Transatlantic Economic Statecraft

Transatlantic cooperation on sanctions is much better today than it was 20 years ago. In 1982 and in 1996, political disputes over sanctions issues saw European countries legislate to block U.S. attempts to extend restrictions against Russia and Iran to European companies. Overcoming this negative historical experience, both sides of the Atlantic have closely coordinated in recent years to tackle common threats, including nuclear proliferation in Iran and Russia’s military intervention in Ukraine. European sanctions played a central role in bringing Iran’s government to serious negotiations that led to the July 2015 Joint Comprehensive Plan of Action. Despite the recent progress on transatlantic sanctions cooperation, however, the U.S.-EU partnership still faces significant challenges. 

On the European side, the complex architecture of EU sanctions policy, which features sanctions adopted at the EU level but implemented and enforced at the member-state level, creates inefficiency and confusion. Gaps in intelligence sharing among member states and with the EU itself create legal challenges to the sustainability of sanctions against individuals and entities. Interaction with the private sector is also complicated by different approaches at the EU and national levels.

Meanwhile, on the U.S. side, the tendency of the United States to overreach with sanctions that impact the private sector in Europe creates transatlantic friction. This overreach is sometimes deliberate and sometimes the product of misunderstanding about U.S. sanctions on the part of the private sector. The European Union’s limitations described previously do not help it to efficiently push back on the United States or to encourage and induce Washington to exercise more restraint. Sanctions overreach risks diminishing political support in Europe for sanctions, as recently acknowledged by U.S. Secretary of the Treasury Jack Lew. 

Going forward, both the United States and the European Union would benefit from tackling those challenges through cooperation rather than competition. 

Cooperation, a preferable and more likely scenario, would involve the U.S. agencies in charge of sanctions policy to show increasing transparency about their enforcement strategies. Cooperative mechanisms such as a mutual license recognition system would go a long way to reduce legal hazards for EU exporters and banks. Cooperation would also involve restraint in the U.S. deployment of secondary sanctions, particularly in instances where EU sanctions already exist. 

In the absence of such a cooperative approach, competition could see Europeans opposing the effect of U.S. sanctions on EU companies and banks, for instance, by adopting their own secondary sanctions to target U.S. interests.

EU policymakers must make sanctions policy changes in order to facilitate cooperation with the United States. These policy changes may include further harmonization of licensing mechanisms among member states, more flexible tools for sanctions enforcement (and a more aggressive approach to enforcement generally), and further intelligence sharing. In addition, EU mechanisms to support and assist companies struggling to cope with market opportunities lost because of sanctions should be created to increase the political sustainability of the sanctions policy. Lastly, Europeans should tighten their control on transactions between entities under EU sanctions and entities outside of the EU when they occur in euros or other European currencies, such as the pound, in particular when such transactions are forbidden by EU laws. 

Expanding constructive cooperation will enable transatlantic partners to preserve the integrity of the sanctions tool and will ultimately benefit the broader political and security partnership. Specifically, it will help to address common challenges: managing policy adaptation to address evolving threats and the circumvention of sanctions; contingency planning regarding the use of sanctions to address emerging security threats; and countersanctions strategies to protect U.S. and EU interests from the use of sanctions by non-Western powers. 

Introduction

Economic sanctions¹ (referred to as “sanctions” in this report) have become a tool of choice for the United States and the European Union to advance their security interests and to uphold a rules-based global order. U.S. and European financial and economic power gives both players a competitive advantage in economic warfare and significant clout over state and non-state actors that pose challenges to their interests and values, as well as challenges to international peace and security. 

An increasingly unstable security environment, the continuing decline of European defense spending, and resulting limited power-projection capabilities have convinced Europeans of the strong contribution that sanctions can make to their security. The emergence of an EU common foreign and security policy (CFSP) in the aftermath of the Cold War helped member states to create the collective framework for a united sanctions policy. The European willingness and institutional ability to adopt sanctions have served U.S. security interests well, considering Europe’s status as one of the world’s premier trade and financial markets.