Date: 15 Dec 1999
Time: 13:49:36
Remote Name: 156.29.145.175
Kamran Dadkhah, Ph.D. Northeastern University Boston, Massachusetts
Hamid Zangeneh, Ph.D Widener University Chester, Pennsylvania
We need a creative burst of energy into Iran - US relationship.
Introduction
There are good laws and there bad laws. The "Iran and Libya Sanctions Act of 1996," also known as D'Amato Act after its sponsor Senator Alfonse D’Amato, is a bad one. It is bad because its provisions hurt American businesses and the international standing of the United States government without delivering its stated objectives. It is no denying that the law has inflicted economic costs on Iran. But the costs to Iran, while significant, have not been of the magnitude to cause a significant change in that country's posture, rhetoric, or behavior, domestically or internationally. On the other hand, the costs to American companies and to America's prestige have been substantial.
The D’Amato law declares that "it is the policy of the United States to deny Iran the ability to support acts of international terrorism and to fund the development and acquisition of weapons of mass destruction and the means to deliver them by limiting the development of Iran's ability to explore for, extract, refine, or transport by pipeline petroleum resources of Iran." To this end, the congress directs the president to impose a number of sanctions on companies "that directly and significantly contributed to the enhancement of Iran's ability to develop petroleum resources of Iran." These companies cannot make an investment of 20 million dollars or more or any combination of investment of at least 10 million each, which totally, equal or exceed 40 million in any 12-month period,
US Objectives:
Ostensibly, the US unilateral sanctions against Iran have been enacted to bring pressure on Iran to achieve several goals. The enunciated goals of US Iran policy are to force Iran abandon her:
1) support of terrorism and subversion of the region,
2) efforts to produce weapons of mass destruction,
3) opposition to the Arab- Israeli peace process.
Even thought these are explicitly stated goals of the US administration, there are those who believe that there exists, at least, two other purely domestic factors that have been the driving force behind this legislation. First, US 1996 presidential election. Those who subscribe to this thesis argue that the fact that the President, against all tradition, chose the World Jewish Congress in New York venue to announce this anti-Iranian policy is an evidence of election year politics gone awry. The President, in competition with the Republican Congress, as usual, preempted the attack by embracing the issue. In this case, the President ran to the front and assumed the leadership of anti-Iranian sentiment to appease the Jewish constituency who are potentially a large determining factor in New York and to blunt senator Dole’s potential offensive against him. The President did not want Senator Dole to be in a position to do what he had done to the former President Bush when he accused the President to be "soft" on Iraqi and Chinese violations of human rights. Second, re-assertion of power by the US Congress in foreign policy arena which were absent during the cold war era. This re-assertion transpired into a power struggle with the executive branch which had been the sole decision maker in that aspect of US government power sharing scheme.
Why Sanctions?
Historically, nations tend to do what individuals do, at times. They put emotions ahead of their interests. International relations are replete with examples of economic and political combat, wars, colonialism that support this notion. Economist have seldom addressed issues of war, peace, and conflict. They are let to those who discuss political development and relations. Economists reduce them to the discussion of division of labor and advantages of international trade and the attempt to exploit these benefits. However, ever since the elimination of the second world (former USSR and its allies) and emergence of the "new world order" in which military supremacy has supposedly relegated a lesser value in settlements of international conflicts, trade sanctions and embargoes take the center stage. This is evident from the increasing number of sanctions that have been imposed on other countries in the last decade or two. Besides, economic sanctions have characteristics, some of which are very attractive to politicians:
1-- they do not involve overt violence of military intervention and yet
2-- they represent concrete actions and not just rhetoric therefore
3-- they portray a perception of decisiveness on the part of the leadership, and
4-- since they do not require military force and bloodshed relative to military interventions, they are less objectionable by the world community and finally,
5-- they have been successful at times in the past. They have been, however, more successful when they are imposed by a multinational coalition than when they are imposed by a country. One could enumerate sanctions on Iraq, South Africa, Haiti, Chile, Dominican Republic, South Korea, and Iran,
6-- they are a result of competitive interaction among interest groups, government officials, and the congress who have a stake in public polices in a liberal democracy the United States. Outcomes of public policies depend on the relative influences of interest groups in generating political pressures and by exerting these pressures, they help determine "the extent and types of sanctions selected." According to the public choice theory, "Political efficiency prevails when the marginal utility to the groups benefiting from a given regulation or policy, weighted by the group’s political influence, is equal to the influences-weighted marginal disutility to the loser group ... [but], in general, the losers will lose more than the beneficiaries gain." That is, cost and benefits of sanctions do represent a zero-sum game. There is always a negative welfare loss associated with sanctions within the sanctioning country.
