Powerful countries like the United States regularly employ economic sanctions as a tool for promoting their foreign policy interests. Yet this foreign policy tool has an uninspiring track record of success, with economic sanctions achieving their goals less than a third of the time they are imposed. The costs of these failed sanctions policies can be significant for the states that impose them, their targets, and the other countries they affect. Explaining economic sanctions' high failure rate therefore constitutes a vital endeavor for academics and policy-makers alike.
Busted Sanctions seeks to provide this explanation, and reveals that the primary cause of this failure is third-party spoilers, or sanctions busters, who undercut sanctioning efforts by providing their targets with extensive foreign aid or sanctions-busting trade. In quantitatively and qualitatively analyzing over 60 years of U.S. economic sanctions, Bryan Early reveals that both types of third-party sanctions busters have played a major role in undermining U.S. economic sanctions. Surprisingly, his analysis also reveals that the United States' closest allies are often its sanctions' worst enemies. The book offers the first comprehensive explanation for why different types of sanctions busting occur and reveals the devastating effects it has on economic sanctions' chances of success.
Powerful countries like the United States regularly employ economic sanctions as a tool for promoting their foreign policy interests. Yet this foreign policy tool has an uninspiring track record of success, with economic sanctions achieving their goals less than a third of the time they are imposed. The costs of these failed sanctions policies can be significant for the states that impose them, their targets, and the other countries they affect. Explaining economic sanctions' high failure rate therefore constitutes a vital endeavor for academics and policy-makers alike.
Busted Sanctions seeks to provide this explanation, and reveals that the primary cause of this failure is third-party spoilers, or sanctions busters, who undercut sanctioning efforts by providing their targets with extensive foreign aid or sanctions-busting trade. In quantitatively and qualitatively analyzing over 60 years of U.S. economic sanctions, Bryan Early reveals that both types of third-party sanctions busters have played a major role in undermining U.S. economic sanctions. Surprisingly, his analysis also reveals that the United States' closest allies are often its sanctions' worst enemies. The book offers the first comprehensive explanation for why different types of sanctions busting occur and reveals the devastating effects it has on economic sanctions' chances of success.
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Overview
Powerful countries like the United States regularly employ economic sanctions as a tool for promoting their foreign policy interests. Yet this foreign policy tool has an uninspiring track record of success, with economic sanctions achieving their goals less than a third of the time they are imposed. The costs of these failed sanctions policies can be significant for the states that impose them, their targets, and the other countries they affect. Explaining economic sanctions' high failure rate therefore constitutes a vital endeavor for academics and policy-makers alike.
Busted Sanctions seeks to provide this explanation, and reveals that the primary cause of this failure is third-party spoilers, or sanctions busters, who undercut sanctioning efforts by providing their targets with extensive foreign aid or sanctions-busting trade. In quantitatively and qualitatively analyzing over 60 years of U.S. economic sanctions, Bryan Early reveals that both types of third-party sanctions busters have played a major role in undermining U.S. economic sanctions. Surprisingly, his analysis also reveals that the United States' closest allies are often its sanctions' worst enemies. The book offers the first comprehensive explanation for why different types of sanctions busting occur and reveals the devastating effects it has on economic sanctions' chances of success.
Product Details
| ISBN-13: | 9780804794329 |
|---|---|
| Publisher: | Stanford University Press |
| Publication date: | 02/11/2015 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 288 |
| File size: | 3 MB |
About the Author
Read an Excerpt
Busted Sanctions
Explaining Why Economic Sanctions Fail
By Bryan R. Early
STANFORD UNIVERSITY PRESS
Copyright © 2015 Board of Trustees of the Leland Stanford Junior UniversityAll rights reserved.
ISBN: 978-0-8047-9432-9
CHAPTER 1
Introduction
Why Busted Sanctions Lead to Broken Sanctions Policies
THE ISLAMIC REPUBLIC OF IRAN HAS BEEN SUBJECT TO U.S. economic sanctions since 1979, but only in recent years has the U.S. government been really successful in obtaining multilateral support for its efforts to economically isolate Iran. Most notably, in the spring of 2012, the European Union (EU) blocked Iran from employing the Belgium-based SWIFT (Society for Worldwide Interbank Financial Telecommunication) network used by most financial institutions for their international financial transactions. This move, made in concert with aggressive U.S. efforts to isolate Iran's financial system, was designed to make it more difficult for Iran to repatriate the payments for its fossil fuel exports. Denied access to the international financial system, Iran turned to using a commodity that had universal value and did not require accessing the international financial system to convert: gold. In the case of Turkey, Iran began selling its natural gas to the country in return for Turkish lira that it kept in local bank accounts. Iranians then used these funds to buy gold bullion, the trade of which was not subject to international sanctions. Turkish gold exports to Iran subsequently ballooned in the summer of 2012 and reached $1.8 billion in July. In response to the negative publicity these overt transactions garnered, a less obvious method for delivering the gold to Iran was sought. Dubai, in the United Arab Emirates (UAE), was the perfect middleman through which to launder such transactions. Dubai had already served as the locus for sanctions-busting activities on Iran's behalf for the better part of thirty years and had the connections in place to immediately start facilitating the transactions. There was no better venue in the world to carry out such a scheme.
