Economic sanctions


Economic sanctions are commercial and financial penalties applied by one or more countries against a targeted self-governing state, group, or individual. Economic sanctions are not necessarily imposed because of economic circumstances—they may also be imposed for a variety of political, military, and social issues. Economic sanctions can be used for achieving domestic and international purposes.
Economic sanctions generally aim to create good relationships between the country enforcing the sanctions and the receiver of said sanctions. However, the efficacy of sanctions is debatable and sanctions can have unintended consequences.
Economic sanctions may include various forms of trade barriers, tariffs, and restrictions on financial transactions. An embargo is similar, but usually implies a more severe sanction, often with a direct no-fly zone or naval blockade.
An embargo is the partial or complete prohibition of commerce and trade with a particular country/state or a group of countries. Embargoes are considered strong diplomatic measures imposed in an effort, by the imposing country, to elicit a given national-interest result from the country on which it is imposed. Embargoes are generally considered legal barriers to trade, not to be confused with blockades, which are often considered to be acts of war. Embargoes can mean limiting or banning export or import, creating quotas for quantity, imposing special tolls, taxes, banning freight or transport vehicles, freezing or seizing freights, assets, bank accounts, limiting the transport of particular technologies or products for example CoCom during the cold-war. In response to embargoes, a closed economy or autarky often develops in an area subjected to heavy embargo. Effectiveness of embargoes is thus in proportion to the extent and degree of international participation. Embargoes can be an opportunity to some countries to develop faster a self-sufficiency. However, Embargo may be necessary in various economic situations of the State forced to impose it, not necessarily therefore in case of war.

Politics of sanctions

Economic sanctions are used as a tool of foreign policy by many governments. Economic sanctions are usually imposed by a larger country upon a smaller country for one of two reasons: either the latter is a perceived threat to the security of the former nation or that country treats its citizens unfairly. They can be used as a coercive measure for achieving particular policy goals related to trade or for humanitarian violations. Economic sanctions are used as an alternative weapon instead of going to war to achieve desired outcomes.

Effectiveness of economic sanctions

Hufbauer, Schott, and Elliot argue that regime change is the most frequent foreign-policy objective of economic sanctions, accounting for just over 39 percent of cases of their imposition. Hufbauer et al. claimed that in their studies that 34 percent of the cases were successful. When Robert A. Pape examined their study, he claimed that only five of their forty so-called "successes" stood up, reducing the success rate to 4%. Success of sanctions as a form of measuring effectiveness has also been widely debated by scholars of economic sanctions. Success of a single sanctions-resolution does not automatically lead to effectiveness, unless the stated objective of the sanctions regime is clearly identified and reached.
According to a study by Neuenkirc and Neumeier the US and UN economic sanctions had a statistically significant impact on the target country's economy by reducing GDP growth by more than 2 percent a year. The study also concluded that the negative effects typically last for a period of ten years amounting to an aggregate decline in the target country's GDP per-capita of 25.5 percent.
Imposing sanctions on an opponent also affects the economy of the imposing country to some degree. If import restrictions are promulgated, consumers in the imposing country may have restricted choices of goods. If export restrictions are imposed or if sanctions prohibit companies in the imposing country from trading with the target country, the imposing country may lose markets and investment opportunities to competing countries. Critics of sanctions like Belgian jurist Marc Bossuyt, however, argue that in nondemocratic regimes, the extent to which this affects political outcomes is contested, because by definition such regimes do not respond as strongly to the popular will.
British diplomat Jeremy Greenstock suggests sanctions are popular not because they are known to be effective, but because "there is nothing else between words and military action if you want to bring pressure upon a government".

Criticism

Sanctions have been criticized on humanitarian grounds, as they negatively impact a nation's economy and can also cause collateral damage on ordinary citizens. Peksen implies that sanctions can degenerate human rights in the target country. Some policy analysts believe imposing trade restrictions only serves to hurt ordinary people as opposed to government elites, and others have likened the practice to siege warfare.

