11 September 1998
EXCERPT: USITC REPORT ON U.S. UNILATERAL ECONOMIC SANCTIONS
(42 federal, 27 state and local laws listed) (2370) Washington -- The U.S. International Trade Commission (USITC) has identified 142 provisions in 42 federal laws applying U.S. unilateral economic sanctions to foreign countries. In a September report to a House of Representatives committee, the independent commission also identified 27 state and local laws imposing unilateral economic sanctions -- 22 directed against Burma, three against Nigeria, and one each against Cuba and Tibet. The commission found more proposed sanctions at the state and local level for which action is pending, including two against Burma and 10 against Switzerland for holding assets from Holocaust victims. The broadest federal sanctions are directed at countries identified as supporting terrorism: Cuba, Iran, Libya, North Korea, Syria and Sudan. A USITC survey found that the energy sector, especially oil and gas, was the U.S. business sector harmed most economically by U.S. unilateral sanctions against other countries. Following is an excerpt from the executive summary of the report to the House Ways and Means Committee (the full report can be accessed at ftp://ftp.usitc.gov/pub/reports/studies/PUB3124.PDF): (begin excerpt) List of U.S. Unilateral Economic Sanctions The Commission identified 42 separate U.S. laws that authorize economic sanctions. These laws may mandate particular actions, or may serve as the basis of mandatory or discretionary actions by the Executive Branch. Under these laws, a total of 142 statutory provisions pertaining to unilateral economic sanctions were identified. Twenty percent of the measures concern terrorism. Other sanctions concern nuclear and other arms proliferation, national security, narcotics, expropriation of U.S. property, human rights, environmental protection, and communism. A summary of major U.S. unilateral economic sanctions (statutes as well as implementing regulations) is provided in table ES-1. The table lists and summarizes the sanctions, the reasons cited for the sanction, and the countries or entities to which each listed sanction applies. The table also indicates the general economic activities -- trade, aid, or finance -- restricted by the sanctions. Some of the sanctions were implemented as recently as 1998 (for example, the Burmese and the Sudanese Sanctions Regulations and economic sanctions against India and Pakistan), while others have long been in effect (for example, the Trading With the Enemy Act of 1917 continues to provide part of the statutory basis for current U. S. unilateral economic sanctions against Cuba and North Korea). The Commission identified 27 State, county, and city laws imposing unilateral economic sanctions -- 22 directed against Burma, 3 against Nigeria, and 1 each against Cuba and Tibet. All of these measures involved selective purchasing, selective contracting, or selective investment restrictions that disallow procurement or contracts with, or investment in any company that does business with or has investments in the targeted country. The Commission identified 14 additional proposed State and local measures, including two such pending measures against Burma for human rights violations, 10 pending against Switzerland for the possession of funds belonging to Holocaust victims, and two pending measures against any foreign financial institution determined to be in possession of funds belonging to Holocaust victims. The large number of statutes providing for economic sanctions present several challenges in working with sanctions and make it difficult for both public and private sector entities to catalog these sanctions. For example, differing definitions of the term "economic sanctions" make it difficult to compare the lists of sanctions in this report with lists of sanctions compiled by other sources. In addition to the sheer number of statutes providing for economic sanctions, the statutes themselves may be difficult to interpret, may be subject to varying interpretations, or may vary in impact from year to year because of lapses in funding. Moreover, in some cases there is a significant lag between the time a particular economic sanction is announced and the actual publication of the implementing regulations. These challenges pose significant problems for the private sector in complying with sanctions as well as for all who attempt to examine the impact of sanctions. Countries Subject to U.S. Unilateral Economic Sanctions Cuba, Iran, Libya, North Korea, Syria, and Sudan are designated by the United States as terrorism-sponsoring countries and face the broadest range of U.S. unilateral economic sanctions. These countries are subject to U.S. restrictions or prohibitions on trade, aid, and financial transactions. U.S. economic sanctions against Iraq are pursuant to United Nations (UN) multilateral sanctions and thus are beyond the scope of this report as delineated in the request letter. However, Iraq is designated by the United States as a terrorism-sponsoring country, and would be subject to U.S. unilateral economic sanctions were UN sanctions not operative. All of the designated terrorism-sponsoring countries