Types of Sanctions
There are a number of alternative sanctions available to the President of the United States. However, they are not all similar in their availability. Some are more readily available and some need special legislative permission and direction from the congress. Their availability or the relative ease of their undertaking in the absence of a national emergency depends on the prevailing circumstances. Not all of them are available to the President in the absence of a national emergency. According to the US Constitution, the President cannot impose any import restriction without an authorization from the congress. It grants the congress the authority "to regulate commerce with foreign nations." It gives the congress the authority to impose import tariffs but not exports tariffs. This prohibition was written into the Constitution at the insistence of southern delegates to the constitutional Convention who feared that without it the federal government would rely on taxes on exports of cotton as a chief source of government income which would reduce their competitiveness in the international markets. Nonetheless, the President could always use the International Emergency Economic Powers Act (IEEPA) and declare a national emergency which significantly broadens his authorities. In the case that the President does evoke a national emergency, the following order is meaningless because he would have unlimited powers on imports, exports and financial transactions. But in non-national emergency cases the following hierarchy is relevant.
1-- US government programs. This option is almost always available to the President of the United States. He could issue executive orders and effectively deny a country access to the US government and programs.
2-- US Exports. The President has a broad discretion to deny US exports, except for fulfilling current contracts, to any country. Unfortunately for the US international corporations, due to the broad authority of the President over exports, they are used much more readily than others. This means export industry and whence people working in this sector are more adversely affected by sanctions than others.
3-- US imports. This is more difficult to do since the President has much less discretion in this regard. This is because of the protection of US industries under the Constitution which makes it much more difficult to impose imports tariffs.
4-- US private financial transactions. This is much too difficult in the absence of evoking a national emergency clause in the existing laws or cooperation and willingness of the private financial institutions.
5-- International financial transactions. These are the most difficult of all undertakings. Not only a US President does not have any legal basis to force them to impose sanctions, at times, the extraterritoriality of President actions might simply lead to counteractive measures.
Sanction Enforcement Tools
In order to enforce these sanctions, the following punishments have been included in the law:
1. Denial of permit for export of goods and technology to the sanctioned person.
2. Denial of Export-Import Bank assistance for the purpose of exports of goods and services to the sanctioned person.
3. Prohibition of United States financial institutions from making loans or granting credit totaling ten million dollars in any 12-month period except for activities that aim at relieving human sufferings.
4. If the violator of these sanctions is a financial institution, it can be denied designation as a primary dealer in United States government debt instruments, and they may not serve as agent of the United States government or serve as repository for government funds.
5. If the violator of these sanctions is a non-financial institution, the United States government may not procure goods and services from it.
6. The president may impose other sanctions.
The sanctions will be removed when the President determines and certifies to the congress that Iran has ceased its efforts to acquire nuclear, chemical, and biological weapons, ballistic missiles, and has been removed from the list of governments supporting acts of international terrorism. In what follows, we will discuss US explicit and implicit objectives, reasoning behind the use of sanctions, success and failures of sanctions, arguments against sanctions,
Effectiveness of Economic Sanctions:
In general sanctions do not succeed in achieving their stated goals by more than two third of the time. However, they do damage the sanctioned country. The degree of damage to the sanctioned country depends on the importance of the sanctioned sectors in the case a sector of the country is the target of the sanctions; the availability of substitutes markets for her exports; the availability of alternative suppliers for her imports; the sanction period; the dependence of the sanctioned country on the international capital; the ability of the country to hoard and stockpile commodities before sanctions are put in place; flexibility or inflexibility of consumption preferences of the public; flexibility or inflexibility of production structure of the sanctioned country; geographical location of the sanctioned country; availability of natural resources; ability of the country to become self-sufficient for embargoed commodities.
