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Economic Coercion

Barry E Carter

Economic sanctions — Coercion & harassment — Most-favoured-nation treatment (MFN)

Published under the auspices of the Max Planck Foundation for International Peace and the Rule of Law under the direction of Rüdiger Wolfrum.

A.  Notion

The term ‘economic coercion’ has traditionally been difficult to define. As a starting point, the term can be defined broadly to include the use, or threat to use, ‘measures of an economic—as contrasted with diplomatic or military—character taken to induce [a target State] to change some policy or practices or even its governmental structure’ (Lowenfeld 698). The State or other entity that is the object of the economic measure is sometimes called the target, while the State(s) that engage in these activities is sometimes termed the sender(s).

This beginning definition overlaps, however, with terms such as economic sanctions, economic warfare, embargo, and boycott. To refine and narrow the definition of economic coercion, it is helpful to categorize the types of economic activity that, depending on the circumstances, could qualify as coercive measures. Categorization is not easy because, in part, States—as well as individuals, corporations, or other entities within these States—engage daily in a wide variety of international economic activity. They sell goods and services abroad, buy foreign goods and services, and move funds across borders. These activities, however, can be grouped roughly into five major categories, as uses of or limits on: a) bilateral government programmes, such as foreign assistance and aircraft landing rights; b) exports from the sender State; c) imports from the target country; d) private financial transactions, such as on bank deposits and loans for trade or investment; and e) the activities of international financial institutions (‘IFIs’; Financial Institutions, International), such as the World Bank (regarding the categorization, see Carter 2).

The next step is to determine whether one of the particular economic activities is not acceptable activity, but has somehow become economic coercion that should be restricted or eliminated. A related question is whether a particular economic activity should be viewed as illegal under international law. More background is needed to determine what activities, if any, might be restricted, eliminated, and/or deemed illegal.

B.  History

Economic coercion for State policy purposes has had a long and controversial history. It was employed in Ancient Greece and has been used over the centuries. In the wake of the destruction caused by World War I and World War II, States increasingly turned to economic measures to pressure other States. As just a few of many examples, the community of States through the United Nations directed economic sanctions against the apartheid regime in South Africa from 1962–94; the United States has employed varying economic measures against Cuba from 1960 to the present; the United Kingdom imposed a trade and financial embargo against Argentina over the Falkland Islands/Islas Malvinas in 1982; India took economic actions against Nepal in 1989–90; the Economic Community of West African States and the United Nations imposed economic measures against Sierra Leone in 1997–2003; Russia employed economic measures against Latvia from 1992–98 and against Georgia from 2006; and the United Nations started restricting the economic activities of its other Member States with Iran and North Korea since 2006 (eg Carter 8–11; Hufbauer and others 9–17 and 22–39; United Nations Security Council Res 1747 [2007] [24 March 2007] concerning Iran).

C.  Historical Evolution of Legal Rules

There have been considerable efforts, especially since World War II, to develop norms that limit the use of coercive economic measures. The efforts involved addressing the tension between two conflicting principles. The first is the principle of non-intervention (Intervention, Prohibition of). At the same time, States have the right to conduct political and economic relations with other countries. Latin American countries often took the lead in trying to limit economic coercion in part because of concerns about past and possible interventions by the United States or European States. An early example is Art. 8 Convention on Rights and Duties of States (‘Montevideo Convention’), which provides: ‘No state has the right to intervene in the internal or external affairs of another’. The article, however, does not specify what economic measures might constitute an intervention. Later, Art. 19 Charter of the Organization of American States (‘OAS’; Organization of American States [OAS]) was more specific and provided: ‘No State may use or encourage the use of coercive measures of an economic or political character in order to force the sovereign will of another State and obtain from it advantages of any kind’.

Most of the legal efforts have focused on whether the prohibition of the use of force (Use of Force, Prohibition of) under the United Nations Charter includes the use of economic coercion as a use of force or a type of aggression. Western powers and developed States have consistently argued that the prohibition on use of force applies only to military force. Some developing countries, however, argued that Art. 2(4) UN Charter itself, which provided that all members ‘shall refrain …. from the threat or use of force’, encompassed economic coercion. This argument was weakened by the fact that, during the drafting of the Charter, a proposal to prohibit economic coercion was rejected by a vote of 26-2 (UNCIO Documents of the United Nations Conference on International Organization vol 6 [United Nations Information Organizations New York 1945] 334). Because, as discussed below, this debate continued over decades, one or more developing countries cited, as examples of economic coercion that should be considered a use of force, a range of measures that might include the termination of foreign assistance programmes, a cut off of exports or imports, or limits on financial transactions.

