Chapter 5 Theory Evaluation -- Outcome

CHAPTER THEORIES ON THE OUTCOME OF ECONOMIC SANCTIONS Some people think of economic leverage as the punitive use of economic sanctions, with highly publicized conditions set for their removal This is highly ineffective, and sometimes counterproductive - Richard Nixon, U.S President, 19821 Since the estimated cost of economic sanctions to Iraq – 48 percent of the gross national product – is so far beyond that observed in other cases, the initial results [of our model of economic sanctions] placed the probability of success [of economic sanctions against Iraq] at nearly 100 percent - Economists Gary Hufbauer and Kimberly Elliott January 14, 1991, two days before the Gulf war started2 The conventional theory of how sanctions are supposed to work assumes that political change is directly proportional to economic hardship The greater the economic pain caused by sanctions, the higher the probability of political compliance The theory assumes that the population in the target state will redirect the pain of sanctions onto political leaders and force a change in policy This theory has been criticized by many theorists, who argue that economic factors not explain the success or failure of economic sanctions but that domestic and international political factors are key to deciding outcomes Johan Galtung has termed this the “naïve theory” of sanctions The economic effects of sanctions not necessarily translate M S Daoudi and M S Dajani, Economic Sanctions: Ideals and Experience (London: Routledge & Kegan Paul, 1983), p 187 Gary C Hufbauer and Kimberly A Elliott, “Sanctions Will Bite – and Soon,” New York Times, January 14, 1991, A 17 160 into political impact because there is no direct transmission mechanism.3 Baghdad’s continued resistance in face of the U.S.-led economic sanctions provides an especially dramatic contradiction to the conventional expectation Iraq has suffered tremendously under the West’s sanctions during the 1990s, but Saddam Hussein remains in charge and has not shelved plans to develop weapons of mass destruction Iraq has been imposed sanctions by the United Nations (UN) since August 6, 1990 As of late 1999, infant mortality rates had increased sevenfold, annual inflation had risen to over 4000 percent, and per capita income had fallen to less than half of the 1990 level In the face of continued economic losses and bellicose U.S rhetoric, the Iraqi regime has only acquiesced to UN demands when additional military threats have been made In every issue area, when the only pressure is economic sanctions, Iraq has not conceded Domestically, Hussein’s regime shows no signs of falling; if anything, the sanctions have strengthened it Despite the most potent sanctions ever in human history, economic sanctions have failed to produce any significant Iraqi concessions.4 To test whether increased punishment against the target makes the target more likely to concede, Robert Pape stratifies the HSE database, excluding trade disputes, economic warfare, and double-counting, into high and low economic impact categories, setting the dividing line at a 4.6 percent reduction in the target’s GNP If each overdetermined and indeterminate case challenged by Pape in the original HSE database is counted as a full success, then the success ratio in the high category is to cases, or 25 percent; in the low category, it is to 77 cases, or percent This appears to provide at least some support for the proposition that sanctions success is David Cortright and George A Lopez, “Sanctions and Incentives as Tools of Economic Statecraft,” in Raimo Vayrynen (ed.), Globalization and Global Governance (Lanham, Maryland: Rowman & Littlefield Publishers, Inc., 1999), pp 111-116 Chantal de Jonge Oudraat, “Making Economic Sanctions Work,” Survival, vol 42, no (Autumn 2000), pp 106-111 Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), pp 1-2 161 correlated with economic loss However, the only two arguable successes in the high category are the two lowest in economic punishment If the boundary line between the low and high categories were moved only from 4.6 to 5.2 percent, the high category would contain no successes at all Furthermore, ordinary least squares regression confirms that there is no statistically significant relationship between the target’s GNP loss and sanctions success.5 Therefore, economic sanctions not necessarily succeed by imposing more economic pain upon the target Economic asymmetries not tell us anything about the target’s relative valuation of the political concessions being sought or the net worth of the sender-target economic relationship A dominant or inferior position of the target in the bilateral economic relationship can be subject to the countervailing influences of differential discount rates of economic benefits and the costs of political concessions To understand the target’s calculation, economics alone is not enough The following are four comprehensive approaches to account for the outcome of economic sanctions I The Hufbauer-Schott-Elliot Approach The first approach is called the Gary Hufbauer, Jeffery Schott, and Kimberly Elliot (HSE) approach HSE has been collecting the most comprehensive database of Of HSE’s entire database of 115 cases, 30 inappropriately included 10 cases of economic disruption in war; 15 cases of trade disputes or strategic embargoes; and cases counted twice This leaves a total of 85 valid cases, including successes, or an overall success rate of percent (9 percent if we include the overdetermined and indeterminate cases) versus the 34 percent HSE report Robert A Pape, “Why Economic Sanctions Do Not Work,” International Security, vol 22, no (Fall 1997), pp 107-109 162 economic sanctions cases and the database is used broadly by many theorists The HSE approach is induced from economic sanctions cases studies According to Gary Hufbauer, Jeffery Schott, Kimberly Elliot, George Lopez, David Cortright, Joseph Collins, and Gabrielle Bowdoin, a survey of the analytical and historical literature on sanctions suggests that sanctions – and the threat of sanctions – are most effective under the following conditions: I The goal of economic sanctions is relatively modest Sanctions are seldom effective in bringing about major changes in the policies of the target country; II The target is economically weak and political unstable Although the average sender’s economy was 187 times larger than that of the average target in the HSE database, the