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American Trade Sanctions Start to Bite

How our attempts to get tough on Russia and Iran are hurting trade.
Trade container ship

American sanctions are starting to wreak havoc on international trade. That’s the message that was heard at a recent conference held by the Eurasia Center, as companies struggle to cope with policies designed to discourage non-U.S. companies and businesspeople from doing business with targeted countries, mainly Russia and Iran. 

Maria Sergeyeva of Orrick, Herrington & Sutcliffe, attorney, explained details of the sanctions and why they are so difficult for businesses to comply with.  She said that U.S. regulators had enormous discretion in enforcement with large fines and prison sentences up to 20 years which made compliance very difficult.  She particularly specified sanctions upon the Russian oil industry.  She said that the many, various U.S. sanctions on different countries and on particular individuals and companies were affecting all sorts of trade between third parties.  Indeed the Economist reports that “America imposed sanctions on about 1,500 people, firms, vessels and other entities,” just during 2018.

Secondary trade sanctions’ complications were also addressed by attorney Perry Bechkey. Any ownership in any company by a sanctioned individual or nation needed to be verified before doing business, adding great costs for supply chain due diligence, he said. No re-export was allowed for products of sanctioned companies or nations and criminal prosecutions by U.S. officials were in place for various foreign companies and individuals. U.S. branches or representatives in foreign countries were also expected to comply.  

He spoke of the $9 Billion fine levied on the large French bank, Paribas, for violating U.S. regulations on its banking with Iran. He said that sanctions on trade with Russia were the most complicated of all. He explained the problems of doing due diligence, giving the example of ELF Cosmetics which was fined a million dollars because Chinese products it imported were discovered to include eyelashes from North Korea. He said that sanctions compliance was becoming a major hinderance to worldwide trade everywhere and that Iran now does 40 percent of its trade with China.

Another speaker, Brandon Hughes, explained how secondary sanctions which were never much of an issue in world trade until Washington started its massive black lists. He recommended the publication Doing Business Guide in Asia Pacific to get details of every nation’s global compliance and reporting issues.

The Eurasia Center held its yearly conference on Doing Business with the Brics. That’s an acronym for Brazil, Russia, India, China and South Africa. Forty percent of the global economy and much of its economic growth is in these countries.  Business is growing fast amongst them as they try to become less dependent upon the United States for trade. 

Arunish Chawla, economic minster at the Embassy of India, explained how the members’ focus on the World Bank’s Doing Business ratings is having effect on them. It rates countries comparatively on their laws and conditions in areas such as rule of law, ease of starting a business, and judicial integrity, all things with great significance for the business climate.

Andrey Bondarev, head of the Russian Embassy economics section, said “relations with China have never been better.” He said Russia was working to strengthen energy security of all the Brics nations and become China’s main gas supplier. He said that Russia was building storage facilities to assure future gas supplies for the whole region, that Russia was also building various modern nuclear facilities in other Brics’ nations.  He explained that Russia’s new, large ice breakers could break up ice packs up to four meters thick and thus maintain year around access through the Arctic ocean.

Diogo Ramos Coehlo of the Brazilian embassy explained Brazil’s coming out of its worst ever recession, that its new government was focusing on labor law and pension reform, that 50 percent of the federal budget was spent on pensions for former government officials.

Dr. Arikana Chihombori-Quao, the African Union Ambassador to Washington, explained the new African common market to which 52 of 55 nations belong, nearly all the nations except Nigeria.  She said that it was expected to vastly increase inter-African trade, that Africa was open to business with the rest of the world. She praised former Secretary of State Tillerson as being one of the very few American top officials who did his homework and showed respect and knowledge for African issues.

The long term consequences of our trade sanctions are not yet clear.  One possibility will be the break up of the world into two main trading blocs as China, Russia and Europe work to set up a trading system not dependent upon the dollar. Already China is trying to promote trade using petro-yuan instead of dollars, but it is very difficult.

Jon Basil Utley is publisher of The American Conservative.