Rules of the road for the EU’s secondary sanctions

The European Union’s next sanctions package will open a pandora’s box of secondary sanctions unless the EU puts up some guardrails. Decisions taken today on the EU’s sanctions strategy will shape the path of EU foreign policy beyond Russia’s war on Ukraine, including the role of sanctions in the competition between the United States and China.

Rules of the road

As desire to punish Russia for the war and to enforce the EU’s sanctions regime seems unabated, the secondary sanctions path must at least be bound to some elementary principles:

1. Do not discriminate between targets
   The EU can only hope to build a credible sanctions regime if it ensures it will equally target all circumventing third country actors – whether an Armenian or a Chinese entity, for example – with secondary sanctions.
2. Share costs between partners
   Economic costs that arise because of sanctions should be spread across participating economies if adopted in a coalition and should not lead to structural losses for European businesses or a significant loss of market share when particular countries are heavily reliant on the target state for exports – as, for example, Germany is on China for certain parts of its chemical industry.
3. Limit them to critical goods
   Secondary sanctions should be reserved for targeting the ways Russia (or any other future target) gets its hands on war materials and their components. They should not be used for an outright ban on trading with certain third countries.

The risks

As its sanctions strategy against Russia shows growing gaps and vulnerabilities, the EU is readying additional measures, which aim to prevent and punish non-EU companies from circumventing sanctions on Russia – thereby entering the realm of secondary sanctions. But this approach will face three key challenges:

1. Power: The EU lacks the reach of the US dollar and administrative capabilities to enforce secondary sanctions. Relying mainly on trade instruments and existing resources will render them considerably less potent.
2. Proliferation: If enforcement action against third country actors becomes the norm, the quantity of sanctions could increase rapidly in the future, especially considering that the enfolding major competition between the US and China will be fought predominantly with geo-economic tools.
3. Principle: Secondary sanctions could have significant diplomatic costs, at a time when engaging the global south is a top priority, especially if they target states as well as companies. The EU has been a leading opponent of the practice and its violation of international law (for example, US secondary sanctions over Iran, Cuba, or Nord Stream 2).

While the exact design of the 11^th package is yet to emerge, the discussion about secondary sanctions already marks a paradigm shift in EU foreign policy of a scale that requires a new strategic framework to set out the goals, means, and risks for the use of economic measures, and which enables coordination between member states, the assessment of (unintended) consequences, and cost-benefit analysis.