Variable 4: Economic Coercion and International Security

Just as the international security order is under extreme stress in an increasingly post-unipolar world, so, too, is the global economic order.

Support for and confidence in the neoliberal paradigm is collapsing globally, not least due to the forms of economic and political inequality it has engendered, along with growing calls for greater emphasis on sustainability and planetary well-being. Institutions such as the World Trade Organization, International Monetary Fund, and World Bank are facing crises of legitimacy, becoming victims of geopolitical tensions between great powers, or both. Moreover, political winds are pushing some states toward protectionism, disrupting trade and fueling geopolitical tensions. As the global security situation deteriorates, the international economic order becomes ever more “securitized.”

…few tools of economic statecraft have catalyzed tensions and fragmentation in the security sphere as much as the overuse of economic sanctions…

Ideally, states should prevent geopolitics from holding the mutual benefits of trade and development hostage, seek new models of development compatible with countering climate change, and resolve to govern matters of trade, debt relief, and unilateral coercive measures through equitable multilateral institutions. The Better Order Project acknowledges the crucial nature of the task of reforming international financial institutions and the need to forge a global economic order that meets the needs of a profoundly changing world. Yet, while these remain of immense importance to the future of global order and justice, addressing issues of such magnitude lies beyond the remit of this project.

Therefore, we have chosen to focus this section of the report more narrowly on how to prevent the international security order from suffering further bifurcation as a result of a fracturing economic order, given the significant consequences for the future of multilateralism and international stability that such a development would have. And few tools of economic statecraft have catalyzed tensions and fragmentation in the security sphere as much as the overuse of economic sanctions — including, but not limited to, the extraterritorial application of economic coercion.

The use of economic sanctions has grown significantly over the past decades and is likely to become more common in the future as other powers find their use increasingly tempting and emulate the actions of established powers. Though they tend to be viewed as a humane alternative to war, sanctions can have devastating humanitarian consequences, often bringing considerable harm to populations. For instance, the long-term imposition of crippling economic sanctions has at times damaged the very fabric of societies and increased the risk of state collapse, with all of its destabilizing implications.

In a post-unipolar world, states will need to develop mechanisms to regulate the use of economic sanctions.

Yet, despite their impact on the security order and the near-exponential growth of their usage, norms and laws regulating economic sanctions remain next to non-existent.

In a post-unipolar world, states will need to develop mechanisms to regulate the use of economic sanctions, limit their detrimental impact on civilian populations, and reduce the risk of sanctions contributing to bifurcated economic and security orders. In part, these can include principles drawn from international humanitarian law (IHL). We advance several proposals that can help manage the use of economic coercion, given that the growing use of these measures risks making an intensifying security competition even more difficult to control.

Our proposals do not seek to outlaw non-U.N. sanctions but rather determine their legality and regulate their use. While those states who regularly employ some of these instruments of economic coercion will likely not favor regulation today, we predict that they will develop an interest in avoiding a negative-sum economic and security dynamic once a larger number of states begin to employ these tools more regularly in a post-unipolar world.

Proposal 9: An ICJ advisory opinion

We propose that the U.N. General Assembly pass a resolution requesting that the International Court of Justice (ICJ) provide its perspective on the legality of various unilateral coercive measures by way of an advisory opinion.

In particular, the ICJ should weigh in on two specific disputed areas of law with respect to unilateral sanctions: whether secondary sanctions are lawful and whether the manner in which U.S. financial sanctions are currently applied represents an application of domestic U.S. law or falls under the category of extraterritorial sanctions.

International treaty law is largely silent on these questions. States and scholars have fallen into three broad camps: the first rejects any sanctions imposed by any authority other than the U.N. Security Council; the second, embraced by the largest camp of the international community, holds that unilateral sanctions may be lawful in some circumstances but that extraterritorial application of these sanctions goes too far; and the third finds unilateral sanctions, including secondary sanctions, generally permissible.

