Bombs, Carrots, and Sticks: The Use of Incentives and Sanctions

David Cortright and George A. Lopez

• U.S. Sanctions Asian Firms for Iran Deals

Policymakers have three primary tools: sanctions, targeted incentives, and war to encourage compliance with norms against the spread of unconventional weapons and related delivery systems. The Bush administration has emphasized the use of force and the imposition of coercive sanctions. Earlier administrations, while also imposing sanctions, made more use of positive incentives.

Policymakers frequently turn to sanctions as a middle option between diplomacy and military action, as a means of advancing nonproliferation goals without incurring the risks of combat. Occasionally, as demonstrated in Iraq, sanctions have served as a stepping stone to war, a form of coercive action that paves the way for the use of force.

Positive incentives are sometimes a more effective means of changing regime behavior and enhancing international security. In Ukraine’s and Kazakhstan’s decisions to give up the nuclear weapons on their soil, South Africa’s disavowal of the bomb, and the nuclear restraint agreements of Argentina and Brazil, inducements and mutual conciliatory gestures were more important than coercive pressures.

To be sure, incentives-based negotiations are difficult to complete successfully. Doing so requires a significant domestic political consensus that this goal is in the national interest, both in the country that would surrender such strategic weapons and in the countries that would aid them in doing so. Attaining this consensus usually requires serious internal bargaining and runs political risks. The fraught history of U.S.-North Korean nuclear negotiations over the past dozen years highlights the potential political pitfalls of this approach.

Policymakers also fret that positive incentives might encourage some states to uphold nonproliferation standards only in return for tangible rewards. Because of the domestic political difficulties, policymakers often shirk from perhaps the most positive incentive of all: demanding of their own country the same nonproliferation commitments that they seek from other countries.

Using sanctions alone, however, has drawbacks too. Under some circumstances, sanctions can work well, such as those imposed on Iraq after the Persian Gulf War. Yet, the constant use of sanctions generates political resentment and impedes diplomatic cooperation that is crucial to nonproliferation. This cooperation is especially important now in an age marked by transnational threats such as terrorism and black-market nuclear networks.

The threat of sanctions all too often serves political purposes rather than diplomatic ends. Employed too often, sanctions can lose their sting, a fact that President George W. Bush has discovered in dealing with Iran. “We’re relying upon others,” Bush said recently of the possibility of shaping Iran’s behavior, “because we’ve sanctioned ourselves out of influence with Iran.”

Still, both tools have their virtues in offering alternatives short of war. Rather than choosing one tool or the other, a well-crafted nonproliferation policy would apply both tools consistently as part of an overall policy designed to enhance international cooperation. This kind of carrot-and-stick approach proved successful in Libya’s decision little more than a year ago to abandon its nuclear, chemical, and biological weapons and long-range missile programs.

Getting this mix correct, however, can be difficult, given political considerations and conflicting foreign policy issues, as the United States discovered in its three decades of failed efforts to prevent the nuclearization of South Asia. Coherence and consistency of policy are crucial. Sanctions and incentives can be an effective combination, but they must be strategically targeted and smartly implemented. Pressure must be applied on decision-making elites responsible for violating nonproliferation norms, while assistance must be provided to pro-reform groups, strengthening and empowering constituencies that are most likely to support nuclear restraint.

When and How to Use Sanctions
If sanctions are to be used, policymakers should try to hew to some guidelines. Sanctions are most effective when they are targeted rather than comprehensive, when they are directed against particular companies or products rather than an entire economy and population. Multilateral support and cooperation are also essential to the success of sanctions. Unilateral measures in this age of globalization seldom succeed. The structure of sanctions also must be clear and credible, so that a target is confident that compliance will bring a lifting of coercive pressure and promised benefits.

Iraq: A Success Story
Sanctions were decisive in containing Saddam Hussein and preventing the regime’s rearmament. The UN sanctions that began in August 1990 were the longest, most comprehensive, and most controversial in the history of the world body. Prior to the invasion of Iraq in 2003, Bush administration officials claimed that sanctions were not working. In truth, sanctions helped erode Iraqi military capabilities. Sanctions were the principal element in pressuring Iraq to accept, however grudgingly, UN weapons inspections and monitoring. They helped to extract important concessions from Iraq in permitting inspector access to key weapons sites.

