Trade And Financial Sanctions example essay topic

SHOULD ALL TRADE SANCTIONS BE STOPPED? To most of the world, sanctions are a mixed blessing. On the one hand, they reinforce trade rules and promote respect for them. On the other hand, they tend to undermine the principles of free trade and provoke a kind of 'trade envy' (Charnovitz) in other international organizations.

Trade retaliation goes back quite a ways; we see examples of it in much of US law: -Antidumping Act of 1916, which has seen little use. (Charnovitz) -International Labor Organization, from the Treaty of Versailles 1919, which served as an international dispute system, but no economic measures were ever recommended until 2000, against Burma. (Charnovitz) -UN Security Council, which handles breaches of peace, only used sanctions 3 times between 1920-1990, but now uses them much more frequently. (Charnovitz) To understand the difficulty I have agreeing with the suggestion that all trade sanctions must be stopped, I feel it is important to discuss some of the good, the bad, and the ugly involved with imposing sanctions.

I'll start my discussion with some of the good that comes from restricting trade, move into some of the negative affects, and summarize with improvements I feel could be made to this defunct system. The first advantage that comes to mind about imposing trade sanctions would have to be the ability of the sanctioning government to let everyone know how pissed they are, make their own people relatively happy, and then move on. Although this may only be temporary. (Charnovitz) Individual countries, especially major world powers, like to impose trade sanctions even when the probability of forcing a change in the target country's policy is small. In addition to indicating a resolution and suggesting their disapproval to the direct wrong doer and to other countries, politicians may also want to pose for their own people. (Library of Economics) If you look at the example of the US, European, and British sanctions against South Africa as well as US, European, and Japanese sanctions against China in the wake of the Tiananmen Square massacre, you can see that these were specifically designed to put their own citizens at ease, to make a moral and historical statement, and to send a warning to future offenders of international order.

The effects on the specific target countries can almost be observed as secondary. World leaders often decide that the most obvious alternatives to sanctions are no good - military action would be too strong and diplomatic protests too weak. Sanctions can provide a satisfying dramatic display, but avoid the high costs of war. (Library of Economics) This isn't to say that sanctions don't cost a thing, just that they " re often less costly than the alternatives. A second advantage to sanctions can be seen through foreign pressure to promote internal change, assuming that the sanctioned government wants to comply with the rules, but can't because of domestic politics. (Charnovitz) We can see in many cases that sanctions are being imposed primarily for signaling purposes - either for the benefit of allies, other third parties, or once again, their own citizens.

If the sanctions aren't carefully targeted or the costs are too high for the sanctioning country, the intended signal may be lost. (Library of Economics) Sanctions intended to change the behavior or government of a target country are very difficult to design. They have to be imposed as quickly and easily as possible. (Library of Economics) By moving too slowly, it gives the target country time to adjust by finding alternative markets, finding new allies, and by gaining domestic support of its own policies. Another advantage of trade sanctions is the fact that they have the power to be enacted immediately, unlike a suggestion of compensation, which requires a bilateral agreement. (Charnovitz) This is a big advantage over alternative instruments.

A monetary enforcement assessment sounds like a good idea, but there is no way to make them pay up. (Weiss) Some say that sanctions can be seen as a 'defacto political safeguard' (Charnovitz) for the sanctioned country. A good example of this would be Europe's 'willingness' to accept US sanctions, rather than having to accept hormone produced beef into their society. A final thought on the good that comes from sanctioning trade would have to be the fact that, most importantly, sanctions promote compliance.

Most of the time, just the threat of sanctions is enough to get what you want. When talking about sanctions, you need to look at both sides. It's not a game, and countries don't always play nice, that's why many sanctions just don't work. Some people say we need to give them more bite by creating a 'true community sanction. ' (Charnovitz) But large countries like the idea of hurting others, while others can't really hurt them. You have to understand that it's very hard for me to weigh these advantages and disadvantages, some of them will be in complete contradiction.

So I must state that I feel the bad outweigh the good. Throughout most of our recent history, sanctions have either preceded or accompanied war. Only when the horrors of WWI prompted President Woodrow Wilson to call for new methods of dispute settlement were sanctions seriously considered as alternatives to war. (Library of Economics) "A nation that is boycotted is a nation that is in sight of surrender. Apply this peaceful, silent, deadly remedy and there will be no need for force. It does not cost a life outside the nation boycotted, but it brings a pressure upon the nation which, in my judgment, no modern nation could resist".

President Woodrow Wilson 1919 (Elliott) Most people are right in thinking that the US views sanctions as an instrument of foreign policy that is positioned somewhere between diplomacy and military engagement. Other negative affects of sanctions can be seen through economic difficulties passed through to private traders ('the teeth bite back" (Charnovitz) ). We have to pay higher prices for substitute products. T. e.g. Gregory and Adam Smith both believed that a retaliatory trade war causes losses among both parties. Since total embargoes are rare, most trade sanctions are selective, affecting only one or a few goods. The economy-wide impacts of these sanctions are usually limited. Because sanctions are often unilateral, trade may only be diverted rather than cut off.

(Yang, Teegen) A smart sanctioning country tries to inflict costs on its target in 2 ways - with trade sanctions that limit that country's exports or restricts imports, and also with financial sanctions that block finance. Governments that impose limits on a target country's exports intend to reduce its foreign sales and deprive it of foreign exchange. Governments may also impose limits on their own exports to deny critical goods to the target country. (Library of Economics) Some say that these sanctions trample human rights, in both the importing and exporting countries, being the freedom to engage in voluntary commercial intercourse.

