Sanctions: Don't Love Them or Hate Them, Make Them Work.

Few foreign policy issues excite such passionate and disparate feelings in the United States as proposals to impose economic sanctions in order to try to influence the behaviour of other countries. The business community hates sanctions which cost American firms in terms of lost sales and business relationships. Meanwhile, many politicians love sanctions; how else to take "tough" action against a foreign country without risking American blood or treasure?

The domestic debate, which concerns largely ineffective unilateral sanctions, is mirrored internationally by a similar intellectual trench warfare over multilateral sanctions. On one side, critics line up to deride the use of sanctions without admitting those instances in which these measures work. On the other side are those who view sanctions as the default option, with little regard to the type used or the manner in which it is employed. The end result is that sanctions are seen as primarily symbolic gestures. In fact, if done right, they can be useful, though limited, diplomatic tools.

The problem is that even multilateral economic sanctions, which have a much better chance of achieving diplomatic goals, are rarely done right.

As a result, sanctions are often worse than ineffective. In many cases, they have proven highly counterproductive, creating changes in the target country's economy, which make the offensive behaviour that brought sanctions to bear even more difficult to reverse. Yet, sanctions have met with success in more than a few instances. The key to their more effective use is understanding what they are, and how and why they can produce such divergent results. At the most basic level, there is a distinction between trade sanctions on commodities and financial sanctions aimed at impeding the flow of capital to a target country. Trade sanctions can be further divided into those which prevent the target country from being able to import goods (export sanctions) and those which block exports from a country (import sanctions).

Why are these distinctions important? Because, while financial sanctions tend to raise the cost of capital to an offending country, export sanctions tend to induce import substitution. Even if multilateral sanctions are effective in blocking the flow of goods to a particular country, the target State will respond, if possible, by producing substitutes. The 1977 UN-imposed arms embargo on South Africa, for example, prompted the creation of a vast military industrial complex there. The result was that South Africa not only became self-sufficient in weapons, but also became a major exporter of sophisticated arms. Employing nearly 140,000 people at its peak in the 1980s, the South African arms industry was the sixth largest weapons exporter in the world. Even today, it is a major supplier of weapons to other African countries. Although import substitution is an expensive and economically inefficient practice, it is well worth the cost, especially when sanctions demand significant changes in the target country's policies or behaviour.

More importantly, trade sanctions have political ramifications. Refusing to sell to a country gives it the functional equivalent of a protective tariff. This benefits producers capable of making substitutes and provides a reason for them to support the policies and leaders whose actions keep sanctions in place. In other words, export sanctions tend to create groups within the offending country with a material incentive to see that sanctions remain, and these groups try to influence the target country's Government to maintain the policies that prompted the sanctions.

In the 1990s, trade sanctions imposed on Yugoslavia enriched a criminal elite closely tied to paramilitary organizations and arch-nationalist political parties. The loosely enforced blockade on gasoline produced an extremely profitable black market controlled by these criminals, including the leader of an infamous Serbian paramilitary group responsible for much of the violence and ethnic cleansing in Bosnia. He is a wealthy man, thanks to sanctions and the illegal profits from the black market.

Financial sanctions have been used successfully to resolve a number of international disputes. In the 1960s, these tools were effective in securing compensation for expropriated property in Sri Lanka and Peru. In 1980, financial sanctions imposed by the European Community against Turkey helped to moderate the military government's authoritarian policies. Financial sanctions also played a role in pushing Iran, which was eager to regain frozen assets held abroad, to release the American hostages in 1981.

Regardless of the type of sanction contemplated, a few basic rules must be followed. First, sanctions need to be supported by the vast majority of potential suppliers. Near global unity might be necessary in the case of food, while only the industrialized countries would have to support sanctions involving high-tech goods. In the case of certain war materials, the United States could almost do it alone. Financial sanctions can be particularly effective precisely because capital is the one commodity for which most nations cannot substitute domestically. By blocking the flow of capital from the cheaper lenders, through the World Bank and the International Monetary Fund, the cost of capital goes up. That hurts the elite of the target country, who then have to make some hard choices about where to cut spending - or accede to the wishes of the global majority.

Second, if economic sanctions are to work, k follows that the banned goods must not be easily available internally. Banning oil exports to a leading oil producer is sanctions' version of bringing coals to Newcastle - the loss of access to foreign goods, which are also produced domestically, simply won't cause enough pain to modify behaviour. Even countries that do not presently produce the banned product may be able to do so if the stakes are high enough.

Before sanctions were levelled, Iraq was known as a major food importer. In the wake of sanctions, Iraq planted more land with basic cereal crops in the early 1990s and had larger harvests than before the war. In 1991, the grain harvest was 24 per cent larger than the previous season.

No matter what sanction is chosen or how it is imposed, it can only work if the cost of the sanction is greater than the cost of the policy change. For example, when the United States threatened to cut off aid to Peru in the 1960s unless the Government changed its mind about expropriating American property, the sanctions were effective because United States aid mattered more to the Peruvian Government than the value of the property. But, sanctions against Yugoslavia designed to depose President Slobodan Milosevic probably won't work if the Yugoslav ruler knows that by giving in he faces jail or death as a war criminal.

Economic sanctions are a tool that can induce changes at the margins and can be combined with other forms of pressure to exert greater changes. In and of themselves, they only succeed when the goals are modest, the sanctions are chosen properly and they enjoy the support of key countries. If used properly, sanctions will be neither loved nor hated. That realization alone will go a long way towards making them more effective.

Mr. Stanley A. Weiss is the founder and Chairman of Business Executives for National Security (BENS), a group of American business leaders.

Dr. Zachary Selden directs BENS' efforts to create business/Government partnerships to deal with new threats, and is the author of "Economic Sanctions as Instruments of American Foreign Policy" (Praeger Publishers, 1999).