Trading with the enemy

unsplash-logoSandy Millar

While the USA and Iran are working towards war, the question arises whether the sanctions against Iran (since 1979) were conducive to world peace or had the opposite effect.

Just before Christmas – the world is in a shopping mood. Not so the Council of Europe. On December 19, 2019, the EU decides to extend the sanctions against Russia, which have been in place since 2014, for another six months.

The economic sanctions prolonged by this decision include:
• limiting access to EU primary and secondary capital markets for 5 major Russian majority state-owned financial institutions and their majority-owned subsidiaries established outside of the EU, as well as three major Russian energy and three defence companies;
• imposing an export and import ban on trade in arms;
• establishing an export ban for dual-use goods for military use or military end users in Russia;
• curtailing Russian access to certain sensitive technologies and services that can be used for oil production and exploration.

Sanctions of this kind are no longer the exception but determine economic policy in many areas. Just today, EU Commission President Ursula von der Leyen is travelling to Great Britain to negotiate a new free trade agreement between the European Union and the United Kingdom with the British Prime Minister. Window of opportunity is limited until the end of the year to find a solution, otherwise, as elsewhere, tariffs and restrictions are threatening.

The transition from tariffs to restrictions and sanctions is fluid. It is not for nothing that the USA and China are currently fighting for supremacy in economic policy with reciprocal punitive tariffs and restrictions. The European Union has also imposed a whole range of sanctions on other countries. However, these are, mostly due to moral policy, sanctions against individual regimes, individuals or companies. The sanctions are mostly limited to the areas of chemical weapons, cyber attacks and terrorism. But is this true? Not entirely.

A “popular” key term within the EU is that of “dual-use goods”. With the Delegate Regulation (EU) No. 2019/2199 of 17 October 2019, the EU Commission has revised Annexes I, IIa to IIg (with regard to the goods covered by these Annexes) and IV of Council Regulation (EC) No. 428/2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items. This Delegated Regulation entered into force on 31 December 2019. The categories here include not only nuclear materials or special materials, but also general electronics, computers, telecommunications, sensors and lasers, marine and naval technology and other goods which could be used for military purposes (in the sense of dual use), but which in most cases have a completely civilian purpose. If one follows the concept of dual-use, one could also ban plastic bags with this justification – after all, one could suffocate someone with them after shopping at the supermarket.

But plastic bags are already on another (EU internal) list of banned products for other reasons. Exactly 365 days before the extension of sanctions against Russia, the Council of Europe decided on 19 December 2018 to abolish disposable plastic throughout the EU by 2021 at the latest. All these restrictions are certainly well-intended – but do they serve their purpose? And: Are the damages for the affected companies taken into account? Companies run high criminal law risks if they act near to restrictions for certain product groups or supply to certain regions. If you are a high-end solution provider for example in technology, chemistry or anything else like this you are in the game – whether you want to or not.

This is all true as there is a “Trading with the Enemy Act” (TWEA) from 1917 in the USA. This combines extensive powers to enforce the national interests of the USA even against those who collaborate with the alleged and actual enemy in war. This may raise doubts as to whether the intended effects – namely to bring an opponent to his knees economically – are actually achieved. The sanctions against Iran have existed in various forms since 1979 and have neither led to the economic destruction of Iran nor to the pacification of the conflict. A multipolar economic system is far too permeable for that. Sanctions and borders on the one side create space and opportunities on the other – in this case for China and Russia, which have a strong influence on the Mullah-Regime in Tehran, precisely because the sanctions of the Western world force the Islamists in Iran into a corner with China and Russia.

It are definitely the companies and citizens (may it be as workers or consumers) that suffer in these trade conflicts the most. Industry suffers losses in turnover. Secondly, every sharp restriction on free world trade creates an opportunity for illegal trade, smuggling and product piracy. Desired (Western) products naturally find their ways into sanctioned areas – only the regular market players do not profit from this shadow economy. Tax revenues on illegal products cannot be collected either. Ergo: sanctions can certainly have a political effect. But they have an expiration date. If they become permanent, an illegal industry forms itself around the restrictions. This should be clear to every state actor.