Chapter 3 Anatomy of Economic Sanctions

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PART II

THEORIESOF ECONOMIC SANCTIONS

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the Megaran decree limiting the entry of Megaras products into Athenian markets.

The subsequent refusal to lift the Athenian boycott of Magara helped to trigger the

Peloponnesian War.4

In the increasingly integrated global economy of the twentieth century, economic

sanctions have become a popular tool of statecraft, particularly in the United States in

the 1990s. In 1919, Woodrow Wilson believed that the economic, peaceful, silent

deadly remedy of economic sanctions could be used by the League of Nations to

police international society.5 Albert Hirschman shows how states tried to minimize

their vulnerability to the interruption of strategic imports while maximizing others

need to trade with them. In order to influence other countries behavior, Nazi Germany

was particularly aggressive at cultivating economic dependency in its eastern

European neighbors.6 There has been resurgence in the use of economic sanctions,

especially since the end of the Cold War. Great powers, stymied by the price of

military intervention in places such areas as Bosnia, Chechnya, and Somalia, are

looking to alternative policy instruments to pursue their national interests.7 For

instance, in 1997 Sergei Karaganov, head of the Foreign and Defense Policy Council 8,

articulated Russian policy by stating that economic influence bestows Russia with

imperial power without a need to have physical control over another territory.9

According to HSE, 165 cases of economic sanctions were launched between

4 Thucydides,History of the Peloponnesian War, translated by Rex Warner (New York: PenguinBooks, 1972), pp. 72-3, 118.

5 Gary Clyde Hufbauer, Jeffery J. Schott, and Kimberly Ann Elliot,Economic SanctionsReconsidered: History and Current Policy, 2nd ed. (Washington, D.C.: Institute of InternationalEconomics, 1990), p. 9. Quoted in Saul K. Padover, (ed.), Wilsons Ideals (Washington: AmericanCouncil on Public Affairs, 1942), p. 108.

6 Albert O. Hirschman,National Power and the Structure of Foreign Trade, expanded ed. (Berkeley,C.A.: University of California Press, 1980).

7 Elizabeth S. Rogers, Using Economic Sanctions to Control Regional Conflicts, Security Studies,vol. 5, no. 4 (Summer 1996), pp. 43-72.

8 The Foreign and Defense Policy Council is an influential group of Russian academics, businessmen,

and politicians across the political spectrum.9 Chrystia Freeland, From Empire to Nation State: As NATO Expands Eastwards Russia Is Having

to Come to Terms with the Loss of Its Superpower Status,Financial Times, July 10, 1997, p. 29.

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1914 and 1998, of which 115 cases involved the United States, and of which 68 cases

were unilateral U.S. initiatives.10 In addition, the Russian Federation employed

economic sanctions on more than 35 occasions between 1992 to 1997 as a way of

extracting political concessions from the Newly Independent States (NIS).11 The

United Nations Security Council imposed sanctions only twice in the first 45 years of

its existence, against Rhodesia in 1966 and South Africa in 1977. However, during the

1990s, the Security Council imposed comprehensive or partial sanctions more than 16

times.12 These unprecedented activities have generated substantial discussion of

economic sanctions in policy and academic circles.13

These discussions have

addressed the following issues: (1) Have sanctions been effective, and what is meant

by effective; (2) What variables affect the degree of effectiveness? (3) How does

one assess the importance of unintended side effects? (4) What are the effects on the

side imposing sanctions?

For lawyers, negative sanctions are measures of enforcement, which follow

violations of law. They are penalties, which indicate the limits of permissible conduct

and encourage compliance with known rules. Margaret Doxey defines economic

sanctions as penalties threatened or imposed as a declared consequence of the targets

failure to observe international standards or international obligations.14M. S. Daoudi

and M. S. Dajani define economic sanctions as punitive actions initiated by a number

of international actors, particularly a world organization such as the League of Nations

10 Gary Clyde Hufbauer, Trade as a Weapon, paper for the Fred J. Hansen Institute for World Peace,San Diego State University, World Peace Week, April 12-18, 1999,http://www.iie.com/TESTMONY/gch9.htm, accessed July 25, 2000, p. 3 of 5.

11 Daniel W. Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (NewYork: Cambridge University Press, 1999), p. 154.

12 David Cortright and George A. Lopez, The Sanctions Decade: Assessing UN Strategies in the 1990s(Boulder, Colorado: Lynne Rienner, 2000), pp. 1-2.

13 By 2000 the Carnegie Commission on Preventing Deadly Conflict, the Center for Preventive Actionof the Council on Foreign Relations, Center for Strategic and International Studies, Institute forInternational Economics, and the Brookings Institution had all undertaken studies of sanctions policy

either in general or toward a particular country.14 Margaret P. Doxey,Economic Sanctions and International Enforcement, 2nd ed. (New York: Oxford

University Press, 1980), p. 9.

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or the United Nations, against one or more states for violating a universally approved

charter, as inducements to follow, or refrain from following, that particular course of

conduct and conform with international law.15

In the 1920s and early 1930s, in line with the concept of enforcement of

international law, economic sanctions meant League of Nations sanctions. According

to HSE, there were only five cases of economic sanctions in total employed by the

League of Nations: against Yugoslavia in 1921, Greece in 1925, Paraguay and Bolivia

in 1932, and Italy in 1935.16 Although UN sanctions have recently become quite

common, it would be unrealistic to limit the economic sanctions label to UN

enforcement measures, or to measures imposed by any international body against its

members. It is important to establish a more precise definition of economic sanctions,

which now feature so prominently instate practice forotherpurposes.

Essentially, economic sanctions imposed by a state, a group of states, or an

international organization become a form of power exercised to influence other

countries behavior or policy, which does not necessarily violate international law. For

example, Johan Galtung defines economic sanctions as actions initiated by one or

more international actors (the senders) against one or more others (the receivers) in

order to punish the receivers by depriving them of some value and/or to make the

receivers comply with certain norms the senders deem important. 17 Makio Miyagawa

has a similar definition.

18

Miroslav Nincic and Peter Wallensteen define economic coercion as the

imposition of economic pain by one government on another in order to attain some

15 M. S. Daoudi and M. S. Dajani,Economic Sanctions: Ideal and Experience (Boston: Routledge &Kegan Paul, 1983), p. 8.

16 Gary Clyde Hufbauer, Jeffery J. Schott, and Kimberly Ann Elliot,Economic SanctionsReconsidered: History and Current Policy, 2nd ed. (Washington, D.C.: Institute of InternationalEconomics, 1990), p. 16.

17 Johan Galtung, On the Effects of International Economic Sanctions, World Politics, vol. 19(October 1966- July 1967), p. 379.

18 Makio Miyagawa,Do Economic Sanctions Work? (New York: St. Martins Press, 1992), p. 7.

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political goal. It is implemented, or at least initiated, by political authorities who

intervene in the normal operation of economic relations.19 [Emphasis added] James

Lindsay defines economic sanctions as measures in which one country (the initiator)

publicly suspends a major portion of its trade with another country (the target) to

attain political objectives.20 Robert Pape, Ernest Preeg, Daniel Drezner, Neta

Crawford, Jean-Marc Blanchard, Edward Mansfield, Norrin Ripsman, Steve Chan,

and A. Cooper Drury have a similar definition.21 The use of the term political

goals/objectives is intended to rule out cases in which sanctions are used to obtain

commercial ends.

In their seminal work,Economic Sanctions Reconsidered, HSE define economic

sanctions as the deliberate, government-inspired withdrawal, or threat of withdrawal,

of customary trade or financial relations. Customary does not mean contractual; it

simply means levels of trade and financial activity that would probably have occurred

in the absence of sanctions.22 Based on her literature review, Donna Kaplowitz

defines economic sanctions as economic or financial prohibitions taken by one or

more countries the senders to punish another country or countries the target or

19 Miroslav Nincic and Peter Wallensteen, Economic Coercion and Foreign Policy, in MiroslavNincic and Peter Wallensteen (eds.),Dilemmas of Economic Coercion: Sanctions in World Politics(New York: Praeger, 1983), p. 3.

20 James M. Lindsay, Trade Sanctions as Policy Instruments: A Re-examination,InternationalStudies Quarterly, no. 30 (1986), p. 154.

21 Robert A. Pape, Why Economic Sanctions Do Not Work,International Security, vol. 22, no. 2(Fall 1997), pp. 93-4. Ernest H. Preeg,Feeling Good or Doing Good with Sanctions: Unilateral

Economic Sanctions and the U.S. National Interest(Washington, D.C.: Center for Strategic andInternational Studies, 1999), p. 4. Daniel W. Drezner, The Sanctions Paradox: Economic Statecraftand International Relations (New York: Cambridge University Press, 1999), pp. 2-3. Neta C.Crawford, Trump Card or Threat?: An Introduction to Two Sanctions Debates, in Neta C.Crawford and Audie Klotz,How Sanctions Work: Lessons from South Africa (New York: St.Martins Press, 1999), p. 5. Jean-Marc F. Blanchard, Edward D. Mansfield, and Norrin M. Ripsman,The Political Economy of National Security: Economic Statecraft, Interdependence, andInternational Conflict, Jean-Marc F. Blanchard, Edward D. Mansfield, and Norrin M. Ripsman,

Power and the Purse: Economic Statecraft, Interdependence, and National Security (Portland, OR:Frank Cass, 2000), p. 3. Steve Chan and A. Cooper Drury, Sanctions as Economic Statecraft: AnOverview, in Steve Chan and A. Cooper Drury (eds.), Sanctions as Economic Statecraft: Theoryand Practice (New York: St. Martins, 2000), pp. 1-2.