However, economic sanctions may have achieved success even though they do not seem to have been successful in achieving their stated goals. At times, there are several un-stated goals and objectives associated with sanctions. As a mater of fact, sanctioned country may not be the ultimate target. They might have been put in place to create hardship in another country. It could be aimed at other countries who might have undertaken what is considered adverse policies. Therefore, looking at the sanctioned country for success or failure of sanctions would not be appropriate in evaluating sanctions. More often than not, sanctions are imposed to appease an interest group in the sanctioning country. In this case, regardless of any achievement or lack thereof in the sanctioned country, they are successful and have achieved their objective.
Arguments against sanctions:
One of the most striking aspect of economic section is their increasing usage despite the ample evidence against their success. According to Hufbauer, Schott and Elliot as well as study by van Bergeijk, about one third of economic sanctions have been successful in achieving their stated goals.
1-- It undermines the essence of free trade policies that the US has relentlessly promoted over the history. One can arguably but safely postulate that no country has a greater stake in free international trade, both commercially and philosophically, than the United State. Using this "weapon" gratuitously would not enhance the precept of free trade and its potential linkage with global democracy, liberalism, and human rights.
2-- Iran is a large supplier of oil and gas, vital to industrial world economies.
3-- Iran has a large ( 60 million) sophisticated and relatively young population which is potentially a profitable market for the US exports and investment.
4-- She holds a strategic key to the oil and gas of the Caspian Sea area. Not being able to deal through Iran increases delivery cost of oil and gas, to say the least. Even though there are other countries such as Afghanistan and Pakistan that pipelines can go through, they are not reliable and secure, at least for the time being.
5-- It denies critical dialogue among nations.
6-- Unilateral sanctions against Iran are extraterritorial and create friction, resentment, and annoyance among US friends and allies who have vested interest in Iran as well as other trading countries who could fall out of favor with the US in the future. This sentiment has succinctly been expressed by James Schlesinger:
"It is essential for us [the United States], if we wish to continue to lead in the way we have, to avoid gratuitously antagonizing other nations. The tendency for others to bond together to cut the leader down to size is, of course, a variable. Clearly, if a leader fails to refrain from exasperating other nations, that process will inevitably be speeded up. Pride goeth before a fall." 7-- They deny international business the ability to extend American style democracy and capitalism to the sanctioned country. International trade, as Wreston the President and CEO of argues, is the "most effective instrument of transferring a value system from one country to another ... Something that despots and dictators do not appreciate."
8-- If they are not multilateral and "leak proof", they will not succeed even if they are imposed by they most powerful nation on earth. They will just increase marginal cost of doing business. According to Hufbauer, Schott and Elliot, in only one third of sanctions during the 1946-90 period damage to the sanctioned country exceeded one percent of its GDP.
9-- The sanctioned country may develop "self sufficiency" in the sanctions areas which would do harm to the export industry of the sanctioning country and lesson her dependence on international trade. This, in turn, reduces probability o f success and effectiveness of sanctions. Albeit, the sanctioned country may spend a great deal of its resources in the areas that does not have comparative advantages which might the goal of sanctioning country. That is, by forcing the sanctioned country into Diverting a great deal of its resources in the areas that does not have expertise and/or comparative advantage, it denies the country the ability to spend on objectionable activities.
10- Sanctions deny contact and access through business and other trade relations with the opposition within the sanctioned country. By denying dialogue and exchange with those who engage in international activities, a vital channel thorough which evolutionary change is transmitted is blocked. Therefore, a valuable and influential channel and impetus for policy change is forsaken for the sake of immediate gratification.
