TRADING with SANCTIONED STATES by BRYAN R
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TRADING WITH SANCTIONED STATES by BRYAN R. EARLY (Under the Direction of Jeffrey Berejikian and Douglas Stinnett) ABSTRACT What determines how economic sanctions affect their targets’ trade with other countries? A gap exists in the literature as to how third party states and firms respond to the imposition of sanctions on their trading partners and what motivates their responses. This project seeks to uncover whether commercial or security prerogatives primarily drive third party responses and what factors affect whether third parties adopt policies favoring the sender of the sanctions or their target. I draw on the liberal paradigm to develop a theory that explains how commercial constituencies affect the way third parties respond to the imposition of economic sanctions. The theory asserts that the security prerogatives of third party governments tend to be trumped by their constituencies’ commercial interests in shaping their responses. Counter-intuitively, I argue that countries allied to the state imposing the sanctions are, under some circumstances, more likely to increase their trade with their target after sanctions are imposed. I test my theory against a realist-based theory of sanctions-busting that is also developed in the dissertation. The empirical portion of the project employs a nested-analytic approach, conducting two large-n quantitative studies of how sanctions affect third party trade and two qualitative studies examining the third party responses to the American sanctions imposed against Iran and Cuba. The dissertation makes an important theoretical contribution by explaining why states engage in sanctions-busting behavior and in its exploration of the complex constraints that exist on the use of coercion in international politics. The study also yields policy-salient insights into what shapes how third parties respond to sanctions and which states are more likely to become sanctions- busters. INDEX WORDS: Economic Sanctions, International Trade, Sanctions-Busting, Foreign Policy, Economic Statecraft, Alliances, United States, Iran, United Arab Emirates, Cuba TRADING WITH SANCTIONED STATES by BRYAN R. EARLY B.A., Washington and Lee University, 2004 M.A., The University of Georgia, 2006 A Dissertation Submitted to the Graduate Faculty of The University of Georgia in Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY ATHENS, GEORGIA 2009 © 2009 Bryan R. Early All Rights Reserved TRADING WITH SANCTIONED STATES by BRYAN R. EARLY Major Professor: Jeffrey Berejikian Douglas Stinnett Committee: Brock Tessman Jaroslav Tir Electronic Version Approved: Maureen Grasso Dean of the Graduate School The University of Georgia May 2009 ACKNOWLEDGEMENTS I am indebted to a number of individuals and organizations that provided me with support and assistance on this dissertation. I would especially like to thank my dissertation co-chairs Jeffrey Berejikian and Douglas Stinnett for all the feedback and insight they provided me with over the many years I spent working on this project. I would also like to thank Jaroslav Tir and Brock Tessman for their feedback and the skills they armed me with to take on a project like this. For their comments and feedback along the way, I would like to thank Matt Fuhrmann, Cale Horne, Quan Li, Brandon Stewart, Gary Bertsch, Steve Shellman, and Damon Cann. I am grateful to the Center for International Trade and Security at the University of Georgia for its years of support and the many opportunities it opened for me. The bulk of this dissertation was written during my fellowship with the Dubai Initiative at Belfer Center for Science and International Affairs at Harvard University. I am thankful to both the Dubai Initiative and the Dubai School of Government for their generous funding of my research. On a personal note, I would like to thank my parents Pam and Walt Early for their support and understanding over the nine long years I have spent in higher education. I would also like to thank my fiancée Pamela Hauke for her love, support, and patience with me throughout writing this dissertation. I dedicate this project to them. iv TABLE OF CONTENTS Page ACKNOWLEDGEMENTS........................................................................................................iv LIST OF TABLES...................................................................................................................viii LIST OF FIGURES ...................................................................................................................ix CHAPTER 1 INTRODUCTION .....................................................................................................1 Economic Sanctions and Third Party States...........................................................3 The Existing Literature on Economic Sanctions’ Effects on International Trade ....7 The Argument in Brief ........................................................................................13 Method of Inquiry ...............................................................................................15 Contributions of the Project .................................................................................18 The Project’s Roadmap........................................................................................20 2 THEORIES OF THIRD PARTY RESPONSE .........................................................23 A Theory of Third Party Response to Economic Sanctions ..................................23 An Alternative Realist Account of Third Party Responses ...................................66 Equating Commerce with Cooperation: Conceptual Issues for Theory Testing ....74 Theory Falsifiability and Validation ....................................................................77 3 THE INTERNATIONAL RESPONSE TO U.S. SANCTIONS, 1950-2000 .............79 Evaluating the United States’ Use of Economic Sanctions ...................................80 Assessing How American Sanctions Affected Their Targets’ Foreign Trade........82 v Operationalizing the Hypotheses and Model........................................................91 Conducting the Quantitative Analysis................................................................101 Weighing the Balance of Evidence ....................................................................117 The Substantive Implications for U.S. Sanctions Policies...................................119 Conclusion ........................................................................................................122 4 THE ANATOMY OF A SANCTIONS-BUSTING EPISODE: THE UAE’S RESPONSE TO AMERICAN SANCTIONS AGAINST IRAN ........................124 The Triadic Theory’s Expected Causal Processes ..............................................126 An Overview of the American Sanctions Imposed Against Iran, 1979-2005 ......129 Case Period 1: Explaining the Sanctions’ Effects on Emirati Trade with Iran from 1979-1994 ...................................................................................................141 Case Period 2: Explaining the Sanctions’ Effects on Emirati Trade with Iran from 1995-2005 ...................................................................................................173 Weighing the Balance of Evidence ....................................................................211 Conclusion ........................................................................................................214 5 EXPLAINING THE EMERGENCE OF COLD WAR SANCTIONS BUSTERS ..218 Summarizing Cold War Sanctions from 1950-1990 ...........................................219 Assessing the Emergence of Extensive Sanctions Busters..................................221 Operationalizing Hypotheses and Model............................................................224 Conducting the Quantitative Analysis................................................................234 Weighing the Balance of Evidence ....................................................................244 Conclusion ........................................................................................................247 vi 6 SANCTIONS-BUSTING ON CUBA’S BEHALF: THE COLD WAR AND BEYOND..........................................................................................................249 Developing a Complimentary Account of Sanctions-Busting Motivations through Small-N Analysis.........................................................................................251 The Third Party Response to U.S. Sanctions, 1960-1974 ...................................254 The Third Party Response to U.S. Sanctions, 1991-2006 ...................................281 Theory-Building from the Comparative Analysis of Cuba’s Sanctions-Busters..315 Conclusion ........................................................................................................319 7 CONCLUSION .....................................................................................................321 Explaining Trade with Sanctioned States...........................................................322 The Theoretical Implications of the Study’s Findings ........................................332 Policy Implications and Recommendations........................................................338 Directions for Future Research ..........................................................................341 REFERENCES .......................................................................................................................343 APPENDICES ........................................................................................................................367