Sanctions also won concessions from Baghdad on political issues, including the border dispute with Kuwait. Most importantly, sanctions cemented the military containment of Iraq. They drastically reduced the revenues available to Hussein, prevented the rebuilding of Iraqi defenses after the gulf war, and blocked the import of vital materials and technologies for producing weapons of mass destruction. Iraq’s military industrial capabilities “were thoroughly beaten down by 12 years of conflict, arms embargo, and strangling economic sanctions,” according to top Iraqi scientists and analysts.[1]

Sanctions were most effective in cutting off the regime’s vast oil wealth. Estimates as high as $250 billion comprise the total amount of oil revenue denied the Iraqi government. The regime earned $64.2 billion as part of the oil-for-food program, but these funds were deposited in a UN-controlled bank account. Through smuggling and kickback schemes, Hussein illegally earned an estimated $10.1 billion, according to U.S. General Accounting Office figures, but this was only 15 percent of total oil-for-food revenues and was insufficient to finance a large-scale weapons development program. U.S. Department of State reports confirm that Iraqi military spending and arms imports plummeted after 1990. Because of the vice-like grip on Iraqi finances provided by sanctions, the Iraqi government was unable to rebuild its unconventional weapons programs and was left with obsolete and decaying military capabilities.

Sanctions were also effective in preventing the import of specific weapons-related goods. A worldwide dragnet against Iraqi weapons imports was enforced through naval interdiction and military, police, and intelligence cooperation among many nations. Ironically, the discovery of prohibited items, rather than bolstering the case for containment, was often seen as a sign of failure. The successful thwarting of attempts to import prohibited weapons, as evidenced by their capture, was taken as confirmation of the regime’s perfidy rather than as a measure of U.S.-UN success in sanctions-based disarmament. There was a lingering belief, fueled by Hussein’s recalcitrance, that lying behind each new discovery lay more hidden contraband. In Washington, inflated intelligence assumptions equated Iraq’s intentions with real capabilities, even in the face of evidence showing how deteriorated the latter actually were. In the aftermath of war, the failure to find prohibited weapons confirmed that UN disarmament efforts were successful. The Iraq Survey Group reports of David Kay and Charles Duelfer confirmed that Iraq’s unconventional weapons programs were dismantled during the 1990s. We now know that the sanctions-based containment system against Iraq was highly effective.

Iran: The Diplomatic Limits of Sanctions
Unfortunately, the same cannot be said of the current U.S. approach toward Iran. Recently, the Bush administration has demanded greater international sanctions to pressure Iran into halting its nuclear program, despite evidence that past U.S. sanctions against Tehran have had little effect in altering the regime’s behavior.

The U.S. imposed unilateral, comprehensive sanctions on Iran in the wake of the 1979 hostage crisis, and it has maintained a consistently hostile policy toward Tehran ever since. Iran has been at the top of the State Department list of states sponsoring terrorism for decades, and its steadily expanding nuclear program has become a source of major concern. In 1996, Congress passed the Iran and Libya Sanctions Act, placing additional restrictions on U.S. interactions with Iran and imposing secondary sanctions on foreign companies that invest in Iran. This policy of unilateral hostility toward Iran has done more damage to U.S. standing in the region than to the Tehran government. U.S. sanctions have not significantly weakened or contained the regime, and they have failed to change its policies regarding support for terrorist groups and continued nuclear development. Sanctions have been counterproductive, strengthening nationalist and conservative forces within Iran. They have also alienated the United States from allies in Europe whose support is needed in maintaining a dialogue with Tehran.

The history of flawed sanctions against Iran illustrates the complexity of using economic policy across diverse issue areas and the folly of relying on sanctions that have no support from other significant actors. It also points to the need for dialogue and incentives-based diplomacy as means of influencing Iranian behavior. The imposition of a multiple array of sanctions for a wide range of issues has limited the prospect of obtaining concessions from Iran on specific proliferation-related concerns. When comprehensive sanctions are imposed for multiple purposes, concerns in one area, such as terrorism, may conflict with goals on other issues, such as nonproliferation.

