1998 Congressional Hearings
Special Weapons
Nuclear, Chemical, Biological and Missile

Testimony of Thea M. Lee,

Assistant Director for International Economics,

Public Policy Department,

American Federation of Labor and Congress of Industrial Organizations,

before the

Committee on International Relations

United States House of Representatives

on the Costs and Benefits of Economic Sanctions

June 3, 1998

Mr. Chairman, members of the Committee, I appreciate this opportunity to present the views of the AFL-CIO on the effectiveness and appropriate use of economic sanctions. This is a vast and complex topic, and I will use my testimony today to touch on some important principles from the point of view of the U.S. labor movement.

First of all, let me briefly review the areas where there seems to be broad consensus. No one disputes that unilateral economic sanctions are an essential policy tool, that should be applied judiciously, consistently, and effectively. All would similarly agree that, given a choice, multilateral sanctions are preferable to unilateral sanctions.

The differences arise over what to do when it is not possible to achieve cooperation from our partners to impose multilateral sanctions in an appropriate time frame. In this case, the choice is between various types of unilateral sanctions, diplomatic action, and inaction.

It is worth noting that the line between multilateral and unilateral sanctions is not clear. Many multilateral sanctions, like those against the apartheid government of South Africa, began as sub-national and even private shareholder sanctions in response to grassroots activism and gradually garnered first national, then multilateral support.

Our challenge is twofold: How can we be more effective in gaining support for concerted multilateral action, and how can we design sanctions to achieve maximum impact at minimum cost? We should not allow this discussion to be sidetracked into an ultimately unproductive debate over whether or not to use unilateral sanctions.

Gaining multilateral support is crucial to the effective use of sanctions. We should use every means at our disposal and every forum, including the World Trade Organization as well as the United Nations, to convince other countries to support sanctions in the cases where we have determined that it is in the national interest to apply them.

There has been much discussion recently about the need to discipline economic sanctions because, it is argued, they have simultaneously proliferated and become less effective and more costly. The Institute for International Economics (IIE) released a working paper last year

highlighting the economic costs of sanctions (measured in terms of lost exports) and has testified this year about their limited effectiveness.(1)

Unfortunately, the IIE study was designed to make a point, rather than carefully parse limited and confusing data. For instance, the study makes two simplifying assumptions. First, it assumes that no exports cut off due to sanctions will be replaced by exports to other countries, and that therefore the maximum number of jobs will be lost. While unlikely to be replaced dollar for dollar by increased exports to other countries, some of the lost exports will certainly be redirected to other markets. The report mentions the possibility that there are permanent displacement effects that linger after sanctions have been lifted, but finds little evidence to support this assertion. Second, the report assumes there are no employment effects due to sanctioned imports. Both of these assumptions would lead to overstating the job and wage impact of economic sanctions.

Some legislative solutions to the sanctions "problem" have been proposed. The Hamilton-Lugar bill, for example (H.R. 2708, S. 1413), imposes new reporting requirements and a waiting period before unilateral economic sanctions can be imposed. The President's Export Council and the State Department's Advisory Committee on International Economic Policy similarly released reports last year calling for measures to slow the process of imposing economic sanctions and to enforce a more consistent framework for their application.(2)

But before we take any steps to limit our ability to impose economic sanctions in a timely and effective way, we need to be much more precise in our definitions and clear about our goals.

Unilateral economic sanctions include trade measures (restrictions of exports or imports); financial measures, such as blocking assets or withholding loans or development aid; and government procurement restrictions. Lumping these disparate measures together confuses the discussion of economic sanctions, particularly with respect to their efficacy and their costs.

Certainly, the domestic economic impact of restraining exports and limiting imports will differ, particularly with respect to the impact on jobs, wages, and prices, yet recent studies do not distinguish between these two forms of sanction. Similarly, withholding aid or opposing loans from the international financial institutions may reduce overall trade indirectly, but will have a much smaller and less focused impact on one country's trade volume than other forms of sanctions. My point here is simply that future research should not try to draw broad conclusions about the effectiveness or cost of sanctions in general, but should rather rank policy options so we can make more informed choices.