22 Gary Clyde Hufbauer, Jeffery J. Schott, and Kimberly Ann Elliot,Economic SanctionsReconsidered: History and Current Policy, 2nd ed. (Washington, D.C.: Institute of InternationalEconomics, 1990), p. 2.

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force change in the targets policies, or demonstrate to a domestic or international

audience the senders position on the targets policies.23 Obviously, both objectives

can also be sought simultaneously, that is, to change the targets behavior and provide

valued symbols to domestic or international constituencies.

Economic sanctions, sometimes synonymous with economic coercion, are

distinct from economic warfare (strategic embargo), economic inducements, and trade

war, in terms of forms, purposes, and occasions. In essence, economic sanctions,

according to David Baldwin, are only one category of economic statecraft, which

refers to influence attempts relying primarily on resources which have a reasonable

semblance of a market price in terms of money. Economic warfare (strategic embargo)

seeks to weaken an adversarys aggregate economic potential in order to weaken its

military capabilities, either in a peacetime arms race or in an ongoing war. Economic

warfare represents a long-term approach to dealing with adversaries while economic

sanctions usually have immediate political goals. Economic inducements involve

commercial concessions, technology transfers, and other economic carrots that are

extended by a sender in exchange for political compliance on the part of a target.

Economic inducements are also called positive sanctions. Trade wars are disputes

over economic policy and behavior instead of political/security goals.24

This study defines economic sanctions as the threat or act by a state or coalition

of states, the sender, to disrupt customary economic exchange with another state, the

target, in order to punish the target, force change in the targets policies, or

23 Donna Rich Kaplowitz,Anatomy of a Failed Embargo: The Case of the U.S. Sanctions againstCuba, vol. I, Ph.D. dissertation, Johns Hopkins University, 1995, p. 32.

24 David Baldwin,Economic Statecraft(Princeton, N.J.: Princeton University Press, 1985), pp. 12-40.Miroslav Nincic and Peter Wallensteen, Economic Coercion and Foreign Policy, in Miroslav

Nincic and Peter Wallensteen (eds.),Dilemmas of Economic Coercion: Sanctions in World Politics(New York: Praeger, 1983), p. 3. Richard J. Ellings,Embargoes and World Power: Lessons from

American Foreign Policy (Boulder: Westview Press, 1985), p. 8. Richard N. Haass (ed.),EconomicSanctions and American Diplomacy (New York: Council on Foreign Relations, 1998), p. 1. DanielW. Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York:

Cambridge University Press, 1999), pp. 2-3. Steve Chan and A. Cooper Drury, Sanctions asEconomic Statecraft: An Overview, in Steve Chan and A. Cooper Drury (eds.), Sanctions as

Economic Statecraft: Theory and Practice (New York: St. Martins, 2000), pp. 1-2.

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demonstrate to a domestic or international audience the senders position on the

targets policies. The sender is designated as the country or international organization

that is the principal author of the sanctions. The target is designated as the country that

is the immediate object of the sanctions. Economic sanctions do not include economic

warfare, economic inducements, and trade wars. The following sections will elaborate

further on the types, goals, logic, costs, and effectiveness of economic sanctions.

II. The Types of Economic Sanctions

There are four main methods of applying economic sanctions by the sender: trade

controls, suspension of aid or technical assistance, freezing of the targets financial

assets, and blacklisting of companies involved with bilateral business.25

First, trade controls (both goods and services) by thesenderinclude one or more

of the following elements: (1) quotas on exports/imports; (2) restrictive

exports/imports licensing; (3) limited or total export disruption (embargo); (4) limited

or total import disruption (boycott); (5) discriminatory tariff policy (including denial

of most favored nation status); (6) restriction or cancellation of fishing rights; (7)

suspension or cancellation of trade agreements; and (8) bans on strategic goods and

advanced technology exports.

Second, suspension of aid or technical assistance by the sender includes one or

more of the following elements: (1) reduction, suspension, or cancellation of credit

facilities at concessionary or market rates; (2) reduction, suspension, or cancellation of

technical assistance, military assistance, development assistance, and training

programs; and (3) votes against loans, grants, subsidies, and funding for technical or

other assistance from international organizations.

25 Margaret P. Doxey,Economic Sanctions and International Enforcement, 2nd ed. (New York: OxfordUniversity Press, 1980), pp. 14-5.

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Third, freezing of the targets financial assets by the senderincludes one or more

of the following elements: (1) freezing or confiscation of bank assets of the target

government or target nationals; (2) confiscation or expropriation of other target assets,

including the targets investment in the sender; (3) freezing interest or other transfer

payments; (4) refusal to refinance or reschedule debt repayments (interest and

principal); and (5) suspension or cancellation of joint projects.

Fourth, blacklisting of companies involved with bilateral business by the sender

includes the following elements: (1) blacklisting of senders or third parties

companies doing business with the target, including trade and investment; and/or (2)

blacklisting of the targets companies doing business with the sender, including trade

and investment.

This study will discuss four particular scenarios within the above four categories:

(1) a possible PRC embargo against Taiwan; (2) a possible Chinese boycott of Taiwan-

made goods; (3) the possible freezing or expropriation of Taiwans investment in

China; and (4) the possible blacklisting of Taiwan companies. This study focuses on

these possible instruments of leverage for the following reasons. First, trade sanctions

(embargo and boycott) are the most common form of economic sanctions and, as a

result, these two terms are sometimes treated as synonymous. Second, embargo and

boycott are more comprehensive and thus tend to be more effective in inflicting costs

on the target than other forms of trade sanctions. Third, neither Taiwan nor China

provides official aid or technical assistance to the other. Therefore, there is no need to

consider the case of suspension of aid or technical assistance. Fourth, after the victory

of Chen Shui-bian in Taiwans March 2000 presidential election, Beijing overtly

warned some Taiwan business figures that their interests in China would be adversely

affected if they supported Taiwan independence.26

26 On the Current Development of Cross-Strait Economic Relations: Questions Answered by theLeader of the Central Taiwan Affairs Office and the State Council Taiwan Affairs Office,Renmin

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Furthermore, the possible scenarios of Chinas embargo and boycott against

Taiwan, and a freezing or expropriation of Taiwans investment in the PRC would

represent the most extreme situations in which China might seek to achieve its

political goals. If China cannot win concessions from Taiwan using these extreme

instruments, it would be more difficult for China to extract concessions successfully

through milder forms of sanction measures.

III. The Goals of Economic Sanctions

Nearly all sanctions scholars recognize the difficulty in determining the senders

objectives. This is particularly true when the senders goals are primarily

demonstrative for domestic or international audiences. Also, the sender is usually a

heterogeneous entity with different components intending to achieve different

purposes. Therefore, there is a need to explore the hidden agendas embedded in

sanctions as well as the stated goals. A review of economic sanctions cases and

previous scholarly studies suggests that the goals of economic sanctions fall into five

categories: punishment (deterrence), compliance (coercion), destabilization

(subversion), signaling, and symbolism (demonstrative effect).27

Ribao [Peoples Daily], April 10, 2000, p.1.27 Miroslav Nincic and Peter Wallensteen, Economic Coercion and Foreign Policy, in Miroslav

Nincic and Peter Wallensteen (eds.),Dilemmas of Economic Coercion: Sanctions in World Politics(New York: Praeger, 1983), pp. 6-8. Thomas O. Bayard, Joseph Plezman, and Jorge Perez-Lopez,Stakes and Risks in Economic Sanctions, World Economy, vol. 6, no. 1 (March 1983), p. 74.James M. Lindsay, Trade Sanctions as Policy Instruments: A Re-examination,InternationalStudies Quarterly, no. 30 (1986), pp. 155-6. David Leyton-Brown, Lessons and PolicyConsiderations about Economic Sanctions, in David Leyton-Brown (ed.), The Utility of

International Economic Sanctions (New York: St. Martins Press, 1987), pp. 303-6. Gary ClydeHufbauer, Jeffery J. Schott, and Kimberly Ann Elliot,Economic Sanctions Reconsidered: Historyand Current Policy, 2nd ed. (Washington, D.C.: Institute of International Economics, 1990), pp. 11,38. Makio Miyagawa,Do Economic Sanctions Work? (New York: St. Martins Press, 1992), pp. 89-106. David W. Hunter, Western Trade Pressure on the Soviet Union: An Interdependence

Perspective on Sanctions (New York: St. Martins Press, 1991), pp. 44-6. Donna Rich Kaplowitz,

Anatomy of a Failed Embargo: The Case of the U.S. Sanctions against Cuba, vol. I, Ph.D.dissertation, Johns Hopkins University, 1995, pp. 34-42. Margaret P. Doxey,International Sanctionsin Contemporary Perspective, 2nd ed. (New York: St. Martins Press, 1996), pp. 54-65.

