What Are Trade Sanctions? – Role of Global Trade Policies

Economic sanctions, also commonly known as trade sanctions, are not new to many. In Fact they have been talked a lot in international diplomacy for the time now.

However, in modern times the definition has slightly observed a shift. Nowadays it refers to travel bans, trade embargoes, export restrictions, and asset seizures of sanctioned entities, including countries, organizations, or individuals.

However, back then, its implementation was different in nature.

For example, in 432 BC, the Athenian Empire  Megara added prohibition on vendors from accessing Athenian marketplaces, marking the first known incidence of this practice.

This ancient trade embargo at Athens was a planned attempt to devastate Megara’s economy.

Economic sanctions, therefore, have been in use since then, but their core objective has remained the same.

What Are Trade Sanctions?

You may assume trade sanctions as a restriction to add pressure on a target—a nation, an organization, or a specific group of people—in order to achieve political or diplomatic goals.

As the name suggests, a trade sanction is considered a form of economic restriction which is usually part of a larger campaign to put an influence either diplomatically or politically.

Enforcing these prohibitions is the responsibility of international institutions like the European Union (EU) and the United Nations (UN), as well as national governments such as the United States, through the Office of Foreign Assets Control (OFAC) within the Department of Treasury.

What Are the Common Types of Trade Sanctions?

Depending on the desired consequence, trade sanctions might target specific industries, individuals, or entire countries.

Here are some common types to know!

Tariffs

When we say that increasing the price for imported goods may be a type of trade sanction, it refers to tariffs, making it more difficult and expensive for the target country to sell its products.

Imports of products and services into a target country are subject to charges or fees known as tariffs.

Quotas

Another type of restriction imposed to limit the trade with a specific country counts as quota.

These trade restrictions aim to reduce the target country’s economic gains from trade, which may include imports or exports.

Freezing of Assets

When a government seizes the assets of countries, organizations, or persons under its control, it refers towards freezing of assets.

The issuing country can stifle economic activity in the target country by freezing these assets.

Non-Tariff Barriers

These could include labor standards, stringent packaging regulations, or animal welfare legislation, all of which could make it difficult for the target country to meet trade criteria.

Who Imposes Trade Sanctions and Why?

Many national and international sanctioning bodies issue trade fines.

International institutions, such as the United Nations or the European Union, have the capacity to impose trade sanctions in reaction to global crises such as nuclear proliferation or human rights breaches.

These sanctions are in place because they are highly effective and do not require military intervention. By imposing economic constraints, a government can exert immense financial and political pressure on the targeted party, potentially leading to conversations or behavioral changes.

Trade sanctions have moral ramifications in addition to their potential to harm common people in the targeted country.

Examples of Trade Sanctions

Trade sanctions have been implemented to a number of circumstances and countries over the years.The US has placed sanctions on countries like North Korea and Iran in an effort to stop the spread of nuclear weapons.

The European Union has additionally enforced sanctions in reaction to Russia’s activities in Ukraine.

These examples demonstrate how trade sanctions may be a useful instrument in international politics, even though they can also lead to long-term economic hardship and political problems.

Understand How Trade Policies Work?

Regulations governing trade sanctions vary greatly depending on the country or organization imposing them.

For instance, the Office of Foreign Assets Control (OFAC) in the US oversees a complex sanctions system that is often modified to take into account emerging geopolitical threats.

Because of their adaptability, these policies can be modified when the political or economic landscape shifts.

Targeting them can also limit unwanted repercussions while maximizing pressure on the desired targets, such as industries, individuals, or regions.

What Is the Global Impact of the U.S. Trade Sanctions?

The United States, with one of the largest economies in the world, has long employed trade sanctions as a tool of foreign policy to influence behavior on a global scale.

These sanctions, which are managed by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), are meant to achieve a number of foreign policy and national security objectives.

U.S. trade sanctions are often comprehensive, impacting entire nations, with the goal of stopping the spread of nuclear weapons.

Iran and North Korea are two instances of these sanctions. These sanctions, which forbid practically all commerce and financial transactions with the targeted countries, have a devastating effect on their economies.

The United States’ sanctions are causing serious problems for Iran’s economy, one of which is a sharp decline in the country’s primary source of revenue—oil exports.

The United States uses more targeted sanctions against individuals and groups involved in drug trafficking, terrorism, and human rights violations in addition to targeting entire nations. Typical examples of these targeted sanctions include asset freezes, travel restrictions, and prohibitions on US citizens doing business with the sanctioned firms.

The impact of trade sanctions imposed by the United States surpasses the boundaries of the nations that are the targets because of the dollar’s global dominance and the influence of US financial institutions.