(Charnovitz) This isn't yet an international human right, so I can't truthfully say that any law has been broken. Sanctioning countries usually have multiple goals in mind when they impose their sanctions, and minor punishment isn't usually at the top of the list. Judging the effectiveness of sanctions requires a lot of work, like sorting out various goals, analyzing whether the type and size of the sanction chosen was appropriate, and deciphering the economic and political impact on the targeted country. (Library of Economics) While researching my paper, I read somewhere that 'WTO sanctions are completely contradictory.

That would be like the World Health Organization authorizing one country to spread viruses to another. ' (Charnovitz) With that in mind, if governments that impose sanctions embrace contradictory goals, those sanctions will usually be weak and ineffective. In these types of cases, it may be that the sanctioning country hasn't sent a clear message and hasn't influenced the target country very much. So, it may be the policy, not the sanctions, which fail. A good example of this would be one brought up in class.

The Reagan and Bush Administrations imposed sanctions against Panama beginning in 1987 in an effort to destabilize the Noriega regime. But because they wanted to avoid destroying their political allies in the Panamanian business and financial sectors, they imposed sanctions in small increments and then slowly weakened them with certain exemptions. In the end, the sanctions proved to be useless, and military force was used to remove Noriega. (School and) Some motives behind international uses of sanctions compare to the 3 basic purposes of national criminal law - to punish, to deter, and to rehabilitate.

(Library of Economics) Like states that incarcerate criminals, international institutions that impose sanctions may find their hopes of rehabilitation in the gutter, but they may be satisfied with whatever punishment and deterrence are accomplished. But in some cases, without that rehabilitation, these sanctions enrich war criminals. High tariffs create black markets controlled by the powerful criminal elite, by encouraging a do-it-yourself mentality for crippled industries. (Weiss) For example, the South African arms embargo against apartheid imposed by the UN in 1977 promoted a huge domestic military-industrial complex. The result was that South Africa not only became self-sufficient in most weapons, but also became a major exporter of sophisticated arms. In the 1980's, South Africa employed nearly 140,000 people in the arms industry and was the world's 6th largest weapons exporter.

Even today, it's still a major arms supplier. (Weiss) Now may be a good time to suggest some rules to follow when imposing trade sanctions in order for them to have any value: -Don't impose sanctions on widely available commodities, they don't work. Sanctions on high tech equipment tend to work better, especially if other advanced industrialized nations support them. (Yang, Teegen) -Don't sanction goods that can be produced domestically. (Yang, Teegen) In Iraq, sanctions created a desired effect neither before nor after Gulf War I. By selling oil at an enormous discount, Iraq had attracted a network of petroleum smugglers, dealing in more than 200,000 barrels a day. The hard currency from this illegal oil trade kept the country's food rationing system going and maintained a minimally acceptable standard of living critical to keeping Saddam Hussein in power.

(Weiss) If used properly, selected trade sanctions may help achieve modest goals. But seen as a cure-all, they can have unintended consequences. In most respects, financial sanctions may be a better solution. Capital is the only commodity that can't be substituted. By blocking cheap lenders like the IMF and the World Bank, cost of capital goes up, hurting the political and economic elite, who then have to choose between economic pain and policy change. (Weiss) Financial sanctions are usually more difficult to ignore or find ways to survive around.

Because sanctions are typically intended to impose political or economic instability, having to find alternative funding may be extremely hard and will carry higher interest rates. (Weiss) Another advantage to financial rather than trade sanctions lies in who is hurt by them. The pain of trade sanctions is usually spread through the target's general population. But with financial sanctions, the people more likely to feel the squeeze are the government officials who shape local policy and their pet projects. For the sanctioning country, stopping aid or credit is unlikely to create the same backlash from business firms and allies abroad, as would an interruption in private trade. Usually, though, trade and financial sanctions are used in some kind of combination.

(Library of Economics) So, ineligibility for technical assistance, such as aid, sounds like a winner. The ultimate form of financial and trade control, however, is a freeze of the target country's assets, such as bank accounts held in the sanctioning country. The key goal of an assets freeze, other than imposing a cost on the target country, is to deny an invading country the 'full fruits of its aggression. ' (Library of Economics) One study noted such measures were used against Japan for that purpose just before and during WWII.

Also, in the 1990 Middle East crisis, the US and its allies froze Kuwait's assets to prevent Saddam Hussein from 'plundering them. ' (Library of Economics) Some say that the effectiveness of sanctions are obvious, but I feel that in the sense of forcing change in a target country's policy, goals will only rarely be achieved. Sanctions were relatively effective tools in the first few decades after WWII - they achieved their stated goals in nearly half of all cases. But with the evolution of the world economy, however, we " ve narrowed the cases in which economic leverage can be successful. With increasing economic interdependence, the power of sanctions may also be stronger because countries are more dependent on international trade and financial flows.

But this also means wider sources of supply and greater access to markets, which means that there are a greater number of neutral countries that can undermine the economic impact of a sanctions effort if they feel like it. (Library of Economics) To go back to the question 'Should all trade sanctions be stopped?', I can't really give a straight answer. But there must be a common ground. There are different circumstances for every case brought forth, some where sanctions seem to be the only course of action, and some where they seem to be the worst course of action. We need to learn how to take this effective bargaining tool, and use it to better our global trading community.

Bibliography

Charnovitz, Steve Rethinking WTO Trade Sanctions Social Science Research Network web id = 256952 Elliott, Kimberly Evidence on the Costs and Benefits of Economic Sanctions Institute for International Economics web of Economics Lookup = Sanctions web Ken International Trade and Finance HPU Economics 3400, Lecture / Video on Panama. Weiss, Stanley A. Trade Sanctions are a Misused Tool International Herald Tribune Saturday, June 26, 1999 Yang, Ja iwan; Teegen, Hilly Both are Associate Professors for the Department of International Business at George Washington University US Economic Sanctions and Globalization: Economic Impact and Policy Implications web.