relative size between the sender’s and target’s economy is not very helpful in predicting success in the majority of cases; III The target suffers high costs from sanctions while the sender endures low, sustainable costs The costs of sanctions to the target exceeds percent of its GNP while the sender suffers minimal costs; IV The sender and target are friendly toward one another Economic sanctions seem most effective when aimed against erstwhile friends By contrast, sanctions directed against target countries that have long been adversaries of the sender country are generally less successful; V There exists a high total trade concentration for the target with the sender It is generally greater than 25 percent of target’s total trade; VI Economic sanctions are imposed quickly, with maximum harshness and without significant international assistance of the target’s trading partners who otherwise might circumvent such restrictions Time affords the target the opportunity to adjust to find alternative suppliers, to build new alliances, and to mobilize domestic opinion in support of its policies 163 VII In most instances, multilateral sanctions are not associated with success On average, the degree of international cooperation is actually somewhat less in successful cases than in failed cases That is, unilateral sanctions will be more effective than multilateral sanctions, which will entail significant coordination costs for the sender; and VIII The sanctions, when possible, are financial sanctions, not trade sanctions The financial sanctions are less costly (even beneficial) to the sender and more effective than trade control.6 II The Domestic Politics/Symbolic Approach The domestic politics/symbolic approach focuses on the politics within the sender and target countries Outcomes are largely determined by the domestic political economy of the target country Domestic politics/symbolic explanations provide three factors working against the effectiveness of economic sanctions: (1) few cases with damaging sanctions; (2) the rally-around-the-flag effect reinforced by nationalism; and (3) manipulated redistribution effects of sanctions By contrast, this approach provides two factors contributing to the effectiveness of sanctions: (1) the fifth-column effect; and (2) political instability of the target First, public choice analysis suggests that damaging sanctions will be infrequently used Sanctions are often imposed half-heartedly by the sender government, out of a need to satiate domestic political pressure of the public and Reference includes Gary Clyde Hufbauer, Jeffery J Schott, and Kimberly Ann Elliot, Economic Sanctions Reconsidered: History and Current Policy, 2nd ed (Washington, D.C.: Institute of International Economics, 1990), pp 49-115; George A Lopez and David Cortright, “Economic Sanctions in Contemporary Global Relations,” and Kimberly Ann Elliot, “Factors Affecting the Success of Sanctions,” in David Cortright and George A Lopez (eds.), Economic Sanctions: Panacea or Peacebuilding in a Post-Cold War World? (Boulder, Colorado: Westview Press, 1995), pp 9, 53; Joseph J Collins and Gabrielle D Bowdoin, Beyond Unilateral Economic Sanctions (Washington, DC: Center for Strategic and International Studies, 1999), pp 15-6 164 interest groups to something in response to the target’s disputed behavior Hence, sanctions are symbols; their effectiveness is of secondary concern In addition, the sanctions costs will hurt some interest groups and even the public at large, who will oppose severe sanctions measures Thus, it is not surprising that the sanctions actually adopted often appear ineffectual and the target country may face insufficient coercive pressure to consider acquiescing.7 Second, even if the sanctions are potent, target governments can use the specter of economic sanctions to create a rally-around-the-flag effect Johan Galtung used the term “rally-around-the-flag” effect to argue that leaders in target nations could use the economic pain caused by foreign nations to rally their population in opposition to “foreign meddling.” Sanctions may give the target leaders a pretext to demonstrate their ability to share the plight of the people In such cases, rather than creating disintegration in the target state, sanctions would invoke political integration within the target state and solidify the leader’s resistance to economic pressure.8 Zachary Selden further explains that the “rally-around-the-flag” effect is based on the idea that sanctions provide a common external enemy to unite the population of the target country and increase the popularity of the current leadership Nothing brings together diverse social elements as quickly as the perception that they have been set upon by a common enemy, and sanctions can provide this common object of William H Kaempfer and Anton D Lowenberg, “A Public Choice Analysis of the Political Economy of International Sanctions,” in Steve Chan and A Cooper Drury (eds.), Sanctions as Economic Statecraft: Theory and Practice (New York: St Martin’s, 2000), pp 159-161 Johan Galtung, “On the Effects of International Economic Sanctions,” World Politics, vol 19 (October 1966- July 1967), pp 388-399 See also Miroslav Nincic and Peter Wallensteen, “Economic Coercion and Foreign Policy,” in Miroslav Nincic and Peter Wallensteen (eds.), Dilemmas of Economic Coercion: Sanctions in World Politics (New York: Praeger, 1983), p 6; Makio Miyagawa, Do Economic Sanctions Work? (New York: St Martin’s Press, 1992), pp 84-6; David M Rowe, The Domestic Political Economy of International Economic Sanctions, working paper no 93-1, (Cambridge, MA: The Center for International Affairs, Harvard University, 1993), p 30; David Cortright and George A Lopez, “Sanctions and Incentives as Tools of Economic Statecraft,” in Raimo Vayrynen (ed.), Globalization and Global Governance (Lanham, Maryland: Rowman & Littlefield Publishers, Inc., 1999), pp 114-5; Kaplowitz, Anatomy of a Failed Embargo, pp 52-54; Zachary Selden, Economic Sanctions as Instruments of American Foreign Policy (Westport, Connecticut: Praeger, 1999), p 22 George E Shambaugh, States, Firms, and Power: Successful Sanctions in United States Foreign Policy (Albany, New York: State University of New York Press, 1999), p 12 165 opprobrium The experience of states at war is analogous No matter what disagreement exists in the society as a whole, war against a common enemy provides a focal point to rally the population and direct their attention