Many international corporations and banks, particularly those with headquarters outside of the US, abide by US sanctions in order to prevent

Since they can cause issues with other nations that disagree with US policy, US sanctions are controversial even if their extraterritorial reach makes them particularly effective.

For instance, there has occasionally been diplomatic strain when the European Union disobeys US sanctions against nations like Iran.

Conversely, trade sanctions continue to be a mainstay of US foreign policy, used to punish rivals and pressure allies to accept US foreign policy objectives.

Sanctions, however, may have unforeseen repercussions, such as humanitarian catastrophes, or they may increase the resolve of sanctioned governments to defy American demands.

How do the UK Trade Sanctions Work?

Both the US and the UK’s foreign policies heavily rely on trade sanctions, particularly in light of their divergent roles inside the EU and as independent countries following Brexit.

HM Treasury is the boss of the Office of Financial Sanctions Implementation (OFSI), which is in charge of enforcing trade sanctions in the UK.

The UK’s trade sanctions are largely in line with those enforced by the EU or UN, demonstrating the nation’s commitment to enacting multilateral measures to counter threats to global security like terrorism, violations of human rights, and the proliferation of WMD.

For example, the UK has imposed harsh economic sanctions on Russia in reaction to its invasion of Crimea and the current situation in Ukraine.

Financial fines on Russian individuals and groups involved in the issue are among these measures, along with trade bans on particular goods like weapons and energy-related equipment. The UK took the initiative to create its own sanctions regime following Brexit, which has given it more freedom to react to global events.

When it comes to responding to sanctions on nations such as Belarus and Myanmar, the UK has demonstrated its independence by at times taking a more rigorous position than the EU.

Following the insurgency and the ensuing violations of human rights, the UK placed sanctions on the military leadership of Myanmar, prohibiting them from accessing their assets and leaving the country.

In addition, the UK has been a major player in the sanctions imposed on Belarusian authorities connected to the repression of pro-democracy protests.

These steps show the UK’s dedication to international security and human rights, but they also highlight how difficult it will be to uphold sanctions in the wake of Brexit.

The UK must find a means to strike a balance between its desire for international collaboration and its readiness to act independently in order to guarantee that sanctions are both effective and do not have unintended repercussions that hurt common people or jeopardize the stability of the global economy.

Why is Trade-Based Money Laundering (TBML) a Growing Concern?

Criminals use the complex and sophisticated method known as “trade-based money laundering” (TBML) to hide the money they make from selling illegal goods and services internationally.

It is a major global source of illicit financial flows, which worries businesses, governments, and financial institutions greatly. Cooperation between financial institutions, regulatory bodies, and law enforcement is necessary for comprehensive TBML mitigation.

The clever and complex technique known as “trade-based money laundering,” or “TBML,” allows crooks to transfer illegal monies through international trade while hiding them. They use the global commerce system to their advantage rather than only moving money through banks or other financial institutions, making it difficult to track their movements.

Top 5 Key Measures to Fight Trade Based Money Laundering (TMBL)

Accurate Trade Documentation

In-depth and precise transaction documentation is the cornerstone of any money laundering prevention plan. This entails maintaining current copies of all documentation, such as shipment manifests, bills of lading, invoices, and customs declarations.

These documents make it easier to keep track of who is exchanging what, where the products are coming from, and how much they are worth. Having thorough records makes it simpler to identify any warning signs that could point to money laundering.

Transaction Monitoring

The only way to spot irregularities in trading activity is to use transaction monitoring tools. Through the analysis of massive volumes of transaction data, these systems are able to detect anomalies and weird things.

The compliance team may look into and take appropriate action before things get out of hand when the system quickly alerts them to something that doesn’t appear proper.

Suspicious Activity Reports (SARs)

One crucial weapon in the fight against TBML is the SAR. A financial institution or business is required to file a Suspicious Activity Report with the appropriate authorities whenever it observes any suspicious activity.

These reports are crucial because they give law enforcement pertinent data that they may utilize to look into and thwart money laundering operations.

Training and Awareness

The risks associated with TBML should be explained to staff members and they should be trained to recognize suspicious activities.

This means learning about the company’s terrorist financing (CFT) and anti-money laundering AML policies. Trained staff can be the first line of defense when it comes to spotting and reporting potential TBML cases before they worsen.

Collaboration and Information Sharing

It takes teamwork to combat TBML. To detect and look into illegal activity, businesses, financial institutions, and law enforcement agencies must exchange information and intelligence.

These organizations may be able to keep one step ahead of the offenders and obtain a greater understanding of the cutting-edge strategies employed in TBML by working together and exchanging knowledge.