From July to August, Turkish gold exports to the UAE exploded from $7 million to $1.9 billion. The thirty-six tons of gold that Turkey shipped to the UAE in August comprised over 82 percent of Turkish total gold exports that month. Yet how that gold was shipped to the UAE is even more remarkable. Under UAE customs rules, individuals can legally import up to fifty kilograms of gold into the country in a single visit. And so a plan was hatched in which individual couriers—acting on behalf of firms registered in Turkey—would transport small shipments of Turkish gold to the UAE in perfect accordance with the country's laws. Transporting that amount of gold and in shipments that small required couriers to take hundreds of individual trips to Dubai. According to Reuters, most couriers traveled with their gold simply stowed away in their carry-on luggage. As further proof, the story cites the fact that $1.45 billion of Turkey's August gold exports "were shipped through the customs office at Ataturk airport's passenger lounge." Once in the UAE, the gold effectively vanished. With over 8,000 Iranian-owned businesses operating out of Dubai and over 200 ships leaving daily for Iran, almost anything that can be brought into Dubai can be clandestinely shipped out again to Iran. These transactions continued throughout the fall of 2012 and the beginning of 2013—motivating the U.S. government to adopt new sanctions policies targeting entities that trade in precious metals with Iran. Although this legislation curbed Turkey's participation in this "gas for gold" scheme, it certainly won't stop Iran from finding new ways to circumvent the sanctions imposed against it.
This case is fascinating for a number of reasons. First, it is illustrative of the cat-and-mouse game that has evolved between the United States and Iran with respect to the former's sanctions. Iranians have become world-class experts at devising ways of circumventing or undercutting the U.S. and international economic sanctions imposed against it. These skills have significantly contributed to the country's ability to survive U.S. sanctions for the past thirty-plus years. Second, the transactions highlight the critical role that third parties to sanctions disputes can play in undercutting sanctioning efforts. Via their policies, both Turkey and the UAE undercut the effectiveness of the U.S. and EU financial sanctions against Iran. And, finally, the identities of the third parties involved in conducting the sanctions-busting transactions are also intriguing. The UAE has been a close military ally of the United States since 1994, and Turkey is a NATO ally of the United States and most of the EU's members. Their involvement in deliberately undermining their allies' sanctioning efforts against Iran represents an intriguing puzzle in need of an explanation.
The UAE gained international attention for its illicit trade relationship with Iran when it was revealed that the infamous A. Q. Khan proliferation network used Dubai as a central hub for proliferating sensitive nuclear technologies to Iran in the early 2000s. In delving more deeply into the UAE's commercial relationship with Iran, it is clear that the Khan network's activities were not an isolated exception. The UAE had been a leading venue for conducting sanctions-busting trade with Iran since the U.S. government had first sanctioned it. In many ways, Dubai's explosive growth as the Persian Gulf's leading trade hub was linked to its role as Iran's primary entrepôt for circumventing the sanctions imposed against it. When the UAE formally forged a military alliance with the United States in 1994, the UAE's sanctions-busting activities only accelerated further. All the U.S. efforts at making its sanctions against Iran more stringent during the 1990s appeared only to increase the profits reaped by the Emiratis and added little to the pressure felt by the Iranian regime. During this period, American and Iranian firms flocked to Dubai to continue doing business with one another. All this background information became very real for me when I visited Dubai in 2005 and strolled by the scores of dhows docked alongside Dubai's Persian Sea inlet that were stacked high with American products destined for Iran.
