorism shows little success

Pre-existing sanctions were not successful against Pre-existing sanctions were not successful against terrorist-supporting states (e.g. Afghanistan)terrorist-supporting states (e.g. Afghanistan)

War against South American drug lords in 80s not a War against South American drug lords in 80s not a success either (<1% of total assets estimated as success either (<1% of total assets estimated as captured)captured)

Many of the terrorist assets are not in conventional Many of the terrorist assets are not in conventional assetsassets

Trade and human rightsTrade and human rights

Multilateral agreement on investment was Multilateral agreement on investment was negotiated by OECD countries in 1995 – this negotiated by OECD countries in 1995 – this made many activists scared about reach of made many activists scared about reach of multinational enterprises (MNEs)multinational enterprises (MNEs)

View was that by protecting MNE investments, View was that by protecting MNE investments, this could harm government’s right to act to this could harm government’s right to act to protect laborprotect labor

Large anti-free trade lobby against the WTO at its Large anti-free trade lobby against the WTO at its meetings ( - with riots in Seattle)meetings ( - with riots in Seattle)

WTO Human Rights Caucus established in 2003 to WTO Human Rights Caucus established in 2003 to monitor human rights in WTO members (Canada monitor human rights in WTO members (Canada heavily involved)heavily involved)

Q: If membership of WTO granted, will greater Q: If membership of WTO granted, will greater human rights follow? Or should HR be a condition human rights follow? Or should HR be a condition of membership?of membership?

Recent researchRecent research

China and the WTO: a case studyChina and the WTO: a case study

Particular concern over Russia and China’s entrance into the Particular concern over Russia and China’s entrance into the WTOWTO

China first applied to join GATT in 1986 – eventually joined WTO China first applied to join GATT in 1986 – eventually joined WTO in 2001in 2001

WTO agreement specifies respect for property rights, legal rights WTO agreement specifies respect for property rights, legal rights and patent protection and also specifies that legal systems must and patent protection and also specifies that legal systems must be in placebe in place

But barely any mention of human rights in any WTO agreementsBut barely any mention of human rights in any WTO agreements Result: general disagreement between US and China over state Result: general disagreement between US and China over state

of human rights.of human rights. Continuing problems which have now spilled over to the private Continuing problems which have now spilled over to the private

sector with (for example) Google….sector with (for example) Google….