President Woodrow Wilson of the United States of America [“US”] in 1919 advocated for sanctions after World War I as an alternative to armed conflict. In his speech he observed that ‘a nation that is boycotted is a nation that is in sight of surrender’. However, that concept, if it ever worked, does not seem to be working today, especially when it comes to the collective ‘boycott’ of Russia regarding its actions in Ukraine. As of February 2023, 10,608 restrictions were imposed on Russian individuals and 3,431 list-based sanctions over Russia. Russia has still not surrendered nor is it ‘in sight of surrender’, and many countries like Iran have not ‘surrendered’ in the past despite decades of sanctions crippling their economy. Still third states (states not directly involved in a conflict) often bear the brunt of the sanctions war. This can happen in two ways,
- Third states can suffer the indirect impact of countermeasures imposed by the injured state on the responsible state, for example by distorted trade or a shortage in food supply.
- Third states can invite extraterritorial sanctions imposed mainly by the US because of a failure to comply with its primary sanctions (direct impact).
The article first provides a brief overview of sanctions and categories of unilateral sanctions. Initially focusing on the collateral damage suffered by third states, it focuses on the law of countermeasures and whether they adequately protect third states from the accidental/collateral impacts of countermeasures. Currently with no set legal framework governing the functioning or validity of extraterritorial sanctions, this article then seeks to discuss the protection, if any, that is accorded to third states from extraterritorial sanctions. Further discussing how Pakistan has suffered collaterally due to various sanction regimes and has also fallen a victim to extraterritorial sanctions.
Sanctions under international law
There are essentially two ways in which sanctions are imposed under international law.
- Those imposed by the United Nations Security Council [“UNSC”].
- Those imposed unilaterally by a single state or group of states targeting another state or persons within that state.
Briefly introducing UNSC sanctions, the UNSC has the dominant authority to impose sanctions. Though the Charter does not use the term ‘sanctions’ but instead refers to ‘measures not involving the use of armed force’, they can take these measures when there is ‘any threat to the peace, beach of peace… to restore international peace and security’. The UNSC derives the power to do so from article 41 of the UN Charter. Each sanctions regime is administered by a sanctions committee with monitoring groups and teams and aligning with the general principles of the UN Charter their sanctions must be necessary and proportionate to the foreseen threat to peace. Though theoretically having a monitoring committee helps to assess the impact of the sanctions in short-term and long-term e.g, to curtail any effect on human rights or humanitarian causes, the UNSC sanctions against Iraq for its invasion of Kuwait had a drastic negative impact on Iranian people including severe malnutrition and child mortality. After the effects noted, the UNSC no longer employs these comprehensive sanctions and now employs a ‘targeted sanctions’ regime, the majority of which are ‘imposed on individuals deemed to be a terror threat’.
Whilst there is a lot to discuss on the shortcomings of the past and present UNSC sanctions, the focus of this article is on the indirect and direct impact of unilateral sanctions on third states.
Sanctions can be categorised in the following ways under international law.
- As lawful acts (where states sever trade/economic ties with another state and there is no obligation to maintain them).
- As countermeasures (where the wrongful act is in response to another wrongful act, precluding its unlawfulness) and
- As international wrongful acts (actions not justified under international law).
There is no single legal framework governing the unilateral sanctions regime and they can fall within different categories as mentioned above. For the purposes of this article, I will be focusing on the use of countermeasures as unilateral sanctions.
Collateral damage on third states through countermeasures
The ICJ defined countermeasures in the Gabcíkovo-Nagymaros Project case as ‘taken in response to a previous international wrongful act of another State and […] directed against that State’. Article 49(1) of the ILC Articles on the Responsibility of States for Internationally Wrongful Acts [“ARSIWA”] states that ‘an injured State may only take countermeasures against a State which is responsible for an internationally wrongful act”. Countermeasures draw a link between an injured state [“IS”] and a responsible state [“RS”]. Here the role of a third state is where it has nothing to do with ‘wrongful act’ which prompted a countermeasure but still suffers incidentally and/or collaterally because of it.