away from domestic issues.9 In addition, Klaus Knorr, Joseph Nye, Ernest Preeg, Robert Pape, David Cortright, George Lopez, and Makio Miyagawa all point out that modern states are not fragile because of rising nationalism The political leader of the target state can excite the nationalistic sentiment of the entire population by stigmatizing the sanctions as a humiliating affront to the nation, and thereby promote national unity in the face of outside pressure Nationalism provoked by economic sanctions tends to foster political integration.10 Particularly, economic sanctions that not discriminate between the “guilty” and “innocent” in the target may actually encourage the formation of a unified front in the target In other words, sanctions, in practice, are an application of the principle of collective guilt, or at least collective punishment Sanctions may be invoked to punish a government for a particular policy choice, but sanctions will have more of a negative impact on the innocent Economic sanctions tend to seriously affect those who are not responsible for making the policy – the public and business groups – while those elites that are responsible – decisionmakers and their associates – remain largely unaffected given their ability to skirt the sanctions, particularly in authoritarian countries This indiscriminant impact will significantly reduce the effectiveness of economic 10 Zachary Selden, Economic Sanctions as Instruments of American Foreign Policy (Westport, Connecticut: Praeger, 1999), pp 4-5, 20-23 Klaus Knorr, The Power of Nations: The Political Economy of International Relations (New York: Basic Books, 1975), pp 111-2 Ernest H Preeg, Feeling Good or Doing Good with Sanctions: Unilateral Economic Sanctions and the U.S National Interest (Washington, D.C.: Center for Strategic and International Studies, 1999), p Robert A Pape, Bombing to Win: Air Power and Coercion in War (Ithaca, NY: Cornell University Press, 1996), pp 21-27 David Cortright and George A Lopez, The Sanctions Decade: Assessing UN Strategies in the 1990s (Boulder, Colorado: Lynne Rienner, 2000), p 20 Makio Miyagawa, Do Economic Sanctions Work? (New York: St Martin’s Press, 1992), pp 84-86 See also Lewis A Coser, The Functions of Social Conflict (New York: The Free Press of Glencoe, 1964), pp 87-95 166 sanctions.11 Robert Pape argues, “Pervasive nationalism often makes states and societies willing to endure considerable punishment rather than abandon what are seen as the interests of the nation, make even weak or disorganized states unwilling to bend to the demands of foreigners….Even in the weakest and most fractured states, external pressure is more likely to enhance the nationalist legitimacy of rulers than to undermine it.”12 For example, in the past, strategic bombing by Western countries badly damaged the economies of North Korea, North Vietnam, and Iraq without causing their populations to rise up against their own regimes In addition, Joseph Nye asserts that Western countries did not go in and colonize the countries of the Organization of Petroleum Exporting Countries during the 1973 oil crisis only because they realized the costliness of using force against nationalistically awakened people in the oil producing states.13 This in part happened with respect to Iraq in 1991 Furthermore, both Daniel Drezner and Margaret Doxey contend that the target governments will present themselves as defenders of the countries and their interests from enemies Leaders in the target governments will always use external threats as a means of building up domestic support for the governing regime By contrast, opposition groups will risk being dubbed unpatriotic or disloyal if they not rally 11 12 13 Robin Renwick, Economic Sanctions (Cambridge, Massachusetts: Center for International Affairs, Harvard University, 1981), pp 88-89 Richard N Haass, “Conclusion: Lessons and Recommendations,” in Richard N Haass (ed.), Economic Sanctions and American Diplomacy (New York: Council on Foreign Relations, 1998), pp 201-203 Ernest H Preeg, Feeling Good or Doing Good with Sanctions: Unilateral Economic Sanctions and the U.S National Interest (Washington, D.C.: Center for Strategic and International Studies, 1999), pp 194-195 Robert A Pape, “Why Economic Sanctions Do Not Work,” International Security, vol 22, no (Fall 1997), pp 93, 107 Joseph S Nye, Jr., Understanding International Conflicts: An Introduction to Theory and History (New York: Longman, 2000), p 190 167 around the flag.14 For example, in Cuba, western economic sanctions were depicted as an attack by a rich imperialist regime, not against Fidel Castro, but against the entire nation and its aspirations This gave Castro a scapegoat to divert attention from internal problems and the errors of his regime In Rhodesia, the enforcement of sanctions created internal cohesion, particularly among the European minority Resistance became synonymous with patriotism, while dissent became treason The sanctions reduced the influence of racial moderates and those most loyal to the Crown in the white population and encouraged consolidation of opinion against the externally imposed economic sanctions Pakistan has been facing different forms of U.S sanctions for the last 25 years However, the result is that the people of Pakistan are gradually turning the United States into their enemy.15 Third, target governments may prefer to be sanctioned because they can distribute economic rent of the trade restriction to their supporters and weaken their domestic opponents – it often is the “liberals” and “reformers” in authoritarian societies who are most vulnerable to external sanctions While in the long run sanctions hurt the trade-oriented sectors of the target economy by depriving them of income, in the short run a sender’s embargo strengthens the target’s importsubstitution sectors by giving them rent-seeking opportunities in the target In addition, the target government may redirect external pressure onto isolated or repressed social groups while insulating and protecting itself As a result, sanctions may end up strengthening the target government, and hence its ability to resist the 14 15 Margaret P Doxey, International Sanctions in Contemporary Perspective, 2nd ed (New York: St Martin’s Press, 1996), p 104 Daniel W Drezner, “The Complex Causation of Sanction Outcomes,” in Steve Chan and A Cooper Drury (eds.), Sanctions as Economic Statecraft: Theory and Practice (New York: St Martin’s, 2000), p 214 Makio