Sanctions in a Globalized Economy

Western companies are divesting from Russia following the South Ossetia crisis and are scaling back investment in Iran over fears of the West imposing new sanction on the country. But as large companies are moving out of Iran, small and medium size companies are moving in to fill the void. According to a story reported in the Financial Times on Thursday, trade between the European Union and Iran actually increased as a result. Between January and April 2008, EU exports to Iran increased by 17.8%, while imports from Iran increased by 24%. The increase in European-Iranian trade occurred despite three UN resolutions in intended to isolate Iran, and despite significant pressure on the part of the European Union to discourage trade and investment in the country.

The debate over the effectiveness of sanctions a foreign policy tool goes back some time. The United Kingdom imposed sanctions on South Rhodesia (which would later become Zimbabwe) in 1965. It hoped that the sanctions would force the white minority government in South Rhodesia to move towards multi-racial democracy. Similar sanctions were often debated (though rarely imposed) on South Africa during the apartheid era. The sanctions against Southern Rhodesia (and the limited trade restrictions imposed against South Africa) were largely ineffective. The United Nations imposed sanctions on Iraq after the first Persian Gulf War. In the Iraqi case, U.S. enforcement of the sanctions made them relatively tight, thought the controversy over the misuse of the UN Oil for Food program later suggested that there were holes there as well. The United States has maintained sanctions against Cuba since 1962, through many other countries (including Canada and most European states) have generally refused to recognize the embargo. The Helms-Burton Act (passed in 1996) attempted to strengthen the Cuban embargo by permitting the government to block access to U.S. markets for any company that does business with Cuba.
This has been a very controversial policy in Europe, and may be a violation of World Trade Organization rules.

The effectiveness of sanctions in an era of economic globalization remains even more debated. On the one hand, economic globalization creates interdependence between countries which could make them more vulnerable to the effects of sanctions (though it also raises the cost of the sanctions for the country which is imposing them). On the other hand, globalization also creates many different avenues for trade. As a result, the closure of one market may merely shift buyers and sellers to new markets or trading partners. Nevertheless, it seem that effective sanctions require a strong international consensus or a country willing to bear the cost of enforcement. The sanctions against Iraq, for example, had both. Where this is not the case (contemporary Iran and Russia), sanctions are not likely to be effective in achieving foreign policy goals.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s