This article has been written by Nehal Misra, a student at Nirma University, Ahmedabad. In this article, she discusses the concept of economic warfare and its legitimacy under International Law.

Introduction

International trade theory and strategy have customarily viewed economic warfare as temporary aberrations from the norm. The nations aim to optimize efficiency, by specializing in the manufacturing of products, which have a competitive advantage, while the private players pursue profits by buying products at a cheap price and selling it in the dearest markets. This search for trade gains is carried out in the context of convertible currencies, with automatic mechanisms that determine the main economic variables- exchange rates, prices, income and carry the burden of adjustments in the relatively free flow of goods and services across national borders. Interference with trade has long been acceptable to high-cost, but potentially competitive, industries. Discrimination by various forms of exchange controls, including multiple rates, rationing, quotas, and bilateral trade balancing, has become a common policy, with economic justification in some cases. Economic warfare has often been considered as an abnormality in one or the other of its many forms, correlated with military warfare or plans for it and with the unique function and actions of the occasional imperialist country that seeks to strengthen its status at the expense of others. Economic warfare is also a normal practice which every major power employs. 

Economic warfare

Definition

Economic warfare refers to the use of economic means against a country, or the threat to use them, to weaken its economy and thus reduce its political and military power. Economic warfare also involves the use of economic means to force an enemy to change its policies or actions or to hinder its ability to maintain normal relations with other countries. Some specific means of economic warfare include trade embargoes, boycotts, tariffs, tariff discrimination, capital asset freezing, aid suspension, investment ban, and other capital flows and expropriation.

Countries engaged in economic warfare try to disrupt an opponent’s economy by denying the opponent access to the requisite physical, financial and technical resources or by otherwise inhibiting his ability to profit from trade, finance, and technology exchanges with other countries. Since before the Peloponnesian War (431–404 BC) in ancient Greece, economic warfare consisted of blockades and the seizure of contraband. Its uses in modern times have grown to include putting pressure on neutral countries from which enemy countries could procure supplies and refusing potential enemy resources that could contribute to their ability to make war. One of the main types of economic warfare employed in the 20th century was the embargo on strategic goods. During the Cold War, the US and its allies tried to deny the Soviet Union and its allies access to high-economic and military-value computers, telecommunication equipment, and other technologies.

Economic warfare is characterized as a deliberate attempt by foreign economic ties to enhance a country’s relative cultural, military, and political position. The act needs to be purposeful; otherwise, it would be considered to be a participant in economic warfare merely in search of the commercial benefits. Economic warfare means no success. Rather, it is the attempt that counts; a nation will fail, and its intervention may have the reverse outcome. Stress must be put on the word “relative.” Its position is essential to the role of a country in the hierarchy of power, its role against other countries, not an absolute increase in power. It doesn’t matter if a country gains more than the other countries, or gains while other countries have no gains, or it suffers losses while the others also lose a little. Time and space are moreover crucial elements of economic warfare. 

Purposes

Military purpose

The military side of economic warfare has two fundamental dimensions. One includes the use of economic warfare as an alternative to military operations; while the other concerns the use of the military system in peacetime and the planning for war. The target is substantially the same in both though. In peace, a nation wishes to acquire the maximum net resources in preparation for war or war itself. The use of force may well be unacceptable in peacetime or in planning for combat operations, as it can jeopardize plans. But economic warfare can accomplish the same ends. Resources may be gained by strengthening the country’s terms of trade with the rest of the world, or against a single nation or community of nations.

A country can gain such power in another country through trade that the latter would be willing to form a military alliance with the former rather than refusing trade, or at least willing to be neutral in the event of a conflict. Besides, the victim may be forced to take part in economic warfare acts against even other countries. Economic ties, too, may assume such significance and be subject to such coercion that some or all of its sovereignty would be lost to the trading partners. Economic warfare is a necessary and significant complement to military operations during wartime. Again, the main objective is to avoid resources from falling into the enemy’s hands and to accumulate the full amount of resources. While a military blockade can be neither feasible nor desirable, these and similar methods should be used.

