Do secondary sanctions work?

This article is part of the World Economic Forum's Geostrategy platform

Economic sanctions have proven to be an important foreign policy tool for the Donald Trump administration. In less than a year, it has expanded existing economic sanctions in response to disputes with North Korea, Russia, Cuba, Iran, and Venezuela.

The US State Department is considering new sanctions targeting Myanmar for its treatment of the Rohingya community, under the authority of the Global Magnitsky Act.This law authorizes the United States to freeze assets and impose visa bans on selected individuals for violations of international human-rights standards.

One specific strategy used to increase the effects of economic sanctions on North Korea and Russia is referred to as “secondary sanctions.” This type of sanction is adopted in addition to the “primary sanctions” imposed on a sanctioned country, organization, or individual, and it has very specific characteristics.

Globalization has lessened many countries’ vulnerability to traditional economic sanctions, and poses severe challenges to designing and implementing economic sanctions that result in economic suffering for the targeted constituencies within the sanctioned country.

Looking to secondary sanctions to bolster the effectiveness of primary sanctions may be one approach to addressing the less-than-anticipated consequences of some economic-sanction regimes. At the same time, secondary sanctions can be controversial, and their effectiveness is highly contested. Before embracing a strategy of expanded use of secondary sanctions, it is important to fully understand their promise and pitfalls as a foreign policy tool.

What are secondary economic sanctions?

The term “secondary sanctions” is itself confusing and confused. It suggests that a class of economic sanctions exists that could be added to the original, “primary,” sanctions, but secondary sanctions involve more than introducing additional economic sanctions to intensify the consequences on the sanctioned country.

There are several ways a sanctioning country can attempt to increase sanctions’ effects after they have been imposed, including the adoption of secondary sanctions.

The sanctioning country can prohibit firms and individuals in other countries from conducting commercial transactions with US citizens and businesses, to inhibit their economic relationship with the country targeted with “primary” economic sanctions.

A contemporary example is the secondary sanctions the United States has placed on Chinese firms and individuals for undertaking financial transactions with North Korea. On June 19, 2017, the United States imposed sanctions on a Chinese bank (Bank of Dandong), a Chinese firm (Dalian Global Unity Shipping Co.), and two Chinese citizens (Sun Wei and Li Hong Ri). The Bank of Dandong is banned from conducting any banking with US-based firms. Dalian Global is banned from commercial transactions with US firms and citizens. For Wei and Ri, the sanctions froze their assets and banned them from any business with US-based firms or individuals.

There is a profound divide between academics and practitioners over the efficacy of secondary sanctions. Traditionally, the overwhelming consensus among researchers has been that secondary sanctions are not an effective foreign policy tool.The reasoning and findings in support of this conclusion parallel the evidence on the effects of unilateral economic sanctions.

Many researchers view secondary sanctions as having all the worst attributes of economic sanctions, plus the added onerousness of potentially instigating new conflicts with allies and adversaries who object to the imposition of restrictions and economic hardship on their own industries and citizens.

A few scholars are more enthusiastic about the prospects for secondary sanctions to be used effectively, while acknowledging the risks of potentially worsening relationships with allies.

Despite the limited scholarly support for secondary sanctions, public officials continue to consider them a viable—and, at times, effective—foreign policy tool.

A good example are the claims made by President Obama, Secretary Hillary Clinton, and several foreign policy experts regarding Iran’s agreement to negotiate establishing limits on its nuclear-enrichment programme. In September 2014, Iranian President Hassan Rouhani agreed to conduct international negotiations, with the intended outcome of a curtailed and inspected Iranian nuclear program, in exchange for the relaxation, and ultimate elimination, of US- and UN-mandated economic sanctions. The negotiation culminated in the Joint Comprehensive Plan of Action (JCPOA), signed by Iran, China, France, Russia, the United Kingdom, the United States, Germany, and the European Union in July 2015.

What role did secondary sanctions play in this diplomatic breakthrough?

Based on a review of analyses and assessments of the conditions and events that led to the agreement, an aggressive US diplomatic offensive was instrumental in securing and implementing secondary sanctions that targeted banks and other companies doing business with Iran.

These secondary sanctions were deemed the key factor persuading Iran to negotiate an agreement to limit its nuclear programme, including international inspection, and the sanctions were most consequential from 2010–2014.

A significant amount of business between other countries and Iran was halted by the imposition of US sanctions against increasingly broader categories of commercial transactions.

As the United States gradually expanded those categories, through both legislation and executive orders, “foreign companies and governments wound down their investments in Iran’s energy sector, halted financial transactions with designated Iranian banks, and, eventually, reduced their oil purchases from Iran and withheld Iranian [funds] in their domestic banks.

“Those secondary sanctions were effective, not only because of the threat of restrictions on access to the US market for foreign companies doing covered business with Iran, but also because of the acceptance of those threats by foreign governments which gave their companies no cover. Indeed, many of these countries, especially in Europe, followed the US measures with outright prohibitions on the activities themselves.”1

As with all economic sanctions, firms and individuals pay a price when secondary sanctions are deployed. When secondary sanctions are deemed effective, the commercial losses by firms and individuals in the sanctioning, sanctioned, and targeted countries may be easily judged as necessary, part of the cost of achieving the foreign policy goal. In addition, firms and individuals conducting business with the sanctioned regime might be considered to have ill-gotten gains—at least from the perspective of the sanctioning country.

When the effect of secondary sanctions is uncertain, an economic hardship occurs—often for innocents—to no purpose. It is a disruption in business practices and relationships that can be difficult to re-establish, even after the economic sanctions regime has ended. Secondary sanctions should not be cast as merely a prop to give the appearance of taking meaningful actions against an ally or adversary.

Despite the overwhelming research that finds secondary sanctions largely ineffective, they are likely to remain a popular foreign policy tool. Governments that invoke secondary sanctions have a self-serving interest in claiming their success (just as sanctioned countries have for dismissing their importance), muddying assessments of their true effects.

Also, secondary sanctions are a very public way to demonstrate a re-energized commitment to achieving the sanctioning country’s foreign policy goals. The controversy over the effectiveness of secondary sanctions is unlikely to be resolved in a definitive way, and the merits of their past and future deployment will be judged on a case-by-case basis.

Conclusion

Secondary sanctions extend a sanctioning country’s capacity to cause economic harm in the sanctioned country. But, they do add risk by introducing the possibility of incurring conflicts with allies or adversaries.

Secondary sanctions should be considered an option when designing economic sanctions, but only under a very particular set of circumstances. Therefore, secondary sanctions have limited practical applications. As with any economic sanction, if deployed incorrectly, they can do more harm than good.

Secondary Economic Sanctions: Effective Policy or Risky Business?John J Forrer, the Atlantic Council