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Punishment (Deterrence)

Both historically and conceptually, economic sanctions have been used to punish

a transgression. Like sending a criminal to prison, the goal is not necessarily to

rehabilitate the wrong-doer, but to punish him for his offense and to deter others from

such wayward behavior. Economic sanctions invoked for punitive ends also serve to

define unacceptable behavior, either unilaterally or multilaterally, and thus contributes

to the establishment of internationally accepted standards of legitimate conduct.28

More specifically, the sender may invoke sanctions to discourage future

objectionable policies by demonstrating the senders willingness and ability to

retaliate. If the undesirable behavior is punished with sufficient severity, it may not be

repeated by the target country. For example, in announcing a grain embargo against

the Soviet Union issued in response to the invasion of Afghanistan, President Jimmy

Carter declared, [W]e will deter aggression.29

Similarly, the sender may employ sanctions in order to deterothercountries from

undertaking undesired behavior by demonstrating to third parties the likely cost of

misbehavior. For example, one purpose of U.S. economic sanctions against Cuba

(1960-) was to discourage other Latin American nations from emulating Castros

policies. Similarly, Soviet economic sanctions against Yugoslavia (1948-1955) and

Lithuania (1990) served to deter other countries from emulating the targets policy of

non-cooperation with the Soviet Union.

Compliance (Coercion)

28 David Leyton-Brown, Lessons and Policy Considerations about Economic Sanctions, in DavidLeyton-Brown (ed.), The Utility of International Economic Sanctions (New York: St. Martins Press,

1987), p. 303.29 Jimmy Carter, Transcript of Presidents Speech on Soviet Military Intervention in Afghanistan,

New York Times, January 5, 1980, p. 6.

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The sender may impose economic sanctions in order to force the target to alter its

policy or behavior to conform to the senders preference or specific political goals,

such as compelling desired action, encouraging acceptance of international norms, or

restoring the status quo. In deterrence, one seeks to prevent action. In compliance, the

sender is seeking to force the target to undo an action. The latter is far more difficult to

achieve, as Alexander George and William Simons explained in their edited volume

The Limits of Coercive Diplomacy.30

For example, the United Kingdom and the League of Nations imposed sanctions

on Italy (1935-1936) in an effort to compel Mussolini to withdraw troops from

Abyssinia. The Soviet Unions economic sanctions against Yugoslavia (1948-1955),

China (1960-1970), and Albania (1961-1965) were imposed to win acceptance of

Soviet leadership in other socialist countries. The U.S. grain embargo against the

Soviet Union (1980-1981) sought Soviet withdrawal from Afghanistan. The United

Nations economic sanctions against Rhodesia (1965-1979) were designed to force

acceptance of international standards governing human rights. The United Nations

economic sanctions against Iraq (1990-1991) were crafted to force Saddam Hussein to

withdraw from Kuwait and subsequently to allow UN arms inspectors to complete

their work. The United States economic sanctions against India (1998-) were designed

to force India to sign the Comprehensive Test Ban Treaty immediately and without

conditions.

Destabilization (Subversion)

The sender may impose economic sanctions to destabilize the target government

or subvert the entire target political regime. For example, Stalin sought to replace Tito

30 Alexander L. George and William E. Simons, The Limits of Coercive Diplomacy, second edition(Boulder: Westview Press, 1994).

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with a pro-Soviet leader by imposing economic sanctions against Yugoslavia (1948-

1955). When the U.S. embargoed Cuba (1960-), it hoped to replace Castros regime

with a non-communist one. The economic sanctions imposed by the Organization of

American States and the United States against Haiti (1991-1996) demanded the

restoration of the democratically elected President Jean-Bertrand Aristide, who had

been overthrown in a military coup led by Lieutenant General Raoul Cedras.

Signaling

The imposition of economic sanctions conveys a signal of the senders resolve to

both the target and the senders allies. It says that the words of the sender will be

supported with action. Economic sanctions by a great power or an international

organization often imply a threat of more drastic action (for example, military) against

the target country. HSE contend that sanctions frequently serve as a junior weapon in a

battery of diplomatic artillery aimed at the antagonistic state. In the 115 cases, HSE

counted 34 cases of economic sanctions with companion policies of quasi-military

action or/and regular military action.31 Economic sanctions may precede or

accompany actual armed hostility. This indicates that the sender may use economic

sanctions as a signal to convince the target to accept the senders preference before

launching military action.

For example, the United States and the United Nations imposed comprehensive

economic sanctions, combined with vigorous diplomacy and a gradual military

buildup, against Iraq in 1990 before they decided to adopt military action in 1991. Eric

31 Gary Clyde Hufbauer, Jeffery J. Schott, and Kimberly Ann Elliot,Economic SanctionsReconsidered: History and Current Policy, 2nd ed. (Washington, D.C.: Institute of InternationalEconomics, 1990), pp. 43, 56-62.

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Melby argues that economic sanctions against Iraq were the best tool available on

August 2, 1990, to signal outrage and determination to resist Saddams annexation of

Kuwait.32 In addition, Lisa Martin argues that costly sanctions by a great power can

signal its determination and thus convince other states to join in the sanctioning

effort.33

Symbolism (Demonstrative Effect)

Oftentimes, the demonstrative element behind a sanctions policy is not explicitly

stated as a goal. Nevertheless, the demonstrative element is on occasion the most

important goal, or the only meaningful function of the sanctions policy. Economic

sanctions are often intended to defuse pressures and demonstrate the outrage of the

domestic and international audiences.

For domestic audiences, economic sanctions will defuse pressures for more

extreme action and satisfy others that the government is acting firmly. For example,

former British Foreign Minister David Lloyd George remarked in 1935 on the League

of Nations economic sanctions against Italy (1935-1936): [Sanctions] came too late

to save Abyssinia, but they are just in the nick of time to save the [British]

Government.34 Only two weeks before election day in November 1960, President

Eisenhower announced the U.S. export embargo against Cuba (1960-), probably in an

effort to help the Republican presidential candidate, Richard Nixon. The other

candidate, John Kennedy, also promised the electorate to do something about Cuban

32 Eric D. K. Melby, Iraq, in Richard N. Haass (ed.),Economic Sanctions and American Diplomacy(New York: Council on Foreign Relations, 1998), pp. 107-128.

33 Lisa L. Martin, Coercive Cooperation: Explaining Multilateral Economic Sanctions (Princeton,New Jersey: Princeton University Press, 1992), pp. 36-8.

34 Quoted in Gary Clyde Hufbauer, Jeffery J. Schott, and Kimberly Ann Elliot,Economic SanctionsReconsidered: History and Current Policy, 2nd ed. (Washington, D.C.: Institute of InternationalEconomics, 1990), p. 3.

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leader Fidel Castro.35

Similarly, the support of many governments for the economic boycott of Ian

Smiths Rhodesia (1965-1979) was apparently intended as a display of opposition to

racist policies and meant for domestic consumption within the sender nations.36 The

mounting domestic pressure placed upon U.S. President Ronald Reagan following the

declaration of martial law by the Polish government on December 13, 1981,

contributed to President Reagans decision to announce comprehensive sanctions

against the Soviet Union (1981-1982) on December 22.37

For international audiences, economic sanctions can deflect international

criticism, give the appearance of concern, raise the visibility of an issue, show

leadership initiative and commitments, and demonstrate moral outrage and

disapproval of a regime when silence might be construed as tacit approval. For

example, the U.S. economic sanctions against the Soviet Union (1983) were aimed at

galvanizing criticism of Moscows downing of a Korean airliner. The Wests economic

sanctions against China (1989-) in the wake of the Tiananmen Square incident were

principally designed to assuage domestic constituencies and to make a moral

statement. For example, President George Bush stated on June 6, 1989: The United

States cannot condone the violent attacks and cannot ignore the consequences for our

relationship with China.38 The principal emphasis was on condemning the violent

repression of demonstrations, focusing the worlds gaze on the brutal, anti-democratic

act of the Chinese government, and discrediting the Beijing regime.39

35 Makio Miyagawa,Do Economic Sanctions Work? (New York: St. Martins Press, 1992), p. 95.36 Miroslav Nincic and Peter Wallensteen, Economic Coercion and Foreign Policy, in Miroslav

Nincic and Peter Wallensteen (eds.),Dilemmas of Economic Coercion: Sanctions in World Politics(New York: Praeger, 1983), pp. 7-8.