The embargo or partial embargo in preparation for a potential war is a special case of economic warfare. A nation can grasp a distinct possibility of war between itself and another nation, and instead, determine that there should be no trade that could enhance the prospective enemy’s war-making ability. If and when war comes, the enemy is not going to be as well off as it would have been had there not been an embargo. Preceding military operations have also employed this form of economic warfare. It is identifiable as an action that gives the attacker short-run benefits but maybe long-run benefits to the embargoed nation if the war doesn’t happen. With modern technology, most economies have such versatility that there is nothing that they can’t find a replacement for, even if at a much higher cost.

Economic purpose 

When a country is at war or plans to go to war, then economic warfare must be said to have a military purpose; but if a country is not at war and does not plan to engage in warfare, then economic warfare may serve an economic function. In both cases, the goal is the development of additional resources and the removal of resources from another nation. All measures which can be used during wartime can also be used in peacetime. However, some of them may not be used because of their intimate association with active hostilities, such as preclusive purchases. In general, economic warfare actions fall into five categories: (1) guaranteeing supply sources, (2) guaranteeing markets, (3) improving trade conditions, (4) denials, and (5) economic takeover. The first three of these don’t automatically impose economic warfare; they can be regular business activities conducted in search of income. However, they can also be conducted for the sole purpose of growing a country’s economic strength more rapidly than that of other countries.

There is a wide range of strategies available for achieving these ends, ranging from those that can also be used in warfare, the obvious tale, such as slowly becoming a major trading partner and then attempting to withhold trade, debt building in other nations, credit expansion, and many more. Discrimination would bring about change in terms of trade. As a retailer, the state trader may offer varying prices in different markets, the higher prices being offered where supply is fairly elastic. Purchases will be made to the extent that the additional expenditure for additional units in different markets is the same, not to the extent that prices in all markets are equalized. It is in a given market the marginal investment, not the price, which guides the state trader. As a retailer, the state-trader works similarly, selling at various prices in different countries, with the lower prices being demanded in countries where demand is elastic. The state dealer sells to the degree that the additional revenue in a given market is equal to the additional cost of the unit of products sold in that market, not to the degree that prices on all markets are equivalent.

Political purpose

All of these economic warfare acts can also be used to advance the third major purpose of economic warfare – the pursuit of political advantage. This purpose is important and has gradually assumed greater importance as nations have become more and more cautious about using force to achieve objectives that transcend the economic benefits that economic warfare can confer. The pursuit of political power can take three forms. It can be fairly general. A nation can only want respectability and prestige. Many countries on the way up, in the phase of growth or the consolidation of progressive gains, try to want, at least initially, to be remembered and noted only as members of the nations’ family. Many countries on their way back from a devastating national experience may want readmission and a return to their former position.

The political intent can also be expressed in a highly specific fashion. A country may wish to conclude an alliance or in some international organization to get another’s vote. The desired improvement may be either internal or external or both. However, in most cases, it concerns foreign policy, since it is in this field that most directly affects the power position of the initiating country. The ultimate degree of both political as well as economic power is another country’s takeover. Much as economic warfare can be aimed at reducing the stability of the economy of another country to such an extent that the country can no longer make resource decisions, so economic warfare can also be used to implement a political amalgamation, to deprive a country of its national sovereignty. In one sense, the takeover is the ultimate goal of all economic warfare and the other goals are but stepping stones for that purpose. However, this is true only in a specific historical context, one in which a major world power feels endowed not only with the truth but with the duty to propagate it worldwide. Throughout history, nations have been able to set their targets even lower and waged economic warfare to achieve even more modest objectives.

