CNN featured a piece on Syria by CGD senior fellows Kim Elliott and Owen Barder.
From the article:
U.S. President Barack Obama and British Prime Minister David Cameron presented a unified front during Cameron’s recent visit to Washington, calling on their governments and allies to ratchet up pressure on the Bashar al-Assad regime to stop the violent crackdown in Syria. But with existing economic sanctions undermined by the willingness of others to continue doing business with the al-Assad regime, and little appetite for military action, how will their rhetoric play out in reality?
It’s time for the international community to try a new tool that would reinforce existing measures: Preemptive contract sanctions. This would take the form of a declaration that any contracts with the al-Assad regime are illegitimate and need not be honored by a legitimate successor. Such a declaration would discourage new contracts with or loans to the al-Assad regime because of the increased possibility that that they would be repudiated by a legitimate successor government.
Discouraging new contracts would make it harder for the regime to sustain itself. It could encourage senior officials or military officers to abandon the regime and cause outsiders considering doing business with the regime to drive a harder bargain. If contracts are signed despite such a declaration, it would lighten the burden on a legitimate successor government, which could repudiate such contracts without endangering Syria’s access to international credit markets.
Here’s how it would work: The United States and the United Kingdom, which are home to the world’s leading financial centers, acting with support of the European Union and the Arab League, would announce that any new contracts with the al-Assad regime relating to arms transfers or the oil sector are illegitimate.
How would governments and firms considering doing business with al-Assad respond? Would Russians continue to sell weapons, knowing they might not get paid and that their contract could not be enforced? Would China or other countries buy the Syrian oil that the United States and EU are boycotting, or consider investing in Syria’s oil sector, knowing that the contracts could be repudiated when the al-Assad regime falls?
Such a declaration might not have large, immediate effects. But it would complement sanctions already in place, further isolate the regime and signal that the economic squeeze will get tighter over time.
If there was ever a time and place to try this new approach, that time is now, and the place is Syria. Since we first wrote about the potential application of this proposed new tool in Syria last August the situation has deteriorated sharply and the United States, European Union, Arab League, and other countries have imposed strong sanctions against Syria’s oil sector and the central bank. But Russia and China continue to block action by the U.N. Security Council that could extend sanctions globally, even on arms and munitions.
Unlike traditional trade sanctions, preemptive contract sanctions are self-enforcing and can help bypass this U.N. bottleneck. Trade sanctions offer those who violate them a windfall: Potential profits increase since competition from those who comply with the sanctions has been eliminated. In contrast, preemptive contract sanctions increase the risk for those who would violate them and decrease the incentive to sign a long-term contract with the target regime.
Preemptive contract sanctions also don’t require international unanimity - or a U.N. Security Council resolution - to be effective. In theory, they could work even if the declaration were made only by the governments of the United States and the United Kingdom, home to the world’s leading financial centers and the courts that are the most common venue for adjudicating international contracts. But such a declaration would be greatly strengthened by an international consensus that includes key developing countries and the endorsement of relevant regional bodies, in this case the Arab League.
As Arab and Western governments continue to ponder what further measures can be taken to pressure the Syrian government, we hope they will consider this proposal. In the midst of such violence, calling contracts signed with the al-Assad regime what they are - odious and illegitimate - and raising the risk for companies or governments willing to sign them is surely worth a try.