Problems With the Senate's Russia Sanctions Bill

On June 15th, the Senate passed the Countering Iran’s Destabilizing Activities Act (S. 722) by a vote of 98-2 (Rand Paul and Bernie Sanders voted NO).  Attached to the sanctions bill against Iran, the Senate added a second part that dealt with sanctions on Russia.

Before leaving office and in reaction to evidence of Russian interference in the US Presidential election, Obama expelled 35 Russians, sanctioned others, and seized two properties.  Fearing that Trump would rescind or roll back sanctions against Russia, S. 722 was passed on a bipartisan basis.  The law basically requires that the President notify Congress of any change or waiver and that Congress must approve or disapprove those changes or waivers.

The House has yet to act on the bill.  Because it raises revenue (through civil fines), some in the House have claimed it violates the Origination Clause.  That is a technicality easily corrected.  The bigger constitutional question is how it allows Congress a greater say in the formulation and execution of foreign policy, an area usually reserved for the Executive branch.

The Constitution is somewhat vague by design when it comes to foreign policy.  While Congress has the power to regulate international commerce, the Executive mainly carries out foreign policy almost unimpeded.  Taking all the pertinent clauses in the Constitution together, Congress basically is a check on Presidential power.  Over the years, Congress has ceded certain powers to the Executive (example, the War Powers Act).

In this case, Congress is placing a serious check on presidential power by codifying existing sanctions on Russia, issuing more, and then requiring the President to seek Congressional approval to weaken, waive or rescind sanctions.  Most sanctions were established by Executive Order with directions to the executive branch departments to follow through on implementation.

The main constitutional argument against this action is that it unnecessarily ties the hand of the President in dealing with Russia.  The purpose of sanctions is to punish a country for behaviors, or to pressure them to change behaviors.  The Magnitsky Act addresses human rights abusers in Russia while the next two set of sanctions addressed the Crimea and then Ukraine.  The new sanctions address Russian interference in the US election.

One needs to question the efficacy of sanctions in achieving their goals.  There are obviously still human rights abuses in Russia, they remain in the Crimea, and their stealth war in eastern Ukraine is still a reality.  And no one doubts that they will continue their cyber-attacks in the electoral processes here and abroad.  The truth is that the original round of sanctions were effective only because of the drop in oil prices on the international market.  That plus the sanctions plunged Russia into a recession, but two years later they are struggling out of it and their economy is forecast to grow 1.7% next year.

In reality, the US sanctions had very little effect on Russia.  They are not  a major trading partner with us.  However, the European Union (EU) is and the US sanctions coordinated with those of Europe had an effect.  Putin sort of lessened the effect by blocking EU exports of agricultural products to Russia which (1) hurt Europe’s agricultural sector and (2) helped the Russian agricultural sector.  Where US sanctions hurt Russia is in the financial sector since they need access to Western capital to fund debt and major infrastructure projects, especially in the energy sector.  For example, Novatek, Russia’s second largest gas producer, is targeted by US sanctions.  In order to secure funding for a massive Arctic project, they secured a loan from several European banks in euros since they cannot raise loans in dollars.

The Trump administration has sent some signals that they have problems with the existing legislation because it ties their hands in dealing with Russia.  The bill was attached to one that originally targeted just Iran.  Further, language was slipped in that stresses American jobs and energy exports.  In short, it was designed to force Trump to sign it into law.  Passing 98-2 in the Senate, one can safely say it is veto-proof.

Leaving aside the separation of powers issue, there is a collateral defect in the bill that has gone largely unnoticed by the media in their zeal to portray Trump as everything pro-Russia.  Simply, Europe has let their displeasure be known.  First, the US and Europe are in agreement when it comes to next generation energy production in Russia.  That includes Arctic exploration and shale extraction.  Europe singles out oil only while US sanctions address oil and natural gas.  Under the sanctions, the export of technology is forbidden.

The only Russian company sanctioned thus far in this area by both Europe and the US is Rosneft.  The proposed new US sanctions leave open the door to target Russia’s largest producer- Gazprom.  Gazprom is currently attempting to build the Nordstream 2 pipeline that would move Russian natural gas to Germany through the Baltic Sea, thus bypassing eastern Europe.  Both the Ukraine and Belarus derive transit fees from Gazprom for existing pipelines to Europe.

European investors in Nordstream 2 include five major European companies: French ENGIE, German Uniper and Wintershall, the Anglo-Dutch Shell, and Austrian OMV.  The bill would authorize this and any future president to sanction those companies for dealing with Gazprom.  It is unlikely that Trump would pull that trigger, but by linking the language to American jobs, it lures Trump into agreement with the principle.  In effect, it creates an energy trade advantage in the European market by freezing out Russia and steering Europe towards the US.

The US currently has the ability to be a player in the European market but for the fact the export of liquefied natural gas is not cost-effective…as long as Russian sources are around.  European leaders see this not as an attempt to change Russian behaviors, but more as an attempt for the US to gain an unfair advantage in that market.  Furthermore, this is in retaliation for Russian interference in the US election.  Although Putin has certainly interfered in European elections, his success rate has been hit and miss with more misses of late in France, Holland, and Austria.  In other words, European leaders see themselves as potential collateral damage in US sanctions for something that affected only the United States.

The fact that European companies can potentially be fined by the US if they bought securities in or dealt with Russian energy companies has led leaders in Germany and Austria to take the lead in denouncing S. 722.  This rift in US-European relations barely is covered in the US media, but it is big news in Europe.  In a joint statement between German foreign minister Sigmar Gabriel and Austrian Chancellor Christian Kern, they expressed concern about the new sanctions ensnaring European companies.  A spokesman for Germany’s Angela Merkel said she shares those sentiments.  Her spokesman described it as a “peculiar move by the U.S. Senate.”

More recently, Germany threatened possible retaliatory actions against American firms if German companies are, in fact, ensnared in the sanctions regime.  The German Economy Minister Brigitte Zypries told Reuters: “If he does (Trump signs the bill), we’ll have to consider what we are going to to do against it.”  Those are the strongest words to date that Germany intends to pass retaliatory legislation against US companies.

What made previous sanctions against Russia work was coordination of them between Europe and the United States.  There is clearly no such coordination in this case.  Europe sees this as a veiled threat against existing investments by European companies as a way for the United States to gain an advantage in the European energy market.  One unnamed German source said that Europe alone should make the decision of where to get their energy.

This bill obviously exemplifies the law of unintended consequences.  Meant to punish or change Russian behavior, it stands to further strain US relations with Europe at the very time there should be a united front against Russian interference in national elections.  It is not so much a check on Russia than it is a check on this particular US President in dealing with Russia.  Before the House agrees to its passage, it needs to think long and hard lest they be responsible for the deepening rift between Europe and the United States, not Donald Trump.

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