37 Makio Miyagawa,Do Economic Sanctions Work? (New York: St. Martins Press, 1992), p. 96.38 Case 89-2 U.S. v. China,http://www.iie.com/FOCUS/SANCTION/china2.htm, accessed January

10, 2001.39 These sanctions were also designed to deter Eastern European regimes from engaging in similar

brutal behavior as the Warsaw Pact broke apart. Makio Miyagawa,Do Economic Sanctions Work?

(New York: St. Martins Press, 1992), pp. 93-4. Gary Clyde Hufbauer, Jeffery J. Schott, andKimberly Ann Elliot,Economic Sanctions Reconsidered: History and Current Policy, 2nd ed.(Washington, D.C.: Institute of International Economics, 1990), p. 3.

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More comprehensive theories on the initiation of economic sanctions -- why the

sender initiates economic sanctions against the target -- will be discussed in Chapter 4.

IV. The Causal Logic of Economic Sanctions

More than a half century ago, Albert Hirschman showed in his bookNational

Power and the Structure of Foreign Trade that the ability of one government to

threaten to interrupt its trade with another can be an effective weapon in the struggle

for power. In it, he argues that if a trading relationship is much more important to one

government than to another, then the second may be able to demand from the first not

only better terms of trade, but also significant political concessions.40

Following Hirschmans argument, the conventional theory about how economic

sanctions are supposed to work is that sufficient economic pressure upon the target

nation(s) caused by the disruption of economic relations can induce or compel that

country to engage in more acceptable behavior in the eyes of the sender states. This

proposition is based on the fundamental economic theory that international trade has

positive income effects on nations, and that forced withdrawal from such trade reduces

national income. If the target benefits more in the bilateral economic relations than the

sender does, the sender would call for compensation on political issues by the target in

exchange for maintaining bilateral economic relations. In addition, the conventional

theory assumes that political change is directly proportional to economic hardship.

The greater the economic pain caused by economic sanctions, the higher the

probability of political compliance. As a result, the conventional theory generally

40 Albert O. Hirschman,National Power and the Structure of Foreign Trade, expanded ed. (Berkeley,C.A.: University of California Press, 1980), pp. 17, 26.

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argues that the principal determinant of the success of economic sanctions is the extent

of disutility experienced by the target.41

However, Johan Galtung criticizes the conventional theory as nave because it

does not take into account the possibility that value-deprivation may initially lead to

political integration and only later perhaps much later, or even never to political

disintegration.42 Galtung emphasizes two points: First, it ignores the rally-around-

the-flag effect of increased political integration as a response to economic sanctions.

Second, it ignores the many counter measures available to the target that tend to

nullify the degree of economic damage.43

Although Galtung points out the paradox

that economic sanctions might lead to political integration, he does not provide a

comprehensive causal logic of economic sanctions.

Since the sender attempts to influence the behavior or policy of the target through

economic sanctions, sanctions are an exercise of power between states per se. As

George Shambaugh contends, [O]ne actor will be able to exercise power over another

if it possesses a sufficient quantity of those particular resources that are valued by the

target.44 Therefore, for economic sanctions to work the sender must wield its

economic resources of favorable asymmetrical interdependence to influence the

targets behavior and policies.

Generally speaking, Robert Keohane and Joseph Nye define power as the ability

of an actor to get others to do something they otherwise would not do (and at an

acceptable cost to the actor) and control over outcomes.45 The first type of

41 Donald L. Losman,International Economic Sanctions: The Cases of Cuba, Israel, and Rhodesia(Albuquerque: University of New Mexico Press, 1979), pp. 124-128. David Cortright and George A.Lopez, Sanctions and Incentives as Tools of Economic Statecraft, in Raimo Vayrynen (ed.),Globalization and Global Governance (Lanham, Maryland: Rowman & Littlefield Publishers, Inc.,1999), p. 114.

42 Johan Galtung, On the Effects of International Economic Sanctions, World Politics, vol. 19(October 1966- July 1967), pp. 388-9.

43 Johan Galtung, On the Effects of International Economic Sanctions, World Politics, vol. 19(October 1966- July 1967), pp. 378-416.

44 George E. Shambaugh, States, Firms, and Power: Successful Sanctions in United States ForeignPolicy (Albany, New York: State University of New York Press, 1999), pp.6-10.

45 Robert O. Keohane and Joseph S. Nye,Power and Interdependence, 3rd ed. (New York: Longman,

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have been altered.47

Keohane and Nye contend that sensitivity interdependence will be less important

than vulnerability interdependence in providing power resources to the sender because

the former does not take into consideration the alternative market or suppliers apart

from the sender. The vulnerability dimension of interdependence rests on the relative

availability and costliness of the alternatives that the target faces. If the target can

reduce its costs by altering its policy, either domestically or internationally, the

sensitivity patterns will not be a good guide to power resources. Johan Galtung, Steve

Chan, and A. Cooper Drury also emphasize the importance of vulnerability in

understanding the effectiveness of economic sanctions.48

Three factors will further shape vulnerability interdependence. First, the

assistance from third parties will mitigate or even reverse the relationship of

asymmetrical interdependence. Second, counter measures by the target and retaliation

by third parties against the sender will increase the costs to the sender for initiating

economic sanctions against the target and thus mitigate or even reverse the

relationship of bilateral asymmetrical interdependence. Third, whether the sender can

bear the absolute costs of initiating economic sanctions will also influence the

effectiveness of economic sanctions although most economic sanctions in the past

generated trivial costs for the sender in terms of lost Gross National Product (GNP).49

47 Robert O. Keohane and Joseph S. Nye,Power and Interdependence, 3rd ed. (New York: Longman,2001), p. 10-11. See also George E. Shambaugh, States, Firms, and Power: Successful Sanctions inUnited States Foreign Policy (Albany, New York: State University of New York Press, 1999), p.16.

48 The effectiveness of unilateral and multilateral sanctions will be discussed in Chapter 5. Robert O.Keohane and Joseph S. Nye,Power and Interdependence, 3rd ed. (New York: Longman, 2001), pp.13-4. Johan Galtung, On the Effects of International Economic Sanctions, World Politics, vol. 19(October 1966- July 1967), p. 385. Steve Chan and A. Cooper Drury, Sanctions as EconomicStatecraft: An Overview, in Steve Chan and A. Cooper Drury (eds.), Sanctions as EconomicStatecraft: Theory and Practice (New York: St. Martins, 2000), p. 9.

49 Gary Clyde Hufbauer, Jeffery J. Schott, and Kimberly Ann Elliot,Economic SanctionsReconsidered: History and Current Policy, 2nd ed. (Washington, D.C.: Institute of International

Economics, 1990), pp. 75-90. Ernest H. Preeg,Feeling Good or Doing Good with Sanctions:Unilateral Economic Sanctions and the U.S. National Interest(Washington, D.C.: Center forStrategic and International Studies, 1999), p. 193.

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However, the advantage of favorable asymmetrical interdependence in terms of

vulnerability (potential power) for the sender does not guarantee that it will have

superior actual power. The economic effects of sanctions do not necessarily translate

potential power into actual power, and often much is lost in the translation, conversion

of potential power into effects. As a result, the effectiveness of economic sanctions in

generating coercive pressure is tied to the senders power resources vis--vis the

targets value hierarchy.50 Keohane and Nye underline, Measurable power resources

are not automatically translated into effective power over outcome. Translation occurs

by way of a political bargaining process in which skill, commitment, and coherence

canbelie predictions based on the distribution of power resources to predict and

understand outcomes, we must give equal attention to the bargaining process in which

power resources are translated into effective influence over outcomes.51

The translation process from potential power to actual power can be analyzed

from three perspectives. First, if a state is treated as a unitary and rational actor, it will

concede only when the cost of concessions is smaller than the cost of economic

sanctions. The cost of sanctions to the sender is also taken into account by the target as

an element in the equation. The higher the perceived cost to the sender, the less likely

the target will concede.52 Although it is possible to measure the cost of economic

sanctions by GNP loss over time in terms of sensitivity and vulnerability, it is hardly

possible to quantify the cost of political concessions. Many factors will influence the

value hierarchy of the target. For example, the superior will, determination,

willingness to suffer, commitment, and core societal values of the target may

50 Robert O. Keohane and Joseph S. Nye,Power and Interdependence, 3rd ed. (New York: Longman,2001), p. 10. David W. Hunter, Western Trade Pressure on the Soviet Union: An Interdependence

Perspective on Sanctions (New York: St. Martins Press, 1991), p. 47.51 Robert O. Keohane and Joseph S. Nye,Power and Interdependence, 3rd ed. (New York: Longman,

2001), p. 196.52 Peter Liberman, Trading with the Enemy: Security and Relative Economic Gains,International

Security, vol. 21, no. 1 (Summer 1996), pp. 150-155. Duncan Snidal, Relative Gains and the Patternof International Cooperation, in David A. Baldwin (ed.),Neorealism and Neoliberalism: TheContemporary Debate (New York: Columbia University Press, 1993), pp. 170-233.

