BIS

Embargo, Whatever the Cost!

The U.S. Departments of State and Commerce recently announced a hold on the issuance of licenses for exports and reexports to the Russian Federation. These actions follow the Administration’s imposition of sanctions “on specific individuals responsible for undermining the sovereignty, territorial integrity and government of Ukraine.” [1]

As explained by President Obama, the new sanctions are “a series of measures that will continue to increase the cost on Russia and on those responsible for what is happening in Ukraine.” [2] These sanctions now seem to expand on a weekly basis and, as noted by the President, “…if Russia continues to interfere in Ukraine, we stand ready to impose further sanctions.” [3]

While the sanctions may be pursued with good intentions, that does not stop them from becoming self-destructive. History tells us that imposing trade sanctions against major trade partners often hurts U.S. industry more than the sanction targets. This is especially true in the case of Russia.

Following the Soviet invasion of Afghanistan, President Carter imposed an embargo on U.S. grain exports to the Soviets in 1980. As put forth by Former Secretary of Commerce Phillip Klutznick at the time, the Carter Administration’s grain embargo was intended “to show the U.S.S.R. in tangible ways that aggression is costly and will be met with firmness…”[4]

The Carter Administration’s Grain Embargo was a complete failure from an economic perspective.[5] Lost sales devastated the U.S. grain industry, which required taxpayer dollars to counter the embargo’s effects. At the same time, the impact on the Soviets was negligible as the country simply increased orders from existing non-U.S. suppliers and developed relationships with new grain suppliers in other non-U.S. markets.

Similar adverse impacts on the U.S. economy resulted in the 1980s from the U.S. ban on U.S. company participation in the construction of the Soviet-Europe gas pipeline.

Nevertheless, unlike most items requiring a license under the U.S. export control system, grain is a fungible commodity that is easy to replace. So perhaps comparison to the Carter Administration’s Grain Embargo is a stretch. Nevertheless, let’s hope the current Administration is considering the likely impact of its measures on the U.S. economy so that history does not repeat itself.

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[1] “Statement by the President on Ukraine,” The White House Office of the Press Secretary, March 17, 2014.

[2] Ibid.

[3] Ibid.

[4] Statement by Philip M. Klutznick, Secretary, U.S. Department of Commerce, in U.S. Embargo of Food and Technology to the Soviet Union, Hearings before the Subcommittee on International Finance of the Committee on Banking, Housing, and Urban Affairs, 96th Congress, 2 Session, Government Printing Office, 1980, at p. 28.

[5] “Grain embargo: a punch at the Soviets that Hit the U.S. Farmer,” EIR News Service Inc., Volume 7, Number 2, January 15, 1980.

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*The above is not intended as an exhaustive list of restrictions that may apply to a particular transaction nor advice for a specific transaction because the specifics of an individual case may implicate application of other U.S. laws as well as foreign laws that carry added or different requirements.  In addition, U.S. export control and sanctions laws are frequently subject to change.  Such changes can affect the continued validity of the information above, which is based on U.S. law existing as of March 28, 2014. For these reasons, assistance from a qualified attorney competent to advise on such matters is highly recommended.

Matthew A. Goldstein is an International Trade Attorney in Washington D.C. licensed to practice in the District of Columbia.  He can be reached at (202) 550-0040 and Matthew@GoldsteinPLLC.com.