The lack of dialogue and incentive options in dealing with Iran has significantly limited U.S. influence. Officials in Tehran have demanded a lifting of U.S. sanctions as a condition for improving relations and addressing Washington’s nonproliferation and counterterrorism concerns. The United States’ unwillingness to ease coercive pressure has left the field of nonproliferation diplomacy open to others. France, the United Kingdom, and Germany have engaged in a series of high-level negotiations that has persuaded the Iranian government to accept some partial limits and international controls on its nuclear program. In a November 2004 agreement with the three European powers, Tehran agreed to suspend its nuclear-enrichment activities temporarily in exchange for promises from the European states of greater investment and technology transfers and the guaranteed supply of enriched uranium, with associated safeguards, to fuel Iran’s atomic power plants.

The November 2004 agreement does not eliminate the continuing uncertainty and risk that Iran may be in the process of acquiring full-scale nuclear weapons capability. Given the worsening insecurities in the region and its hostile political relations with the United States and Israel, Iran is likely to continue feeling the need for greater deterrent capabilities, perhaps including a nuclear option. Until these underlying political insecurities and tensions are addressed, progress toward denuclearization will be uncertain. The United States could play a greater role in persuading Iran to accept nonproliferation controls by altering its policy of hostility and ending its ineffective sanctions. In return for nonproliferation guarantees from Tehran, Washington could support Iran’s membership in the World Trade Organization and ease restrictions on civilian trade. These steps could open a dialogue with Tehran aimed at building a new political relationship and laying the foundations for greater cooperation in nonproliferation and counterterrorism.

Not only have direct sanctions on Tehran been ineffective, but the United States has gained little by attempting to penalize foreign companies and individuals accused of violating U.S. nonproliferation laws in aiding Iran, a strategy the Bush administration has repeatedly used. Under the Iran Nonproliferation Act of 2000, overseas firms that engage in prohibited trade with Iran are barred from signing contracts, receiving aid, or importing weapons-related goods from the U.S. government. The State Department is now reviewing every known transfer to Iran to identify and penalize the foreign companies involved. Most of the recent penalties have been directed against Chinese firms, but past sanctions had been aimed largely at Russia.

In trying to block Chinese trade with Iran, the Bush administration has taken a different tack than that of the Clinton administration, which refrained from the use of sanctions in hopes of convincing Beijing to adopt nonproliferation norms. The Clinton administration believed that sanctions were likely to prove ineffective because the companies involved do not trade with the United States or receive U.S. assistance and because the constant use of sanctions impedes diplomatic cooperation. Bush administration officials, however, assert that China is not enforcing its new laws and that sanctions are necessary.[2]

The Use of Positive Incentives

Ukraine: A Success Story
In one of the less-noticed success stories of U.S. policy, the Clinton administration was able to achieve the denuclearization of Ukraine with positive incentives. The newly independent, former Soviet republic inherited approximately 1,800 Soviet warheads on its territory in the early 1990s, leading the United States and other countries to launch an intensive effort to persuade Kiev to give them up. In July 1993, the United States offered the fledgling nation a substantial economic aid package in return for Kiev’s agreement to dismantle some of the former Soviet nuclear missiles and ship the warheads to Russia. When members of the Ukrainian Rada began to argue later that year for retaining the weapons, the United States joined with Russia to negotiate a comprehensive agreement providing economic assistance and security assurances to Ukraine in exchange for a complete removal of all remaining nuclear weapons.