There has been surprisingly little research focusing on the causes and consequences of sanctions- busting behavior, especially given its intuitive links to the failure of sanctioning efforts. In observing the states involved in various sanctions-busting cases, there appear to be two distinct profiles for the types of sanctions-busting activities taking place. The first type, as in the UAE–Iran case, appears driven by profit-seeking behavior and relies primarily on the use of international trade. In contrast, the second type of sanctions-busting relationship appears motivated mainly by politics and employs foreign aid. The massive aid packages that the Soviet Union provided to Cuba to undercut the U.S. sanctioning effort against the country during the Cold War exemplify this type of sanctions busting. Although the motives and methods associated with the two types of sanctions busting are different, both appear capable of undercutting the effectiveness of U.S. sanctioning efforts. This book offers the first comprehensive explanation of why both types of sanctions busters emerge and demonstrates the corrosive consequences each one has on the effectiveness of sanctioning efforts.
A clear need exists for a better understanding of how third-party states contribute to the failure of U.S. sanctions policies. The findings of this book should be of interest to students of foreign policy and economic statecraft but also to policy makers charged with the responsibilities of overseeing U.S. economic sanctions policies. Unfortunately, there are no easy solutions to the challenges posed by sanctions busting. Yet the findings from this book and recent reforms in U.S. sanctions policies suggest that U.S. policy makers can become much more effective at addressing the challenges it poses.
U.S. Foreign Policy and Economic Sanctions: A Fatal Attraction?
Since World War II, the United States has played an active leading role in international politics. The United States' enduring foreign policy interests have been in enhancing the country's national security, while advancing U.S. interests abroad and promoting economic prosperity at home. The United States' leadership role in the West during the Cold War, its emergence as the lone superpower following the Cold War's conclusion, and its seat on the UN Security Council have meant that the United States has been politically engaged all over the world. Its foreign policy interests also extend across a range of policy areas, such as economic, environmental, human rights, and international security issues. In the post-WWII era, the United States has been one of only a handful of countries that has possessed both foreign policy interests that extend globally and the capacity to act on them.
With the United States' preponderance of military and economic power, its policy makers have a wide range of policy options available to them with which to pursue American foreign policy interests. U.S. policy makers can pursue policies within the diplomatic, military, or economic realms and employ coercive or incentives-based strategies. In the diplomatic realm, for example, U.S. policy makers can extend foreign governments praise and legitimacy, or, alternatively, they can use public admonishment to tarnish other governments' international reputations. Militarily, U.S. policy makers can offer security guarantees or sell weapons to foreign governments as part of incentives-based strategies, or they can leverage U.S. military power to compel countries into altering their behaviors as part of coercive ones. The final class of policies comprises what David Baldwin refers to as economic statecraft. Such policies seek to influence a target's economic well-being as a means of affecting its behavior. The provision of foreign aid constitutes an incentives-based approach toward using economic statecraft, whereas economic sanctions represent a coercive approach. Although a number of these policy options can often be employed in response to a given foreign policy dilemma, the attendant costs and benefits of each approach affect which option policy makers select.
More than in any other country in the world, economic sanctions have served as the policy instrument of choice for U.S. policy makers. Economic sanctions specifically refer to restrictions that policy makers place on their countries' commerce with foreign states, firms, or individuals to compel a change in their behavior. They tend to be used in response to objectionable foreign behaviors that require a more assertive response than diplomacy alone but in which the use of military force is undesirable. Both of the leading databases that track the global use of economic sanctions indicate that the United States has employed economic sanctions more than any other country in the world—and by a large margin.
A number of reasons exist for why the United States relies so heavily on economic sanctions despite their poor performance. It has long been known in academic and policy circles that economic sanctions have a relatively poor track record of success—achieving their goals only around 23 to 34 percent of the time. Given its preponderance of economic power, though, the United States can more easily afford to absorb the costs of imposing sanctions and can better leverage sanctions in exploiting other countries' dependence on U.S. markets, U.S. capital, and the U.S. financial system. The United States is thus advantaged in using sanctions over most other countries with smaller economies. The United States' active involvement in global politics and its preponderance of power also creates more opportunities for U.S. policy makers to employ the policy. Economic sanctions can serve as an alternative, antecedent, or auxiliary to the use of military force. The high costs associated with using military force abroad can cause sanctions to appear as a low-cost alternative, leading economic sanctions to be used as a frequent substitute for military force when coercive responses are deemed necessary. U.S. policy makers are also thought to rely on economic sanctions for symbolic purposes in response to domestic and international pressure to take action against objectionable behaviors by foreign actors. In such cases, policy makers may deem diplomatic approaches as insufficient, incentives-based approaches as inappropriate, and military approaches as too costly—leaving only sanctions on the table. It also helps that both the president and Congress can impose economic sanctions, and they can do so relatively quickly and with few upfront costs. Even with their poor overarching track record of success, U.S. policy makers thus often view economic sanctions as the most expedient, preferable policy option available to them in comparison to the range of alternative options they could employ. Yet, much as the vast bulk of an iceberg sits out of sight below the waterline, many of the costs associated with using economic sanctions are not immediately observable to U.S. policy makers when they decide to employ them. The real costs associated with the use of sanctions tend to be overlooked or ignored.