are relatively small markets for U.S. exports. Nevertheless, U.S. industries contacted during the Commission's telephone survey (especially oil and gas, infrastructure-related machinery, and construction services) identified lost exports to some of these countries because of U.S. unilateral economic sanctions. The Commission identified a total of 29 countries subject to U.S. unilateral economic sanctions. In addition to the 7 designated terrorism-sponsoring countries, 11 other countries are subject to U.S. unilateral economic sanctions for foreign policy or national security reasons -- Afghanistan, Burma, Cambodia, China, the Democratic Republic of the Congo, the Federal Republic of Yugoslavia (Serbia and Montenegro), India, Niger, Nigeria, Pakistan, and the Republic of Serbia. An additional 11 countries were identified as subject to U.S. unilateral economic sanctions that prohibit certain imports from these countries for environmental protection objectives. Potential Impact of U.S. Unilateral Economic Sanctions The Commission was not requested to undertake a quantitative assessment of the effects of U.S. unilateral economic sanctions in this investigation, but nonetheless there are some estimates available on the impact of sanctions from the economic literature reviewed for this report. The Commission's telephone survey and public hearing also obtained input from the U.S. private sector on the effects of sanctions. Both costs and benefits were reported among the effects of U.S. unilateral economic sanctions. Costs to U.S. businesses and the U.S. economy as a whole include direct effects, which tend to be quantifiable, such as lower U.S. exports, lower U.S. imports, reduced investment, and fewer export-and import-related jobs. In addition, economic sanctions also may have indirect effects that are harder to quantify, such as reduced U.S. trade opportunities in global markets, loss of consumer and industrial user choice, less competitive U.S. businesses, and a "chilling effect" on long-term commercial relationships as some foreign partners become reluctant to do business with U.S. companies. This is out of concern that U.S. companies are not reliable suppliers due to the threat of future U.S. unilateral economic sanctions, or that assets in possession of U.S. entities may be seized under future U.S. sanctions. This study did not attempt to examine political costs and benefits of U.S. unilateral economic sanctions. In terms of benefits, some import-sensitive U.S. businesses (especially in the agricultural sector, as discussed below) may experience higher production and employment while sanctions are in force because import restrictions imposed by sanctions may reduce the available supply of competing foreign products in the U.S. market, or otherwise affect the prices of such foreign goods. Costs and Effects of U.S. Unilateral Economic Sanctions: U.S. Industry Perspectives General Findings The Commission contacted 492 U.S. firms and professional or trade associations in a telephone survey to obtain their views and information on U.S. unilateral economic sanctions. The survey was not based on a statistical sampling due to the short-term nature of this report; nevertheless, an attempt was made to include firms of all sizes representing a wide cross-section of manufacturing and service sectors. The selection of these firms relied on the judgment and expertise of USITC staff in specific manufacturing and service sectors. Consumer groups were not contacted, as Congress directed the Commission to focus on the effects of U.S. unilateral economic sanctions on U.S. industries. The Commission received a total of 174 responses of varying depth and quality -- an overall response rate of 35 percent. Respondents were asked to identify the effects of sanctions as "minimal" (0 to 5 percent effect), "modest" (6 to 10 percent), or "substantial" (over 10 percent). No responding firm indicated that it directly benefits from U.S. unilateral sanctions in terms of additional business, profits, or employment; however, some fresh vegetable producers in Florida expressed concerns about potential economic losses if U.S. unilateral economic sanctions against Cuba were to be lifted (see "agriculture" below). Energy producers, especially oil and gas, were reported as being the most adversely affected by U.S. unilateral economic sanctions (see "energy and chemicals" below). Most other respondents indicated that the economic effects of U.S. unilateral economic sanctions are small because many of the countries targeted for sanctions are mainly low-income countries with relatively small markets. However, in May 1998, after the Commission's industry survey ended, the United States implemented economic sanctions against India and Pakistan following nuclear test explosions by those countries. Under these sanctions, the United States was statutorily required to prohibit economic and military aid as well as terminate financial assist; the sanctions also required that the extension of agricultural export credit guarantees also be terminated for these two countries. As a result of concerns expressed by the U.S. agricultural sector, the United States amended the relevant