Under the terms of the Trilateral Statement, signed in January 1994, Ukraine agreed to transfer all nuclear weapons on its soil to Russia, which pledged to blend down the highly enriched uranium extracted from the warheads and return it to Ukraine as reactor fuel for nuclear power generation. The United States agreed to provide technical assistance for nuclear warhead dismantlement and offered substantial economic assistance. Russia and the United States also promised to provide explicit security assurances to Ukraine with its accession to the nuclear Nonproliferation Treaty (NPT) as a non-nuclear-weapon state. In December 1994, a few weeks after the Ukrainian Rada ratified the NPT, France, the United Kingdom, and China joined Russia and the United States in providing formal security guarantees, pledging not to use nuclear weapons against Ukraine and to respect the integrity of its borders. Ukraine achieved what it wanted, territorial security and economic assistance, and the United States and its allies succeeded in preventing proliferation. Security assurances played an important role in this success. The nonuse pledge from nuclear-weapon states and guarantees for its borders were extremely valuable and persuasive to Ukraine’s leaders.

North Korea: The Limits of Positive Incentives
North Korea’s nuclear history shows some of the promise and some of the pitfalls of positive incentives. In the 1994 Agreed Framework, Pyongyang halted its nuclear production and reprocessing activities and permitted on-site monitoring to confirm its compliance. In exchange, the United States, South Korea, and Japan agreed to provide the North with fuel oil; new, less-proliferation-prone nuclear power reactors; and the beginnings of diplomatic recognition.

The Agreed Framework was successful in the beginning as international monitors verified the freeze on Pyongyang’s plutonium production program, but the sustained commitment of both parties—initially the United States and later North Korea—was lacking. The Agreed Framework contained a sequence of conciliatory steps and consequent reciprocal actions that, it was hoped, would create a pattern of sustained cooperation between the two sides. In the early stages, North Korea was “punctilious in observing the letter of the agreement,” according to Leon Sigal,[3] but the United States fell behind in its deliveries of fuel oil. The construction of new reactors lagged, and a political backlash in the United States from a newly empowered Republican congressional majority undermined support for incentives. In 1999, the Clinton administration announced limited steps to open commercial trade relations and attempted to negotiate a new nonproliferation settlement, but it left office without completing an agreement.

New crises further soured U.S. policymakers on the agreement. In 1998-1999, North Korea attempted to test a long-range ballistic missile, and U.S. hawks used the occasion to fan fears that Pyongyang could hit U.S. territory with a nuclear-armed ICBM. In 2002, the United States decided that Pyongyang was not committed to the terms of the 1994 agreement when evidence surfaced of its undisclosed uranium-enrichment program.

When it took office in 2001, the Bush administration showed no interest in bargaining directly with Pyongyang, and as soon as the uranium-enrichment controversy arose, the United States ended fuel deliveries under the Agreed Framework. In response, North Korea withdrew from the NPT, expelled international inspectors, and resumed the reprocessing of spent fuel.

North Korea has repeatedly indicated its desire to be free of economic sanctions and diplomatic isolation. Pyongyang has declared its willingness to negotiate restrictions on its weapons programs if Washington would agree to resume direct talks, issue a nonaggression pledge, and lift sanctions. South Korea and China have encouraged the United States to engage with Pyongyang on this basis. The United States could move in this direction by abandoning its ineffective sanctions-only policy and offering a provisional security guarantee and resumed fuel deliveries in exchange for North Korea allowing renewed monitoring of its nuclear facilities. Such a process of economic and diplomatic engagement is essential to building trust and re-establishing nonproliferation cooperation.

Libya: A Successful Mix of Sanctions and Incentives
The case of Libya shows that sanctions sometimes exert bargaining leverage that may help to influence regime behavior, especially when coupled with the prospect of positive incentives.[4] In December 2003, Libyan leader Moammar Gaddafi surprised many observers by announcing his government’s decision to disclose and dismantle its nuclear, chemical, and biological weapons programs and to allow international inspectors to verify compliance.

U.S. officials immediately credited the war in Iraq with forcing Libya’s hand. Vice President Dick Cheney said Gaddafi “watched what we did in Afghanistan and Iraq, and he decided maybe he might want to reconsider what he was all about. Five days after we arrested Saddam Hussein, Colonel Qaddafi went public and said, I give it up, come and get it, it’s all yours.”[5] Rep. Tom Lantos (D-Ca.) likewise attributed Libya’s dramatic turnaround to what he termed the “pedagogic value” of the war in Iraq.[6] In reality, Libya’s turnaround had little relation to the war in Iraq.