Miyagawa, Do Economic Sanctions Work? (New York: St Martin’s Press, 1992), pp 84-86 Donald L Losman, International Economic Sanctions: The Cases of Cuba, Israel, and Rhodesia (Albuquerque: University of New Mexico Press, 1979), pp 127-131 “New American Sanctions Against Pakistan,” Rawalpindi Nawa-I-Waqt (in Urdu), November 23, 2000, trans FBIS-CHI-20001124 168 coercive attempts of the sender government.16 For example, when the coalition led by the United Kingdom imposed sanctions against white Rhodesia, household incomes for black families fell and white income rose Despite extremely desperate circumstances, the military government of Haiti did not feel compelled to accede to the demands of the international community and return control of the country to its democratically elected leadership because some of the Haitian elites benefited from the black market trading that was created by sanctions Despite being sanctioned by one of the world’s toughest embargoes led by the United States since 1990, Saddam Hussein actually rewarded those associated with the Iraqi government, the military, or the ruling Baath party, with luxury cars and other goods In the case of the UN sanctions against Yugoslavia, Serbian leader Slobodan Milosevic similarly used the UN embargo to reward crony enterprises with scarce goods and used the UN aid to reward his inner elite, while punishing his political rivals Therefore, leaders in these countries have an incentive to see these sanctions remain in place.17 However, under certain circumstance, economic sanctions can be effective According to the public choice perspective, sanctions will be effective if they are designed to hurt specific groups (the ruling coalition or the “guilty”) selectively within the target polity David Cortright and George Lopez argue that economic sanctions may empower internal political forces and render their opposition more effective to a regime’s objectionable policies, thus generating an ‘internal opposition effect’ In 16 17 Robert A Pape, “Why Economic Sanctions Do Not Work,” International Security, vol 22, no (Fall 1997), p 107 Paul D Taylor, “Clausewitz on Economic Sanctions: The Case of Iraq,” Strategic Review, vol 23, no (Summer 1995), pp 50-56 David M Rowe, The Domestic Political Economy of International Economic Sanctions, working paper no 93-1, (Cambridge, MA: The Center for International Affairs, Harvard University, 1993), p 31 Zachary Selden, Economic Sanctions as Instruments of American Foreign Policy (Westport, Connecticut: Praeger, 1999), pp 4-5, 102-103 Gideon Rose, “Haiti,” in Richard N Haass (ed.), Economic Sanctions and American Diplomacy (New York: Council on Foreign Relations, 1998), pp 67-68 Daniel W Drezner, “The Complex Causation of Sanction Outcomes,” in Steve Chan and A Cooper Drury (eds.), Sanctions as Economic Statecraft: Theory and Practice (New York: St Martin’s, 2000), p 215 Howard Schneider, “10 Years On, Iraqis Shrug Off Embargo,” Washington Post, February 24, 2001, p A1 169 sanctions have a limited signaling value.41 Furthermore, David Baldwin, David Leyton-Brown, and Lisa Martin argue that substantial sender costs are crucial in order for sanctions to send the desired signal A sender is less likely to bluff if it incurs a high price in imposing sanctions Their values as a signal comes not from the damage inflicted on the target, but the cost to the sender By contrast, if the sender imposes economic sanctions because of the domestic need of “doing something” and reluctance to use the force, low-cost sanctions may indeed signal a lack of resolve.42 However, Valerie Schwebach argues that irresolute actors would sometimes have an incentive to bluff by imposing sanctions The very potential of sanctions to be good signals of resolve could undermine their effectiveness as signals since irresolute actors are tempted to use them Thus this bluffing behavior would blur the connection between sanctions and resolve, and decrease the usefulness of sanctions as signals For example, HSE report only six cases in which the threat of sanctions alone was sufficient to induce target compliance.43 To sum up, the signaling approach makes two predictions about the pattern of economic sanctions outcomes First, the sender should incur greater costs and should couple sanctions with a threat to use force; by doing this, the sender communicates a more credible signal to the target Therefore, the sender’s costs should be positively correlated with concession size Second, the threat to use force, or the differences in aggregate power, should be positively correlated with concession size Accordingly, 41 42 43 James M Lindsay, “Trade Sanctions as Policy Instruments: A Re-examination,” International Studies Quarterly, no 30 (1986), pp 164-170 David Baldwin, Economic Statecraft (Princeton, N.J.: Princeton University Press, 1985), p 372 David Leyton-Brown, “Lessons and Policy Considerations about Economic Sanctions,” David Leyton-Brown (ed.), The Utility of International Economic Sanctions (New York: St Martin’s Press, 1987), pp 305-6 Lisa L Martin, Coercive Cooperation: Explaining Multilateral Economic Sanctions (Princeton, New Jersey: Princeton University Press, 1992), pp 5, 36-38 Valerie L Schwebach, “Sanctions as Signals: A Line in the Sand or a Lack of Resolve?,” in Steve Chan and A Cooper Drury (eds.), Sanctions as Economic Statecraft: Theory and Practice (New York: St Martin’s, 2000), pp 188-203 180 the causal mechanism that determines sanctions success is the prospect of military conflict, not the use of economic sanctions.44 Statistical Evidence Regarding sender costs, using probit techniques based on the 1985 HSE database, San Ling Lam finds that the sender’s costs are negatively correlated with sanctions success, and results are significant at the percent level Using logistic regression based on the HSE database, excluding the cases of economic warfare, T Clifton Morgan and Valerie Schwebach find the sender’s costs to be negatively correlated with sanctions success and significant at the percent level of significance.45 Regarding the correlation between the use of military action and concession size, San Ling Lam finds that both covert and overt military action has no statistically significant effect on the outcome of sanctions Using probit regression based on the HSE database, excluding sanctions threats cases and cases with military action, Kimberly Elliot and Peter Uimonen find that the use of quasi-military force has a negative effect on