The debate that has arisen in the last year or so purports to be about the effectiveness of unilateral economic sanctions as a policy tool, not the justness of the causes to which they are applied. Yet the criticism of sanctions has focused exclusively on the problems involved with sanctions imposed for "foreign policy" reasons, while excluding sanctions imposed to attain "trade or commercial objectives," such as remedying unfair trade practices. This distinction does not make sense.

Any criticism of "unilateral economic sanctions" as ineffective must apply equally to sanctions applied for trade objectives as to those applied for foreign policy objectives. Yet we seldom hear an outcry from the business community that the U.S. Trade Representative should refrain from imposing retaliatory tariffs or withdrawing trade preferences when one of our trading partners has engaged in illegal dumping or has violated intellectual property rights agreements.

In fact, unilateral economic sanctions are routinely threatened and occasionally imposed to achieve commercial objectives or to protest unfair trade practices. A few months ago, the United States withdrew generalized system of preferences (GSP) trade benefits from Honduras over egregious copyright violations. Last week, the Clinton administration indicated that it may retaliate (i.e. impose import restrictions) against France over France's move to block U.S. corn exports containing genetically modified organisms to Europe.

These trade actions are routine and are generally supported by the business community, even by many of the same companies that question the usefulness of sanctions as a policy tool to achieve foreign policy objectives. In the end, objections to "unilateral economic sanctions" in general are not to the efficacy of the policy tool, but rather to the unworthiness of the cause when there is no direct economic interest of U.S. businesses at stake.

The U.S. Congress, and this committee in particular, has recognized the importance of using the economic and political clout of the United States to stand for values other than short-term cash flow: to prevent the spread of weapons of mass destruction, to prevent the abrogation of democracy, to punish egregious abuse of human and worker rights, and to stop terrorist activities.

It is true that we do not use our available tools consistently or as effectively as we could, and the labor movement supports efforts to improve the implementation of sanctions. But we would caution against taking legislative steps to erect obstacles or delay the imposition of sanctions across the board. As earlier research by IIE has concluded, speed and resolve are crucial to the effectiveness of economic sanctions: "Sanctions imposed slowly or incrementally may simply strengthen the target government at home as it marshals the forces of nationalism. Moreover, such measures are likely to be undercut over time either by the sender's own firms or by foreign competitors. The average successful case lasted just under three years, while failures typically dragged on for eight years." (3)

Decisiveness is also important. While some flexibility is necessary, waivers applied indiscriminately signal that the sanctions policy need not be taken seriously. This undermines the credibility of future policy.

Let me conclude by saying that successful grassroots action on trade policy can be a valuable and empowering force, as well as a legitimate expression of citizen concern. Our task should be to make these initiatives more successful and effective, not to choke them. I look forward to your questions and comments. Thank you for your time and attention.

Disclosure Statement: Neither the AFL-CIO nor Thea M. Lee received grants from any government agency pertaining to the issue of this testimony.

1. Gary Clyde Hufbauer, Kimberly Ann Elliott, Tess Cyrus, and Elizabeth Winston. U.S. Economic Sanctions: Their Impact on Trade, Jobs, and Wages. Washington, D.C.: Institute for International Economics, 1997. Testimony of Kimberly Elliott, May 14, 1998.

2. President's Export Council. Unilateral Economic Sanctions: A Review of Existing Sanctions and Their Impacts on U.S. Economic Interests with Recommendations for Policy and Process Improvement. June 10, 1997; "U.S. Unilateral Economic Sanctions: A Strategic Framework." Report of the State Department Advisory Committee on International Economic Policy. September 1997.

3. Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann Elliott. Economic Sanctions Reconsidered. Washington, D.C.: Institute for International Economics, 1990 (executive summary updated January 1998).