US Sanctions on South Africa May Not Be Honored in Europe

By Mendelsohn, M. S. | American Banker, August 27, 1985 | Go to article overview

US Sanctions on South Africa May Not Be Honored in Europe


Mendelsohn, M. S., American Banker


LONDON -- The growing prospects for American economic sanctions against South Africa -- including possible restrictions on new bank loans -- contrast sharply with the reluctance shown by other Western countries, except France and Australia, to consider similar action.

The United States has a much different view of the operation of the international laws governing the overseas branches of American banks and corporations; it has a different opinion of the efficacy of sanctions; and it has a different perception of South Africa's problems.

According to the latest reports, President Reagan is considering a ban on sales of U.S. computers to South African purchasers enforcing apartheid and a ban on U.S. government loans to companies not following equal-opportunity guidelines in South Africa.

The House of Representatives already has approved measures to prohibit bank loans and computer sales as well as exports of nuclear and other technology, and the importation Krugerrand coins.

The Senate may endorse those measures after reconvening Sept. 9.

Some observers here feel that such proposals may be another attempt to extend American law beyond American jurisdiction by seeking to ban the export of technology by foreign subsidiaries of American corporations or restrict the foreign branches and subsidiaries of American banks.

Similar attempts to extend American law beyond American borders failed when President Carter tried to freeze Iran's deposits at the foreign branches of American banks and when President Reagan tried to stop exports to eastern Europe by the foreign subsidiaries of American corporations.

The argument was that U.S. subsidiaries and bank branches are subject to the laws of the countries in which they are located.

Those arguments were not resolved in the case of the Iranian deposits because the political impasse between the United States and Iran was settled before the legal aspects could be fully tested in British and continental European courts.

However, in the case of President Reagan's attempted ban on certain exports to eastern Europe by the foreign subsidiaries of American companies, he was simply overruled, specifically by the French government, which ordered U.S. subsidiaries in France to obey French law.

Symbols, Not Substance

There also are questions about the efficacy of sanctions, especially some of those approved by the House of Representatives. Some of them seem to be merely symbolic.

For instance, even if U.S. banks -- both within and outside the U.S. -- did, in fact, stop lending to South African borrowers, the funds thus denied would simply remain within the vast pool of the global interbank market.

About 500 international banks are large and active participants in those markets, while about another 500 banks participate in it on a lesser scale. Some of the funds deposited by American banks in the market would inevitably flow to South African borrowers through non-American banks.

The proposed ban on U.S. imports of Krugerrands is seen here as similarly symbolic. The ban might lead American investors to buy Mexican, Austrian, and other gold coins instead, but most of the gold in those coins would continue to be South African gold.

The efficacy of sanctions is questioned in Europe, especially in Britain. Several years ago, Britain tried, unsuccessfully, to institute sanctions against Zimbabwe, then Rhodesia.

Those sanctions were applied after white Rhodesia's declaration of independence from Britain in 1965. But the sanctions were easily circumvented and had the perverse effect of actually helping to make Rhodesian industry more efficient.

The collapse of the white Rhodesian government in 1980 was not caused by the sanctions. It was sparked by the guerrilla war on Rhodesia's border that followed the collapse of Portuguese colonial rule in the neighboring country of Mozambique after 1974. …

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US Sanctions on South Africa May Not Be Honored in Europe
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