In the 1960s through 1987, developing and non-aligned States (Non-Aligned Movement [NAM]) led the United Nations General Assembly (‘UNGA’) to pass a number of declarations and resolutions that generally condemned interference in the sovereign affairs of any State by another State, or that more specifically condemned the use of coercive economic measures to influence a country’s internal affairs. The earliest example is apparently the 1965 Declaration on the Inadmissibility of Intervention in the Domestic Affairs of States and the Protection of their Independence and Sovereignty, UNGA Resolution 2131 (XX) of 21 December 1965 (adopted without dissent, with one abstention). It proclaimed that ‘[n]o State may use or encourage the use of economic, political or any other type of measures to coerce another State in order to obtain from it the subordination of the exercise of its sovereign rights or to secure from it advantages of any kind’ (para. 2). See also the 1970 Declaration on Principles of International Law concerning Friendly Relations and Co-operation among States in accordance with the Charter of the United Nations, UNGA Resolution 2625 (XXV) of 24 Oct 1970 (adopted without a vote). Opposition from the developed States grew over the next two decades. The General Assembly Resolution 42/173, entitled Economic Measures as a Means of Political and Economic Coercion against Developing Countries of 11 December 1987, employed similar language to the 1965 Declaration, but the recorded vote was 128 States for, 21 against, and 5 abstaining.

Such UN declarations and resolutions may be evidence of opinion iuris and as such may contribute to the development of customary international law. Even then, their evidentiary weight depends on whether they were controversial and what the vote might have been. As noted above, the number of countries opposing these resolutions gradually increased. Moreover, these resolutions, as well as other agreements at the time, were generally vague.

In 1986 the International Court of Justice (ICJ) issued its decision in Military and Paramilitary Activities in and against Nicaragua Case (Nicaragua v United States of America). Nicaragua had argued that the United States had violated the principle of non-intervention with its cut-off of economic aid, its 90% reduction of Nicaragua’s sugar quota for imports into the United States, and then the comprehensive US trade embargo. In response, the Court ‘has merely to say that it is unable to regard such action on the economic plane as is here complained of as a breach of the customary-law principle of non-intervention’ (Nicaragua v United States of America para. 245). In contrast, the Court voted 12–3 that the United States, with its general embargo on trade with Nicaragua, violated its treaty obligation under Art. XIX 1956 Treaty of Friendship, Commerce and Navigation between the two States (ibid paras 278–79).

D.  Current Legal Situation and Special Cases

10  Given the increasing use of economic sanctions after World War II, the vague official documents, such as the UN declarations and resolutions, and the ICJ decision above, it is not surprising that the UN Secretary-General concluded in 1993 that

there is no clear consensus in international law as to when coercive measures are improper, despite relevant treaties, declarations, and resolutions adopted in international organizations which try to develop norms limiting the use of such measures. (UNGA ‘Economic Measures as a Means of Political and Economic Coercion against Developing Countries: Note by the Secretary-General’ [25 October 1993] UN Doc A/48/535, Agenda Item 91(a), at 1)

11  Although there might not be customary law norms against economic coercion generally, some argue that specific forms of economic coercion might be illegal. Unless the countries involved have specific treaty commitments between them, the arguments for illegality would be based upon interpretations of the principles of the prohibition of intervention, and the prohibition of the use of force, as noted above and as found in the UN Charter.

12  As for treaties, economic coercion by one State against another State, such as limiting or cutting off imports from the target State, can often violate the legal framework of the World Trade Organization (WTO). Parts of various WTO agreements impose obligations on members not to discriminate among States in a number of situations. For example, Art. 1 General Agreement on Tariffs and Trade (1947 and 1994) (‘GATT’) provides that a member shall accord all members the same favourable terms, the provision being known as the most-favoured-nation clause (‘MFN’). Other provisions allow some special benefits for developing countries. Other WTO agreements similarly include MFN clauses, such as Art. II General Agreement on Trade in Services (1994) and Art. 4 Agreement on Trade-Related Aspects of Intellectual Property Rights (1994). These MFN clauses are backed by the strong dispute settlement provisions of the WTO (World Trade Organization, Enforcement System). The growing number of regional and bilateral free trade agreements also sometimes includes non-discrimination clauses that might limit attempts at economic coercion.

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