The immediate catalyst for Gaddafi’s decision was the U.S./British interdiction of a German ship heading for Libya that carried equipment that could be used to help construct nuclear weapons. The longer-term explanation lies in the process of sanctions-based diplomacy and dialogue with the United States and other Western nations that began years earlier, resulting from UN sanctions imposed against the regime because of its support for international terrorism.

In the years preceding the imposition of sanctions in 1992, Libya was implicated in the attacks against Pan Am flight 103 in 1988 and French flight UTA 772 in 1989. After sanctions were imposed, Libya ceased its terrorist attacks against international aviation.[7] Although the targeted UN sanctions did not cause major economic disruption in Libya, they provided sufficient bargaining leverage to prompt a reconsideration of policy and a diplomatic settlement of the Pan Am bombing case.

In 1998, Libya agreed to turn over suspects wanted in connection with the airline bombing to an international tribunal in The Hague. The UN Security Council responded by suspending and later lifting sanctions. The United States maintained its sanctions, however, demanding that Tripoli take further steps to compensate the victims of terrorist attacks and cooperate in counterterrorism and nonproliferation efforts. Still, Tripoli maintained diplomatic dialogue with U.S. officials in the hopes of convincing Washington to lift sanctions and normalize commercial and diplomatic relations. In those talks, U.S. officials made clear that the lifting of sanctions would depend on the dismantlement of Libya’s weapons programs.

Flynt Leverett, senior director for Middle Eastern affairs at the National Security Council, confirmed in 2003 in an editorial that progress with Libya dated back to the 1990s. The Iraq war “was not the driving force behind Libya’s move,” wrote Leverett. “Libya was willing to deal because of credible diplomatic representations…that doing so was critical to achieving their strategic and domestic goals.”[8] Former Assistant Secretary of State Thomas E. McNamara, who was responsible for U.S. policy toward Libya under the George H. W. Bush administration, attributed Gaddafi’s turnaround to the long-term effects of sanctions, the successful interdiction of the weapons shipment at sea, and the accumulated impact of years of diplomatic pressure and dialogue. Seif Al-Islam Gaddafi, influential son and heir apparent to Gaddafi, told Le Monde in February 2004 that the U.S.-Libyan dialogue began years earlier and had nothing to do with the attack on Iraq.[9]

The desire to be reintegrated with the world economy was a powerful inducement for Libya’s change of policy. Over time, under the weight of sanctions, Libya acquiesced to international norms and ended its support for terrorism and the development of weapons of mass destruction. The Libya case illustrates, as Hans Blix observed on January 29, 2004, that “voluntary renunciation of weapons can be achieved by diplomacy, sanctions, and other means.”[10]

India and Pakistan: Getting Sanctions and Positive Incentives Wrong
U.S. nonproliferation policy in South Asia offers a classic case of how not to use sanctions and incentives. Washington’s attempts to keep South Asia nuclear-free over the course of three decades were erratic, inconsistent, and ultimately ineffective. Not only did India and Pakistan develop and test nuclear weapons, but the Abdul Qadeer Khan network, headquartered in Pakistan, has emerged as a global proliferation nightmare.

Since the 1970s, U.S. policy attempted to combine denial strategies—blocking exports to India and Pakistan of sensitive equipment and materials—and various economic and security assistance programs. Technology sanctions made nuclear development more difficult and costly and perhaps slowed it down, but they could not stop it. Conflicting agendas were a constant problem of U.S. policy. Nonproliferation goals often clashed with other economic or strategic interests in the subcontinent.

Just as importantly, the United States was unwilling to take politically risky steps when they were needed. Congress in particular lacked resolve. It failed to support positive incentives such as ratification of the Comprehensive Test Ban Treaty, which would have made it more difficult for the two South Asian nations to accuse the United States of double standards on proliferation matters. Further, congressional commitment to sanctions flagged when the political costs appeared too high.