…the ICJ should weigh in on two specific disputed areas of law with respect to unilateral sanctions: whether secondary sanctions are lawful and whether the manner in which U.S. financial sanctions are currently applied represents an application of domestic U.S. law or falls under the category of extraterritorial sanctions.

The United States, for example, does not view its use of financial sanctions as extraterritorial but instead as an application of domestic U.S. law since all transactions in the U.S. dollar transit through U.S. territory where U.S. jurisdiction holds. This renders most global financial transactions a matter of domestic U.S. law due to the centrality of the U.S. dollar in the global financial clearing system. Other states reject this interpretation and hold that these sanctions are unlawful extraterritorial applications of U.S. law.

The ICJ advisory opinion would also clarify the legal obligation of states with respect to the effects of unilateral coercive measures in international law. Notably, the current U.N. Special Rapporteur on Unilateral Coercive Measures has requested such a clarification.

The ICJ advisory opinion is more likely to provide a rallying point for political leaders and citizens to push for a reduction in excessive economic measures rather than end the practice of secondary sanctions overnight. Still, if the Court decides the economic measures in question are incompatible with international law, states could begin negotiations toward a comprehensive ban on the use of secondary sanctions through a multilateral treaty or global agreement in which states will agree neither to issue nor comply with such sanctions.

If the ICJ determines that secondary sanctions are lawful — or that secondary sanctions are unlawful but that U.S. financial sanctions do not fall under this category — this would legitimize a significant body of existing U.S. sanctions. In this case, the need for mechanisms regulating rather than banning extraterritorial and financial sanctions would become even more critical as their usage would likely increase, including potentially by states who currently only resort to measures of primary rather than secondary coercion. Several such mechanisms, which should be pursued irrespective of how the ICJ rules since they deal not only with secondary sanctions, are proposed below. Proposals 10 and 11 offer a top-down approach; Proposal 12 suggests an alternative bottom-up approach.

Proposal 10: Risk reduction and de-escalation

We propose the establishment of a plurilateral forum for states to pursue near-term “risk reduction” efforts regarding all forms of coercive economic measures to build the necessary guardrails to mitigate the worst risks to the global economy and international security. The purpose would not be to outlaw all forms of sanctions, but rather to agree on limits that can reduce their impact on civilians and the fabric of the international security order. A rejuvenated and functional World Trade Organization is the natural home for such discussions to take place. However, U.N. member states could forge a new Convention on the Employment of Economic Statecraft as an alternative plan.

States should address the dangers of securitizing aspects of the global economy and mutual perceptions of risk related to economic coercion.

Crisis monitoring and communications: States should establish crisis monitoring and communications systems to convey intent and aims and to avoid misapprehension and accidental escalation through tit-for-tat unilateral measures.
Definition establishment: States should also establish shared and, eventually, legal definitions of key terms, including “economic coercion,” “unilateral sanctions,” and “extraterritorial sanctions,” which currently do not enjoy widespread agreement. States should also develop processes for establishing such definitions at a more inclusive forum, such as the U.N. General Assembly.
Shared norms: The process of finding shared definitions would help provide the foundation required to discuss and agree upon norms to describe responsible behavior regarding economic statecraft.

Other topics that the plurilateral forum should address include the challenges of categorizing dual-use technologies, the economic consequences associated with overcompliance with sanctions, and the areas in which sanctions should not be applied.

Proposal 11: Norms and best practices

As the basis for a future set of legally binding principles and as part of the process outlined in Proposal 10, states should also agree on a set of norms and “best practices” to govern the use of economic statecraft as a general category of interstate relations.Without seeking to place economic statecraft under the remit of IHL, principles of international humanitarian law can provide an analytical framework to set best practices. Processes for transparency and information sharing, means-end proportionality requirements (a basic feature of most international law regimes), and obligations to minimize harm to civilians and third parties are some of the IHL principles that could guide this work.

