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Conflicting US and EU Sanctions Rules
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Conflicting US and EU Sanctions Rules
Economic sanctions have become a common foreign policy tool used by countries and multinational organizations like the EU to achieve political goals without resorting to military force. However, unilateral sanctions imposed by individual countries can sometimes conflict with the sanctions regimes of other countries or groups like the EU, causing compliance challenges for companies operating globally.
In recent years, tensions have emerged between US and EU sanctions rules due to differing foreign policy priorities. While both aim to uphold democracy and human rights, they don’t always agree on the best methods for specific situations. Let’s take a look at some of the key differences and challenges.
Extraterritorial Application of US Sanctions
A major source of conflict is the extraterritorial application of US sanctions law. Unlike the EU, the US frequently imposes secondary sanctions that apply to non-US companies and individuals. For example, the US Iran sanctions seek to penalize non-US entities that do business with Iran by cutting them off from the US financial system and markets[1].
The EU sees this as an infringement on its sovereignty and ability to conduct independent foreign policy. In 1996, the EU passed a blocking statute to protect EU companies from extraterritorial US sanctions on Cuba, Iran and Libya. The statute prohibits EU companies from complying with such sanctions unless authorized by the European Commission[5].
However, this puts EU firms in a difficult position. They must choose between violating US law and risking massive fines, or violating EU law and facing penalties at home. Most play it safe and comply with US sanctions, undermining the EU’s efforts[2].
Conflicting Policies on Russia
More recently, conflicting US and EU sanctions on Russia have emerged due to the Ukraine crisis. While both condemn Russia’s actions, they differ on specific measures.
For example, the US has imposed much tougher export controls on technology transfers to Russia’s oil industry. The EU fears this could disproportionately impact European companies and undermine unity against Russia[3]. It has focused more narrowly on restricting technologies with military uses.
The US has also sanctioned a broader range of Russian banks and state-owned enterprises. It expelled many more Russian banks from the SWIFT financial messaging system, which facilitates global transactions. The EU was more cautious, keeping some key banks connected to SWIFT to preserve existing contracts for natural gas imports[4].
These differences partly reflect Europe’s closer economic ties to Russia, including its reliance on Russian oil and gas. But they make a coordinated Western response more difficult.
Human Rights vs Strategic Interests
There are also disagreements over when to prioritize human rights and democratic principles versus strategic interests in relations with specific countries.
For instance, the US has imposed sanctions on Chinese officials over human rights abuses against Uyghur Muslims and the erosion of Hong Kong’s autonomy. The EU has been more restrained, not wanting to jeopardize trade ties or cooperation with China on global issues like climate change[6].
In the Middle East, the US has tighter sanctions on Syria and Iran based on concerns like terrorism links and human rights. The EU focuses more on encouraging diplomacy and has called for easing sanctions on humanitarian grounds[5].
While both claim to champion human rights, they apply sanctions selectively based on economic and geopolitical considerations. This can undermine a consistent, values-based approach.
For global companies trying to comply with sanctions, these conflicting rules create a complex maze to navigate. Checking US and EU sanctions lists frequently reveals discrepancies, forcing firms to walk a fine line.
Violating US sanctions can trigger massive fines, lawsuits, and essentially shut companies out of the US market. But violating EU sanctions or blocking laws also carries penalties. Companies must invest heavily in sanctions compliance programs and legal advice.
Banks and financial institutions face particular challenges. Handling a transaction tied to a blacklisted entity can result in huge fines down the road. Many opt for overcompliance, dropping clients or freezing funds even if not clearly prohibited under EU rules, to avoid any potential US violations[2].
Conflicting sanctions ultimately constrain trade and finance, hurting businesses and economies worldwide. They also often fail to achieve their goals as targeted countries find alternative partners who don’t join Western sanctions.
Finding Common Ground
While US and EU sanctions policies may never fully align, greater cooperation could ease some tensions.
The US could be more judicious in applying secondary sanctions extraterritorially, consulting allies beforehand. The EU could strengthen its own sanctions capabilities as an alternative to reliance on US measures.
Jointly identifying common red lines for sanctions could make them more impactful. For example, Russia’s invasion of Ukraine triggered coordinated, hard-hitting sanctions from both sides. Clearer guidelines on human rights violations warranting sanctions could also help.
