Embargoes and Sanctions
Part 6. International Marketing
Published Online: 15 DEC 2010
Copyright © 2011 John Wiley & Sons, Ltd. All rights reserved.
Wiley International Encyclopedia of Marketing
How to Cite
Czinkota, M. R. 2010. Embargoes and Sanctions. Wiley International Encyclopedia of Marketing. 6.
- Published Online: 15 DEC 2010
A trade sanction or embargo is a governmental action that distorts free flows of investment or trade in goods, services, or ideas for decidedly adversarial and political, rather than economic, purposes. Sanctions are specific coercive trade measures such as the cancellation of trade financing or the prohibition of high technology trade, while embargoes are much broader in that they prohibit trade and investment entirely.
Trade embargoes have been used successfully in times of war or to address specific grievances. For example, in 1284, when the Hansa, an association of North German merchants, learned that one of its ships had been attacked by the Norwegians, it resolved an economic blockade of Norway. Export of grain, flour, vegetables, and beer was prohibited on pain of fines and confiscation of the goods. The blockade was a complete success. A contemporary chronicler reports: “Then there broke out a famine so great that they were forced to make atonement.” Norway paid indemnities for the financial losses that had been caused and granted the Hansa extensive trade privileges (Dollinger, 1970).
Over time, economic sanctions and embargoes have become a principal tool of the foreign policy for many countries. Reasons for the impositions have varied, ranging from the upholding of human rights to attempts to promote nuclear nonproliferation or antiterrorism.
After World War I, the League of Nations set sanctions for breaching its provisions. The success of the blockades of World War I suggested that “the economic weapon, conceived not as an instrument of war but as a means of peaceful pressure, is the greatest discovery and most precious possession of the League” (Renwick, 1987). The basic idea was that economic sanctions could force countries to behave peacefully in the international community.
Multilateral use of economic sanctions was incorporated into international law under the charter of the United Nations (UN). Sanctions decided on are mandatory, even though each permanent member of the Security Council can veto efforts to impose them. The charter also allows for sanctions as enforcement actions by regional agencies, such as the Organization of American States, but only with the Security Council's authorization.
The UN enforcement system was soon revealed to be flawed. Stalemates in the Security Council and vetoes by permanent members often led to a shift of discussions to the General Assembly, where sanctions are not enforceable. Concepts such as “peace” and “breach of peace” were seldom perceived in the same context by all members, and thus no systematic sanctioning policy developed under the UN (Doxey, 1987).
Unilateral sanctions may make the obtaining of goods more difficult or expensive for the sanctioned country. In order to work, sanctions need to be imposed multilaterally and affect goods that are vital to the sanctioned country – goals that are clear, yet difficult to implement.
Close multinational collaboration can strengthen sanctions greatly. Economic sanctions can extend political control over foreign companies operating abroad, with or without the support of their local government. When one considers that sanctions may well be the middle ground between going to war or doing nothing, their effective functioning can represent a powerful arrow in the quiver of international policy measures.
Sanctions usually mean significant loss of business to firms. One estimate claims that economic sanctions by the United States annually cost the country some $20 billion in lost exports. (Hufbauer et al., 2008) Therefore, the issue of compensating the domestic firms and industries affected by these sanctions needs to be considered. Yet, trying to impose sanctions slowly or making them less expensive to ease the burden on these firms undercuts their ultimate chance for success. Frequently, firms try to anticipate sanctions based on their evaluation of the international political climate. Nevertheless, even when substantial precautions are taken, firms may suffer substantial losses due to contract cancellations.
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- 2008) Economic Sanctions Reconsidered: History and Current Policy, 3rd edn, Peterson Institute for International Economics, Washington, DC. , , and (
- 1987) Economic Sanctions, Harvard University Press, Cambridge, p. 11. (