Zach Gibson / REUTERS The U.S. Capitol Building is seen at sunset in Washington, May 2017.

Is the U.S. Using Sanctions Too Aggressively?

The Steps Washington Can Take to Guard Against Overuse

The United States’ use of sanctions has exploded over the past decade. An analysis by the law firm Gibson Dunn found that President Donald Trump’s administration added nearly 1,000 people, companies, and entities to U.S. sanctions lists during 2017, nearly 30 percent more than the number added during former President Barack Obama’s last year in office. But expanding sanctions is a rare area of bipartisan consensus in Washington: Obama added nearly three times as many people and entities to sanctions list in his last year in office as he had in 2009.

The explosion of U.S. sanctions is evident not only in the raw numbers of people on U.S. sanctions lists—the scope and complexity of sanctions prohibitions is growing as well. In 2014, the United States invented an entirely new category of penalty, the Sectoral Sanctions Identifications (SSI) List, which prohibits certain kinds of financial transactions with a target company while allowing most others, enabling Washington to target large Russian companies where traditional sanctions could have created unacceptable collateral costs for both the United States and Europe. The Treasury Department applied the model to Venezuela in 2017. And Trump’s merger of sanctions and other national security tools, such as his August 9 decision to impose Section 232 national security tariffs on Turkish steel and aluminum in the context of a diplomatic dispute over a detained American pastor, represents another innovation that has had undeniable economic impacts on Ankara. Trump is also reportedly considering sanctioning Chinese officials and companies over China’s internment of ethnic Uighurs and other Muslims, a move that Beijing would view as highly provocative, while National Security Advisor John Bolton this week publicly threatened to sanction the International Criminal Court if it pursues Americans.

The rapid growth in U.S. sanctions, however, is giving rise to an equally rapid rise in costs and unintended impacts. Some of these are economic. For example, Trump’s August 9 tariffs on Turkey spurred a dramatic market selloff that not only affected Ankara but also caused the stocks of major European banks with business in Turkey to plunge and raised concerns about contagion to other emerging markets. Following U.S. sanctions on a major Russian aluminum company, Rusal, in early April, global aluminum prices jumped by more than 20 percent before falling back after the U.S. Treasury issued exceptions allowing companies to keep doing business with the sanctioned firm. Even in cases where costs have received relatively little public attention and few Americans would question the value of the sanctions, collateral costs can be significant. U.S. sanctions on Russia, for example, have contributed to a nearly 40 percent decline in U.S. goods exports to Russia since 2013, the year before sanctions were imposed.

The political costs are at least as important. Trump’s sanctions on Turkey have caused a rapid deterioration in Washington’s relations with Ankara, a NATO ally that is important to U.S. interests in the Middle East, and relations are now at the lowest point since Turkey invaded Cyprus in 1974. Meanwhile, the European Union has responded to Trump’s withdrawal from the JCPOA nuclear deal by updating a blocking statute to prohibit EU companies from complying with U.S. sanctions on Iran. Although many companies are trying to find a way to muddle through and comply with U.S. law despite the EU blocking measure, the EU’s move marks a sharp rift between Washington and the organization that has historically been its closest ally on sanctions.

There are growing concerns that the United States’ aggressive use of sanctions carries long-term, systemic costs as well. It may finally spur allies and major global companies to develop alternatives to the financial and trading channels that give U.S. sanctions enormous global weight. Already, France is reportedly considering using government-owned companies to continue buying oil from Iran. France will likely find that difficult or impossible in the short run, but in the long run countries and companies with the right incentives can develop trade and financial mechanisms that exist beyond Washington’s reach.

Former Treasury Secretary Jack Lew and other experts have warned that the U.S. government needs to be more judicious in its use of sanctions. But warnings alone will not alter the behavior of policymakers who gravitate toward a low-cost, high-impact tool to address urgent foreign policy crises. Instead, Washington needs to better coordinate with allies, as well as consider procedural checks that would ensure that policymakers have to more rigorously consider both the impacts and the costs of sanctions.

WEIGHING COSTS AND BENEFITS

The first step to containing the overuse of sanctions is to require that policymakers periodically publish an analysis of each U.S. sanctions program, assessing economic impacts, political and diplomatic benefits, and economic and political costs to the United States and to U.S. allies. This would force policymakers to regularly assess the policy benefits of a sanctions program and weigh those benefits against the program’s costs.

Currently, there is no requirement that either Congress or the executive branch estimate the impacts or costs of sanctions before imposing them, nor that they evaluate the costs or impacts at periodic intervals after. This is a departure from other areas of international economic policymaking, such as trade policy, where the Commerce Department’s International Trade Administration publishes periodic estimates of the economic impacts of trade agreements.

