Revival of American Sanctions Policy Towards Russia Constitutes High Risk Gamble for Politics and Business

[Deb Palmieri on Russia Table of Contents]

The following article was published in the Russian Commerce News, January-February 1999. The Russian Commerce News is the official publication of The Russian-American Chamber of Commerce®.

Revival of American Sanctions Policy Towards Russia Constitutes High Risk Gamble for Politics and Business

Sanctions recently imposed by the United States against three prestigious Russian technical universities (Mendeleyev University, Moscow Aviation Institute and Institute of Power Technology) for allegedly providing Iran with "sensitive missile or nuclear assistance" could spell trouble for American political and business interests with Russia. The sanctions ban all U.S. assistance, contracts and trade transactions with these institutions. This follows a wave of similar sanctions against several other Russian institutions last July, after Iran test-fired a missile. Moreover, the State Department is threatening to revoke permission for Russia to launch U.S. satellites.

The State Department, which views Iran as a "rogue" nation and potential threat, deems these measures as essential to try and influence Russian policy towards Iran. The Russians deny violations of agreements on nuclear non-proliferation and point to a tightening of their high-tech export controls (two decrees signed by Yeltsin in early 1999 heighten regulations over the export of materials and technologies used to produce missiles and other dual-purpose goods and technologies.) Mendeleyev University Rector Sarkisov was adamant that his institution "is not engaged in any nuclear research and has no direct or covert agreements with Iran." Russian institute scientists and government officials reflected Primakov's thinking when he said "such strong-arm methods or sanctions against our organizations are counterproductive for relations between Russia and the United States."

But U.S. national security advisor Sandy Berger still expressed his belief that Russians were leaking nuclear and missile technology to Iran, stating "We've made it very clear the administration has authority to act against entities that violate international nonproliferation standards and we will use that authority to protect our security."

What does it all mean and who are we supposed to believe? What it all means is that government interference into American business relations with Russia is growing under the pretext of needing tangible ways and means to control and influence Russian policy making. These economic sanctions threaten to rollback gains made by companies in recent years, and commitments made to them in the early nineties by the very Administration now playing political football with investments and projects, especially in aerospace and space exploration.

Who do we believe about who's doing what with Iran? It's simply impossible to know beyond certainty what the true facts of the story are. Clearly, there's a debate; both sides feel strongly; both sides believe they are right; both sides have dug in their heels. Each side can intelligently prove its case. We, the public, will probably never really know. But the debate should remain in the political realm for the politicians to haggle over. It should not entangle or implicate U.S. business interests.

You would think the U.S. would be wary to predicate its relationship with Russia on an attempt to control Russian policy and behavior towards third parties. (It's an unwise and unrealistic policy - even Russia can't control the behavioral or policy outcomes of countries it deals with. It places businesspeople in the uncomfortable position of seeing non-political commercial projects become politicized and being in the middle of political debates about which they know little.) The U.S. should carefully evaluate the implications and consequences of sanctions policies and their impact on the future course of U.S.-Russian business relations.

Not only is sanction-imposed economic interference counterproductive and costly. Such policies don't work or produce intended results. There exists a consensus in the policy literature on the utility of sanctions as an instrument of foreign policy that sanctions are an ineffective means to attain policy goals; and they are often dysfunctional or counterproductive. This was the case with sanctions imposed by President Carter on the Soviet Union following the 1979 Soviet invasion of Afghanistan, which included a grain embargo; a ban on shipments of phosphate fertilizers; non-participation of the U.S. in the 1980 Summer Olympics in Moscow; suspension of the processing of licenses to export high-technology and suspension of a telecommunications project to provide $1 bn in telecommunications equipment to the Soviet Union. President Reagan similarly imposed a wave of sanctions following the declaration of martial law in Poland by General Jaruzelsky. He blocked the sale of equipment to build the Yamal Pipeline Project; suspended Aeroflot service to the U.S.; closed the Soviet Purchasing Commission and expanded the list of oil and gas equipment that required validated export licenses, to name a few measures.

None of these sanctions achieved any tangible objectives beyond expressing symbolic disapproval of Soviet actions. When political tensions subsided, the sanctions were lifted and suspended, and the decisionmakers went on to new issues.

But guess who came out on the losing end - U.S. companies whose business was disrupted and hundreds of millions of dollars lost - all because politicians in Washington found it convenient to use someone else's money to finance retaliatory measures against the Soviets. American "start-stop" economic policies towards the Soviet Union since 1917 have cost our companies a bundle; and are a major reason our industries have been cool to deepening economic and business involvement with the Soviet Union and now Russia. And now, the implementation of a new wave of such initiatives is happening again with increasing frequency only in the last several months and risks repeated implementation affecting more projects and industries.

U.S. companies who do business in Russia, in a loud collective voice, must express disapproval with the idea that foreign investments are placed at risk in this way by our own government. And the lead policy-making officials aren't even our elected representatives in this instance - they are political appointees or employees in government agencies outside the White House acting without accountability or approval from Congress. They are risking what few gains American companies have made in Russia since 1991, not to mention creating unnecessary political tensions and illwill. Politicians should resolve their disputes with Russia (or any country for that matter) using political or diplomatic means, and without jeopardizing the welfare of American companies, who are dedicated to enhancing American economic prosperity through foreign investment, and who already shoulder heavy risks to do so. The American government should support and incentivize U.S. companies who do business in Russia with consistent and predictable policies, more risk-backing and a pledge to steer-clear of disrupting normal business functions due to political imperatives. In those serious and unique instances whereby economic intervention is indeed necessary to protect our national interests, such actions should be taken only with approval by the House and Senate.

Deborah Anne Palmieri
Russian Commerce News, January-February 1999