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Disputing and counteracting unilateral extraterritorial sanctions

Introduction

Unilateral sanctions are the foreign policy tool of choice for some developed nations across the globe. Sanctions leverage access to a state's commercial and financial markets to coerce foreign governments to bring their behaviour in line with the sanctioning state's norms and expectations. The greater a state's regional or global economic significance, the more painful – and effective – its sanctions may be. The United States and the European Union in particular are enthusiastic users, having placed unilateral sanctions, among others, Russia, Venezuela and partially on Iran.

While unilateral sanctions are frequently used by some, their legitimacy is perennially questioned by others. When sanctions are imposed unilaterally, there exist concerns that they are being used to achieve the idiosyncratic foreign policy goals of the sanctioning state, irrespective of whether these are in the best interests of the global community which would be expected to discuss and endorse any sanctions via the existing international forum, i.e. the United Nations. Likewise, critics often charge that meddling in the internal affairs of another state via sanctions, particularly those having extraterritorial effects, violates international law. Indeed, the principles of non-interference, comity and the sovereign equality of states – lodestars in the public international law firmament – would, if taken seriously, dictate that unilateral sanctions lack legitimacy. While other international law principles can be militated in favour of unilateral sanctions, at the very least their legitimacy is hotly disputed.1

In contrast, multilateral sanctions imposed through the United Nations Security Council (UNSC), bridge this legitimacy gap. When sanctions result from a multilateral process, the concern that they are not being used to achieve the best interests of the global community dissipates. Likewise, the criticism that sanctions violate non-interference and related international law norms does not hold in the multilateral context: written into the UN Charter – agreed to by all Member States – is that the UNSC has the right to take measures, including interrupting economic relations, in order to maintain international peace and security.

Given the cloud of illegitimacy that hangs over unilateral sanctions, particularly those applied extraterritorially, what avenues of counteraction and legal attack are open to sanctions targets wishing to dispute them? In this paper we canvass some of the public international law options available to these states, including international law forums and World Trade Organization (WTO) dispute settlement. We conclude that none of these avenues will lead to the desired result. Likewise, the national law options available in mitigation – countersanctions – miss the mark.

The best path forward for these states appears to be not legal but diplomatic. Multilateral sanctions are far more effective than unilateral sanctions, and the latter can do more harm to the sender than the receiver. Making the case through diplomatic channels that multilateral collaboration is in the sanctioning country's own best interests, and that unilateralism is not, will be more effective than any attempts at legal coercion.

International Law Forums and Avenues

In this section we canvass two types of sanctions challenges that can be pressed in public international law forums: customary international law claims and treaty-based claims.

While unilateral sanctions and their extraterritorial effects, as discussed above, may credibly be challenged as contrary to customary public international law principles like non-intervention, it may be difficult to find a readily-available forum in which to bring such claims.2 These forums rely for their jurisdiction on state consent. If the sanctioning state does not agree to appear as a respondent to a specific challenge (or has not generally agreed to appear as a respondent in all international law matters, e.g., through a declaration recognizing the compulsory jurisdiction of the International Court of Justice (ICJ)), there is nothing the complainant can do.3 Absent context-specific reasons for consenting to jurisdiction, such as when it would be advantageous for a state to play up its international law bona fides, the political calculus does not favour doing so.

In addition to violating customary international law principles, unilateral sanctions may also violate bilateral treaties between a sanctioning and sanctioned state, which often enshrine the freedom of commerce between the two nations.4 Treaty-based challenges to unilateral sanctions can get over the jurisdictional hurdle faced by purely customary international law claims, because often these treaties have locked-in the consent of the sanctioning state through use of a so-called "compromissory clause." Such a clause may, e.g., state that the contracting parties have undertaken in advance to accept the jurisdiction of the ICJ, to settle any treaty disputes that may arise between them. In light of such a clause, it will be difficult for the sanctioning state to argue that it has not supplied the requisite consent to found jurisdiction.

Although a treaty-based claim may open the courthouse door to the complaining state, it is no guarantor of success once inside. Many treaties contain so-called "national security exceptions" – discussed at length in the next section – which arguably justify unilateral sanctions. Moreover, it can routinely take more than a decade for a case to wend its way to a final decision in the ICJ, for example. Finally, even if the Complainant perseveres and is rewarded with a decision holding unequivocally that the Respondent's measures violate international law, because international courts and tribunals generally lack effective enforcement mechanisms, the sanctioning state may simply choose to ignore the judgement, as the United States did in Nicaragua vs. United States (‎1986 I.C.J. 14 ICJ). A slow and expensive procedure with dubious chances of success, and with no enforcement mechanism, is hardly an attractive legal route for those wishing to challenge unilateral sanctions.

