Sanctions: The Never Ending Story
By William Reinsch
Those of you who have followed what I have said and done over the years know that I have long been an opponent of unilateral sanctions. I learned that working for John Heinz in the Senate who thought they were almost always a lose-lose strategy. Because they are unilateral, the United States does not achieve its policy objectives because others step in to fill our shoes, and at the same time our exporters are denied market share and export opportunities.
Subsequently, leading the National Foreign Trade Council (NFTC), which operates USA*Engage, the main business organization tracking and opposing sanctions, and seeing the futility of many Congressional and executive branch sanctions, I have become even more convinced that sanctions, while well-intended, are generally pernicious. There is always unintended collateral damage that compromises the sanctions’ effectiveness.
A current case in point was brought to my attention by Richard Sawaya, the NFTC’s vice president who runs USA*Engage. It concerns the Russia sanctions bill passed by the Senate and presently pending in the House. If enacted in its current form, it would be a textbook example of how well-intended sanctions can go awry and cripple not only our companies, but in the long-run our security and economic competitiveness.
Despite the fact that multilateral sanctions on Russia are already in place, work on this bill was begun by senators who both wanted to toughen sanctions in the wake of Russia’s hacking activities and also to prevent President Trump from walking back the existing sanctions in the interest of accommodating Russian President Putin. Unfortunately, the bill goes awry on both counts.
Sanctions legislation generally follows a standard formula. A country is identified, either by name or by a description of behavior that leaves no doubt who the target is; certain actions or types of behavior are identified as unacceptable; and the president is tasked with determining whether or not the offending behavior has occurred. If he so determines, then sanctions are mandatory — he usually gets to choose from a menu of options — but there is a waiver provision that allows him to suspend or not impose the sanctions if doing so would pose a significant/serious/important threat to our security (adjectives vary).
While administrations have frequently imposed sanctions on their own pursuant to existing authority, usually the International Emergency Economic Powers Act (IEEPA), they have almost always opposed Congressional sanctions legislation because it inevitably limits presidential flexibility and interferes with the executive’s constitutional authority to conduct foreign policy. The compromise has generally been a waiver provision broad enough to satisfy the president’s desire for flexibility. From the executive’s point of view, the worst thing Congress can do is codify sanctions because then only a subsequent act of Congress can modify or remove them. The classic example of why codification is a mistake occurred when Congress embargoed Ugandan coffee imports because of Idi Amin. It sounded like a good idea at the time, but after Amin was deposed, it still took Congress two years to repeal the sanctions — at the very time we should have been helping the new Ugandan government rebuild its economy.
The pending Russia bill makes the same mistake. Codifying the sanctions does make it harder for Trump to remove them right now, but it also makes it harder for him or future presidents to remove them when they are no longer needed. One of the few useful things sanctions can do is to provide the president with leverage. Codification removes that leverage, which is one reason why the administration has been quietly opposing the bill.
Even worse, the bill contains new sanctions that will cause our oil and gas industry serious problems. Sawaya explains it in greater detail, but in essence, the bill contains a provision that prohibits U.S. energy company participation in joint projects that include Russian participation worldwide. Currently the prohibition is only for projects in Russia. Globalizing the sanction could be a disaster for our companies. First, many countries require foreign energy companies to cooperate in exploring new areas, so U.S. companies end up participating with Russian companies whether they want to or not. Second, as drafted the provision opens the door to Russian energy companies making small investments in foreign projects specifically to prevent American companies from joining. The U.S. has significantly increased its energy production in recent years, but we are not self-sufficient and need foreign resources, and even if we did not, U.S. energy company participation in overseas exploration and development is essential to their long-term survival and the thousands of jobs they create in the U.S.
This provision is also a textbook example of what happens when Congress tries to legislate sanctions — poor drafting that produces collateral damage. Their standard response in these cases is, “We didn’t mean to do that,” which is cold comfort to the companies whose jobs and business plans are crippled because Congress did not think the matter through.
This time around, the mistake has been discovered before it is too late. In this case, the short term desire to block the president may override concerns about taking away presidential flexibility. And as always, there is a bad guy (Russia), and it is human nature — or at least Congressional nature — to think they need to do something about it. Whether that something will actually cause more harm than good usually gets lost in the desire to put out the press release that says, “We’ve done something.”
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.