Speech by William Reinsch to Middle East Institute on "Why Sanctions Don't Work"

Wednesday, 6 October 2004

The efficacy of unilateral economic sanctions is a good subject for this conference because the countries of the Middle East have been frequent targets of sanctions. In the view of my organization, the NFTC and its affiliate USA*Engage, this has been unproductive. We believe that efforts at engagement, while by no means guaranteed to succeed, are more likely to be productive and much less likely to be counterproductive.

First, let me put the issue in context generally. Simply put, our members believe that sanctions are not a free good, that is that they impose real costs on the US economy, that they are almost always ineffective in achieving their stated objective, and are often counterproductive. Multilateral sanctions have a somewhat greater chance for success and have fewer commercial drawbacks, and we have not generally opposed them. Several years ago, following a period of increasingly reflexive imposition of sanctions by Congress and the Executive Branch, our Board created the USA*Engage coalition to increase understanding of our point of view.

First let me make one nearly categorical statement: economic sanctions are almost always driven by domestic politics rather than by foreign policy. And they almost never achieve their stated objectives. In many cases their foreign policy consequences are only secondarily taken into account.

I say nearly categorical because there are sanctions that are imposed for purely national security reasons, such as those imposed on Pakistan and India following their 1998 nuclear tests, but the vast majority of U.S. unilateral sanctions are the result of intense political activity by a domestic constituency with a very strong commitment to an issue, an ethnic group, or nationality. But what we call "foreign policy sanctions" are ironically almost always in service of domestic political imperatives. (Cuba, Azerbaijan, Syria for example.)

In these cases, political leaders, especially in the Congress, come under heavy pressure to 'do something' to address the behavior of another government. Imposing sanctions helps to satisfy that demand. In that sense, unilateral economic sanctions do work: they help win elections and they satisfy a political need. But at the same time, they ignore the indirect and long-term consequences for our foreign relations and our economy.

Simply put, unilateral sanctions are an attempt at foreign policy on the cheap: intervention in the internal affairs of another country to get it to do what we want, either in its foreign or domestic behavior without significant costs in blood or treasure to the American public.
But there are significant costs for business, and they fall into the categories of cost, ineffectiveness, and counter-productivity.


The NFTC and its affiliate, USA*Engage, try to keep track of the economic and commercial costs of unilateral economic sanctions against the foreign policy gains and find that the costs far outweigh the benefits. In the last half of the 1990s, the US put into place over 70 laws and executive orders against 35 countries. These included a diverse array of trading partners: Burma, China, Egypt, Indonesia, Laos, Morocco, Nigeria, Pakistan, Saudi Arabia, Sudan, Switzerland, Turkey, Yugoslavia, and Vietnam.

1. While estimates vary, they reveal that the cost of unilateral sanctions is in the tens of billions of dollars. The IIE estimated that unilateral sanctions in place in 1995 cost $20 billion a year in lost exports, which translates into 200,000 lost export-related jobs.

2. What that means is that the costs of American foreign policy are being shifted to private companies, and beyond the sheer cost, corporate operations are not flexible enough to be effective instruments of foreign policy.

3. The immediate costs include lost export sales, export-related jobs and opportunities for investment.

4. The long-term costs are even more pernicious. One is to tarnish America's reputation as a reliable supplier, making it harder to re-enter a market after sanctions are lifted and to win business in other countries. The most prominent example was the Soviet gas pipeline case in the early 1980s, where the United States attempted to prevent US companies and their foreign subsidiaries from supplying the pipeline, putting their subs in the position of having to violate either US law or the law of the country in which they were incorporated. It took years for our companies to recover their reputations as reliable suppliers after that, and some would say that has still not happened.

5. For example, the power generation industry estimates that it takes 7 to 10 years to re-establish market share after sanctions have been lifted.

6. If sanctions are unilateral, foreign competitors are likely to gain a firm hold on the market, as is happening right now with the Europeans in Iran. This is especially damaging for suppliers of aircraft, construction equipment, and especially equipment maintained in fleets, such as trucks since purchasers want uniformity for downstream servicing and replacement.

7. Also, the widespread foreign availability of most US exports means that the US cannot alone deprive a target country of the products, services and technology it needs. For example, the US accounts for only 20% of world exports of agricultural equipment and 16% of world exports of telecommunications equipment.