WTO Dispute Settlement

Because unilateral sanctions, with or without extraterritorial effect, restrict international trade in goods or services, WTO law may provide a basis for challenge. Unilateral sanctions may violate the Most Favoured Nation and National Treatment principles enshrined in the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS).5 They may also violate GATT Article XI(1), which prohibits Members from instituting or maintaining import bans and other WTO rules.

However, a sanctions target would face major challenges were it to bring such a claim against a sanctioning state at the WTO. The GATT and GATS contain national security exceptions which, in broad strokes, allow a Member to derogate from its WTO commitments if such action is necessary to protect its essential security interests.6 While the matter is unsettled, many states and commentators maintain that these exceptions are self-judging.7 If so, this would effectively doom any sanctions challenge at the WTO. A dispute settlement panel would not be able to second-guess a state's determination that its sanctions are necessary for its national security, and are therefore WTO-compliant.

Whether the national security exceptions are self-judging touches on longstanding debates about the extent to which states must relinquish power to global governance bodies like the WTO. On the one hand, national security decision-making is a core state function, and an international organization arrogating to itself the right to substitute its judgement for the sovereign's in this area may appear prima facie illegitimate. On the other, if wholly self-judging, these clauses open a loophole at the heart of the GATT/GATS through which Members can, in bad faith, exempt any measures they please from WTO disciplines. Indeed, national security has been called the "Achilles' heel of international law" because it creates avenues to evade bilateral and multilateral commitments.

The nature of the national security exceptions remains an unsettled question, much discussed in the literature, but as yet not definitively clarified by WTO jurisprudence. The case that most squarely presented the issue, a 1996 dispute between the EU and the United States over Cuba sanctions contained in the Helms-Burton Act with extraterritorial application, resulted in a political settlement, and did not generate any case law on the subject. However, the issue may finally get raised before a panel very soon via several ongoing and potential disputes: between Qatar and its neighbours,8 three recent disputes between Russia and Ukraine and possible disputes over United States Section 232 (national security) measures on steel and aluminium products if imposed in March 2018. In all these cases, the measures being challenged are likely to be justified on national security grounds.

Similarly, there are no GATT-era cases clarifying the issue (such cases would not necessarily predict how a contemporary panel would address this question in any event). Nevertheless, a review of relevant GATT disputes is telling, revealing that some throughout the years have supported a wholly self-judging exception, and some reviewability.

As to the former position, a 1949 GATT case between Czechoslovakia and the United States provides some indication that, at that time, the Contracting Parties understood the national security exception to be self-judging. In that case, Czechoslovakia challenged the export control elements of the Marshall Plan as a violation of the MFN principle. The United States invoked the security exception to justify these controls. The GATT Council overwhelmingly voted in the US' favour by refusing to refer the case to a panel for decision. While there is little on the record indicating what motivated the Council, the British representative noted that "every country must have the last resort on questions relating to its own security."9

As to the latter position, the 1986 case United States – Trade Measures Affecting Nicaragua, provides some indication that the panel believed, as a matter of policy, that these exceptions must be reviewable. In this case Nicaragua challenged President Reagan's embargo on the country, imposed to weaken the Sandinista regime. The United States justified the embargo based on the security exceptions. In its (unadopted) report, the panel, which avoided facing the national security issue directly due to its narrow terms of reference, nevertheless highlighted the potential for abuse posed by self-judging exceptions, asking: "[i]f it were accepted that the interpretation of Article XXI was reserved entirely for the Contracting Party invoking it, how could the Contracting Parties ensure that this general exception to all obligations under the General Agreement is not invoked excessively of for purposes other than those set out in the provision?"10

While there is no WTO case law directly on point, and the GATT-era record is mixed, the prevailing view, based on the ordinary meaning of the language used in the exceptions themselves, the contemporaneous pronouncements by GATT negotiators, state practice, and policy considerations, is that they are indeed self-judging.