The article explores some of the many parameters that are required for a lawful countermeasure and the purpose is to assess if third states have any protection in this crossfire between the IS and RS.
The first parameter is that countermeasures ‘shall not affect obligations to protect fundamental human rights and other peremptory norms’ found in article 50 ARSIWA. This only concerns the relationship between the IS and RS and does not consider the possible impact on a third state. The commentary to ARSIWA explains that ‘indirect or consequential effects of countermeasures on third parties, which do not involve an independent breach of any obligation to those third parties, will not take a countermeasure outside the scope of article 22’. Article 22 ARSIWA states that the wrongfulness of a state not in conformity with international law is precluded if it is a countermeasure. The commentary thus presumes that unintended or indirect consequences of a lawful countermeasure to third states will not render it unlawful. This precludes third states from having any right to question the collateral impact they suffer unless the IS has breached an independent obligation to a third state, which can be challenging to prove and requires a separate discussion.
Countermeasures should only be used to induce another state to comply with its international obligations. Article 49(2) of the ARSIWA states that ‘Countermeasures are limited to the non-performance for the time being of international obligations of the State taking the measures towards the responsible State’. The commentary suggests that once the RS complies with its obligations, countermeasure should be discontinued, and it should not create a situation which is irreversible for the RS. The focus again is on the relationship between IS and RS. The IS can inevitably create a situation that may be reversible for the RS but irreversible for a third state that suffers collaterally e.g shortage of healthcare supplies to a third state because of sanctions on RS that limit production of essential supplies could have a long-term impact on the third state. Article 49(2) ARSIWA commentary does not seem to provide guidance whereby the rights of third states are protected in this context. This necessitates an important discussion and a potential amendment to the ARSIWA in the future where a lawful countermeasure ensures the IS does not create a situation that has an ‘irreversible impact’ on third states too.
The next parameter considered is that the countermeasures should be proportional. Article 51 ARSIWA states the countermeasure should be proportional ‘with the injury suffered, taking into account the gravity of the international wrongful act and the rights in question’. The commentary of the article seems to suggest that ‘the rights in question’ has a broader meaning whereby ‘the position of other states which may be affected may also be taken into consideration’. This is the first of the many parameters that subtly mentions the rights of third states. This illustrates that there is almost a duty on the IS taking a countermeasure to consider if any other third state may be impacted by their action. It is not viable to say that if a third state suffers collateral impact of a countermeasure, they automatically become an IS and can lawfully employ the counter-measures regime as that will lead to a spiral of countermeasures. But the positive consideration of the ‘position of other states’ accords some protection to third states on paper at least.
Focusing on article 51 of ARSIWA and the argument it creates to consider the position of other states opens room for more discussion. A codified and established threshold of assessment would help ensure each state has conducted a minimum assessment of collateral impact on a third state before pursuing an action. Some writers say ‘some such analysis takes place but usually from the frame of immediate humanitarian damage, long-term economic damage is less often considered, particularly insofar as denial of new activities and business is concerned’. There should be some mandatory considerations e.g impact on trade, whether the third state will be deprived of essential goods and impact on the environment. This can ensure third states are a valued part of the international community and all IS’ have an equal duty to consider some basic implications on third states due to their countermeasure on the RS.
Extraterritorial sanctions
Extraterritorial sanctions, also known as secondary sanctions, is a type of unilateral sanction which ‘puts pressure on third parties to stop their activities with the sanctioned country by threatening to cut-off the third party’s access to the sanctioning country’. One example of this is that in 1997 the US authorities demanded a Canadian subsidiary of Walmart Stores Inc. to comply with its sanctions against Cuba by stopping the sale of goods in Canada that are manufactured in Cuba. Though the company initially removed the items, it reversed its decision in the next few weeks because the impact of sanctions from the US was less than the risk of liability under Canadian law.
