ECON3315 – International Economic Issues

1. ECON3315 – International Economic Issues Instructor: Patrick M. Crowley Issue 3: Trade sanctions and human rights

2. Overview • Sanctions - background • US sanctions • Success of sanctions • Sanctions as a counter to terrorism • Trade and human rights • China and the WTO: a case study

3. Sanctions - background Trade sanctions on countries have a long history… • First trade sanctions imposed in 432BC by Athens against Megara • US first imposed trade sanctions against Europe in 1807 • Japan in 1938 (led to attack on Pearl Harbor) • South Africa: during the apartheid era, many developed countries imposed trade sanctions (UK, US, Europe) • Soviet Union (US, Europe) during cold war • Nicaragua (US) during sandinasta rule • Uganda during Idi Amin’s rule (UK) • Libya under Colonel Gaddafi (UK/US) • Cuba under Fidel Castro (US) • Rhodesia under Ian Smith (UK) • Zimbabwe under Robert Mugabe (UK) • Afghanistan under Taliban (US, UK) • Post-9/11 US sanctions against “axis of evil” states

4. US sanctions US sanctions can comprise the following: • Ban on sensitive technology exports • Ban on export of weapons • Ban on foreign assistance (granting credit, loans, aid) • Ban on financial transactions with sanctioned governments • Ban on firms doing any business with country Since 9/11 add to this: • Freezing of assets held in the US and abroad • 3rd party measures – if assets not frozen then sanctions on these countries too • Foreign Terrorist Asset Tracking Center in US Treasury Under Bush administration “axis of evil” = Cuba, Iran, Libya, North Korea, Sudan, Syria. What changes have taken place?

5. Success of sanctions Record shows that even under fairly modest goals, more failures than successes Also record shows that the failure rate of trade sanctions has been increasing Source: Bruce Bartlett, Cato Institute, 1985

6. Success of sanctions Source: Hufbauer and Oegg, 2003: International Economics Policy Brief, IIE.

7. What is the effect of sanctions on trade? From previous slide, total US trade lost is estimated in 1999 to have been $11.5bn Evidence is that trade sanctions are effective in reducing trade to sanctioned countries. But often effect is to make country more “self-sufficient”, with negative impacts on sanctioned country citizens and on US firms Source: Kimberly Elliott, evidence given to House Subcommittee on Trade, 1997.

8. What is the effect of sanctions on trade? Hufbauer and Oegg (2003) find that: • Limited or moderate sanctions increase trade • Effectiveness of sanctions has decreased slightly from 1995-1999 • No “after-effect” once sanctions have been lifted • They account for problems with gravity model and estimate $25bn reduction in trade • Note that this does not include services…

9. International agreements on trade sanctions Export controls have been put in place by 40 countries for conventional arms and “dual use” goods and technologies Called the Wassenaar Arrangement and signed in 1995 in the Netherlands Missile Systems Control Regime – established 1985 Also Australia group – limits exports of goods that could be used to make chemical and biological weapons Apart from this, little coordination of trade sanctions except through the UN Security Council UN sanctions are currently in place against (Sept 2013): Belarus, Burma, Cuba, Iran, Libya, North Korea, Somalia, Sudan, Syria, Zimbabwe. For example, Canada currently has trade sanctions against: Burma, Belarus, Cote d’Ivoire, DR of the Congo, Eritrea, Guinea-Bissau, Iran, Iraq, Lebanon, Libya, Liberia, North Korea, Sierra Leone, Somalia, Sudan, Syria, Tunisia and Egypt, Zimbabwe

10. Sanctions as a counter to terrorism Post 9-11 measures are appropriate in broad US policy context, but some skepticism of success is in order as: • History of sanctions against state sponsors of terrorism shows little success • Pre-existing sanctions were not successful against terrorist-supporting states (e.g. Afghanistan) • War against South American drug lords in 80s not a success either (<1% of total assets estimated as captured) • Many of the terrorist assets are not in conventional assets

11. Trade and human rights • Multilateral agreement on investment was negotiated by OECD countries in 1995 – this made many activists scared about reach of multinational enterprises (MNEs) • View was that by protecting MNE investments, this could harm government’s right to act to protect labor • Large anti-free trade lobby against the WTO at its meetings ( - with riots in Seattle) • WTO Human Rights Caucus established in 2003 to monitor human rights in WTO members (Canada heavily involved) • Q: If membership of WTO granted, will greater human rights follow? Or should HR be a condition of membership?

12. China and the WTO: a case study • Particular concern over Russia and China’s entrance into the WTO • China first applied to join GATT in 1986 – eventually joined WTO in 2001 • WTO agreement specifies respect for property rights, legal rights and patent protection and also specifies that legal systems must be in place • But barely any mention of human rights in any WTO agreements • Result: general disagreement between US and China over state of human rights. • Continuing problems which have now spilled over to the private sector with (for example) Google….