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raise the cost of political concessions and discount the cost of economic sanctions. In

such a case, compliance may mean more disutility to the target than resistance.53

Second, from the decision-makers perspective, the perception of the cost of

economic sanctions and political concessions will determine the ultimate efficacy of

economic sanctions. Third, from a societal perspective, how people and interest

groups perceive and react to the economic sanctions will decide the effectiveness of

the sanctions. For example, Robert Pape argues, Sanctions can coerce either directly,

by persuading the target government that the issues at stake are not worth the price, or

indirectly, by inducing popular pressure to force the government to concede, or by

inducing a popular revolt that overthrows the government, resulting in the

establishment of a government that will make the concessions.54

Similarly, Jonathan Kirshner asserts, There are three principal mechanisms

through which these pressures [of economic sanctions] can bring about political

change. First, pressure on the government and core support groups can force the target

to yield to the will of the [sender] state through a straightforward cost-benefit calculus.

Second, such pressure can lead to the overthrow of the existing regime .Third, and

most subtly, the sanctions can have differential effects within the central government

and across core groups themselves, shifting the balance of political power within the

government and altering its preferences.55

To sum up, favorable asymmetrical interdependence will provide the sender with

potential power or a source of actual power. This potential power needs to be

translated into actual power through a process that takes into account subjective

individual and group reaction. More comprehensive theories on the effectiveness of

53 Robert O. Keohane and Joseph S. Nye,Power and Interdependence, 3rd ed. (New York: Longman,2001), p. 16. R. Harrison Wagner, Economic Interdependence, Bargaining Power, and PoliticalInfluence,International Organization, vol. 42, no. 3 (Summer 1988), pp. 476-7.

54 Robert A. Pape, Why Economic Sanctions Do Not Work,International Security, vol. 22, no. 2

(Fall 1997), pp. 93-4.55 Jonathan Kirshner, The Microfoundations of Economic Sanctions, Security Studies, vol. 6, no. 3

(Spring 1997), p. 42.

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economic sanctions will be discussed in Chapter 5.

V. The Costs of Economic Sanctions

Economic sanctions have double-edged effects on both the sender and the target,

despite the fact that the sender usually suffers much less than the target. Robert

Keohane and Joseph Nye argue that a less dependent actor (the sender) in a

relationship has a significant political resource because changes in the relationship

will be less costly to that actor (the sender) than to its partners (the target). But how

much is the cost in terms of the GNP of economic sanctions that disrupt economic

relations between the sender and the target? This determines the leverage (potential

power or a source of power) for the sender to influence the targets behavior according

to the senders foreign policy objectives.

In terms of sensitivity interdependence, for both the sender and target, trade

sanctions will bring an immediate loss of economic static allocative efficiency and

reliability, such as loss of undelivered regular exports/imports, loss of outstanding

orders for future exports, suspended sale of services in engineering or construction

projects, and loss of transportation and communication services. In terms of

vulnerability interdependence, trade sanctions will reduce the base for future

economic growth by affecting dynamic efficiency and create adjustment costs to

establish new trade patterns, such as producers loss of competitive advantage,

unemployment, consumers loss of cheaper goods, and rent-seeking activities.56

Generally speaking, if the sender possesses a monopoly or monopsony power

56 James M. Lindsay, Trade Sanctions as Policy Instruments: A Re-examination,InternationalStudies Quarterly, no. 30 (1986), pp. 168-169. Margaret P. Doxey,International Sanctions inContemporary Perspective, 2nd ed. (New York: St. Martins Press, 1996), p. 68. Donna Rich

Kaplowitz,Anatomy of a Failed Embargo: The Case of the U.S. Sanctions against Cuba, vol. I,Ph.D. dissertation, Johns Hopkins University, 1995, pp. 57-68. Richard D. Farmer, Costs ofEconomic Sanctions to the Sender, World Economy, vol. 23, no. 1 (2000), pp. 93-117.

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over some particular goods or services which are necessary for the target, disrupting

trade between the sender and the target will cause more severe economic pain for the

target. That is, the target cannot find alternative markets and substitutes and thus

suffers if these embargo or boycott goods are of significant value to its economy.

The sender will face some specific costs of initiating economic sanctions. First,

the sender will face implementation and administrative costs, including prevention of

smuggling, and bureaucratic and internal coordination costs. Second, the sender may

face retaliation by the target or third parties. By contrast, economic sanctions might

entail smaller costs for the target if it can obtain help, alternative markets, or

substitutes for critical goods from other countries.

In a situation of complex trade relations among countries, the real impact of a

sanction on the target cannot be measured by the extent of pre-sanction trade between

the sender and the target because of the possibility of alternative sources of demand or

supply. The target could find other markets when confronted with the senders boycott

(import control) or will seek substitutes of goods embargoed by the sender (export

control). Nevertheless, the extent of the pre-sanction trade still plays a role in

determining the ease with which the target will find alternative markets and

substitutes.57

If the sender does not possess an unutilizedmonopoly or monopsony power over

particular goods, disrupting bilateral trade will simply worsen the terms of trade for

both the sender and target, reducing the welfare of both parties. For instance, a

senders embargo will cause the price of the senders exports to decline. Given the

price of imports, the terms of trade (price of exports over that of imports) for the

sender will deteriorate. The price of the targets imports will increase and thus the

targets terms of trade will deteriorate as well. By contrast, asenders boycott will

57 William H. Kaempfer and Anton D. Lowenberg,International Economic Sanctions: A PublicChoice Perspective (Boulder, Colorado: Westview Press, 1992), pp. 65-67.

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increase the price of the senders imports. Given the price of the exports, the terms of

trade for the sender will deteriorate. The price of the targets exports will decrease and

thus the targets terms of trade will deteriorate as well. In both scenarios, both the

senders and targets terms of trade will worsen. Indeed, the terms-of-trade effect has

captured the significance of vulnerability costs since this effect takes into

consideration the availability and costliness of alternative sources of demand and

supply.

In addition to conceptual analysis of the costs of economic sanctions, there are

several empirical studies. In their 1990 study,Economic Sanctions Reconsidered, HSE

developed a basic analytic model to guide their efforts in determining the costs of

sanctions to both the target and the sender. The welfare loss inflicted on both the

sender and the target depends on the size of the initial deprivation, the elasticity of

supply (Es), and the elasticity of demand (Ed), and from these calculations the

sanctions multiplier [1/ (Es+Ed)] can be determined. The welfare loss in terms of

GNP for the target or sender is equal to the product of the sanctions multiplier and the

size of the initial deprivation experienced by the target or sender nation. That is, the

sanctions multiplier is the ratio of the percentage change in GNP to the percentage

change in trade. While HSE could calculate the initial deprivation of markets or

supplies, they use their own judgment to estimate the sanctions multiplier that

should be applied in a particular case. To illustrate, they apply a multiplier of near

1.00 to most reductions in aid, and a multiplier between 0.10 and 0.50 to most

reductions in the supply or demand for goods. They assume that the target country is

likely to be a small factor in world markets, therefore in most contexts the combined

supply and demand elasticities would ordinarily exceed 5.0. A combined elasticity

greater than 5 would correspond to a sanctions multiplier of less than 0.2. 58 However,

58 Gary Clyde Hufbauer, Jeffery J. Schott, and Kimberly Ann Elliot,Economic SanctionsReconsidered: History and Current Policy, 2nd ed. (Washington, D.C.: Institute of International

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it must be acknowledged that not all costs, including losses in dynamic efficiency and

rent seeking, can be calculated in numerical terms.

In their 1997 study, Gary Hufbauer, Kimberly Elliot, Tess Cyrus, and Elizabeth

Winston (hereafter, HECW) attempt to estimate the national costs of all U.S.

economic sanctions against other nations. The studys results reflect the historical

emphasis of U.S. sanctions many of them unilateral on efforts to limit foreign

assistance and other trade with particular developing economies. The HECW analysis

reports a total cost of the sanctions against 26 countries at only $1 billion of U.S.

national income annually, resulting from an annual loss of $15 billion to $19 billion in

merchandise exports.59 National income and merchandise exports in 1995, the year

used in the study, were nearly $6 trillion and $0.7 trillion, respectively. Those results

indicate that the overall impact on the U.S. economy was trivial at 0.02 percent of

U.S. GNP and a cost of five cents per dollar loss of exports. 60 Richard Farmer

contends that this sanctions multiplier (0.05) is most representative of the long-term

(vulnerability) effects of unilateral sanctions against individual developing countries.

However, he asserts that HECW results may be too high because of methodological

considerations.61

It is difficult to generalize from HECW results to cases involving multilateral

sanctions or sanctions against industrial economies. However, some additional

Economics, 1990), pp. 120-122.59 Gary C. Hufbauer, Kimberly A. Elliot, Tess Cyrus, and Elizabeth Winston, U.S. Economic

Sanctions: Their Impact on Trade, Jobs, and Wages, Working paper (Washington, D.C.: Institute forInternational Economics, 1997), available athttp://www.iie.com/CATALOG/WP/1997/SANCTION/sanctnwp.htm, accessed August 10, 2000, p.2 of 9.