Types

Blockade

A blockade is an attempt to forcibly cut off supplies, war material, or communications from a given region, either in part or entirely. A blockade should not be confused with an embargo or sanctions which constitute legal trade barriers. It is also distinct from a siege in that a blockade is typically aimed toward a whole country or area, rather than a fortress or town. Although most of the blockades have traditionally existed at sea, the blockade is still being used on land to prevent anyone from accessing a given area. A blockading power may attempt to cut off all maritime transport from and to the blockaded country; though it may also be considered a blockade to stop all land transport to and from a region. Blockades limit the trade rights of neutrals, who must apply for contraband inspection, which can be narrowly or widely specified through the blockading force In the 20th-century climate, control was also used to improve the blockade’s efficacy by stopping air traffic inside the blockaded airspace

Blacklisting

Blacklisting is the activity of an organization or authority that compiles a blacklist of individuals, countries, or other organizations that are not appropriate to those on the list. A blacklist will list people for discrimination and not be hired. The blacklist, as a verb, can mean placing a person or organization on that list.

Preclusive purchasing

Preclusive purchasing (also known as Preclusive purchasing and Preemptive buying) is an economic warfare strategy in which one of the warring parties purchases resources and operations from neutral countries not for domestic purposes but to deprive other warring parties of their use. The French suggested the arctic in World War I but never introduced it.

Boycotts

A boycott is an act of voluntary and deliberate abstention from the use, purchase, or treatment of an individual, organization, or country as an expression of protest, typically for religious, social, political, or environmental reasons. A boycott is aimed at causing any economic damage on the target, or at showing moral indignation, at attempting to force the target to change an unacceptable action. A boycott may sometimes be a form of consumer advocacy, sometimes called a moral buyout. When a similar procedure is legislated by a national government, it is known as a regulation.

Strategies

Economic warfare is typically a bidirectional affair. If an intended target of economic warfare finds out his position, retribution can be expected. It is probable, of course, that he might go beyond economic warfare and could even set off hostilities. Nevertheless, the target typically assumes one of the three basic postures: 

(1) One should be passive and consider whatever solution the economic warfare initiator suggests. 

(2) The perpetrator fights back trying to protect himself and gives in only grudgingly. The victim may choose to battle on the grounds already chosen — breaking the embargo, paying off accumulated debts by borrowing elsewhere, or selling accumulated balances at a discount or attempting to pull himself out of any other economic snares in which he is involved. He can also strike back by using another strategy to inflict harm on his tormentor to alleviate the strain. 

(3) Both countries may engage in economic warfare, but with different purposes, and both may succeed. It can be accomplished by the country with a narrow political purpose by economic warfare against the country which, in the same conflict, is achieving its specific economic aims. The former’s political gains will more than offset its financial losses. The latter’s economic gains could more than offset its political losses. Therefore, each side may find itself the winner in economic warfare and each side may lose by the same logic.

History

World war I

The British used the superior Royal Navy to block Germany tightly and monitor shipments to neutrals closely so that they could not be transported to Germany. Germany did not find enough food – its younger farmers were all in the army – and by the winter of 1916–17 the starving Germans were eating turnips. There were occasions when US shipments were seized; Washington objected. The British paid monetary compensation so as not to escalate the American protests into serious trouble.

World war II

Instances of economic warfare occurred during World War II when those policies were followed by the Allied powers to deprive critical resources of the Axis economies. While it was much harder to do than in 1914, the British Royal Navy blockaded Germany once again. The United States Navy cut off shipments of oil and food to Japan, especially with submarines. Through submarine warfare, Germany, in turn, attempted to damage the Allied war effort – the sinking of transport ships carrying supplies, raw materials, and essential war-related items such as food and oil.

Neutral countries carry on trading with both parties. The allies made a special effort to cut off sales from Spain and Portugal of critical minerals such as wolfram (a tungsten ore; used to make steel armour) and mercury to Germany. Germany wanted Spain to join the war but rejected its terms which included French colonial influence in Africa. Keeping Germany and Spain apart was essential, so Britain took a carrot-and-stick approach. Britain supplied the oil and closely controlled the export trade in Spain. It outbid Germany for the wolfram – the price soared, and it was Spain’s biggest export earner by 1943. Britain’s careful handling of Spain put it into conflict with a more hostile American strategy. In 1944, Washington cut off oil supplies but then agreed with London’s demands to resume oil shipments. Portugal feared a German invasion but it practically left the Allies when this seemed impossible in 1944.