The ordinary meaning of the terms used in the GATT/GATS exceptions indicates that they are self- judging. For example, the GATT exception states that nothing in the agreement "shall be construed to…prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests…"11 The GATS exceptions likewise contain this "which it considers necessary" language.12

The contemporaneous pronouncements of GATT negotiators also indicate that the national security exceptions were understood at the time of writing to be self-judging. For example, a representative from the United States delegation, which drafted the exceptions, stated: "I think no one would question the need of a Member, or the right of a Member, to take action relating to its security interests and to determine for itself – which I think we cannot deny – what its security interests are."13

State practice also shows that at least some Members consider the clauses to be self-judging, as shown in an episode between Ghana and Portugal. Portugal responded to a 1960 uprising in Angola, then a Portuguese colony, with brutal force. In response, Angola's nationalist leader organized a pan-African Portuguese boycott. Ghana, in a GATT meeting discussing Portugal's proposed membership, justified its right to take part in this boycott on national security grounds, stating its belief that under the exceptions Ghana is the "sole judge of what is necessary in its essential security interests."14

Moreover, policy considerations support reading the exceptions as self-judging. If a WTO panel were to claim the right to second guess a Member's judgement as to sensitive issues of national security, it may damage the WTO's legitimacy as a dispute settlement forum in the eyes of its entire Membership. As to the countervailing policy concern that a self-judging exception would create a wide loophole through the centre of the GATT, it can be anticipated that diplomatic and political pressure – what has been called the "atmosphere inside the [WTO]" – will create sufficient incentives against abuse.15 Indeed, a 1970s-era episode involving Swedish import restrictions on shoes may show this atmosphere having its desired effect. Sweden had justified its 1975 shoe import quota on national security – a proposition that was met with incredulity by other Contracting Parties during GATT Meetings. Sweden ended up revoking the measure two years later on its own volition. Perhaps a causal link can be drawn from one event to the other.

For the reasons above, it is probable that a unilateral sanctions challenge at the WTO would fail. Even assuming, however, that the national security exceptions do not provide the sanctioning state with an unreviewable defense, the Complainant would still face an uphill battle. This is because, first, even if the exceptions are not understood to be trump cards, they would still provide the Respondent with a credible justification for its measures. Second, in assessing whether unilateral sanctions are justified under the exceptions, a panel would almost certainly apply a relaxed standard of review, given the important sovereign interests involved.

Finally, assuming that the sanctioned state successfully navigates these challenges, any resulting judgement in its favour would be a dead letter. The sanctioning state would consider any panel or Appellate Body report dictating its foreign policy as an impermissible incursion into its national sovereignty, and thus would likely simply ignore the judgement.16

But, for the purposes of our analysis, let us assume that a WTO panel accepted jurisdiction to adjudicate on a dispute relying on national security considerations of a WTO Member. Let us also assume that the WTO panel ruled in favour of the complainant on the grounds that the respondent's national security considerations were not such as to justify derogation from the WTO rules. Bearing in mind that the responding Member considers its unilateral extraterritorial sanctions essential to its national security, that Member – being a sovereign State – is unlikely to accept the WTO adjudicator's assessment of what constitutes its essential national security. As such, it will not accept to implement the WTO's recommendations and rulings and to remove the sanctions in questions. In such cases, WTO rules allow the prevailing Member to retaliate against the Member who refuses to implement the panel's recommendations and rulings when authorized by the WTO's Dispute Settlement Body. That said, some are of the view that retaliation would be permissible even without going through a lengthy WTO dispute settlement process.17

As canvassed above, unilateral sanctions challenges in public international law forums generally and in the WTO specifically do not face a significant chance of success. If these avenues are foreclosed, target states could instead consider imposing sanctions of their own on the sanctioning state, pressurizing it to remove these measures. Even if countersanctions are allowable under WTO rules, the game may not be worth the candle: a trade war with a developed and economically powerful country is likely to be protracted, painful, and, in the end, fruitless.

National law route – blocking laws

It is noteworthy that legal remedies against unilateral extraterritorial sanctions exist in the national laws of states affected by such sanctions. Indeed, many countries enact the so-called blocking laws. Such statutes exist, for example, in the UK, in France and in the EU. In essence, blocking statutes operate to counter extraterritorial effect of foreign sanctions or other restrictive measures by prohibiting compliance with such foreign restrictions.

More specifically, in the EU, the Blocking Regulation (EC No 2271/96)18 was adopted in 1996 primarily as a countermeasure to the U.S. extraterritorial sanctions against Cuba and Iran. In short, this Regulation prohibits EU entities and Courts to comply with and enforce foreign legal acts listed in the Annex to the Regulation. Accordingly, at any point in time any new extraterritorial laws by a foreign country may be added to the Annex, thus enabling EU entities and persons to continue business with a country subject to foreign unilateral sanctions.

Nevertheless, blocking statutes cannot fully insolate businesses from the impact of the so-called secondary sanctions adopted by the USA where such businesses have operations in or other business interests in the United States. That is because secondary sanctions operate to restrict the ability of those foreign companies who do business in or with the United States to at the same time engage in the business activity with a country that is sanctioned by the United States. Accordingly, any non-U.S. company engaged in the business activity in the country subject to U.S. secondary sanctions would incur liability through, inter alia, its U.S. assets and interests19 for violating these sanctions. Therefore, a lot of larger European companies with global business outreach would need to make a tough choice of doing business with the United States or with a country sanctioned by the United States.