Unlike a state, under the UN Charter, the UNSC can create legal obligations for other international actors to implement the sanctions. On paper this power stays with the UNSC, but powerful states such as the US often employ different means to try to coerce weaker states to take an action against their will. They hence create legal obligations for third states without their consent and sometimes one which is outside the ambit of existing international law. One example being during the Russia-Ukraine war the US imposed sanctions on Belarus for its involvement in war and Iran for assisting Russia with warfare technology. Belarus or Iran did not have an international legal obligation towards the US which disallows them from engaging with Russia, yet they were sanctioned.
These instances raise the questions of the principle of non-intervention, and the sovereignty of a third state to take decisions independently for its own benefit within its jurisdiction, without apprehension from other states. As there is no UN body assessing the proportionality of these sanctions, it is difficult to assess their lawfulness. Pursuant to this the article discusses how extraterritorial sanctions become unlawful and the approach most states take towards the use of these sanctions.
What makes extra territorial sanctions unlawful?
There are many ways in which extraterritorial sanctions may be deemed unlawful.
Impact of extraterritorial sanctions on sovereignty
The sovereignty of states may be impacted by extraterritorial sanctions. This concept is fundamental in international law despite its vagueness and ambiguity, it is enshrined in various sources of international law such as from the 1965 General Assembly [“GA”] Declaration on the Inadmissibility of Intervention in the Domestic Affairs of States and the Protection of Their Independence and Sovereignty. The Declaration provides: ‘No State may use or encourage the use of economic, political or other types or measures to coerce another State in order to obtain from it the subordination of the exercise of its sovereign rights or to secure from its advantages of any kind’. This upholds the sovereignty of a state to take its own initiative without the negative and overwhelming influence of another state. Any sanction imposed on a state to coerce it into taking an action against its will may breach this principle.
Impact of sanctions on the principle of non-intervention
The principle of non-intervention, also accepted as customary international law [“CIL”] is a ‘necessary culmination to state sovereignty’. The Special Committee on Friendly Relations whilst examining Article 2(4) of the UN Charter held that economic coercion should not fall in the ambit of force, thus employing economic coercion does not necessarily always breach the non-intervention principle. The GA Friendly Declaration does mention economic coercion should be prohibited but that is not a binding legal source.
Often strong states such as US leverage the dominant use of the dollar in, for instance, international energy contracts to induce foreign banks to act according to US policies, it can be challenging to draw a line on the use of secondary sanctions and whether economic coercion breaches the principle of non-intervention. The principle of non-intervention was again reiterated in Nicaragua [1986] whereby it was stated that ‘intervention is wrongful when it uses methods of coercion regarding political, economic, and cultural system choices which must remain free ones’. In this case, embargos were held not to breach the principle of non-intervention, further advancing the international view that economic coercion does not fall under the definition of ‘force’.
Another problem arises from the PCIJ case of Lotus [1927], where the Court had held that states are allowed to exercise jurisdiction as they see fit, unless a rule of international law prohibits it, this creates another subjective assessment of what is unlawful. Economic coercion is not prohibited by international law therefore states can often employ this method to their benefit. Some writers see this rule unfold in an ex post facto manner whereby states first assert their jurisdiction and then justify it under accepted rules of international law. This can leave third states and/or developing states vulnerable. It is argued that the principle of non-intervention should apply to all acts other than use of armed forces and ‘there is no reason to exclude economic measures’ from the meaning of force in the UN Charter. It is essential for states to come together to unambiguously define what ‘force’ means and include economic coercion within the meaning of force. Whilst using economic coercion can be a very effective way to induce compliance, a state’s economy is crucial to its development and stability and third states should have some rights to protect that. To elaborate further, I later analyse how these sanctions have affected Pakistan and its economic development.
Unlawful use of countermeasures
Some states may use the countermeasure to impose extraterritorial sanctions, arguing that the third state has breached its international obligations. However, as was discussed earlier, countermeasures are only lawful if one state has breached its international obligation towards another state and currently there is no general obligation for third states to cooperate with the unilateral sanction’s regime of other states.