60 In their 1999 article Kimberly Elliot and Gary Hufbauer assess that welfare costs probably do notexceed 10 percent of gross trade losses. In addition, they point out that the estimates do not reflectthe impact on services trade. On a global basis, services trade flows are about 25 percent ofmerchandise trade flows, but conceivably they are more vulnerable to the indirect impact ofeconomic sanctions. Kimberly Ann Elliott and Gary Clyde Hufbauer, Same Song, Same Refrain?

Economic Sanctions in the 1990s,AEA Papers and Proceedings, May 1999, pp. 406-407.61 Richard D. Farmer, Costs of Economic Sanctions to the Sender, World Economy, vol. 23, no. 1

(2000), pp. 109-111.

115
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indication of such costs is available from selected researches into the welfare gains

that result from lowering trade barriers. Those studies look at policies that affect total

U.S. trade, which is dominated by trade with industrialized countries. It is possible to

simply change the signs on the reported welfare benefits of trade-opening policies.

Farmer uses the results of those studies to derive foreign-trade multipliers calculated

as the ratios of the absolute change in economic welfare to the associated absolute

change in the value of trade. The total cost of cutting off a given amount of trade

would then reflect the product of that multiplier and the value of the trade at stake.62

Although this methodology provides some clues in assessing the costs of

economic sanctions, it must be noted that there are three potential pitfalls in this

methodology. First, trade liberalization is usually multilateral, while economic

sanctions are often bilateral. Second, trade liberalization is typically permanent, while

economic sanctions are temporary. Third, trade liberalization generally occurs among

harmonious countries with mutual interests, while economic sanctions are imposed by

an antagonistic sender facing political tensions.

The 1994 econometric research by Gary Hufbauer and Kimberly Elliot indicates

that the gains in economic efficiency from unilaterally reducing trade protection for 21

U.S. industries would be about 20 cents for each dollar of increased exports. Farmer

argues that this multiplier (0.20) would be most indicative of the short-term unit costs

of sanctions that raise the protection for major U.S. industries although this estimate

likely overstates the national costs.63The 1998 analysis by W. J. McKibbin addresses

the consequences both of investment and of shifting demands among sectors and

among countries. This study indicates the long-term unit costs of multilateral

62 Richard D. Farmer, Costs of Economic Sanctions to the Sender, World Economy, vol. 23, no. 1

(2000), pp. 105-109.63 Richard D. Farmer, Costs of Economic Sanctions to the Sender, World Economy, vol. 23, no. 1

(2000), p. 112.

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sanctions on industrialized countries may be only 10 cents per dollar of lost exports. 64

Based on several studies of multilateral liberalization shown in Table 3.1, the

short-term gains of such trade liberalization are between 15 cent and 35 cent per dollar

increase in exports. These figures largely reflect gains in static allocative efficiency

and the compounding effects of capital investment on economic growth. The long-

term multipliers are between 45 cent to 85 cent for each dollar increase in exports. The

gains per dollar of exports are greater for multilateral liberalization than for unilateral

liberalization involving the same region. The reason is that multilateral actions to

eliminate barriers yield a greater boost to trade and investment than do unilateral

actions. These figures represent the extreme cases of multilateral sanctions among

large industrial countries with the possibility of retaliation and escalation. 65(See Table

3.1.)

Table 3.1. Foreign-Trade Multipliers Relevant to Multilateral and UnilateralSanctions on Developing and Industrialized Economies

Source, nature of policy change Multiplier

Short-term Long-term

Studies of the costs of current sanctions, with emphasis on developing economies

Hufbauer, Elliot, Cyrus and Winston (1997) n.a. 0.05

64 Richard D. Farmer, Costs of Economic Sanctions to the Sender, World Economy, vol. 23, no. 1

(2000), p. 112.65 Richard D. Farmer, Costs of Economic Sanctions to the Sender, World Economy, vol. 23, no. 1

(2000), pp. 113-114.

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Global Trade Analysis Project model,66Yang Yongzheng estimates the macroeconomic

effects of trade liberalization on China in 2005 under four scenarios: China joining the

WTO as a developing economy; China joining the WTO as a developed economy;

tariff cut and leveling; and non-participation of China in the Uruguay Round. Based

on his work, Chinas foreign-trade multipliers are 27.4, 23.6, 13.7, and 35 percents,

respectively.67 (See Table 3.2.)

Table 3.2. Macroeconomic Effects of Liberalization on China, 2005

Unit: $ billion

As a developing

economy

As a developed

economy

Tariff cut and

levelingb

Non-participation in

the Uruguay round

Equivalent variationa 18 19.1 27.4 -23.9

Export volume 29.8 35.4 81.2 -30.3

Import volume 35.9 45.5 119.1 -38

Foreign-trade multiplier 27.4% 23.6% 13.7% 35%

Note:

a: Equivalent variation is the Hicksian exact measure of the change in consumer surplus and can

measure the change in social welfare. It is a money metric measure of how much better or worse

off the representative household is in the equilibrium after policy change than in the initial

equilibrium using the base prices as reference.

b: It is assumed that China undertakes to cut its tariffs to a maximum of 10 percent on top of the

developing economy liberalization.

Source: Yongzheng Yang, Chinas WTO Membership: Whats at Stake?, World Economy, vol. 19, no.

6 (November 1996), pp. 677-679.

Wang Zhi uses a 12-region, 14-sector computable general equilibrium (CGE)

model for world trade and production to quantify the potential impact of Chinas and

Taiwans accession to the WTO. He estimates the scenario that China joins the WTO

with the addition of a 35-percent reduction of Chinas April 1996 tariff cut offer based

66 The Global Trade Analysis Project was led by Thomas Hertel of Purdue University.67 Yongzheng Yang, Chinas WTO Membership: Whats at Stake?, World Economy, vol. 19, no. 6

(November 1996), pp. 661-682.

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on simulations at 1992 constant prices under steady-state capital market closure68.

Based on his estimates, Chinas foreign-trade multiplier is 19.4 percent and Taiwans

is 25 percent. Similarly, in his 1998 study, Wang Zhi estimates the scenario that both

Taiwan and China join the WTO with an additional 30 percent reduction of Chinas

February 1998 tariff cut offer based on simulations at 1995 constant prices under

steady-state capital market closure. Based on his estimates, Chinas foreign-trade

multiplier is 28.7 percent and Taiwans is 32 percent. In their 2000 study based on the

CGE model, Wang Zhi and G. Edward Schuh estimate the impact of a 50 percent tariff

cut by Taiwan, Hong Kong, China, the United States, Japan, and the European Union

based on simulations at 1995 constant prices under steady-state capital market closure.

Based on their estimates, Chinas foreign-trade multiplier is 26.8 percent and Taiwans

is 22.3 percent. (See Table 3.3.)

Table 3.3. Macroeconomic Effects of Liberalization on Taiwan and ChinaUnit: $ billion

China joins the WTO with

addition 35-percent

reduction of Chinas April

1996 tariff cut offera

China joins the WTO with

additional 30 percent

reduction of Chinas February

1998 tariff cut offerb

Multilateral liberalization

among Chinas major

trading partners of a 50

percent tariff cutb

China Taiwan China Taiwan China Taiwan

68 Under the steady-state capital market closure, the return of capital is held constant while the capitalstock in each region is endogenously determined.

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Equivalent variation 21.5 4 23.5 3.9 55.5 15

Export volume 65.7 8.2 49.4 5.8 103.3 33

Import volume 46.2 7.8 37.8 6.4 104 33.4

Foreign-trade multiplier 19.2% 25% 28.7% 32% 26.8% 22.3%

Note:

a: The figures are at 1992 constant prices.

b: The figures are at 1995 constant prices.

Source:

Zhi Wang, The Impact of China and Taiwan Joining the World Trade Organization on U.S. and World

Agricultural Trade: A Computable General Equilibrium Analysis, Technical Bulletin Number 1858

(Washington, D.C.: The United States Department of Agriculture, 1997), pp. 12-24.

Zhi Wang,Jiaru Shijie Maoyi Zuzhi (WTO) Duei Liangan Maoyi Guanxi De Yingxiang[The Impact of

Taiwan and China Entering the World Trade Organization on Cross-Strait Trade Relations] (Taipei:

Chung-Hwa Institution for Economic Research, 1998), pp. 10-13.

Zhi Wang and G. Edward Schuh, Economic Integration Among Taiwan, Hong Kong and China: A

Computable General Equilibrium Analysis,Pacific Economic Review, vol. 5, no. 2 (June 2000), pp.

256-260.

