By Yucai Yu

Picture: Globe License: Public Domain

A surge of revitalized unilateralism in international economic policy making:

European Union was facing increasing internal pressure on its unity as well as the original effort on globalization.

·       Brexit is on irreversible track. EU and UK formally started negotiations relating to Brexit arrangements, with early focuses on EU’s and UK’s citizens’ rights, future of Ireland/Northern Ireland border, and UK’s funding commitments. EU has appeared to gain an upper hand so far. The next phase of negotiation will deal with the more difficult issue of trade between EU and UK.

·       Elections in Europe showed a rise of protectionism and populism. In Netherlands, a leader favoring globalization successfully held on to his spot, yet over the challenge by a candidate against immigration. In France, voters were split between those who embrace globalization and those who feel left behind. The far-right anti-immigration party in Germany also made a historic breakthrough.

“Make America Great Again” with new international deals, or without deals.

·       President Trump initiated the renegotiation of the North American Free Trade Agreement, aiming to modernize the agreement, invigorate American manufacturing, eliminate certain dispute resolution mechanism, and raising labor standards.

·       President Trump also pulled US out of Trans-Pacific Partnership (TPP) Agreement in the first month of 2017. Negotiation of the Trans-Atlantic Trade and Investment Partnership (T-TIP) was put on hold.

·       US withheld its support for a new selection process for WTO Appellate Body Members, resulting in an impasse and possibly logjam.

While multilateralism held on certain grounds:

·       Despite US’ withdrawal, the rest eleven countries of the TPP continued negotiation and will likely sign it without US’ participation.

·       China continued to implement its $900 billion “One Belt, One Road” Initiative, aiming to lend as much as $8 trillion for infrastructure in 68 countries. While US seemed to be retreating from globalization, China seemed to catch up and act as a firm globalization supporter.

·       Latin America kept pushing globalization effort through regional organizations, including Pacific Alliance and Mercosur.

·       African countries were seeking to build a giant free-trade area.

These all happened in an era of technology development:

·       Bitcoin went bananas, which fueled development of other cryptocurrencies and block-chain-based technology. Countries reacted differently to this: China banned Bitcoin transactions and so-called Initial Coin Offering (ICO), while US and Europe actively imposed regulations.

·       FinTech had become a hot topic and continued to develop. With mobile payment replacing traditional payment methods in China, people started to see what a marriage between finance and technology can do.

·       Artificial intelligence (AI) continued to develop. People began to ponder more and more how it was going to reshape the landscape of employment and people’s life in general. AI even became a prioritized industry in China’s development plan.

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March 26, 2018

By Nico Nalbantian

On September 11^th, 2017, Georgetown University Law Center’s Institute of International Economic Law (IIEL) hosted former Deputy Director of the Central Intelligence Agency David S. Cohen. Cohen discussed Russia, Venezuela and North Korean sanctions in an interview with IIEL Faculty Director Chris Brummer. Described by some in the Obama administration as a “financial Batman”, Cohen focused much of his talk on the evolution of sanctions policy between the Obama and Trump administrations.

The Goal of Sanctions

Cohen began the event by highlighting the purpose of sanctions. Ultimately, sanctions are a diplomatic tool for coercing a country into one of two things: (i) target the behavior of a country and change the targeted behavior, or (ii) disable what that country is doing. The case Cohen shared from the Obama administration was Iran. Iran had been causing global concern due to its alleged nuclear weapons program. The sanctions imposed on Iran were part of a “dual track strategy”. Should Iran continue down its path of nuclear armament, then sanctions would be ratcheted up and cut more deeply into the Iranian economy. Alternatively, should Iran be willing to negotiate and step-away from its nuclear program, then sanctions would be lifted and Iran could “return to the fold” of the international marketplace.

Cohen’s dual track analogy contrasts a common misunderstanding of how sanctions should be used. Sanctions are effective because they apply pressure on a country while simultaneously offering an opportunity to relieve that pressure. Sanctions applied on a country simply for the sake of harm produce no results beyond the harm itself caused to the target country and the host country for bearing the economic cost of the sanction. Another example of an appropriate use of sanctions are, at least initially, the sanctions imposed by the United States and the EU against Russia. The sanctions on Russia are in place to encourage Russian withdrawal from Ukraine. Like Iran, should Russia continue illegal aggression against Ukraine sanctions should be increased and cut deeper into the Russian economy. Alternatively, should Russia begin talks and withdrawal from Ukraine, then the sanctions imposed on Russia by the United States and the EU should be lifted.

Trump Administration Complications

Having set out the theoretical underpinnings of the Trump administration, Cohen explored how the new administration has evolved its sanctions policy and some of their challenges going forward. The first digression is the disagreement between Congress and the White House over Russia sanctions. Of course, Congress has an important role in the sanctions process, but Congress’s moves were far more prescriptive than in the past. Previously, Congress would defer to the President or the Treasury Secretary on the lifting and imposition of sanctions to complement the executive’s diplomatic efforts. With the Russia sanctions legislation, some sanctions have been effectively locked into place in such a manner that it is no longer an effective tool at the disposal of the administration. Cohen conceded that Congress had legitimate concerns over the White House’s commitment on punishing Russia for its invasion of Ukraine. However, time will tell if sanctions will lose the flexibility and nimbleness that makes them such an effective foreign policy tool.

The Trump administration’s most important challenge will be establishing a North Korean sanctions regime. Cohen argued that it was possible for the United States, in cooperation with China, to establish an effective sanctions regime on North Korea. North Korea needs the ability to sell its arms, labor, and textiles to earn foreign currency around the world. All those transactions are vulnerable to the secondary sanctions that were effective against Iran. Secondary sanctions would be cutting off any company that does business with North Korea from the US economy. The challenge for the Trump administration is, unlike Iran, North Korea does over 90% of its trade with China. Therefore, any effective sanctions against China North Korea would likely rely on effective communication with the Chinese. Unfortunately, the Trump administration’s seeming desire to reimpose sanctions on Iran due simply to the desire to punish them does not bode well for an effective and dynamic sanctions policy.

Should readers wish to view David Cohen’s talk in full, an online recording can be found here.

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September 17, 2017