Cost of Economic Sanctions
In general, sanctions are more likely to be successful if they are imposed collectively by a group of nations rather than a single county. However, commitments by other countries to engage in a collective action against a country depends on how important is the norm of conduct and the certainly that the norm has been violated by the sanctioned country. If the norm is not critical and/or the violation is not crystal clear, participating in economic sanctions would not be very appealing. Therefore, in order to maximize the cost to the sanctioned country, historically, sanctioning interest group has magnifies a norm of conduct and vilifies the sanctioned country for violating the norm and portrays the behavior repugnant to attract and enlist support and commitments from other countries.
In order to exact maximum economic cost on a country, at least two conditions must be present. First, the sanctioning country must be large enough to control international trade (imports or exports) of the sanctioned country. Second, other trading countries must not be capable of replacing the lost markets for sanctioned country’s exports or and become supplier for her imports. If this is the case, then the sanctioned country is forced into autarky and she is denied all of the benefits of division of labor and international trade. In this case, the cost to the sanctioned country is maximum. However, if the sanctioning country does not control the sanctioned country’s international trade because of either of the aforementioned conditions, it can force the country to trade at higher costs, i.e., higher cost of imports and borrowing and lower exports prices. In this case, the sanctioning country forces a less favorable terms of trade on the sanctioned country which means, she will export more in exchange for lesser amount of imports.
Proponents of sanction argue that sanctions need time to work themselves into the international business psyche and calculus. David Welsh, Assistant Secretary of State for Near East Affairs said, " many of the allies have been reluctant to grant Iran extensive credit and guarantees ... We have succeeded in raising the cost to Iran."
On the other hand there are those who argue that sanctions are not costless to the imposing country. That is, these sanctions have not been costly to Iran alone. As Jeffrey Schott of the Institute for International Economics points out, " the sanctions have been costly to both Iran and the US...They have delayed some new investments in Iranian oil and gas fields and imposed modest costs on Iranian economy. But they have also imposed costs on the US firms that would usually do business with Iran."
Conclusions and Observations
Up until the end of the Soviet "evil empire", the western world almost unequivocally accepted the US leadership in their design and implementation of international relations policies. Today, even though there is no world military or economic power of comparable strength to the United States, most nations tend to follow their own independent international policies. The United States’ preeminence and hegemony is being challenged and undermined by all friends and foes alike. This is, from an American point of view, an unfortunate phenomenon which, if it is not reversed before it takes hold in the international psyche, would have damaging long run effect. It could erode the United States’ abilities to lead the world in the direction that enhances her interests. The United States cannot follow unilateral policies that ignore other countries sovereignty and interests which leads to the perception of US arrogance. Neither can she be oblivious to the growing strain and annoyance of other countries whose interest and sovereignty are being undermined by at hoc, emotion-based, capricious, and inconsistent American foreign policies.
References
Barry E. Carter, International Economic Sanctions, Cambridge University Press, New York, 1988.
David Cortright and George A. Lopez, Economic Sanctions: panacea or Peacebuilding in a Post Cold War World?, Westvew Press, Boulder, Colorado, 1995.
Gary Clyde Hufbauer and Jeffrey J. Schott, Economic Sanctions Reconsidered: History and Current Policy, Institute for International Economics, Washington, DC, 1985.
Gary Clyde Hufbauer, Jeffrey J. Schott and K. A. Schott, Economic Sanctions Reconsidered: History and Current Policy, Institute for International Economics, Washington, DC, 1990.
William H Kaempfer and Anton D. Lowenberg, International Economic Sanctions: A Public Choice Perspective, Westview Press, Boulder, Colorado, 1992.
David Leyton-Brown, The Utility of International Economic Sanctions, St. Martin’s Press, New York, 1987.
Lisa L. Martin, Coercive Cooperation: Explaining Multilateral Economic Sanctions, Princeton University Press, Princeton, New Jersey, 1992.
James Schlesinger, "Fragmentation of Hubris", The National Interest, Washington, pp. 3-10, Fall 1997.
Peter A. G. van Bergeijk, Economic Diplomacy, Trade and Commercial Policy: Positive and Negative Sanctions in a New World Order, Edward Elgar, 1994.
Thomas D. Willett and Mehrdad Jalaighajar, "US Trade Policy and National Security," Cato Journal, Winter 1983/84, 3, pp. 717-727.