Wang Zhi and G. Edward Schuh argue that three types of gains from trade

liberalization are captured by the CGE model: (1) the gains from more efficient

utilization of resources; (2) more rapid physical capital accumulation resulting from

the efficiency gain and thus higher saving and investment; and (3) more rapid growth

of total factor productivity owing to faster technology transfer via expansion of capital

and intermediate goods imports from other countries.69 As a result, these estimates of

welfare gains from the trade liberalization based on the CGE model should be treated

as multilateral, long-term gains. These estimates of foreign-trade multipliers should be

applied to the multilateral and long-term scenarios for both Taiwan and China.

Overall, based on the above studies, the short-term multiplier of Chinas

unilateral sanctions against Taiwan could be at most 0.20 for both Taiwan and China.

69 Zhi Wang and G. Edward Schuh, Economic Integration Among Taiwan, Hong Kong and China: AComputable General Equilibrium Analysis,Pacific Economic Review, vol. 5, no. 2 (June 2000), pp.243-244.

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Considering the possibility of retaliation and escalation by Taiwan and other countries

in response to Chinas sanctions, the (multilateral) short-term multiplier for China

could be between 0.15 and 0.35. Regarding the long-term effect, the multiplier of

Chinas unilateral sanctions against Taiwan could be between 0.05 and 0.10 for both

Taiwan and China. Considering possible retaliation from Taiwan and other countries

against Chinas sanctions, the (multilateral) long-term multiplier for China could be

between 0.14 and 0.35.

Nevertheless, the multipliers could only provide general estimates of costs for the

sender and target. In some cases, trade sanctions could be focused on some critical and

bottleneck sectors of the target. Compared with general embargoes or boycotts, these

scenarios will entail more costs for the target than for the sender in those sectors.

VI. The Effectiveness of Economic Sanctions

The most often asked question in the literature on economic sanctions is, Do

economic sanctions work? or, Are economic sanctions effective? The consensus

reached by most scholars is that economic sanctions generally are ineffective, as the

following statements indicate:70

Johan Galtung: [T]he probable effectiveness of economic sanctions is, generally,

negative.71

Klaus Knorr: [C]oercively wielding economic power by means of trade reprisals

or special trade advantages is rarely successful.72

Margaret Doxey: [T]he cases examined offer little evidence that economic

70 For more witnesses on the effectiveness of economic sanctions, see M. S. Daoudi and M. S. Dajani,Economic Sanctions: Ideal and Experience (Boston: Routledge & Kegan Paul, 1983), pp. 174-188.

71 Johan Galtung, On the Effects of International Economic Sanctions, World Politics, vol. 19

(October 1966- July 1967), p. 409.72 Klaus Knorr, The Power of Nations: The Political Economy of International Relations (New York:

Basic Books, 1975), p. 165.

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policy objectives while having various adverse effects on other U.S. interests.81

Nevertheless, there is heated debate among scholars over the definition of the

success of economic sanctions. David Baldwin argues that the use of economic

sanctions and economic statecraft more generally typically involves multiple

objectives and targets, and that the assessment of success or failure from the senders

perspective could only be made convincingly by comparing the costs and benefits of

economic statecraft to that of other forms of statecraft. While Baldwin does not claim

that economic sanctions are likely to succeed, his conceptual framework and

reconsideration of classic cases taking multiple objectives into account does suggest

that the economic instrument is considerably more useful from the senders

perspective than scholars generally acknowledge.82

As a matter of fact, Baldwin discusses the utility or efficiency instead of the

effectiveness of economic sanctions. He takes the multiple goals of the sender defined

by politician, the balance sheet of the costs and effectiveness, and the comparison of

the statecraft alternatives when judging the success of economic sanctions into

consideration. Baldwins approach is quite different from that of other analyses and

will confuse the essence of the power relationship inherent in economic sanctions,

which is the primary concern in this study with respect to Chinas leverage and

Taiwans vulnerability. Baldwins approach will offer important implications for

decision-makers of the sender in choosing alternative statecrafts, but it does not offer

an answer to the effectiveness of economic sanctions.83

Similarly, M. S. Daoudi and M. S. Dajani place great importance on the domestic

perceptive functions performed by sanctions. They argue that even if sanctions fail to

81 Ernest H. Preeg,Feeling Good or Doing Good with Sanctions: Unilateral Economic Sanctions andthe U.S. National Interest(Washington, D.C.: Center for Strategic and International Studies, 1999),

p. 207.82 David Baldwin,Economic Statecraft(Princeton, N.J.: Princeton University Press, 1985), pp. 115-

205.83 David Baldwin, The Sanctions Debate and the Logic of Choice,International Security, vol. 24,

no. 3 (Winter 1999/2000), pp. 80-107.

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achieve their initial goals, they may not be totally ineffective. They do not argue that

sanctions are effective instruments in achieving stated foreign policy goals, but they

do suggest that sanctions are important tools of statecraft if used for other purposes,

such as reaching symbolic goals or inflicting severe economic deprivation on the

target.84

Some scholars recognize that the senders often have multiple goals when

imposing economic sanctions, but these experts distinguish utility of economic

sanctions from effectiveness. For example, James Lindsay contends, [T]rade

sanctions rarely force compliance or subvert the target government and have a limited

deterrent value. Yet they often succeed as international and domestic symbols.85

George Lopez and David Cortright argue, If the analysis of the effectiveness of

sanctions remains literal regarding primary goals [the official or publicly declared

purpose of sanctions], then sanctions do indeed have limited effectiveness.86 In its

report to the U.S. Senate Committee on Foreign Relations, the General Accounting

Office concludes that economic sanctions are more successful in achieving the less

ambitious and often unarticulated goals, such as upholding international norms and

deterring future objectionable actions, but are less successful in achieving the most

prominently stated goals of making the target comply with the senders stated

wishes.87

The HSE study defines the success of economic sanctions in two parts: the policy

result and the sanctions contribution. The policy resultmeasures the degree to which

84 M. S. Daoudi and M. S. Dajani,Economic Sanctions: Ideal and Experience (Boston: Routledge &Kegan Paul, 1983), pp. 159-169.

85 James M. Lindsay, Trade Sanctions as Policy Instruments: A Re-examination,InternationalStudies Quarterly, no. 30 (1986), p. 154.

86 George A. Lopez and David Cortright, Economic Sanctions in Contemporary Global Relations, inDavid Cortright and George A. Lopez (eds.),Economic Sanctions: Panacea or Peacebuilding in a

Post-Cold War World? (Boulder, Colorado: Westview Press, 1995), p. 787 United States General Accounting Office,Economic Sanctions: Effectiveness as Tools of Foreign

Policy, Report to the Chairman, Committee on Foreign Relations, U.S. Senate, GAO/NSIAD-92-106, February 1992, p. 2..

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the senders policy objectives were achieved, and the sanctions contribution is the

degree to which sanctions contributed to this outcome. Both parts are scaled from 1 to

4. For policy results, 1 indicates a failed outcome, 2 indicates an unclear but possibly

positive outcome, 3 indicates a positive outcome with a somewhat successful result,

and 4 indicates a successful outcome. For sanctions contribution, 1 indicates a zero or

negative contribution, 2 indicates a minor contribution, 3 indicates a modest

contribution, and 4 indicates a significant contribution. A product of nine or higher for

the policy result and sanctions contribution is counted as a sanctions success .88

Using a rating system that attempts to determine whether the target complied

with the senders goals and whether sanctions were the primary cause of this change,

HSE calculate an overall success rate of 34 percent, or 40 cases for the 115 cases. Of

the sanctions episodes in the pre-1973 period, 44 percent ended successfully, whereas

the success rate among post-1973 cases was just under 25 percent. Even more striking

is the decline in the effectiveness of sanctions imposed in pursuit of modest goals,

from 75 percent to 21 percent, most of which involved the United States. In addition,

unilateral sanctions imposed by the United States in recent years have only rarely

worked, with just 13 percent (or 5 of 39) unilateral U.S. sanctions achieving any

success between 1970 and 1990.89

By disputing many of the successes claimed by HSE and identifying different

causes for the successes that did take place, Robert Pape concludes that the actual

88 Gary Clyde Hufbauer, Jeffery J. Schott, and Kimberly Ann Elliot,Economic SanctionsReconsidered: History and Current Policy, 2nd ed. (Washington, D.C.: Institute of InternationalEconomics, 1990), pp. 41-42.

89 According to Cortright and Lopez, in 1999 a revised and updated version of HSE study,encompassing 170 sanctions episodes from 1914 through 1999, gives an overall success rate ofapproximately 35 percent. Gary Clyde Hufbauer, Jeffery J. Schott, and Kimberly Ann Elliot,

Economic Sanctions Reconsidered: History and Current Policy, 2nd ed. (Washington, D.C.: Instituteof International Economics, 1990), p. 93. Kimberly Ann Elliot, Factors Affecting the Success ofSanctions, in David Cortright and George A. Lopez (eds.),Economic Sanctions: Panacea or

Peacebuilding in a Post-Cold War World? (Boulder, Colorado: Westview Press, 1995), p. 54.