The legality of economic warfare under international law

While economic warfare initiatives require the use of armed force per se, as long as they are used as a supplement to military operations, i.e. during armed conflict, they are subject to armed conflict law. Around the same time, it is the growing use of economic warfare after the two World Wars and subsequent foreign military conflicts that have questioned both the armed conflict law and, more crucially, the neutrality law. Many attempts have been made to codify the naval warfare statute, which has taken on economic warfare initiatives at sea. The 1856 Paris Declaration included several laws concerning blockade and contraband. The London Declaration of 1909 was a more detailed codification attempt but remained unratified. The Institute of International Law conducted a private attempt at codification which resulted in the ‘Oxford Manual on the Laws of Naval War’ of 1913. Today, much of the naval warfare laws in question remain uncodified. 

According to the law of armed conflict, belligerents who enforce economic warfare measures on each other must, in any case, uphold certain fundamental obligations of a humanitarian character, in particular concerning the security of civilians. Blockades and limitations on contraband traffic must be restricted to strategic commodities ever viewed more broadly – but must not in any case cause people to suffer or block the movement of medical supplies and other humanitarian goods. It also refers to any limits on trade imposed upon the enemy, such as an embargo. Throughout the modern armed conflict, especially throughout state practice during the Second World War, the propensity for belligerents to implement economic warfare steps that would not be admissible under the conventional law of neutrality had been noted. These consist of steps such as drawing up extremely large contraband lists, enforcing long-distance blockades made possible by modern technology, and creating ‘war’ or ‘exclusion’ zones in which all shipping, be it enemy or friendly, is liable to be attacked on sight. 

Economic warfare is not just a way of placing pressure on which military action is sponsored. Some peacetime steps mimic conventional methods of economic warfare in such a way that it might be safe to say that economic warfare, in the context of economic exploitation, is often an alternative to – and not merely a supplement to – military conflict. The effect of the UN Charter on economic warfare is that it institutionalized it and sought to centralize it in the form of Chapter VII. Under Article 41 of the Charter, the Security Council may order the implementation of measures including ‘full or partial disruption of economic ties and rail, sea, air, postal, telegraphic, radio and other means of communication’. These measures shall not require the use of military force. According to Article 42, the Council may take measures ‘by air, sea or land forces,’ including ‘demonstrations [and] blockades’ to preserve international peace and security, and this may include using force.

Both types of actions could include economic warfare measures. The most important distinction between economic warfare in ‘peacetime’ and conventional economic warfare practised in the context of an armed conflict is the question of applicable law. Measures of economic warfare in armed conflict are subject to the specific structure of the armed conflict law, which provides minimal security for civilians and third States while allowing substantial freedom of action for the belligerents. Measures of economic warfare in peacetime, on the other hand, should be governed by general international law and the treaties in effect, including the principles of international human rights law, without requiring the specific application of the law of armed conflict. 

The exact legal definition of economic warfare in peacetime depends on the circumstances and the specific international obligations in place between the States concerned, but generally speaking, they would normally classify (a) as retaliatory steps if they are lawful but unfriendly; (b) as countermeasures if they violate international obligations but are prejudiced by their wrongdoing; or (c) simply as breaches of international obligations, engaging the international responsibility of the State resorting to them. Accordingly, economic measures that are not otherwise prohibited by international law are unconstitutional if they are designed to coerce the target State on matters that each State has the right to freely determine, such as choosing a political, economic, social and cultural structure. On the other hand, even economic measures prohibited under general international law or particular agreements may be utilized by States engaged in decentralized economic warfare in certain circumstances. The acting State may justify the use of economic warfare techniques as countermeasures. 