Not only does the U.S. government frequently employ economic sanctions when they have little chance of succeeding, but U.S. policy makers also remain committed to failed sanctioning efforts for far too long. When the United States has imposed economic sanctions to achieve a political objective, they have failed to achieve their objectives almost 66 percent of the time. On average, failed U.S. sanctioning efforts last almost nine years—with some lingering on for over fifty years. In the case of the U.S. sanctions against Cuba, U.S. policy makers have been trying to use sanctions to bring about the collapse of the Castro regime since 1960. Rather than abandoning their obviously failing strategy, U.S. policy makers have repeatedly doubled down on their sanctioning efforts over the years. Yet whereas the advocates of those policies have long since left office, the Castro regime still rules in Cuba. This is despite the claims by the Cuban government that the U.S. sanctions have cost it roughly $975 billion since they were imposed. Although experts argue that those estimates are inflated, the cost of the U.S. sanctions to its own economy is likely a nontrivial portion of that figure—and that's only with respect to one country.
Failed sanctions costs come at a high price for U.S. businesses and U.S. workers. It was estimated that during the 1990s the U.S. government's sanctions policies cost American businesses approximately $12 to $18 billion a year in lost exports. In one of the only studies of its type, Gary Hufbauer and his coauthors estimated that the U.S. government's sanctions cost the U.S. economy roughly 200,000 jobs in 1995 due to lost export opportunities. By denying American companies the ability to compete with foreign competitors in some markets, the U.S. government's sanctions can hurt their overall competitiveness. Restrictive export control policies on the export of U.S. satellite technology to countries like China, for example, have harmed the U.S. space industry. These policies also can encourage U.S. firms to relocate their business operations abroad to countries that impose far fewer sanctions. For example, Halliburton's decision to move its corporate headquarters to the United Arab Emirates after it endured congressional investigations into its subsidiary's business dealings with Iran appears consistent with these motives. U.S. sanctions can also encourage generally law-abiding companies to engage in smuggling, fraud, and/or money laundering in order to circumvent U.S. sanctions in pursuit of otherwise legitimate, profitable commerce. And whereas a lot of sanctions-busting trade does not technically break any laws, it often requires business enterprises to violate the spirit in which they were imposed. This forces various federal agencies, like the Department of Treasury and the U.S. Bureau of Industry and Security, to engage in costly cat-and-mouse games in enforcing U.S. sanctions policies against the firms whose businesses the sanctions are hurting. If the political objectives for which sanctions are imposed are valid and achievable, these costs may be justifiable; however, at least two-thirds of the time these costs are incurred for naught.
(Continues...)
Excerpted from Busted Sanctions by Bryan R. Early. Copyright © 2015 Board of Trustees of the Leland Stanford Junior University. Excerpted by permission of STANFORD UNIVERSITY PRESS.
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Table of Contents
Contents and Abstracts1Introduction: Why Busted Sanctions Lead to Broken Sanctions Policies chapter abstractThis chapter offers an overview of why U.S. policy makers employ economic sanctions, the wide range of adverse effects that sanctions have, and the poor track record of success that sanctions have had. It explains how economic sanctions affect their targets and incentivize different types of responses from third-party states that vary from cooperating with them to actively undermining them. The chapter then summarizes the theory of sanctions busting, explaining why extensive sanctions busters emerge and how their sanctions-busting aid and trade impact the effectiveness of sanctioning efforts. The chapter then discusses the mixed-method research design that will be used to evaluate the theory of sanctions busting and describes the book's findings in brief.
2What Are Sanctions Busters? chapter abstractThis chapter explains how economic sanctions incentivize their targets to try to forge extensive commercial ties with small numbers of third-party states and to seek out the patronage of benefactors willing to provide them with extensive aid packages. It describes the role that sanctions busters can play in undermining sanctioning efforts via their aid and trade and explains why past approaches have been unable to systematically account for these effects. The chapter draws on the South African and North Korean sanctions episodes to illustrate the motives that appear to drive aid-based versus traded-based sanctions busting and presents distinct profiles for the types of states most likely to become aid-based sanctions busters and trade-based sanctions busters.
