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Case Studies in Sanctions and Terrorism: Arab League

Case Studies in Sanctions and Terrorism

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Case 76-3 (formerly 65-4)
US v. Arab League
(1979–: Antiboycott Measures)

| Chronology of Key Events | Goals of Sender Country | Response to Target Country |
Attitude of Other Countries | Legal Notes | Economic Impact | Assessment |
Author's Summary | Bibliography |

Economic Impact

Observed Economic Statistics

Baxter International Inc’s fine of $6.5 million in March 1993 was the toughest settlement imposed on an American company to that point. Before Baxter, Safeway Stores, Inc. had been the largest case with a fine just under $1 million. A total of 30 cases were settled in 1992 for a total of about $2.1 million. (New York Times, 26 March 1993, D1)

“The September 1994 decision of the GCC countries to cease implementation of the secondary and tertiary aspects of their boycott of Israel appears to have been substantially implemented, There are no remaining boycott-related obstacles to any US business person’s doing business in those countries, although the number of prohibited boycott-related requests continues at a low level… During FY 1996, 536 individuals and firms filed reports with the Report Processing Unit of the Compliance Policy Division. The reports confirmed the receipt of 3,290 boycott-related requests, involving 2,857 transactions. The corresponding figures for FY 1995 were 784 persons and firms filing reports, 6,391 boycott-related requests, and 5,538 transactions.” (US Department of Commerce, Bureau of Export Administration Annual Report-1997, II-125)

“The Office of Anti-boycott Compliance completed 25 enforcement actions in FY 1996. Of the total, two cases involving minor reporting violations were closed with warning letters; twenty cases were settled through consent agreements with $887,600 of civil penalties; and three cases resulted in the Under Secretary for Export Administration issuing final orders imposing civil penalties and denial of export privileges.” (US Department of Commerce, Bureau of Export Administration Annual Report-1997, II-116)

“Lost sales and business opportunities for U.S. businesses in Arab League countries and/or Israel arising from being blacklisted or from seeking to avoid such blacklisting exceeded $400 million in 1993. The ITC estimates the actual cost of the boycott to be even higher because many of the effects of the boycott were difficult to quantify.” (USTR 1995)

The USITC estimated the 1993 cost of compliance with U.S. antiboycott laws to be $160 million. (USTR 1995)


Settlement agreements for alleged antiboycott violations

 
Fiscal year Number of settlements Total civil penalties  

 
1997 15   $226,000    
1998
10
 
$380,000
   
1999
9
 
$79,000
   
2000
10
 
$164,000
   
2001
2
 
$117,250
   
2002
6
 
$68,000
   
2003
7
 
$93,700
   
2004
n.a.
 
n.a.
   
2005
5
 
$57,000
   

 
Source: BXA/BIS Annual Reports, various editions.
n.a. = data not disclosed in report.


Tax benefits denied to US companies complying with Arab boycott, 1976–79 (thousands of dollars)

 
Foreign tax credit
DISC benefits
Deferral
Total

1976
57
25
200
282
1977
734
627
1,254
2,645
1978
5,298
472
5,559
11,329
1979
3,898
688
5,376
9,962

Source: US Department of the Treasury.


Calculated Economic Impact (annual cost to target country)

Increased import costs estimated at 1977–79 average of forgone tax benefits of reporting companies under US antiboycott regulations.
$8 million

 
 
Relative Magnitudes

Gross indicators of Arab League economies
  Arab League GNP (1976)
$210.5 billion
  Arab League population (1976)
142.7 million
   
Annual effect of sanctions related to gross indicators
  Percentage of GNP
negl.
  Per capita
$0.06
   
Arab League trade with US as percentage of total trade
  Exports (1976)
10
  Imports (1976)
9
   
Ratio of US GNP (1976: $1,823 billion) to Arab League GNP
8.7


Assessment

US Commerce Department official (anonymous)
Commenting on Export Administration Act: “Business on the whole has complied with the boycott. The law allows the boycott to go forward.” (New York Times, 22 October 1981, D1)