the chances of success and is significant at the percent level Looking at ratios of sender to target gross national product, both studies by Lam, as well as the one by Elliot and Uimonen, show that economic sanctions are less likely to succeed if the sender is significantly more powerful than the target This result is significant at the percent level in Lam’s study and at the percent level in Elliot and Uimonen’s In addition, T Clifton Morgan and Valerie Schwebach find that the 44 45 Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), pp 113, 122 San Ling Lam, “Economic Sanctions and the Success of Foreign Policy Goals,” Japan and the World Economy, vol (1990), pp 244-246 T Clifton Morgan, and Valerie L Schwebach, “Fools Suffer Gladly: The Use of Economic Sanctions in International Crises,” International Studies Quarterly, no 41 (1997), pp 38-47 181 relative military capabilities between the sender and the target has a negative effect on the outcome of the economic sanctions and is significant at the percent level That is, as the sender’s relative capabilities increase, the target is less likely to make concessions.46 Using ordered-probit measures to test the HSE-Drezner database, Daniel Drezner finds that the signaling approach is not supported by evidence The military statecraft variable is statistically insignificant The aggregate power measure is significant at the percent level, according to Drezner, but it takes a negative coefficient As the sender acquires more power, it is less likely to generate significant concessions In another estimation of Drezner, neither the military statecraft nor the aggregate power hypotheses has statistical significance.47 Moreover, Daniel Drezner uses Boolean analysis of 39 cases of economic sanctions imposed by Russia between 1992 and 1997 He concludes that the threat of military force is neither a necessary nor sufficient condition for economic sanctions to produce significant or moderate concessions Indeed, the absence of military statecraft is a sufficient condition for producing concessions In an overwhelming majority of the cases, military force either played no role or only a negative one.48 IV The Conflict Expectations Model Daniel Drezner uses his conflict expectations model to argue that if the sender 46 47 48 San Ling Lam, “Economic Sanctions and the Success of Foreign Policy Goals,” Japan and the World Economy, vol (1990), pp 244-246 Elliott, Kimberly Ann and Peter P Uimonen, “The Effectiveness of Economic Sanctions with Application to the Case of Iraq,” Japan and the World Economy, vol (1993), pp 403-409 T Clifton Morgan and Valerie L Schwebach, “Fools Suffer Gladly: The Use of Economic Sanctions in International Crises,” International Studies Quarterly, no 41 (1997), pp 38-47 Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), pp 122-125 Daniel W Drezner, “The Complex Causation of Sanction Outcomes,” in Steve Chan and A Cooper Drury (eds.), Sanctions as Economic Statecraft: Theory and Practice (New York: St Martin’s, 2000), pp 221-229 182 and the target are adversaries, the target will be more reluctant to acquiesce under the pressure of economic sanctions because its concessions represent a transfer of political leverage to the sender, magnifying the long-term impact of the concession in the target’s eyes An adversarial relationship with the sender would cause the target to consider two political concerns: relative gains and reputation When relative gains concerns are prominent, a concession represents a gain for the sender and a loss for the target When reputation is important, acquiescence bolsters the sender’s credibility as a tough negotiator while weakening the target’s reputation.49 For example, given the escalating demands from the U.S Congress after the Tiananmen incident, Beijing could not be assured that concessions to the United States would not simply produce further demands and thus did not make concessions.50 According to Peter Liberman and other neo-realists, a state’s sensitivity to relative gains depends on the degree and duration of the security threat posed by specific adversaries States will fear the relative gains of near-by, powerful, offensively armed, and hostile nations more than those of distant, weak, defensively armed, and friendly ones For example, East-West trade during the Cold War provides a clear demonstration of security-motivated relative-gains policy Believing that trade would provide a great benefit to the smaller and more backward Soviet economy, U.S officials halted trade with the Soviet bloc during the 1950s and 1960s, and continued to embargo high-tech exports thereafter.51 If the target is an ally, relative gains and reputation concerns are less prominent 49 50 51 Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), pp 27-35 David M Lampton, Same Bed, Different Dreams: Managing U.S.-China Relations, 1989-2000 (Berkeley: University of California Press, 2001), p 305 Peter Liberman, “Trading with the Enemy: Security and Relative Economic Gains,” International Security, vol 21, no (Summer 1996), pp 150-155 Duncan Snidal, “Relative Gains and the Pattern of International Cooperation,” in David A Baldwin (ed.), Neorealism and Neoliberalism: The Contemporary Debate (New York: Columbia University Press, 1993), pp 170-233 John C Matthews III, “Current Gains and Future Outcomes: When Cumulative Relative Gains Matter,” International Security, vol 21, no (Summer 1996), pp 112-146 Beverly Crawford, Economic Vulnerability in International Relations: The Case of East-West Trade, Investment, and Finance (New York: Columbia University Press, 1993) 183 because the target anticipates fewer zero-sum conflicts in the future Between allies, the target will care more about the immediate costs and benefits of a stalemate than about the long-run implications of any transfer of leverage Therefore, the target will concede more to avoid the costs of deadlock Ceteris paribus, the target’s concessions will increase when the target and the sender are more closely aligned In addition, Daniel Drezner argues that the absence of conflict expectations is a necessary condition for economic sanctions to produce significant concessions If the targetsender relationship is adversarial, there must be a large gap in costs for sanctions to generate even moderate concessions.52 (See Figure 5.1.) Figure 5.1 The Effect of Conflict Expectations on Concession Size High Concession condition Concession size Low Low High Conflict expectations