Trade sanctions are in the news again, with Russia’s invasion of Ukraine prompting a swathe of new sanctions against individuals and the Russian Federation.
Even in times of peace, economic trade sanctions are used against countries considered to support terrorism or threaten world stability.
What Are Trade Sanctions?
Investopedia shares the following trade sanctions definition: they are “legal restrictions on trade with a country.”
Trade sanctions are a subset of the wider term “economic sanctions” that can also encompass tariffs and broader economic penalties against countries, such as embargoes, which are total bans on any trade with a particular country.
There has been criticism of embargoes or strict sanctions; total bans on trade have sometimes impacted a country’s people more than its regime. For this reason, many sanctions focus on individuals, entities or specific elements of trade rather than being blanket bans prohibiting any interaction with entire countries.
Why Are Trade Sanctions Introduced?
Trade sanctions can be implemented against countries or individuals failing to comply with UN or other international obligations that threaten global security or support terrorism.
U.S. Government sanctions “can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals.”
And trade sanctions are not only introduced because of threats of war or terrorism. In July 2022, the EU announced its intention to introduce sanctions on countries that fall short of labor laws or sustainability.
How Do Trade Sanctions Work?
Trade sanctions and embargoes can be unilateral (imposed by only one country) or multilateral (agreed by a number of countries). International organizations, such as the United Nations Security Council, can impose sanctions by which their members must abide.
International trade sanctions imposed by several nations are more punitive than those enforced by one country — but even those set by a single nation can be highly effective. For instance, the sanctions introduced by major trading countries like the U.S. can have a significant impact.
What Are the Different Types of Trade Sanctions?
How are trade sanctions and embargoes used?
Trade sanctions can range from export and import restrictions at one end of the scale to a total embargo at the other.
Some of the most common trade sanctions are:
- Embargoes: as above, the most severe option. An embargo is a total ban on trade with a specific country. Currently, the U.S. has embargoes against Iran, Cuba, North Korea, Syria and Russian-occupied Crimea.
- Non-tariff barriers: restrictions on trade without using tariffs. This term can include complete embargoes and the use of quotas, sanctions or levies on trade.
- Export restrictions: can include the need for license authorization for exports and, sometimes, total bans on certain exports or exports to certain industries; for instance, technology components that can be used in weaponry.
- Import restrictions: limiting or banning imports of products or services from a specific country. The limits and bans on imports of Russian gas, for instance, during the invasion of Ukraine.
- Tariffs and quotas: used on goods and services from a particular country; these are a form of trade sanction. More typically, these are used for competitive reasons (i.e., to protect domestic businesses from foreign competition) rather than to punish hostile behavior by a nation.
What Countries Have Trade Sanctions?
From a U.S. trade sanctions policy perspective, regulations prohibit all transactions with a number of countries (these are “embargoes sanctions”). Other countries are subject to less absolute sanctions programs.
As of March 2022, the U.S. has blanket or partial sanctions against countries including:
- The Balkans
- Central African Republic
- Democratic Republic of Congo
- Hong Kong
- North Korea
- South Sudan
What Are Two Examples of Sanctions?
The invasion of Ukraine by Russia has made trade sanctions a hot topic again. The U.S. sanctions against Russia are an example of economic and trade sanctions — and part of a wider raft of sanctions against Russian individuals and corporations.
You can read more about the Biden Administration’s sanctions, including the expansion of regulations administered by the United States Department of the Treasury’s Office of Foreign Asset Control (“OFAC”) and the United States Department of Commerce’s Bureau of Industry and Security (“BIS”) in our whitepaper on the subject, which provides insight into the applicability of these regulations.
North Korea is another country subject to a range of international sanctions. Initially, unilateral United States trade sanctions were prompted by hostile North Korean action against South Korea. Following an easing-off of U.S. sanctions in the 1990s, North Korea is currently subject to significant sanctions imposed as part of UN Security Council Resolutions in response to the country’s nuclear weapons program.
Today, sanctions against North Korea include trade bans on weapons-related materials and goods, luxury goods, financial assets, banking transactions, and general travel to and trade with the country.
How Can Your Organization Confidently Comply With Sanctions?
With the geopolitical climate constantly changing, businesses must be on the front foot to keep up with their sanctions obligations. Sanction screening is one way to manage compliance. Ensuring you keep pace with changes in the wider governance, risk and compliance (GRC) landscape is another.
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