In sum, also blocking regulations do not provide for a universal solution to the problem of extraterritorial sanctions.

Conclusion

While the international and national legal instruments may play an important role in bringing about an acceptable solution, this role might still be secondary to the political process and agreement.

Neither international law nor national law appear to provide sanctioned and affected states with realistic opportunities to successfully challenge or combat unilateral extraterritorial sanctions. Ultimately, the best path forward for these states is not legal but diplomatic. There is a very strong case that choosing multilateral over unilateral sanctions is in the sanctioning state's best interest. . Further, unilateral sanctions can often have the ironic effect of making a sanctioned regime more popular by providing it with an easy foreign scapegoat for the country's problems. At the same time, the sanctioning state is viewed with opprobrium the world over for using international sanctions in violation of international law. In the end, unilateral sanctions can do more harm to the sanctioning state than the sanctions target, and are less effective than multilateral sanctions. If sanctioned states, their allies, and supporters of multilateralism generally can make this case through diplomatic channels, it will be more effective at causing unilateral stationers to change tack than any attempts at legal coercion.

If the political and diplomatic routes fail, that could lead to a deep economic chaos sanctions and countersanctions destroying all international trade.


  1. Specifically, the principles of substantial effects, passive personality, protection or security, and universality can all be used to legitimize extraterritorial laws (e.g., the blacklisting a foreign person as part of a sanctions program).
  2. Indeed, the weak enforcement options available on the international plane have led one scholar to write that "the surprising thing about international law is that nations ever obey its strictures or carry out its mandates." Franck, Thomas M. "Legitimacy in the international system." 82 AM. J. INT'L LAW 705, 705 (1988).
  3. Of course, it may be that both the sanctioning and sanctioned state have agreed to the compulsory jurisdiction of the Intenrational Court of Justice, but we leave this possibility to one side.
  4. See, e.g., Treaty of amity, economic relations, and consular rights between the United States of America and Iran, or Treaty of Friendship, Commerce and Navigation between the United States of America and the Republic of Nicaragua.
  5. See Shailja Signh, WTO Compatiability of United States' Secondary Sanctions Relating to Petroleum Transactions with Iran, Working paper, available at: <wtocentre.iift.ac.in/workingpaper/Iran%20Sanctions.pdf>.
  6. See Article XXI GATT 1994, Article XIV bis GATS.
  7. Please refer for instance to the Third Party Oral Statement of the EU on 25 January 2018 in Russia – Measures concerning traffic in transit DS512): "Russia, with the support of the United States, alleges that Article XX! is not a justiciable provision".
  8. Such as Saudi Arabia, Bahrein, Egypt and the UAE.
  9. GATT Council, Summary Record of the Twenty-Second Meeting, at 9, CP.3/SR.22 (June 8, 1949).
  10. United States–Trade Measures Affecting Nicaragua, Report of the Panel (unadopted) (L/6053),13 October 1986.
  11. Article XXI GATT 1994 (emphasis added).
  12. Article XIV bis GATS.
  13. Mr. Leddy for the United states at the Economic and Social Council, preparatory committee of the U.N. Conference on Trade and Employement, Thirty-Third Meeting of Commision A (1947), as quoted in Roger P. Alford, the Self-Judging WTO Security Exception, NLD Scholarship, available here: https://scholarship.law.nd.edu/cgi/viewcontent.cgi?article=1336&context=law_faculty_scholarship
  14. GATT Council Meeting, Summary Record of the Twelfth Session, at 196, SR. 19/12 (December 12, 1961).
  15. Mr. Colban for Norway at the Economic and Social Council, preparatory committee of the U.N. Conference on Trade and Employement, Thirty-Third Meeting of Commision A (1947), as quoted in Roger P. Alford, the Self-Judging WTO Security Exception, NLD Scholarship, available here: https://scholarship.law.nd.edu/cgi/viewcontent.cgi?article=1336&context=law_faculty_scholarship.
  16. Although under WTO rules the EU would be able to retaliate against the United States for failing to implement a report, it is unclear whether this retaliation would allow it to do anything it could not already do without going through a long and expensive disptue settlement proceeding.
  17. E.g. as countersanctions also based on natiaonal security considerations or as a response to a disguised application of safeguard measures under Article 8 of the WTO Agreement on Safeguards.
  18. CR 2271/96 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom.
  19. E.g. Having assets in the US, opening and operating a USD account, becoming subject to fines, travel restrictions, access to financial instruments, etc.).