US Treasury Department lawyer (anonymous)
Commenting on Tax Reform Act of 1976: “There are probably many people out there in flagrant violation of the law, and they never get caught. A lot of people are simply ignorant of the law. I suspect there are people falling through the cracks. And a lot of people are just not filing.” (New York Times, 22 October 1981, D1)

William V. Skidmore, director of the Commerce Department’s office of anti-boycott compliance
Skidmore said it would be difficult to estimate whether the law is reducing compliance with the Arab boycott, but said it has had an effect. “The law has been effective in bringing the whole subject to the attention of American business people.” (Washington Post, 26 May 1986, F3)

Will Laslow, American Jewish Congress’ General Counsel
The law has succeeded in achieving its limited goal without hurting US businesses. By restraining US businesses from complying with the boycott, the law has reduced Arab pressures on US companies to cooperate. (Washington Post, 26 May 1986, F3)

US Embassy in Israel
“The fact that the ‘de-jure’ status of the boycott and US law remain unchanged make the boycott a continuing problem for firms that may not have to report boycott related requests.” (US Embassy in Israel, www.usaemb.pl)

 

Author's Summary

Overall assessment
Policy result, scaled from 1 (failed) to 4 (success)
3
Sanctions contribution, scaled from 1 (negative) to 4 (significant)
2
Success score (policy result times sanctions contribution) scaled from 1 (outright failure) to 16 (significant success)
6
 
Political and economic variables
Companion policies: J (covert), Q (quasi-military), R (regular military)
International cooperation with sender, scaled from 1 (none) to 4 (significant)
2
International assistance to target A (if present)
Cooperating international organizations
Sanction period (years)
30+
Economic health and political stability of target, scaled from 1 (distressed) to 3 (strong)
3
Presanction relations between sender and target, scaled from 1 (antagonistic) to 3 (cordial)
2
Regime type of target, scaled from 1 (authoritarian) to 3 (democratic)
2
Type of sanction: X (export), M (import), F (financial)
X, F
Cost to sender, scaled from 1 (net gain) to 4 (major loss)
2


Authors’ Comment
While the Arab League boycott of US firms doing business in Israel has progressively weakened over the years, broader forces than the narrow antiboycott legislation are principally responsible. In particular, limited rapprochement between Israel and Egypt, Israel and Jordan, and Israel and the Gulf states—in each case abetted by US diplomacy—have helped erode the secondary boycott of US firms.

Bibliography

Carter, E. Barry. 1988. International Economic Sanctions. Cambridge: Cambridge University Press.

Federal Register. 1975. V. 40, 54770. Washington.

Hines, James R. 1997. Taxed Avoidance: American Participation in Unsanctioned International Boycotts. NBER Working Paper 6116. Cambridge, MA: National Bureau of Economic Research.

Lowenfeld, Andreas F. 1977. “. . . ‘Sauce for the Gander’: The Arab Boycott and United States Political Trade Controls.” Texas International Law Journal 12: 25–39.

Stanislawski, Howard. 1985. The Impact of the Arab Economic Boycott of Israel on the United States and Canada. In The Utility of International Economic Sanctions, ed. David Leyton–Brown. London: Croom Helm.

Turck, Nancy. 1978. “A Comparative Study of Non United States Responses to the Arab Boycott.” Georgia Journal of International and Comparative Law 8, no. 3: 711–39.

US Department of Commerce. 1977. Export Administration Report. 116th Report on US Export Controls to the President and the Congress, April–September. Washington.

US Department of Commerce. 1980. Export Administration, Annual Report FY 1980. Washington.

US Department of the Treasury. 1982. The Operation and Effect of the International Boycott Provisions of the Internal Revenue Code, 3rd report, May. Washington.

USTR (United States Trade Representative). 1995. 1995 National Trade Estimate Report—Arab League (Boycott of Israel). Washington.

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