Why the regulation of sanctions matters 

Sanctions not only lead to economic harm but also bear legal consequences for the sanctioning states

Updated - April 11, 2022 10:48 am IST

Published - April 11, 2022 12:15 am IST

Pedestrians walk past a branch of Alfa Bank, Russia’s largest private bank, in Moscow.

Pedestrians walk past a branch of Alfa Bank, Russia’s largest private bank, in Moscow. | Photo Credit: AFP

With the recent discovery of a series of suspected war crimes in the Ukrainian town of Bucha and the fear of a new Eastern offensive, Western sanctions on Russia have reached a new high. The European Union (EU) seems more determined than ever before to restrict the importation of Russian oil and gas, while the U.S. and the U.K. keep targeting financial assets and oligarchs.

Seen as the lesser of two evils against a member of the United Nations Security Council (UNSC) and a nuclear power still supported by strategic allies, sanctions offer a seemingly efficient alternative to the use of military force. Yet, their damage on human rights and populations have been long demonstrated. In addition, in a globalised economy, their medium-term impact on the very countries issuing these sanctions can be rather severe. These reasons give rise to the need to regulate and monitor the use of this political tool for economic warfare at the crossroads between international law, trade, investment, or finance, and for which only a few legal scholars, other than human rights specialists, have showed interest. An apparent peaceful legal tool, sanctions can eventually backfire.

What are sanctions?

Although there is no universal legal definition, a sanction can be defined as a measure of coercion of an economic nature, as opposed to diplomatic or military means, taken by states, either collectively or individually. Collective sanctions can be imposed by an international organisation based on a multilateral (UN) or regional (EU) treaty. The UNSC is at the centre of the collective sanctions’ edifice with its Chapter VII, ‘Action with respect to threats to the peace, breaches of the peace, and acts of aggression’. But a strict procedure needs to be followed: first the “existence of any threat to the peace, breach of peace or act of aggression” needs to be determined (Article 39) and then the decision to resort to measures not involving the “use of armed force” decided (Article 41). Article 41 states: “These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations.”

Sanctions are not defined nor listed, as such, but the allusion is clear. Since 1966, the UNSC has established 30 regimes of sanctions which have taken a variety of shapes from trade measures to embargoes on arms; and financial tools to travel bans. The UN insists on the idea that these sanctions cannot operate “in a vacuum”, but should rather be seen as part of a larger apparatus to restore peace and security. Fourteen UN-supported programmes of sanctions are in place in the world today. Each of them is administered by a sanctions committee chaired by a non-permanent member of the UNSC. More than 30 EU sanctions regimes have been adopted and some of these already targeted Russia’s previous intervention in Ukraine.

With Russia as a permanent member and veto power member of the UNSC, the UN’s scope of action is rather limited, so much so that its credibility is questioned. Hence, sanctions are also taken unilaterally, that is by a given state with no basis in a treaty and often without any legal ground. The U.S. has historically championed this category with the adoption of tools like complete embargoes i.e., the total interdiction of trade, travel, and financial transactions, and more targeted measures such as blocking or freezing financial assets and imposing restrictions on importations or exportations with, for example, a licensing system. The authority to take these measures is a matter of domestic law.

However, the question of jurisdiction is particularly sensitive as there is a clear extraterritorial element to the unilateral imposition of economic restrictive measures. Aware of the controversial nature of these sanctions, the UN has put in place a system of monitoring and, since May 2015, appointed a Special Rapporteur on the negative impact of the unilateral coercive measures on the enjoyment of human rights. In the language of the International Law Commission, these unilateral sanctions are called “countermeasures”. Close to the idea of self-defence, the measure at stake could be described as “self-help” or “self-protection”. The question of legality, however, remains and, in a globalised economy made of international trade and investment interconnections, could later backfire.

When sanctions legally backfire

What if trade and investment tribunals condemned the sanctioning states for treaty violations? In international economic law, sanctioning countries first appear to enjoy certain latitude. International trade agreements such as the World Trade Organization and various investment treaties provide for security exceptions. These include Article XXI of the General Agreement on Tariffs and Trade (GATT), Article XIV bis of the General Agreement on Trade in Services, and Article 73 of the Trade-Related Aspects of Intellectual Property Rights along with a host of bilateral investment treaties. While some considered these exceptions as ‘self-judging’, recent WTO disputes including ‘Russia – Measures Concerning Traffic in Transit’ (DS 512) and ‘Saudi Arabia – Protection of IPRs’ (DS567) see these exceptions as partially justiciable, which means that an examination of their legality is not completely outside of the purview of international trade and investment tribunals. Accordingly, even if the policy space available for invoking national security exceptions is considered to be narrower than many states would tend to believe, the legality of economic sanctions in the context of war is unlikely to be questioned by trade tribunals.

However, other international tribunals may have a final say. The Nicaragua case has provided a clear illustration of the ambiguity and illegality of these measures. Economic sanctions were imposed by the U.S. to attain political goals in the comprehensive trade embargo levied against the Government of Nicaragua in May 1985. The International Court of Justice eventually condemned Washington, which had argued that the measures had been taken in compliance with Article XXI of the GATT (national security reasons). In the Bank Mellat case, the U.K. also learned the hard price of economic sanctions-related damages as an Iranian bank claimed £1.3bn over trade ban damages.

For all these reasons, there is at least a case for proper notification and basic legal due process. The announcement and invocation of sanctions cannot be hurriedly done as sanctions not only affect private actors and lead to significant economic harm and disruption in supply chains (as we observe today with energy and commodities), but also bear longer damaging legal consequences for the sanctioning states.

Leïla Choukroune is Professor of International Law and Director of the University of Portsmouth Thematic Area in Democratic Citizenship and James J. Nedumpara is Professor and Head at the Centre for Trade and Investment Law at the Indian Institute of Foreign Trade, New Delhi, and a Professor at the Jindal Global Law School

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