Without seeking to place economic statecraft under the remit of IHL, principles of international humanitarian law can provide an analytical framework to set best practices.

Creating norms of distinction and proportionality in unilateral economic statecraft would also allow states to properly characterize their concerns and provide information about their perceived threats through the crisis monitoring and communications systems outlined in Proposal 2. These norms should be assessed using an effects-based test rather than simply looking at the intent of the sanctioning state, which means considering all the foreseeable impacts from the imposition of sanctions, including issues related to overcompliance by the private sector.

Best practices should also include obligations to actively avoid certain harms, as well as an obligation to assess harms caused over time:

Per the Additional Protocols to the Geneva Conventions and customary IHL, states shall not destroy objects “indispensable to the survival of the civilian population.” In the parallel situation of economic sanctions, states should seek to limit measures that disrupt basic financial services, access to medicine, or global food supply chains.
Given that starvation of civilians is understood as prohibited under IHL per the Additional Protocols to the Geneva Conventions (1977) and under customary law, states should craft norms prohibiting the use of economic sanctions that result in starvation of the civilian population.
Currently, the International Law Commission has agreed to a standard where the “purpose” of sanctions can justify their disproportionate use. Temporality, another way to determine proportionality, is often interpreted as “until the target changes behavior.” New best practices, by contrast, should include an expectation for requiring regular, periodic review and a reconsideration of unilateral measures.

Best practices should also be based on precedents from international human rights law.

Economic coercion can violate international human rights law if states fail to protect the right to life and provide minimum economic, social, and cultural rights. States should design collective processes to investigate whether general blockades or comprehensive embargoes rise to the level of generating deprivation that violates the U.N. Charter, the International Covenants on Civil and Political Rights, and Economic, Social, and Cultural Rights, and how this view could be brought to U.N. bodies, including by limiting civilian access to clean water, sanitation, food, and medicine.

Proposal 12: Bilateral U.S.-China agreement

If the multilateral “top-down” negotiation process described above proves too complex and cumbersome, a more “bottom-up” process in which leading actors begin the process of forging new patterns of interaction on their own should be considered. Even tentative steps can set a precedent that other states may feel inclined to emulate.

As part of the intensification of the trade conflict between China and the United States, Washington has waged a tariff war against Beijing, tightened financial and technological restrictions, and imposed sanctions on Chinese entities. In response, China has sharply increased its adoption of unilateral measures, including asset freezes, visa restrictions, export and import controls, and bans on cooperation with Chinese entities. China has also adopted new legal frameworks modeled from and responding to U.S. sanctions, notably the Anti-Foreign Sanctions Law (2021) and the Unreliable Entity List (2019). Concurrently, the strained relationship between the United States and China has also weakened institutions like the World Trade Organization, with the United States notably blocking appointments to the organization’s Appellate Body.

A prolonged Sino-U.S. economic standoff would have profound consequences for the multilateral trade order, the global economy, and the international security order — including the world’s ability to manage both traditional and transnational security challenges. Therefore, we propose that the United States and China begin negotiating a bilateral “arms control-style” agreement limiting the use of several unilateral instruments of economic coercion, including extraterritorial sanctions. This could serve as one example of the types of frameworks and principles that might eventually apply equally to all states. Such an agreement could take existing export controls and intellectual property restrictions as a starting point and, from there, broaden it to include general principles to govern the use of unilateral sanctions outside the U.S.-China relationship.

Like the arms control agreements of the Cold War, this initiative may only become feasible after both sides have become convinced that unregulated economic competition, aided by punitive measures, cannot be unambiguously “won” by either side and puts both powers in a lose-lose situation. But since the unregulated usage of punitive economic measures would be destructive not only to the great powers but also to the global economy and the international security order writ large in a post-unipolar world, this should incentivize the great powers to consider agreed-upon norms and principles for economic statecraft as a preventive measure rather than as a remedy.