3Assessing the Consequences of Sanctions Busting chapter abstractThis chapter develops the theory of sanctions busting's explanation of how trade-based sanctions busters and target states' foreign aid flows influence the outcomes of sanctions episodes. It is hypothesized that sanctions imposed against states that have the support of trade-based sanctions busters are less likely to be successful. It is also hypothesized that target states' sensitivity to changes in their foreign aid flows means that sanctions will be less successful against states experiencing gains in their foreign aid flows and more successful against states experiencing declines in their foreign aid flows. These hypotheses are evaluated via a statistical analysis of ninety-six episodes of U.S.-imposed economic sanctions from 1950 through 2002. The results offer strong support for the hypotheses, indicating that trade-based sanctions busters and foreign aid flows each exert separate, potent effects on sanctions outcomes.
4For Profits or Politics? Why Third Parties Sanctions-Bust via Trade and Aid chapter abstractThis chapter develops the theory of sanctions busting's explanation for why third-party states become aid-based sanctions busters or trade-based sanctions busters in a given sanctions episode. It explains that trade-based sanctions busting is driven primarily by the commercial interests of third-party states to exploit the lucrative trading opportunities created by sanctions, whereas aid-based sanctions-busting is primarily motivated by third-party governments' political interests in preventing the sanctions against a target from succeeding. It is argued that third-party governments will prefer to employ trade-based sanctions busting if that option is feasible because that approach is profitable instead of costly. The chapter poses a suite of hypotheses to test the theory's predictions concerning which states will engage in aid-based and trade-based sanctions busting.
5Sanctions Busting for Profits: How the United Arab Emirates Busted the U.S. Sanctions against Iran chapter abstractThis chapter examines how and why trade-based sanctions-busting relationships are fostered. It evaluates the trade-based sanctions-busting relationship that formed between the United Arab Emirates (UAE) and Iran after the United States sanctioned Iran in 1979. The chapter examines the formation and evolution of the sanctions-busting relationship during the period that preceded the military alliance the UAE formed with the United States (1979–1994) and period that followed the creation of their alliance (1995–2005). The analysis reveals insights into how the emirate of Dubai emerged as the leading venue for conducting sanctions-busting trade with Iran. The chapter also illustrates how even American firms used Dubai to circumvent the U.S. government's sanctions. Its postscript analyzes how recent changes in U.S. sanctions policies (2006–2013) have finally begun to succeed in curbing the sanctions busting taking place on Iran's behalf in the UAE and other countries.
6Assessing Which Third-Party States Become Trade-Based Sanctions Busters chapter abstractThis chapter conducts a statistical analysis of the factors associated with trade-based sanctions busting. It tests whether the hypothesized factors affecting trade profitability influence which third-party states become trade-based sanctions busters. It reexamines the same ninety-six episodes of U.S.-imposed sanctions evaluated in Chapter 3 but this time looks at which third-party states sanctions-busted on behalf of the target states. The results offer strong support for the sanctions-busting theory's hypotheses, indicating that cross-national differences in the factors affecting the profitability of trading with sanctioned states largely determine which third-party states become trade-based sanctions busters. The results indicate that countries with large, open economies that are proximate to and have preexisting commercial ties with target states are significantly more likely to engage in trade-based sanctions busting, as are countries allied with the United States and/or the target state.
7Sanctions Busting for Politics: Analyzing Cuba's Aid-Based Sanctions Busters chapter abstractThis chapter examines the role that aid-based sanctions busting has played in sustaining Cuba since the United States first sanctioned it in 1960 and why several countries have offered Cuba their patronage. It analyzes whether the aid-based sanctions-busting support that China and the Soviet Union offered to Cuba during the Cold War and that China and Venezuela offered it following the Cold War's conclusion were consistent with the sanctions-busting theory's hypothesized conditions. The evidence from these cases generally offers support for the theory, but the analysis of China case reveals that third-party states can occasionally employ both aid-based and trade-based sanctions-busting strategies. The narrative also presents detailed insights into the diplomatic efforts undertaken by U.S. policy makers to discourage trade-based sanctions busting on Cuba's behalf and those undertaken by Fidel Castro to woo the support of aid-based sanctions busters.
8Implications and Conclusions chapter abstractThis chapter offers a summary analysis of the overarching findings of the book and explores their implications for policy makers and the broader study of economic statecraft. It summarizes the overarching threat that sanctions busting poses to the effectiveness of sanctioning efforts and offers a number of recommendations about how policy makers can best respond to them. It is argued that while sanctions busters will continue to represent an endemic challenge to sanctioning efforts, they pose problems that can be anticipated and, in some cases, mitigated if properly understood. The chapter concludes by examining how future research can build on the insights garnered from the book.