Conduct in violation of international obligations is not wrongful when it is employed as a proportionate response to a previous internationally wrongful act having injured the acting State, subject to certain conditions. Unless, under international law, the peacetime steps of economic warfare breach the responsibilities of the acting State and can not be justified as countermeasures, they must engage the State ‘s foreign duty. They would thus themselves serve as grounds for the recourse to countermeasures or even self-defence by the injured State. There are also some types of economic countermeasures that are forbidden under international law. 

Conclusion

Since ancient times, economic warfare has been a characteristic of armed conflict and has since been widely used as an alternative to military action. Yet the economic arms described negatively as the absence of armed conflict, is also available in peacetime. It is used by the UN in the context of (centralized) sanctions to preserve or restore international peace and stability, as well as by States in the context of the decentralized implementation of and their rights under international law. Many comparisons are noticeable between measures of economic warfare in military conflict and peacetime economic behaviour. The idea of putting a strain on the targeted economy to obtain submission (in war) or to induce compliance with international obligations (in peacetime) is one common feature. It is the fundamental constraint of proportionality, even though the exact test can vary depending on whether economic warfare is being conducted during military conflict or in peaceful circumstances. Lastly, the methods of fighting economic warfare are usually similar in terms of war and peacetime and are based on the use of normative control and the use of restricted or wide-ranging physical regulation (blocking, visiting and checking, arrests, fines for infringements of trade restrictions with the enemy/target or in particular goods).

The specific legal control of economic warfare, whether in armed conflict or during peace, remains subject to development through state practice and only the basic principles are well defined. However, it is clear that the principle of economic warfare is still in force in public international law, not only because military wars are still breaking out, but also because economic warfare steps have come to be resorted to as a matter of course even in periods of (relative) peace. Economic warfare, the self-conscious effort to use international economic relations to improve the state ‘s interests, is best exemplified by its aims, which are cultural, political, and military advantages for the state, and by the methods used by countries conducting economic warfare, which are the carrot-like strategy of enticement and the stick-method of leverage and coercion.

Economic warfare activities are determined by global circumstances, the alignments of power in the world, and the role of the initiator of economic warfare in world affairs. Economic warfare has been successful historically, principally in coercing other nations to grant concessions, but success is not guaranteed. The stick can not be counted on if the target has an alternative, and the carrot is of no use in the extraction of tangible benefit, which is most effective in general influence-building. Sometimes, economic warfare success or failure depends less on the economic warfare itself and more on subsequent political, financial, propaganda, and psychological intervention. Most critical of all, in any given time, the atmosphere of world opinion and fundamental forces at work determine the effectiveness of economic warfare.

In the Islamic Republic of Iran v United States of America, the decision came in response to Iran’s request for an indication of interim measures relating to suspected American violations of the 1955 Treaty of Amity, Economic Ties, and Consular Rights between the two nations. It provided the Court with its first real opportunity to tackle the pressing ‘economic warfare’ problem and to establish international law principles in this area. In this judgment, the Court took an assertive approach against ‘economic warfare’ of the sort that the United States waged towards Iran.

According to the reading of the Treaty, it suggests a reluctance to postpone the assertion of ‘national security interests’ in the face of significant humanitarian considerations, accepted concepts of international law, and international security issues. The Court made it clear that unilateral economic sanctions that could impede access to vital humanitarian goods could not be viewed plausibly as steps taken to protect national security interests. This rationale may indicate a willingness to look with some scepticism at these sweeping economic sanctions that have traditionally had disastrous effects for civilian populations. If nothing else, the decision squarely puts the topic of economic warfare on the international political agenda and poses critical concerns about its human vulnerability relationship. Apparently, in the present situation of COVID-19, the world is now embroiled in a war waged by China. The world’s countries have to fight on two fronts, on the one hand, to save lives from corona and on the other to stop China’s expansionist policies. China is not waging an arms war, it is targeting the world economically, biologically, and psychologically.

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