Kimberly Ann Elliott, The Sanctions Glass: Half Full or Completely Empty,InternationalSecurity, vol. 23, no. 1 (Summer 1998), p. 58. David Cortright and George A. Lopez, The Sanctions

Decade: Assessing UN Strategies in the 1990s (Boulder, Colorado: Lynne Rienner, 2000), p 15.

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commercial negotiations and economic warfare. Second, HSE routinely fail to control

for the role of force. Nearly half of HSEs claimed successes of sanctions, according

to Pape, are actually instances of successful application of force, which they routinely

underrate or even underreport.93

In a rebuttal to Papes criticism, Kimberly Ann Elliot challenges Papes

interpretation of seven cases. Therefore, Elliots response counts only 12 cases of

economic sanctions successes without military determination. While Daniel Drezner

agrees with Pape that seven of 40 successes in HSE data are miscoded and eleven are

cases involving military force, he challenges Papes interpretation of two cases.

Furthermore, both Elliot and Drezner criticize Pape for not addressing the issue of

whether economic sanctions can enhance the effectiveness of force, primarily because

Papes aim is to assess the independent usefulness of sanctions.94

However, Pape points out that both his study and the HSE study ask the same

question: How effective are economic sanctions not as a complementto force but as a

stand-alone foreign policy instrument? That is, are economic sanctions better

alternatives to military action?95 In fact, military action without economic sanctions

could cause equivalent or larger economic loss on the target through regular warfare

or blockade. There is generally no need to use economic sanctions as a complement to

force except for the purpose of signaling.

93 Robert A. Pape, Why Economic Sanctions Do Not Work,International Security, vol. 22, no. 2(Fall 1997), pp. 105-106.

94 Daniel Drezner argues the following success cases in HSE data set are either economic warfare orstrategic embargoes: 14-1, UK vs. Germany; 21-1, League of Nations vs. Yugoslavia; 25-1, Leagueof Nations vs. Greece; 39-1, Allied powers vs. Axis; 62-1, UN vs. South Africa; 77-4, Canada vs. theEuropean Community; 79-3, Arab League vs. Canada. Kimberly Ann Elliott, The Sanctions Glass:Half Full or Completely Empty,International Security, vol. 23, no. 1 (Summer 1998), pp. 60-65.Robert A. Pape, Why Economic Sanctions StillDo Not Work,International Security, vol. 23, no. 1(Summer 1998), pp. 72-76. Daniel W. Drezner, The Sanctions Paradox: Economic Statecraft and

International Relations (New York: Cambridge University Press, 1999), pp. 103-106. Daniel W.Drezner, The Complex Causation of Sanction Outcomes, in Steve Chan and A. Cooper Drury(eds.), Sanctions as Economic Statecraft: Theory and Practice (New York: St. Martins, 2000), pp.

218-219.95 Robert A. Pape, Why Economic Sanctions StillDo Not Work,International Security, vol. 23, no.

1 (Summer 1998), pp. 69-70.

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In addition, like David Baldwin, David Cortright and George Lopez challenge

the HSE method of focusing exclusively on the stated policy objectives of sanctions

while ignoring the other purposes sanctions may serve. They argue that analyses that

focus too narrowly on instrumental objectives create a misleading impression of

ineffectiveness and undervalue the broader political impact of sanctions. In addition to

their official or publicly declared objectives, sanctions can be imposed for symbolic

and other purposes, which may include deterring future wrongdoing, demonstrating

resolve to allies or domestic constituencies, upholding international norms, and

sending messages of disapproval in response to objectionable behavior.96

However,

this criticism is again mistargeted because Cortright and Lopez discuss the utility

instead of the effectiveness of sanctions.

Finally, Daniel Drezner offers two insights on the dichotomy of success/failure

made in the literature. First, he argues, the degree of success should be judged by the

size of the agreed concessions relative to the status quo, and not the size of the

concessions relative to the senders original demand. Second, the degree of success

also depends upon the type of demand. A moderate degree of success in

accomplishing a difficult task may seem more impressive than a high degree of

success in accomplishing an easy task. He uses these criteria to examine 39 episodes

of Russian sanctions against members of the NIS between 1992 to 1997.97 Drezners

analysis will be further discussed in Chapter 5.

To sum up the debate, using a strict definition of economic sanction, which

excludes economic warfare and trade disputes, the success rate of economic sanctions

based on the HSE database is between 4.6 percent (five of 109 cases)98 and 10.4

96 David Cortright and George A. Lopez, The Sanctions Decade: Assessing UN Strategies in the 1990s(Boulder, Colorado: Lynne Rienner, 2000), pp. 15-6.

97 Daniel W. Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New

York: Cambridge University Press, 1999), pp. 18-9, 68, 131-247.98 109 cases exclude 6 cases in the HSE database, which, Pape argues, are trade disputes, not instance

of economic sanctions.

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percent (12 of 115 cases), even if we consider the difference of judgement on

economic sanctions successes among HSE, Pape, and Nossal. This success rate is low

enough to conclude that economic sanctions are generally ineffective. Based on the

HSE database, Table 3.4 shows the differences of economic sanctions successes

judged by HSE, Pape, and Nossal. Chapter 5 will further examine more

comprehensive theories on the effectiveness of economic sanctions.

Table 3.4 Sanctions Successes since 1945 Based on HSE Database

Year Sender Target HSE resulta Pape resultb Nossal result

1914 U.K. Germany Success (d) N.A. (b) Failure

1921 League of Nations Yugoslavia Success (c) N.A. (b) Failure

1925 League of Nations Greece Success (c) N.A. (b) Failure

1933 U.K. USSR Success (a) Success Failure

1938 U.S./U.K. Mexico Success (a) N.A. (d) Failure

1939 Allies Germany/Japan Success (d) N.A. (a) Failure

1948 U.S. Netherlands Success (c) Indeterminate Success

1948 India Hyderabad Success (e) N.A. (a) Failure

1951 U.S./U.K. Iran Success (b) N.A. (c) Failure

1956 U.S./U.K./France Egypt Success (a) Failure Failure

1956 U.S. Laos Success (b) N.A. (c) Failure

1956 U.S. U.K./France Success (c) N.A. (b) Success

1958 USSR Finland Success (b) N.A. (d) Success

1960 U.S. Dominican Republic Success (b) N.A. (b) Failure

1961 U.S. Ceylon Success (a) N.A. (d) Failure

1962 U.S. Brazil Success (b) N.A. (c) Failure

1962 UN South Africa Failure Failure Success

1963 U.S. Egypt Success (a) Failure Failure

1963 U.S. South Vietnam Success (b) N.A. (c) Failure

1964 France Tunisia Success (a) N.A. (d) Failure

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1965 U.S. Chile Success (a) N.A. (d) Failure

1965 U.S. India Success (a) Failure Success

1965 U.K./UN Rhodesia Success (b) N.A. (b) Failure

1967 Nigeria Biafra Success (e) N.A. (a) Failure

1968 U.S. Peru Success (a) N.A. (d) Failure

1970 U.S. Chile Success (b) N.A. (c) Failure

1972 U.K./U.S. Uganda Success (b) N.A. (a) Failure

1973 Arab League U.S./Netherlands Success (e) Failure Failure

1975 U.S./Canada South Korea Success (a) Success Success

1976 U.S. Taiwan Success (a) Failure Success

1977 Canada EC/Japan Success (a) Indeterminate Failure

1977 U.S. Brazil Success (a) Failure Failure

1977 U.S. Nicaragua Success (b) N.A. (a) Failure

1979 U.S. Iran Success (a) Failure Failure

1979 Arab League Canada Success (a) Success Success

1981 U.S. Poland Success (e) Failure Failure

1982 U.S./Netherlands Suriname Success (a) N.A. (b) Failure

1982 South Africa Lesotho Success (b) Indeterminate Failure

1982 U.K. Argentina Success (c) N.A. (a) Failure

1987 U.S. El Salvador Success (a) Success Failure

1989 India Nepal Success (e) Success Failure

Note:

a: success (a): modest policy change

success (b): political destabilization

success (c): disruption of military adventures (excluding major wars)

success (d): impairment of military potential (including major wars)

success (e): other major policy changes

b: N.A. (a): outcomes determined by force, not economic sanctions (brute force military victory)

N.A. (b): outcomes determined by force, not economic sanctions (military coercion)

N.A. (c): outcomes determined by force, not economic sanctions (foreign-sponsored

assassinations and military coups)

N.A. (d): not instances of economic sanctions

Source:

Robert A. Pape, Why Economic Sanctions Do Not Work, International Security, vol. 22, no. 2 (Fall

1997), pp. 100-103.

Kim Richard Nossal, Liberal Democratic Regimes, International Sanctions, and Global Governance,

in Raimo Vayrynen (ed.), Globalization and Global Governance (Lanham, Maryland: Rowman &

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Littlefield Publishers, Inc., 1999), p. 129.

Documents

Chapter 3 Anatomy of Economic Sanctions