8. But perhaps the most significant cost is the loss of trust in American suppliers and in America as a place to do business. Former Secretary of State George Schultz put it this way:

"It takes a long time to go abroad, get positioned, and learn about how to do things there. In the process of investment, a company develops what the government may regard as a bargaining chip. But if our government then takes the bargaining chip and spends it, where does that leave the company? The company has lost out, and its commercial relationship deteriorates. Who wants to deal with an unreliable supplier, especially when the supplier is not the only game in town."

9. Doubts about reliability are a particular handicap for infrastructure and resource extraction projects in the developing world, such as building and operating power plants or developing oil and gas resources take many years and require continual servicing, upgrades and replacement commitments. US companies have been excluded from strategic alliances to bid on development projects if potential partners fear that sanctions may require the US partner to withdraw. This happened in Azerbaijan.


1. The most obvious reasons that unilateral sanctions are ineffective have already been cited: the foreign availability of the vast majority of goods and services that the U.S. can deny the target country.

2. The deeper reason that sanctions are so rarely effective is that they actually play to the economic and political priorities of dictators. Most of the targeted leaders will go to great lengths to avoid the domestic appearance of buckling to foreign pressure. In most cases their greatest fear is losing power, not losing their assets in foreign banks or the right to send their children to college in the US. That is why even "targeted sanctions," intended to punish the ruling group of a sanctioned country and spare the general population, are unlikely to be effective.

3. Sanctions are a blunt instrument, intended to execute a political bank shot by squeezing a population until they force a change in their government or in its behavior. Cuba is the obvious counter example, as was Iraq. In the case of Cuba 40 years of near-total embargo have only strengthened Castro and the multilateral sanctions against Iraq opened limitless opportunities for black-marketeering and profiteering by the regime while impoverishing the masses.

Unilateral Sanctions are Counterproductive

1. Obviously, as in Cuba, sanctions can provide the target regime with a marvelous excuse for its failures.

2. The also deepen the isolation of American society from foreign cultures whose direction we would like to influence.

3. As suggested earlier, most dictators know better than to make the potentially fatal mistake of displaying weakness and to cave into economic pressure, especially from the US.

4. Sanctions weaken the very social and political elements we should be strengthening by identifying them with the US, which is seen as the cause of economic privation and suffering resulting from sanctions.

5. Likewise a sanctions regime does nothing to build civil society, the rule of law, civil liberties or democratic practice. In other words, they contribute nothing to and in fact detract from the positive international agenda of this country.

This is why unilateral economic sanctions have been described as a "lose-lose" policy tool. They do not achieve the stated foreign policy goals at the same time that they incur substantial costs.

Let me close with a brief comment on two Middle East sanctions cases, Iran and Syria.

Sanctions on Iran have been controversial since they were first imposed during the hostage crisis. They have virtually eliminated any US private sector presence in that very important country. The judgment on those sanctions must, therefore, be rendered not merely in dollars and cents but also by the simple test of whether we are better off with contact between our society and Iranian society or with none. Given the very great importance of Iran, there is a judgment to be made about whether we can afford to isolate ourselves from crucially important countries on the mistaken premise that by doing so we hurt them more than we hurt ourselves.

It is true that the frequency of new unilateral sanctions being imposed has abated in the last few years. We take partial credit for that. But on May 11 of this year President Bush implemented the Syria Accountability Act which he had signed last December. This is a good example of the liabilities of unilateral sanctions. None of Syria's other trading partners are contemplating sanctions and since third country suppliers are readily available for all of Syria's imports from the US, it is difficult to imagine that depriving them of the 5.3% of their imports that come from the US is likely to constitute decisive leverage over what they doubtless regard as their core foreign policy interests. The Syrian sanctions law has no sunset provision and the conditions for certifying Syria to be in compliance are unlikely to be met in the near future. By codifying a policy that constrains the flexibility of this and future Presidents, the sanctions law creates high barriers for future relations with a country that is indispensable to any Middle East peace process.

In sum, enlightened self-interest would seem to dictate an extremely sparing use by the US of unilateral economic sanctions and a more aggressive and imaginative use of engagement to maximize the utility of our considerable soft power.