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Transatlantic Economic Sanctions Against Russia

by | March 7th, 2014 | 04:34 pm
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As the crisis in Ukraine deepens, US and European officials have announced a series of punitive economic sanctions against the Russian seizure of Crimea. To date, these sanctions have been narrowly focused and with limited consequence. Trade and investment negotiations with Russia have been suspended, though those talks were not going anywhere. US officials announced a targeted freezing of assets and travel bans for as yet unnamed leading perpetrators of the outrages in the Crimea. More important, US and EU leaders are providing financial aid and expediting the transfer of International Monetary Fund (IMF) resources to Ukraine.

Calls for sanctions that cut off trade with Russia or block financial transactions of specific Russian institutions have been considered but not acted upon. They are being held in reserve if Russia escalates the crisis into eastern Ukraine. Keeping the powder dry on more explosive sanctions is the right policy at this early stage, as officials try to align transatlantic interests and strategies and keep open a path for disengagement of Russian troops in Crimea.

Immediate action should be taken, however, to complement the diplomatic and symbolic economic sanctions already announced. Two steps would reinforce US-EU solidarity and help prepare for future contingencies, including the possible disruption of normal commercial relations with Russia.

First, I have recommended to government officials that US and EU negotiators give priority to energy cooperation and promotion of US exports of liquefied natural gas to Europe during the fourth round of talks on the Transatlantic Trade and Investment Partnership (TTIP) that start on March 10 in Brussels. Efforts should be made to conclude this part of the agreement quickly and immediately implement the obligations on a provisional basis (that is, before the entire negotiation is complete). There are numerous precedents for such advance action in past negotiations under the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) and no reason why those examples could not be followed in a bilateral context.

Second, the United States and the European Union should call for special consultations in the International Energy Agency (IEA) to review current oil and gas supply arrangements and reserves in Europe. The IEA should also be called on to assess the implications of the crisis in Ukraine for member and nonmember countries and their options for dealing with potential supply disruptions. Ukraine participates in consultations with IEA members on a regular basis anyway and clearly should be doing so now.

These actions would not punish Russia, but they would signal that the transatlantic partners are working together to advance their strategic interests in the region. At the same time, they would help inoculate European economies against the adverse effects of energy disruptions in the medium term.

Planning for future contingencies is also crucial. US and EU trade officials obviously are examining the benefits and costs of more severe economic responses to Russia, should the crisis escalate. Financial sanctions as broad as those now applied to Iran—which basically block access to global financial markets for many Iranian entities—would be disruptive and likely to provoke much stronger Russian countermeasures against US and EU exports and investment than Iran has been able to muster. While such measures should be kept as part of the sanctions toolkit, there are also other innovative actions that could be taken against Russia.

Consideration should be given to invoking GATT Article XXI, which provides exceptions for national security reasons from rights and obligations under the World Trade Organization (WTO), for example. Invoking this WTO exception would allow across-the-board actions against Russia without prior notification or even justification. The national security exception of Article XXI is that broad. In brief, the United States and the European Union could remove in one step all the WTO benefits they accorded Russia when it acceded to the WTO in August 2012. Doing so would disrupt bilateral trade and investment, possibly kicking tariffs back up to Smoot-Hawley levels of the 1930s.

I am not advocating such drastic action at this point, but note that it is easy to do and compatible with international law. Sending a signal that both US and EU leaders are seriously considering such measures under dire contingencies could deter possible escalation of Russian military engagement in Ukraine. As such, it would complement current diplomatic efforts to resolve the crisis.