Source: Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), p 46 Reprinted with the permission of Cambridge University Press The conflict expectations model also argues that the target’s concession will increase as the difference between the target’s and the sender’s costs of deadlock 52 Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), pp 27-35, 43-47, 244-245 Daniel W Drezner, “Allies, Adversaries, and Economic Coercion: Russian Foreign Economic Policy Since 1991,” Security Studies, vol 6, no (Spring 1997), pp 66-71 184 increases According to Daniel Drezner’s model, the expected costs of sanctions have a monotonic effect on the outcome As the target’s costs of deadlock increase, ceteris paribus, the sender’s gains from the equilibrium outcome increase As the sender’s costs of deadlock decrease, ceteris paribus, the sender’s gains increase as well That is, only sufficient asymmetrical interdependence between the sender and the target would result in enough pressure on the target to produce concessions to the sender through imposing economic sanctions.53 Table 5.2 shows how the cost and alignment variables interact As can be seen in this table, the gap in costs has a consistent effect on the outcome, while alignment has a contradictory effect.54 Table 5.2 The Predicted Pattern of Economic Sanctions Costs gap Large gap in costs Ally Adversary Significant concessions Moderate concessions Small gap in costs No sanctions attempt Minor concessions Source: Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), p 54 Reprinted with the permission of Cambridge University Press To sum up, the conflict expectations model makes two major predictions about the pattern of sanctions success First, the sender will win more substantial concessions by imposing economic sanctions against the target when the gap in the costs of deadlock between the sender and the target is greater Ceteris paribus, as the sender’s costs of deadlock increase, the sender is less likely to impose sanctions against the target If it does choose to employ sanctions, it will obtain less significant 53 54 Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), pp 45-46 Miroslav Nincic and Peter Wallensteen, “Economic Coercion and Foreign Policy,” in Miroslav Nincic and Peter Wallensteen (eds.), Dilemmas of Economic Coercion: Sanctions in World Politics (New York: Praeger, 1983), pp 2-3, 12 Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), pp 47, 53-54 185 concessions An increase in the sender’s costs makes economic sanctions less viable and less profitable By contrast, an increase in the target’s costs makes economic sanctions more viable and more profitable Second, the target will concede more if conflict expectations between the target and sender are low By contrast, as conflict expectations increase, the target will be more resistant to concessions Even with a large gap of costs between the sender and the target, the target would make at most moderate concessions However, if the sender’s demand is greater than the optimum possible concession and cannot be compromised, the equilibrium outcome is deadlock and the sender could not extract any concession from the target Statistical Evidence Regarding the gap in costs, HSE’s results provide moderate support for the notion that when the costs gap between the sender and the target is greater, sanctions are more likely to be successful in attaining the desired response from the target Specifically, their analysis indicates that for successful cases the average ratio of the costs of sanctions to GNP is 2.4 percent for the target country and the average cost-tosender index (scored from to 4, with representing a net gain and a major loss to the sender) is 1.8 point for the sender In failed cases the ratio was 1.0 for the target and the index 2.0 for the sender.55 Using a probit model based on the 1985 HSE database, San Ling Lam finds the target’s costs to be significant at the percent level Using probit regression based on the HSE database, excluding sanctions threats cases and cases with military action, 55 Gary Clyde Hufbauer, Jeffery J Schott, and Kimberly Ann Elliot, Economic Sanctions Reconsidered: History and Current Policy, 2nd ed (Washington, D.C.: Institute of International Economics, 1990), pp 102-103 186 Kimberly Elliot and Peter Uimonen find the target’s costs to be significant at the percent level A Cooper Drury uses logistic regression to analyze the HSE database He finds a positive correlation between the target’s costs and a successful outcome at the percent level Using logistic regression based on the HSE database, T Clifford Morgan and Valerie Schwebach also find the target’s costs to be significant at percent On the whole, these results suggest a clear link between the target’s costs and the outcome of a sanctions event.56 San Ling Lam, and T Clifford Morgan and Valerie Schwebach include a measure of the sender’s cost in their studies Using a probit model based on the 1985 HSE database, Lam finds the sender’s costs to be negatively correlated with sanctions success and significant at the percent level In addition, Lam also finds that the logarithm of the ratio of sender’s GNP to target’s GNP is significant at the percent level Using logistic regression based on the HSE database, Morgan and Schwebach find the same correlation at the percent level of significance High sender costs are found to be negatively correlated with sanctions success However, Morgan and Schwebach point out that sanctions not seem to result in great changes in expected outcomes, regardless of the costs Extreme costs are required to produce relatively small changes in outcomes.57 Makio Miyagawa analyzes in detail 31 cases of economic sanctions between 1933 and 1990 Miyagawa finds that the cost to the sender will reduce the effectiveness of a sanction.58 Using ordered-probit measures to test the HSE-Drezner 56 57 58 San Ling Lam, “Economic Sanctions and the Success of Foreign Policy Goals,” Japan and the World Economy, vol (1990), pp 244-246 Kimberly Ann Elliott and Peter P Uimonen, “The Effectiveness of Economic Sanctions with Application to the Case of Iraq,” Japan and the World Economy, vol (1993), pp 403-409 T Clifton Morgan and Valerie L Schwebach, “Fools Suffer Gladly: The Use of Economic Sanctions in International Crises,” International Studies Quarterly, no 41 (1997), pp 43-45 San Ling Lam, “Economic Sanctions and the Success of Foreign Policy Goals,” Japan and the World Economy, vol (1990), pp 