The metrics of gauging the success or failure of 21st-century armed conflict have changed. Men and materiel are no longer its only casualties. Increasingly, new casualties are being reported on the legal and economic front without the bullet leaving the barrel.
Pursuit of military objectives is now through other – less conspicuous – means. Increasingly, battlefronts in conflicts are international organizations and courtrooms. Instead of soldiers, lawyers and policymakers are waging war through a new weapon: the law.
Lawfare – or use of law as a weapon of war – is the weaponising of the legal system against an adversary. Lawfare can be seen playing out in the entire spectrum of international relations. Examples include countries battling out international disputes eg India and Pakistan over Kulbushan Jadhav at the International Court of Justice (ICJ).
Lawfare is not limited to law; it crosses over into the financial domain. An offshoot of lawfare, fast gaining traction as the first line of attack, is financial lawfare.
Commonly known to laypersons as sanctions law – a common misconception – financial lawfare is far more complex and sinister. It involves leveraging an entire legal system (domestic and international) to financially squeeze the adversary. The results can be ominous for the target country.
The US is the key player in financial lawfare due to its central positioning in the global financial system.
An example of robust and ongoing financial lawfare is the US’s imposition of tariffs worth billions of dollars on Chinese goods. It is rooted in President Trump’s protectionist policies (American first).
While China has, to date, retorted punch for punch in this financial lawfare, new weapons are being put to use by both parties across new battlegrounds.
The US’s own lawfare strategy has evolved into upping the ante by leveraging its trans-Atlantic clout. This can be seen in the decision to replace Nafta with the US-Mexico-Canada Agreement (USMCA) signed on October 1, 2018.
The USMCA has been weaponised through the so-called ‘poison-pill’ clause. Essentially, this clause requires any country party to the USMCA to inform the other two parties if it intends to start free trade negotiations with a ‘non-market country’ (an obvious, yet unnamed reference to China) and allows the remaining parties the option to terminate the USMCA and replace it with a bilateral agreement. A ‘non-market country’ is any country with whom Canada, Mexico or the US do not have a free trade agreement, and which has a non-market economy.
The incentives offered to China and Mexico under the USMCA are a reduction in tariffs and increased foreign investment, a much-needed spur for economic growth.
American officials reportedly claim that the poison-pill clause could be replicated in other trilateral agreements. The ultimate objective is to force China to play by the US’s trade rules. China, in turn, has labelled the USMCA poison-pill clause as “dishonest behaviour”. Such reaction aside, China’s own strategy in this financial lawfare appears to me to be based on a two-pronged strategy.
First, claim the moral high ground through Chinese soft power to propose reforms within the international trade framework. For example, China and the EU agreed in July to launch a working group to promote reforms in the WTO. Second, China has publicly proclaimed to abide by the WTO regime, and offered countries mutually beneficial economic cooperation on an equal footing.
Moreover, it has been reported that China could implement ‘qualitative’ measures against US companies doing business in China. This includes reported arm twisting of US companies through heightened regulation. China is reportedly putting off accepting applications from US companies doing business in China. This tactical – if not strategic – move by China could lead to further countermeasures by the US and new battlefronts will emerge between the two global giants.
Another country caught in the cross-roads of an aggressive US financial lawfare – with far lesser economic clout than China’s – is Iran.
The US’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA) – which provided for the lifting of nuclear-related sanctions on Iran – could soon lead to a repeat of its financial lawfare strategies against Iran that existed prior to the US’s withdrawal from JCPOA. These include: (i) resorting to coercive diplomacy by forcing countries to sever trade relations with Iran; (ii) imposing financial restrictions against Iran through international and US legislation; and (iii) promoting financial measures against Iran through international trade bodies.
To achieve some sort of a moral victory against the US decision to withdraw from JCPOA and re-impose sanctions, Iran took the US to the ICJ in May this year. In its 3rd October decision, the ICJ directed the US to ensure there are no impediments on humanitarian goods when it reimposes the earlier withdrawn sanctions in November 2018. Notably, the ICJ’s decision does not impact the overall sanctions regime that the US will be imposing on Iran.
In a counter-measure and blow to the US’s financial lawfare against Iran, on September 24, EU members (part of JCPOA) announced plans to set up a special purpose vehicle (SPV) that will act as a financial intermediary for conducting business with Iran and which will be open to other nations trading with Iran. If the SPV indeed proves successful in achieving the objective of facilitating trade with Iran, it will take the sting out of the US’s financial lawfare.
New themes and patterns of attack and counterattack will emerge in future financial lawfare as opportunities are identified and exploited to the hilt by countries.
The writer is a practising international lawyer.
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