It is argued that unilateral extraterritorial sanctions ‘not only help to avoid the process of backfilling, but they also assist in maximising the pressure on the target of the primary sanctions’. Whilst it is recognised that if some states keep engaging with the targeted state, the sanctions can become ineffective, however resorting to coercing third states to act against their autonomy is also not the righteous way to ensure the effectiveness of primary sanctions.
International view on secondary sanctions
Undoubtedly the leading actor frequently imposing extraterritorial unilateral sanctions has been the US but at the same time many states are strong critics of such sanctions. Some of them have adopted ‘blocking statutes’ e.g those that impose penalties for compliance with extraterritorial measures and withhold recognition of them. Most prominent of this being Council Regulation No. 2271/96 which prohibits companies in the EU and nationals of an EU Member State residing in the EU from complying with US statutes or decisions regarding extraterritorial sanctions. The extra-territorial reach of secondary sanctions has also been challenged before domestic courts in third States. Example in 1982 a Dutch court declined to allow the enforcement of US sanctions against a Dutch subsidiary of a US company. There is a large segment of the international community that does not favor the practise of extraterritorial sanctions. In 2002 the General Assembly voted on the ‘Elimination of unilateral extraterritorial coercive economic measures as a means of political and economic compulsion: resolution’ with 133 out of 191 states voting in favor of eliminating these sanctions. Many have also argued that ‘consistent international objections to US actions have led to a customary international prohibition’ but things remain unchanged.
Professor Mulder draws on the theory of economist John Keynes to propose a shift in the traditional carrot and stick model. He believes that instead of using sanctions as a metaphorical stick, states should focus on providing a metaphorical carrot to countries like Ukraine in the form of economic assistance. Like this, if states such as the US want other states to comply with its sanction’s regime, it should assist developing states in the concerned matters such as importing cheaper goods instead of penalising them for importing from sanctioned states. If it cannot assist them, it is unreasonable to expect their cooperation at the cost of a detrimental impact to the state’s economic and political ties with other international actors.
Furthermore, codifying the legal principles governing unilateral sanctions and clearly ruling whether secondary sanctions are lawful or unlawful would help with clarity and leave less room for subjectivity. These principles can work alongside a UN oversight body that oversees firstly whether a unilateral sanction is justifiable, secondly whether its impact is proportionate to the responsible party’s actions and assess the extent to which any third states may be impacted by unilateral sanctions. Without such parameters, unilateral sanctions should not operate, especially when their detrimental impact outweighs their success.
Impact of extraterritorial sanctions on Pakistan
Direct impact
Illustrating the impact on third states through an example, under the 2010 Comprehensive Iran Sanctions, Accountability and Divestment Act (CISADA), the US reserved the option to impose sanctions on any individual or entity that engages in significant transactions with the designated Iranian target. Over a period of 2006 to 2016, a few Pakistani entities and individuals were subject to US sanctions due to their business activity with Iranians.
Furthermore, Pakistan entered a gas pipeline deal with Iran in 1995 to assist with the energy crisis in Pakistan and boost the economy. It was and is of principal interest to Pakistan but due to a fear of US sanctions in 2014 the pipeline project was temporarily halted. At the same time abandoning the agreement meant Pakistan would have to pay a penalty to Iran for its investment in the project. This put Pakistan at the risk of either bearing the burden of sanctions or paying the penalty to Iran, hence suffering either way, and this burden continues. Until recently it was decided Pakistan will not have to pay Iran any fine and the pipeline can be built till 2024, but recent news suggest Pakistan has had to suspend this pipeline again due to fear of US sanctions. The decade of discontinuance of the project which continues till date was preventable, it could have helped Pakistan improve its economy, putting it in a better bargaining position for future deals. This shows that not only is the existence of extraterritorial sanctions detrimental to a third state such as Pakistan but just the risk of the sanctions can have severe implications too.