Greater information sharing and coordination between sanctions agencies in identifying targets could improve consistency. So could joint evaluations of sanctions effectiveness to shape policies.
The US and EU share fundamental values and security concerns. But when each imposes sanctions unilaterally based on narrow national interests, it weakens their common stance. With dialogue and compromise, they can craft more unified policies that uphold democracy and human rights worldwide.
References
[1] Legality of Unilateral Extra-territorial Sanctions under International Law (2022). Oxford Academic. https://academic.oup.com/jcsl/article/27/1/53/6528963
[2] Restrictive measures – sanctions compliance, implementation and judicial review challenges in the common foreign and security policy of the European Union (2021). ERA Forum. https://link.springer.com/article/10.1007/s12027-021-00658-6
[3] How to sanction international wrongdoing? The design of EU restrictive measures (2022). Springer Link. https://link.springer.com/article/10.1007/s11558-022-09458-0
[4] Sanctions Developments Resulting From the Conflict in Ukraine – European Union (2023). Cleary Gottlieb. https://www.clearygottlieb.com/news-and-insights/publication-listing/sanctions-developments-resulting-from-the-geopolitical-conflict-in-ukraine—european-union
[5] How EU sanctions work (2015). EU Institute for Security Studies. https://www.iss.europa.eu/sites/default/files/EUISSFiles/Chaillot_129.pdf
[6] SANCTIONS, CONFLICT AND DEMOCRATIC BACKSLIDING (2022). EU Institute for Security Studies. https://www.iss.europa.eu/sites/default/files/EUISSFiles/Brief_6_Sanctions.pdf
The EU has continued to expand and strengthen its sanctions against Russia in response to the ongoing conflict in Ukraine. Here are some additional key developments:
Expanding Sectoral Sanctions
The EU has progressively expanded sanctions across more sectors of the Russian economy. The 11th sanctions package approved in July 2022 imposed an embargo on Russian gold imports and tightened export controls on dual-use goods as well as advanced tech products that can be used for defense purposes[1].
New sanctions also target Russia’s energy industry by banning services needed for oil transport and storage. The EU aims to reduce reliance on Russian oil and gas, but in a phased approach to manage the impact on European economies[2].
Hitting Strategic Areas
EU sanctions increasingly target areas intended to strategically weaken Russia’s economy and military capabilities long-term. Restrictions have been imposed on imports of Russian steel and luxury goods.
The EU has also moved to restrict Russia’s access to surveillance, drone, and cybersecurity technology that can facilitate repression at home and cyberattacks abroad[3].
Closing Loopholes
As sanctions have expanded, the EU has also worked to close loopholes and prevent circumvention. For example, recent sanctions ban providing cloud services that can be used to circumvent other prohibitions[4].
Sanctions evasion via third countries like Turkey has been addressed by tightening export authorization requirements. The EU also cooperates with G7 partners to align sanctions and prevent workarounds.
Challenges Remain
However, sanctions have a limited impact without fuller participation by major powers like China and India. Russia has found alternative markets for its oil and gas exports[5].
Within the EU, securing consensus on sanctions across 27 member states with divergent interests remains politically challenging. Tougher sanctions continue to face resistance from some members.
As sanctions mount, unintended spillovers like rising energy prices also spark some opposition. But Russia’s escalation of the war has kept EU resolve intact so far.
References
[1] Russia: EU adopts eleventh package of sanctions over aggression against Ukraine (2022). European Council. https://www.consilium.europa.eu/en/press/press-releases/2022/07/21/russia-eu-adopts-eleventh-package-of-sanctions-over-aggression-against-ukraine/
[2] A European Economic and Financial System for Open Strategic Autonomy (2022). EU Commission. https://ec.europa.eu/info/sites/default/files/economy-finance/dp074_en.pdf
[3] The EU imposes new sanctions against Russia targeting dual-use goods and cyber surveillance technology (2022). EU Commission. https://ec.europa.eu/commission/presscorner/detail/en/ip_22_3131
[4] Russia: EU sanctions target access to high-end tech items and cybersecurity (2022). EU Council. https://www.consilium.europa.eu/en/press/press-releases/2022/07/21/russia-eu-sanctions-target-access-to-high-end-tech-items-and-cybersecurity/
[5] How Russia is weathering sanctions (2022). Peterson Institute for International Economics. https://www.piie.com/blogs/realtime-economic-issues-watch/how-russia-weathering-sanctions