The Takings Clause and Compensation for Trade Sanctions

Abstract

Numerous studies have found that trade sanctions are ineffective, and even at times counterproductive. President Jimmy Carter's ban on the sale of American wheat to Russia harmed U.S. farmers and benefited Canadian farmers. The long-standing sanctions against Cuba have denied American investors many profit opportunities, to the delight of Mexican, Spanish, and other investors, who are "gobbling up" Cuban market share in the absence of American competition. The sanctions against Iraq have succeeded only in destroying an economy and fostering resentment against the United States. Poverty and ill will will engender long-term harmful repercussions.

The literature on sanctions has focused either on the direct economic effects or the human effects. Little or nothing has been written about the indirect economic effects that must be borne by the businesses that are prevented from trading as a result of sanctions. Even less has been written about the issue of compensation to these businesses. This paper will attempt to fill that void. The "Takings" Clause of the Fifth Amendment of the U.S. Constitution calls for compensating those who suffer losses because the government confiscates their property. In recent years, the "Takings" Clause has been extended to include regulatory takings, mostly in the area of environmental regulation. So far, the "Takings" Clause has not been extended to compensate businesses that lose out because the government, in essence, shuts them down as a result of economic sanctions. Yet, many American businesses must at least partially close down operations because of sanctions. Accordingly, this paper will examine the "Takings" Clause to determine whether applying it to "sanction" losses would be a logical and appropriate extension of the law.

Keywords: sanctions, ethics, takings clause, regulatory takings, Cuba, Iraq

JEL Classification: D6, F1, K2, L5