Chapter 6 Sanctions Enforcement (Week 6)

6.1 Discussion questions

  • Early (2011). What is the main argument? Is it convincing?

  • Barry & Kleinberg (2015). What is the main argument of this paper? Is it convincing? How can we future the research on sanctions busting?

  • What are the determinants of sanction success/effectiveness? How about other tools of economic statecraft, such as foreign aid? (*)

How a Mysterious Ship Helps North Korea Evade Oil Sanctions | Visual Investigations

6.2 Sanctions design and enforcement

Recall from our discussions on sanctions effectiveness, one recent advance is the realization concerning the importance of enforcement, and relatedly, private actors’ willingness and ability to comply with sanctions regimes.

6.2.1 Enforcement

Bapat & Kwon (2015) introduces another strategic problem associated with sanctions imposition. In particular, they theorize why sanctions are mostly likely to be imposed when the conditions do not favor their success. This is because states need to rely upon private actors (firms) for enforcing sanctions. When economic exchanges between sender and target states are too trivial or too large, sanctions are less likely to succeed. In the former case, states do not have enough leverage; while in the latter case, firms are unlikely to comply. However, sanctions are imposed only when target states refuse to concede. This is most likely when their economic changes with sender states are too trivial or too large, the exact conditions under which sanctions are less likely to be successful.

6.2.2 Sanctions busters

Early (2011) analyzes the sanctions effectiveness question via the angle of sanctions busting. This is because

“while nearly every theory of sanctions success expects that third party sanctions-busting should undercut sanctions effectiveness, the empirical support for this expectation has been surprisingly weak.”

Early (2011, 384)

Using an improved time-sensitive measurement on sanctions busters, he aims to test two rival hypotheses:

  • Black nights (politically motivated third parties) are sufficient to reduce sanctions effectiveness (success)
  • Politically and commercially motivated sanctions busters jointly reduce the effectiveness

Let us turn to the mechanism first. When sanctions move to the enforcement stage, sender states often need to win the support of third-party states. But the support of each third-party state only contribute marginally to the success of sanctions. As such, the political and economic costs of coercing third-party states can easily overwhelm the benefits. In comparison, target states can lobby or coerce third-party states’ governments or appealing to the interests of their commercial constituencies. A third-party state may bust sanctions for either political (allies of target countries or rival great power) or commercial reasons. As such, we should expect the effects of sanctions busting to vary over time. He then moves on and test the above hypotheses with multinomial logit models.

Now, how can we further advance this work? First, turning back to the above hypotheses, are they really rival hypotheses? If we find support for H1, does it mean H2 or H3 is falsified? Why not test the impact of commercial actors directly? See, for instance, Early (2009).

Second, the operationalization of sanctions busters. Why using a cutoff point of 5%? What are the theoretical or empirical justifications? If there aren’t many, how does varying the cutoff point affect the results? And similarly, why should we use a 3-year running average? How robust are the results?

6.2.3 Sanctions busters from within

Barry & Kleinberg (2015) studies how firms from sanctioning countries react to sanctions impositions. They argue that firms will shift their investments to third-party states that are or will be sanctions busters. This is because sanctions generate new opportunities and rents. By rerouting their trade via FDI in third-party states, sender firms can avoid the economic costs, obtain greater control, and capture a larger share of the sanctions rents. It also avoids the political risks (e.g. nationalization by targets or blacklisted by senders) of directly investing in target states.

Note that they also carefully respond to counterarguments concerning sender governments’ abilities to intervene by sanctioning domestic and foreign firms. They argue sanctions enforcement are costly and resource-intensive. Most states do not have the capacity to detect or deter sanctions busting activities. Even in the case of the U.S., firms are having more divergent preferences than the government’s. And extraterritorial sanctions are politically delicate, especially if the third-party states are allies.

Some technical points. First, look at table 2, why don’t they include US sanctions in model 3? On p.893, they talk about including this count variable given we need to consider the opportunities for sanctions busting activity. But why is this absent in the potential sanctions busters models? If they choose to separate their key variables of interest, why not separate the two trade variables in model 3? Moreover, why can’t we include all three variables in one model?

Second, check table 1 and the maximum value for recipient dependence (“the sum of a state’s bilateral trade shares accounted for by sanctions targets”). How is it possible that it exceed 100?

6.3 How do we further the research on sanctions busting?

6.3.1 Allies are US sanctions’ worst enemies

Early (2012, 547) advances his liberal sanctions busting theory (Early 2009 & 2011) and argues:

“Third parties will cooperate with senders when the costs are low, but use their alliance relationships as cover to sanctions bust when the commercial benefits are high. This suggests that the United States can best gain the support of allies whose cooperation matters the least, while the allies whose support is most important tend to sanctions bust.”

Early (2015, 15) also argues:

“The United States’ democratic, commercially competitive allies with large economies (for example, Great Britain, Canada, and Japan) appear most likely to engage in trade-based sanctions busting, while its wealthy, ideologically motivated adversaries (such as the Soviet Union, China, and Venezuela) appear most likely to become aid-abased sanctions busters. U.S. sanctioning efforts are thus commonly besieged on all sides, undercut by friends and foes alike. Yet although the adverse effects of aid-based sanctions busters can be mitigated, the deleterious impact of trade-based sanctions busters rarely can be. As such, it is unfortunate in this regard that the United States has so many more friends in the world than adversaries because its closest allies appear to be its sanctions’ worst enemies.”

6.3.2 Design and enforcement

Building on the above enforcement issues, how can policy makers better design their sanctions policies? Are busting activities more likely to happen in multilateral or unilateral sanctions, comprehensive or targeted sanctions?

Some recent studies have shown that multilateral measures and international cooperation can improve the effectiveness of sanctions (McLean and Whang 2010; Bapat and Morgan 2009). However, if we buy into the sanctions busting rationale of U.S. allies, it seems to suggest that unilateral sanctions can have a higher success rate as it can at least avoid the coordination problems, as some earlier studies indicate (Kaempfer and Lowenberg 1999; Drury 1998).