sanctions statute to retroactively authorize the extension of agricultural export credits. Survey respondents stated that it was difficult for them to quantify the economic effects of sanctions. Particularly difficult to quantify were: (1) the business losses experienced, compared to the returns expected if sanctions had not been in place; (2) the effects of delayed entrance into a market because of sanctions; and (3) the business losses incurred because sanctions may cause U.S. firms to be perceived as unreliable suppliers, due to the threat of future U.S. unilateral economic sanctions. Many respondents stated that identification of, and compliance with, the large number of U.S. unilateral economic sanctions is difficult and expensive. They cited the large number of economic sanctions imposed by State and local governments as a further hindrance to their business operations -- adding to the expense and the administrative complications of doing business abroad. Sectoral Findings Agriculture Overall, the costs and effects of U.S. unilateral economic sanctions were reported to be minimal both in terms of access to foreign markets and competition from imports. Some fresh vegetable producers in Florida expressed concerns about possible adverse effects on their businesses if Cuban products were allowed to re-enter the U.S. market. These firms believe that Cuban products would underprice Florida-grown vegetables. U.S. cigar producers also expressed the concern that lifting the sanctions against Cuba could disrupt the U.S. cigar industry. Energy and chemicals Respondents indicated that U.S. unilateral economic sanctions impede their ability to export to some markets. One large multinational chemical company reported that U.S. unilateral economic sanctions have harmed its reputation as a reliable supplier and caused a loss of international competitiveness in such markets as Iran, Sudan, and Cuba. That company also reported that the effects of sanctions can linger even after the sanctions are lifted, stating that its current market opportunities in Vietnam are limited because foreign competitors were able to secure most of that market during the period when U.S. companies were prohibited from doing business in Vietnam. One large multinational energy company reported that its operations in the Middle East, Vietnam, and Cuba have been adversely affected because of U.S. economic sanctions. In contrast, one large international pharmaceutical company reported a minimal impact on its operations as a result of U.S. sanctions. Minerals, metals, machinery, and miscellaneous manufactures Most respondents reported that U.S. unilateral economic sanctions have a minimal to modest impact overall on their business operations, although several said that the effects could be significant with respect to certain business activities (such as infrastructure-related machinery and parts) and to certain countries, such as Sudan. Two companies estimated that sanctions caused aggregate lost exports valued at $250,000, and total lost export earnings plus follow-on sales and service of approximately $45 million. Some firms reported that they had some difficulty re-entering markets that had previously been prohibited by U.S. unilateral economic sanctions, and where re-entry was possible the firms incurred high costs for developing new distribution channels and marketing. Electronic technology and transportation Respondents reported that economic sanctions most likely affected not more than 1 percent of total sales, or 5 percent of export earnings; however, several noted that such losses, especially foregone export sales, could be significant when accrued over several years. Several respondents reported the difficulties of re-entering markets after sanctions are lifted, and noted that the costs of re-establishing distribution networks are especially high. One U.S. motor vehicle producer noted that State and local sanctions have particularly disruptive effects on business operations, because such economic sanctions affect procurement and divestiture of stock, are easier to enact, and have more immediate effects. Service industries Respondents indicated that U.S. unilateral economic sanctions close off new market opportunities and increase the level of uncertainty for business operations. Construction firms reported being adversely affected when submitting bids for certain long-term infrastructure projects because the threat or potential threat of U.S. unilateral sanctions contributes to the perception that U.S. firms may be less reliable than their European or Japanese competitors. Major multinational financial service firms indicated that they are vulnerable to U.S. unilateral economic sanctions if their overseas affiliates are located in countries that are targets for sanctions. Moreover, investors may be reluctant to deposit funds in U.S. banks worldwide for fear of having their accounts monitored or frozen under U.S. sanctions. Telecommunications services firms also reported foregone business opportunities in such markets as Colombia, Cuba, Iran, and Libya as a result of U.S. unilateral economic sanctions. (end excerpt)
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