239-247 T Clifton Morgan and Valerie L Schwebach, “Fools Suffer Gladly: The Use of Economic Sanctions in International Crises,” International Studies Quarterly, no 41 (1997), pp 43-45 Makio Miyagawa, Do Economic Sanctions Work? (New York: St Martin’s Press, 1992), pp 61-88 187 database, Daniel Drezner finds the gap in costs takes a positive sign; the greater the gap in costs, the more the target will concede The cost term is significant at the percent level in both of his regressions.59 Regarding the conflict expectations effect, the U.S General Accounting Office studies 27 sanctions episodes beginning after the World War I and concludes in a 1992 report to the Senate Foreign Relations Committee, “Economic sanctions are most effective when they are applied multilaterally or against otherwise friendly nations with economic and political ties to the [sender] country.”60 Using a probit model based on the 1985 HSE database, San Ling Lam finds that the prior relationship (alignment) is statistically significant at the 10 percent level 61 Using ordered-probit measures to analyze the HSE-Drezner database, Daniel Drezner finds the alignment term takes a positive sign Drezner’s results are significant at the percent level in his first regression and at the percent level in his second regression This means that as the expectations of future conflict between the two countries declines, the target will make a larger concession In addition, if an ally and an adversary face the same costs of deadlock, the ally target will still concede more.62 Further, Daniel Drezner applies the Boolean method to analyze 39 episodes of economic sanctions imposed by Russia between 1992 and 1997 and concludes that economic sanctions will produce significant concessions if the target is a close ally and the sender does not threaten military force The absence of conflict expectations is a necessary condition for the sender to extract significant concessions The presence of a military threat or domestic instability in the target country is neither necessary nor 59 60 61 62 Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), pp 122-124 United States General Accounting Office, Economic Sanctions: Effectiveness as Tools of Foreign Policy, Report to the Chairman, Committee on Foreign Relations, U.S Senate, GAO/NSIAD-92106, February 1992, p San Ling Lam, “Economic Sanctions and the Success of Foreign Policy Goals,” Japan and the World Economy, vol (1990), pp 239-247 Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), pp 122-124 188 sufficient conditions In the presence of conflict expectations, there must be a significant gap in costs of sanctions to lead to a successful outcome.63 V Conclusion First of all, it should be emphasized that economic sanctions are generally ineffective and the rate of success in terms of target compliance has been declining over time, particular from 1975 to 1990 The success rate of economic sanctions, excluding economic warfare and trade disputes, is as low as 4.6 to 10.4 percent The HSE approach suggests that sanctions are most effective under the following conditions: modest sender goals, a weak and unstable target, high costs to the target, low costs to the sender, friendly relationship between the sender and the target, a high trade concentration for the target with the sender, quick and harsh unilateral sanctions, no assistance to the target by third countries, and, finally, sanctions that are primarily financial rather than trade-oriented Although the HSE database is blamed for sample bias by including trade disputes and economic warfare, most of the above variables have been further confirmed by the other three approaches mentioned in this chapter The domestic politics/symbolic approach focuses on the political economy within the sender and target countries This approach provides three factors working against the effectiveness of economic sanctions: (1) few cases with damaging sanctions; (2) the rally-around-the-flag effect reinforced by nationalism; and (3) manipulated redistribution effects of sanctions in the target Furthermore, it is very plausible that if the sender suffers from domestic economic and political instability, it will be less likely for the target to concede because the sender will have more concerns about the costs of sanctions 63 Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), pp 131-247 189 Economic sanctions might be treated as a humiliating affront to the target and thus trigger a rally-around-the-flag effect Pervasive nationalism and a lack of discrimination between the “guilty” and the “innocent” will significantly reinforce the rally-around-the-flag effect The sender might become the common enemy for the target The resistance of domestic groups and the public to economic sanctions becomes synonymous with patriotism, while dissent would trigger accusations of disloyalty or treason These effects will facilitate political integration in the target and cause the sanctions to fail By contrast, this approach cites two factors as contributing to the effectiveness of sanctions: (1) the fifth-column effect; and, (2) political and economic instability in the target The fifth-column effect is seen when some particular groups in the target country hurt by the sanctions petition their government to comply with the sender’s demands The more the sanction hurts the target central government directly, the greater the chance to influence its policy In addition, core support groups of the target regime negatively affected by sanctions will put pressure on their government As a matter of fact, China’s political strategies toward Taiwan, yi bi guan (utilizing the public to urge the official) and yi shang wei zheng (exploiting business to press politics), are based on the expectations of a fifth-column effect Furthermore, the target government with domestic political and economic instability will tend to concede to the sender’s demand Nevertheless, economic sanctions can generate both the rally-around-the-flag effect and the fifth-column effect at the same time In order to bring about alteration of an objectionable policy, the fifth-column effect must overwhelm the rally-around-theflag effect In other words, sanctions must reduce the political effectiveness of proregime groups more than they reduce the effectiveness of opposition groups In 190 particular, financial sanctions tend to reinforce the fifth-column effect while minimizing the rally-around-the-flag effect By contrast, trade