Estimates of benefits and costs of sanctions are conducted in a haphazard fashion, if at all. In 2017, for example, Congress passed the Countering America’s Adversaries Through Sanctions Act (CAATSA), an important law intended to punish Russia, North Korea, and Iran for their attacks on U.S. interests. CAATSA’s Russia provisions were intended to have billions of dollars’ worth of impact, including cutting off potentially more than $14 billion in annual Russian arms exports, halting the development of Russian oil and gas export pipelines, and penalizing Russian oligarchs who controlled companies with large global operations. Yet although Congress did informally consult outside experts and allied governments, it enacted CAATSA without ever asking for a formal estimate of the impacts on either Russia or the United States and its allies. Nor has the Treasury Department published an estimate of CAATSA’s impacts in the 13 months since CAATSA took effect. The closest the U.S. government has ever come to formally analyzing the impact of U.S. sanctions on Russia is an analysis by the State Department’s Chief Economist of the impacts of sanctions on specific Russian firms targeted by them.

CAATSA is undeniably a critical and valuable statute: the United States must check Russia’s attacks on the U.S. and our allies despite the costs of doing so. Similarly, sanctions on Iran will doubtless reduce the funds that Iran has available to support malign activities throughout the Middle East. But in many cases, the absence of analysis of potential costs encourages sanctions overuse by making sanctions look artificially cheap to policymakers compared to other foreign policy tools. If the U.S. government wants to deploy foreign assistance, military assistance, or even targeted military strikes to address a foreign policy challenge, the government needs to identify federal budgetary resources to pay for it. This forces policymakers to weigh the pros and cons of using the chosen tool and to weigh the benefits of using it in a specific instance relative to other potential uses of the budgetary resources. Sanctions, on the other hand, are essentially cost free to the U.S. government: the overwhelming majority of costs are borne by the private sector in the form of compliance costs and lost opportunities. Because policymakers do not even have to assess and justify what those costs are, much less factor them into decision-making, policymakers naturally gravitate to sanctions as the least costly of the tools available—to them.

Requiring the government to conduct and periodically release estimates of the impacts of U.S. sanctions programs would also force policymakers keep the programs up to date, and to make them both more effective and lower-cost. There is a well-known tendency for U.S. sanctions programs to get “stuck” over time: Although Washington is quick to impose sanctions, it can take years or decades to alter or terminate a program that seems to have outlived its policy usefulness. Forcing the government to periodically assess the benefits and costs would encourage the government to measure whether a sanctions program is still working, wind down programs that outlive their usefulness, and make adjustments to sanctions programs to ensure that they remain effective.

One of the sanctions that the Obama administration imposed on Russia in 2014 was a prohibition on proving certain high-end oil technologies to help Moscow develop its arctic offshore, deep-water, and shale oil resources. The goal of the sanction was to avoid immediately impacting current Russian oil exports, which could have disrupted supplies and driven up global prices, and instead to cause a gradual decline in Russian production over several years. But Russia has adapted to the sanctions, and in 2017 its oil production hit a 30-year high. A periodic review would force policymakers to assess why the sanctions failed to achieve their intended goal and to consider ways to bolster them.

Modeling the impacts of sanctions is undeniably difficult, and assessing their political benefits, as opposed to simply economic impacts, is an art, not a science. Sanctions often need to be imposed quickly, and in many cases it may be impractical to fully model sanctions before imposing them. An administration that wants to skew the analysis will almost certainly be able to, at least to a degree. But a requirement that the government periodically assess the impacts of different sanctions programs would encourage their use only when Washington has a compelling reason to do so and when the benefits clearly outweigh the costs.

ALLOW PUBLIC COMMENT

A second, related step to contain the overuse of sanctions is to provide a formal mechanism for individuals, companies, allied governments, and other entities affected by U.S. sanctions to offer comments on them, and to require sanctions policymakers to address those comments.

Most areas of U.S. regulation are subject to “notice and comment” rulemaking, in which an agency must publish a draft regulation and give affected parties a chance to provide comments before the regulation is finalized. This notice and comment process makes for better policy, by, for example, enabling stakeholders to highlight unintended consequences and to propose alternatives that can achieve a similar beneficial impact at a lower cost. Many foreign-policy-related regulations are subject to this process: the Commerce Department and State Departments, for instance, regularly subject U.S. export control regulations to a notice and comment process to solicit stakeholder feedback before the regulations become final. Similarly, the Treasury’s Financial Crimes Enforcement Network (FinCEN) puts certain anti-money-laundering and other financial crime rules under notice and comment processes.