Indirect impact
Due to the Russian war, the disrupted supply of goods could lead to even higher prices and food shortages in Pakistan. Furthermore, G7 and EU countries set a price cap of $60 per barrel on Russian oil, and though Europe and US stopped importing oil from Russia, this price cap was only to affect third countries like Pakistan. This further illustrates the indirect impact on third states due to measures taken by stronger nations. Pakistan has been in a tough spot and engaging with both Russia and Ukraine as they are important actors for its trade. It has supplied defence materials to Ukraine whilst at the same time seeking cheaper oil from Russia, this is important for its economy but puts it at risk of inviting sanctions. Though the US has not opposed Pakistan’s decision to purchase oil from Russia, it is almost a time ticking bomb where the US can pull the plug anytime preventing Pakistan from doing what is essential to stablise its economy. The question remains, would Pakistan have been able to carry forward the oil deal with Russia had the US opposed it? Or do states have to wait for clemency from US and other strong nations to carry out their internal deals.
The irony of the US’ threat to impose sanctions on third states is that in 1948, the US was a vocal critic of the secondary boycott of Israel by the Arab League, which required as a condition of sale of oil that third-state companies refuse to do business with Israel. Furthermore, the US had terminated economic and military assistance to Pakistan on the basis of the Foreign Assistance Act in 1979, to penalise Pakistan for pursuing the French nuclear fuel reprocessing plant deal. However later on the US administration decided to lift all sanctions to suit immediate American interests during the Afghanistan war. This shows that at the start of the war in Afghanistan, the US strategically backtracked on its sanctions against Pakistan as ‘Pakistani assistance had become indispensable to them’. The examples above suggest the US has imposed or lifted sanctions at its own convenience and been a critic of the same sanctions it now frequently imposes on states. When the US can cherry pick its sanctions according to their favorability, why can’t other nations take measures suited to their interests, eventually exercising their sovereignty limited to their own jurisdiction, one that does not intervene in the matters of another state?
Sanctions are a tool of the powerful, the US used its ‘centrality in the world’s financial system to refrain banks from facilitating terrorist financing’ during the US war on terror. Similarly whilst Europe’s energy dependence on the US makes it more prone to aligning with the US, the same approach is difficult for the US to use on China who initiated its own sanctions regime against the US as pay back. Sanctions have been more unsuccessful in the past than successful, yet they are still widely used because of their symbolic nature showcasing the powerplay of strong nations such as the US.
Conclusion
When each state or collective nation decides to impose sanctions on another state, they are individually responsible for assessing the impact of those sanctions. One of the most known impacts of sanctions causing collateral damage has been its effect on human rights, but on the sanctioned state, therefore the indirect impact suffered by third states due to sanctions is not considered. The sanctioned state has adequate protections in different forms, for example the ICJ in Iran v USA [2018] stated that US sanctions would violate its treaty with Iran if it did not ensure certain items required for humanitarian needs were exempted, showing adequate protection for the humanitarian needs of Iranians.
Currently there are various international rules deriving from state practice, treaties and case law that prohibit extraterritorial sanctions to a certain extent. However, the lack of a single prohibition or clear guidelines opens room for a lot of interpretation and stronger states often justify their actions because of the ambiguity in rules.
The UN High Commissioner for Refugees Sadako Ogata stressed in 1992 that ‘our goal must be that sanctions can serve their purpose without making the disadvantaged even more disadvantaged’. Third states not only require protection from the risk of such sanctions but also deserve due consideration when unilateral sanctions like countermeasures are imposed between the IS and RS. ‘In connection with articulating the legal duties that sanctioning states owe to third states, the rights of third states must be clarified and provided a mechanism by which to vindicate their rights’. A balancing exercise of the benefits of sanctions against its wider impact on the stability of the international community can be a positive step forward. One of the foundations of international law is that states work together for peace and security, following from that the sanctions regime cannot successfully operate if it’s helping curtail one cause but affecting many other third states in the process either directly or indirectly.