sanctions cannot be aimed accurately at any particular group, thus they are more likely to trigger a rallyaround-the-flag effect There are several statistical tests of financial sanctions and political instability in the target country, although there is no exercise on the rally-around-the-flag effect, nationalism, and the fifth-column effect Overall, the argument that financial sanctions are more effective is based on moderate statistical evidence and the argument that the target with unstable political and economic conditions tends to make concessions to the sender has strong statistical support There is no sufficient statistical evidence, however, to confirm that the democracy of a target country is a necessary or sufficient condition for sanctions successes In general, a democratic regime may provide more space for the public and interest groups to influence the target government But an authoritarian regime also needs to respond to pressure from interest groups or the members of the regime itself, such as factions or competing leaders, bureaucratic sectors, local leaders, core business groups, or sometimes even the public The signaling approach argues that sanctions could be useful as a signal for more coercive measures This approach makes two predictions about the pattern of sanctions outcome First, the sender’s costs should be positively correlated with concession size Second, a threat to use force, or difference in aggregate power, should be positively correlated with concession size However, statistical results provide no support for the signaling approach The statistical evidence available categorically rejects the argument that high sender costs can effectively signal resolve and thus lead to a successful outcome High sender costs are found to be negatively correlated with sanctions success In addition, neither 191 military power nor military threats affect the outcome of a sanctions attempt Therefore, economic sanctions are not a stalking horse for military threats or relative capabilities The conflict expectations model makes two major predictions First, the greater the gap between the sender’s and target’s costs, the greater the target’s concessions An increase in the sender’s costs makes economic sanctions less viable and less profitable By contrast, an increase in the target’s costs makes economic sanctions more viable and more profitable Second, if the sender and the target are adversaries, the target will be more reluctant to acquiesce under the pressure of economic sanctions because of relative gains and reputation concerns As the target and sender anticipate few political conflicts in the future, the magnitude of the target’s concessions will increase For economic sanctions to produce significant concessions, the absence of conflict expectations is a necessary condition If the target-sender relationship is adversarial, there must be a large gap in costs for sanctions to generate even moderate concessions The statistical results provide solid empirical support for this model Regarding the implication for cross-Strait economic relations, in theory, China’s sanctions against Taiwan generally tend to be ineffective The probability of success of Chinese economic sanctions is only 4.6 to 10.4 percent In addition, the necessary condition for China’s successful sanctions with Taiwan’s moderate concessions is: China enjoys a large gap of costs The following conditions will contribute to the effectiveness of economic sanctions: (1) China enjoys a significant costs gap of economic sanctions between Taiwan and China; (2) China’s sanctions trigger a fifth-column effect; (3) China imposes financial sanctions against Taiwan instead of trade sanctions, but financial flows now favor Taiwan’s leverage; (4) Taiwan is unstable; and (5) China imposes 192 sanctions against Taiwan quickly, with maximum harshness, and without significant international assistance to Taiwan By contrast, the following conditions will contribute to the ineffectiveness of China’s sanctions: (1) China’s sanctions trigger nationalism and a rally-around-theflag effect in Taiwan; (2) China suffers from domestic instability; (3) Taiwan’s government can manipulate redistribution effects of sanctions to favor the ruling coalition; and (4) Taiwan’s decision-makers have strong concerns of relative gains and reputation in the cross-Strait conflict It is impossible to predict the domestic situation for both Taiwan and China, whether Beijing could impose sanctions against Taiwan quickly, with maximum harshness, and whether the Taiwanese government could manipulate redistribution effects of sanctions to favor the ruling coalition when Beijing were to impose economic sanctions against Taiwan However, these are not the most important variables to influence the effectiveness of economic sanctions They are secondary to the following variables: costs gap of sanctions between Beijing and Taipei (including the reaction of the international community toward China’s sanctions), rally-aroundthe-flag effects, fifth-column effects, and perception of decision-makers in Taiwan As a result, this research focuses on the last four variables to assess Taiwan’s vulnerability with respect to cross-Strait economic relations Chapter will assess the possible costs of China’s possible economic sanctions against Taiwan By examining two cases of the 1995-96 Taiwan Strait missile tensions and the 1999-2000 Taiwan Strait incident, Chapter 11 will further test the following hypotheses on the outcome of China’s possible sanctions against Taiwan: As China’s military threats increased, Taiwan experienced rising nationalism and a strong “rally-around-the-flag” effect, with a moderate fifth-column effect, in terms of the reaction of Taiwan’s public, elites, and interest groups 193 Taiwan’s decision-makers emphasized (credibility) in the cross-Strait conflict 194 relative gains and reputation ... include cases 48-1, 56 -3, 58 -1, 65- 2, 73-1, 77-4, 79-3, and 87-3 in the HSE database b: Sanctions failure on democratic targets include cases 48-3, 54 -1, 54 -3, 56 -1, 57 -1, 63 -5, 71-1, 74-1, 74-2,... International Security, vol 22, no (Fall 1997), pp 106-107 Eleven cases refer to cases 48-3, 54 -1, 54 -3, 56 -1, 57 -1, 63 -5, 71-1, 74-1, 74-2, 78-4, and 83-1 in the HSE database Michael Mastanduno, “Economic... Research, vol 35, no (1998), pp 50 7 -50 8 Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (New York: Cambridge University Press, 1999), pp 121-1 25 Daniel W