By law, the United States was required to impose sanctions when India and then Pakistan tested nuclear weapons in 1998. This effort was half-hearted and short lived. It conflicted with other U.S. policies in the region, including growing commercial engagement with India and continued strategic partnership with Pakistan. Soon after the sanctions were imposed in May and June 1998 banning loans, military assistance, investment, and technology transfers, farm state legislators gained an exemption for grain export credits and guarantees. Congress soon thereafter granted President Bill Clinton waiver authority, which he promptly exercised to suspend sanctions that November. The many interests in the United States favoring engagement in South Asia made any substantial U.S. sanctions effort extremely difficult.

A similar lack of commitment to nonproliferation goals undermined earlier attempts at using both sanctions and incentives. When Pakistan’s help was needed to aid mujahideen rebels fighting Soviet forces in Afghanistan, earlier nonproliferation restrictions were tossed aside. The floodgates swung open, and lavish U.S. assistance poured in, passing through the hands of senior Pakistani military and intelligence officials who in some cases were supporters of Khan and the nuclear program.

The huge U.S. aid program was a kind of perverse incentive, rewarding the centers of power in Pakistan least sympathetic to Western nonproliferation interests and to the broader goal of promoting democracy, human rights, and equitable development. The same pattern has emerged in the aftermath of the Sept. 11 terrorist attacks. The United States relied heavily on Pakistan’s military government as a principal ally in overthrowing the Taliban regime in Afghanistan and continues to need its help in the fight against al Qaeda. This has made Washington reluctant to challenge Islamabad’s nuclear policies or to press for more accountability and transparency in shutting down the Khan network.

Conclusion
Sanctions and incentives have enormous potential as tools for advancing nonproliferation policy objectives. In general, inducement strategies have been more effective than sanctions in achieving U.S. nonproliferation objectives.

If incentives are to be offered, however, they should be combined with sanctions or at least the latent threat of sanctions. Incentives should be applied consistently, linked to concrete reciprocal acts of restraint, and targeted to constituencies that are most likely to support denuclearization policies.

Sanctions are also necessary and can be effective at containing recalcitrant regimes. They can also provide bargaining leverage for engaging regimes about nonproliferation compliance. Sanctions are most successful when they are combined with incentives as part of a dynamic bargaining process that eases or increases pressure in response to cooperation or defiance from the other side. Carrot-and-stick diplomacy offers the best strategy for establishing the foundation for improved political relations and building cooperation for nonproliferation.

ENDNOTES

1. Barton Gellman, “Iraq’s Arsenal Was Only on Paper; Since Gulf War, Nonconventional Weapons Never Got Past the Planning Stage,” The Washington Post, January 7, 2004, p. A1.

2. A summary of the different strategies of the Clinton and Bush administrations can be found in the following article: Wade Boese, “Bush Emphasis on Proliferation Sanctions Stirs Debate,” Arms Control Today, September 2003, pp. 34-35. In November 2000, the United States and China negotiated an agreement in which Beijing agreed to refrain from exporting missiles and related weapons technologies. In 2002, China adopted new export control laws curbing the spread of weapons of mass destruction and missile technology.

3. Leon V. Sigal, “Averting a Train Wreck With North Korea,” Arms Control Today, November/December 1998, p. 12.

4. Paul Kerr, “Libya’s Disarmament: A Model for U.S. Policy?” Arms Control Today, June 2004, pp. 36-38.

5. Office of the Vice President, The White House, “Vice President Participates in a Q&A at the Boone County Lumber Company in Columbia, Missouri,” July 19, 2004, available at www.whitehouse.gov.

6. Rep. Tom Lantos, interview by Robert Siegel, All Things Considered, NPR, January 30, 2004.

7. Patterns of Global Terrorism 1996 (Washington, D.C.: Government Printing Office, 1996).

8. Flynt Leverett, “Why Libya Gave Up on the Bomb,” The New York Times, January 23, 2004, p. A23.

9. Patrice Claude, “According to His Son, Khadafi Did Not Give Up His Nuclear Arsenal Because of the War Against Saddam,” Le Monde, February 10, 2004.

10. Ibid.

David Cortright is president of the Fourth Freedom Forum. George A. Lopez is a senior fellow at the Joan B. Kroc Institute for International Peace Studies at the University of Notre Dame.