Despite the fact that sanctions are implemented via regulation, they are typically exempt from notice and comment rulemaking. OFAC and the State Department will meet with companies informally, but this process privileges a relative handful of well-connected companies and lawyers, rather than providing a neutral process for any interested stakeholder to offer comments. More important, OFAC and State are under no obligation to respond to such informal comments or even seriously consider them. This is in marked contrast to the notice and comment process for most regulations, which requires agencies to give reasoned responses to comments, explain why they agree or disagree with a comment, and state whether they will amend a proposed rule in response to the comments.

Of course, standard notice and comment rule-making procedures would create obvious challenges in the sanctions context. Publishing a draft sanctions executive order and allowing stakeholders to comment before the EO came into force would also give time to the potential sanctions targets to move assets outside the reach of the United States and take other steps to evade the sanctions before they came legally into force. But the government could subject sanctions regulations to notice and comment rule-making after the fact, giving stakeholders an opportunity to voice concerns, and should be required to amend the regulations, where appropriate, in response.

National Security Adviser John Bolton discusses

National Security Adviser John Bolton discusses "Protecting American Constitutionalism and Sovereignty from International Threats" at a forum in Washington, September 2018.

HOW WILL PRESIDENTS USE SANCTIONS?

The third way to contain the overuse of sanctions is to ask each new presidential administration to articulate a set of principles for when and how it will use the penalty.

In recent decades, administrations of both parties have sought to articulate principles for other key tools in the U.S. foreign policy toolkit. Under Obama, for example, the State Department conducted a Quadrennial Diplomacy and Development Review to identify a strategic vision for how the administration intended to deploy and strengthen U.S. diplomatic and development capabilities. In January 2018, the Trump administration released a National Defense Strategy to articulate a vision for strengthening Washington’s defense capabilities in a world with a growing number of current and potential military threats. In 1984, Secretary of Defense Caspar Weinberger gave a speech articulating the Reagan administration’s doctrine for when it would use military force, and in a 1992 Foreign Affairs article then Joint Chiefs of Staff Chairman Colin Powell outlined the principles that the George H. W. Bush administration used when it considered the use of military force.

Future presidents should articulate a set of principles for how they plan to use sanctions, and early enough in their administration that the principles can impact specific policies. Of course, any administration will want flexibility in implementation, and unexpected crises will challenge a government to use sanctions in ways it did not originally contemplate. But if administrations made a practice of articulating their vision for the use of sanctions at the beginning of their tenure, they would at least have a framework to follow, and would have to justify a use of sanctions that appeared to fall outside the framework’s bounds.

A RETURN TO MULTILATERALISM

Perhaps most important, Washington needs to refocus on deploying sanctions in a multilateral framework to the greatest extent possible. As the Trump administration’s unilateral approach to reinstating sanctions on Iran has shown, in the short term the United States wields sufficient global economic clout to achieve economic impacts even if the rest of the world objects to its policy. Sanctions on Turkey, too, have affected markets even though they are unilateral. But it is nonetheless true that in many cases multilateral sanctions are more effective. North Korea, for example, engages in some 90 percent of its trade with China, a country with which it shares a land border. If China were not on board with sanctions, they would have far less impact—a fact that the Trump administration acknowledges and which prompted it to enact the majority of its North Korea sanctions through the U.N. Security Council.

Washington needs to refocus on deploying sanctions in a multilateral framework to the greatest extent possible.

More worrying, the unilateral use of sanctions raises questions of legitimacy and, as we are seeing with Iran, can encourage sharp global diplomatic blowback—blowback that, if sustained, will likely motivate serious efforts even by U.S. allies to insulate themselves and their trade with other countries from the United States’ coercive economic power over time.

Washington needs to renew its focus on multilateral coordination, particularly with close allies. Aside from U.N. sanctions, the U.S does coordinate some sanctions programs, such as sanctions on the Islamic State and on Venezuela, through ad hocworking groups. But the United States should reaffirm a commitment to multilateralism by asking close allies to join together in establishing a standing sanctions coordinating mechanism to coordinate on both strategic issues, such as what parts of a country’s economy to target, and also technical issues, such as aligning definitions and mitigating unintended adverse impacts. Think of it as a sanctions parallel to a NATO defense coordinating mechanism. Although the United States should and will reserve the right to deploy sanctions unilaterally, much as it reserves the right to deploy its military unilaterally, renewing focus on a multilateral approach would dramatically reduce the risks of overuse.

The United States’ growing use of sanctions in recent years has had enormous benefits for U.S. national security. But it also comes with growing political, diplomatic, and economic costs. To prevent the overuse of sanctions and blowback that would lead to their weakening, Washington needs to put in place mechanisms to force American policymakers to more carefully and rationally weigh benefits and costs, allow affected parties a way to engage and offer comments, ask administrations to define up front how they plan to use sanctions, and to ensure a focus on cooperating with U.S. allies. Doing so will ensure that sanctions are used judiciously and retain their effectiveness as a tool of U.S. foreign policy.

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