History of sanctions

The use of economic sanctions became much more common in the 20th century, particularly with the formation of The League of Nations in 1919. The sanctions against Mussolini's Italy in 1935 was one of the first sets of sanctions it imposed, although they failed to halt the invasion. After World War Two, the League was replaced by the more expansive United Nations in 1945. Sanctions have become a commonly used foreign policy tool in the 21st century in countless situations ranging from disputes to hostile confrontations.

Implications for businesses

Companies must be aware of embargoes that apply to the intended export destination. Embargo check is difficult for both importers and exporters to follow. Before exporting or importing to other countries, firstly, they must be aware of embargoes or risk facing unintended punitive measures for violating sanctions. Subsequently, firms need to make sure that they are not dealing with embargoed countries by checking those related regulations. Finally, they probably need a license in order to ensure a smooth export or import business. Sometimes the situation becomes even more complicated with the changing of politics of a country.
Embargoes keep changing. In the past, many companies relied on spreadsheets and manual process to keep track of compliance issues related to incoming and outgoing shipments, which takes risks of these days help companies to be fully compliant on such regulations even if they are changing on a regular basis. If an embargo situation exists, the software blocks the transaction for further processing.

Examples

United States Sanctions

US Embargo of 1807

The United States Embargo of 1807 involved a series of laws passed by the U.S. Congress during the second term of President Thomas Jefferson. Britain and France were engaged in the War of the Fourth Coalition; the U.S. wanted to remain neutral and to trade with both sides, but both countries objected to American trade with the other. American policy aimed to use the new laws to avoid war and to force both France and Britain to respect American rights. The embargo failed to achieve its aims, and Jefferson repealed the legislation in March 1809.

US Embargo of Cuba

The United States embargo against Cuba began on March 14, 1958, during the rule of dictator Fulgencio Batista. At first, the embargo applied only to arms sales, however it later expanded to include other imports, eventually extending to almost all trade on February 7, 1962. Referred to by Cuba as "el bloqueo", the U.S. embargo on Cuba remains one of the longest-standing embargoes in modern history. Few of the United States' allies embraced the embargo, and many have argued it has been ineffective in changing Cuban government behavior. While taking some steps to allow limited economic exchanges with Cuba, American President Barack Obama nevertheless reaffirmed the policy in 2011, stating that without the granting of improved human rights and freedoms by Cuba's current government, the embargo remains "in the national interest of the United States".

Russian sanctions

Russia has been known to utilize economic sanctions to achieve its political goals. Russia's focus has been primarily on implementing sanctions against the pro-Western regimes of former Soviet Union states. The Kremlin's aim is particularly on states that aspire to join the European Union and NATO, such as Serbia, Ukraine, Moldova, and Georgia.

Russia sanctions on Ukraine

Viktor Yushcenko, the third president of Ukraine who was elected in 2004, lobbied during his term to gain admission to NATO and the EU. Soon after Yushchenko entered office, Russia demanded Kiev pay the same rate that it charged Western European states. This quadrupled Ukraine's energy bill overnight. Russia subsequently cut off the supply of natural gas in 2006, causing significant harm to the Ukrainian and Russian economies. As the Ukrainian economy began to struggle, Yushcenko's approval ratings dropped significantly; reaching the single digits by the 2010 election; Viktor Yanukovych, who was more supportive of Moscow won the election in 2010 to become the fourth president of Ukraine. After his election, gas prices were reduced substantially.

Russian sanctions on Georgia

The Rose Revolution in Georgia brought Mikheil Saakashvili to power as the third president of Georgia. Saakashvili wanted to bring Georgia into NATO and the EU and was a strong supporter of the U.S.-led war in Iraq and Afghanistan. Russia would soon implement a number of different sanctions on Georgia, including natural gas price raises through Gazprom and wider trade sanctions that impacted the Georgian economy, particularly Georgian exports of wine, citrus fruits, and mineral water. In 2006, Russia banned all imports from Georgia which was able to deal a significant blow to the Georgian economy. Russia also expelled nearly 2,300 Georgian who worked within its borders.