Economic Sanctions and the Former Yugoslavia: Current Status and Policy Considerations

CRS Report for Congress
Economic Sanctions and the Former Yugoslavia:
Current Status and Policy Considerations
Through 1996
December 16, 1996
Julie Kim
Analyst in Foreign Affairs
Dianne Rennack
Analyst in Foreign Policy Legislation
Foreign Affairs and National Defense Division

Congressional Research Service ˜ The Library of Congress

This report reviews the comprehensive economic sanctions regime imposed against the
Federal Republic of Yugoslavia/Serbia-Montenegro for its role in the war in neighboring
Bosnia-Herzegovina from 1992 to 1995. It gives detailed descriptions of the form, date, and
status of U.S. sanctions that implemented U.N. Security Council resolutions mandating
sanctions. It reviews how most of the sanctions were lifted in the year after the Bosnian war
ended, though some additional sanctions were maintained. It also discusses how
policymakers may consider reimposition of sanctions in order to achieve objectives
regarding the peace process in Bosnia and democratic development in Serbia-Montenegro.
This report will not be updated. Other CRS Reports related to this subject include: Bosnia-
Former Yugoslavia and U.S. Policy, IB 91089; Kosovo and U.S. Policy, 96-790 F; Serbia-
Montenegro: Basic Facts, 95-901 F; and Economic Sanctions to Achieve U.S. Foreign
Policy Goals: Discussion and Guide to Current Law, 97-949 F.

Economic Sanctions and the Former Yugoslavia: Current
Status and Policy Considerations
In November and December 1996, hundreds of thousands of demonstrators in
Serbia-Montenegro (Federal Republic of Yugoslavia-FRY) rallied daily in the capital
in protest of attempts by the Serbian government under President Slobodan Milosevic
to annul the electoral victories of the opposition in the municipal elections. Some
international policymakers have threatened the Serbian leadership with sanctions
should it resort to violent means of quelling the protests. In Bosnia, violations, of
lack of satisfactory compliance with, aspects of the Dayton Peace Agreement have
periodically prompted calls for the re-imposition of sanctions against the offending
partyies. In particular, extremely limited progress has been evident in the return of
refugees to their homes or the turning over of indicted war criminals to the
international tribunal.
During the course of the Bosnian war from 1992 to 1995, an extensive sanctions
regime was constructed by the international community primarily against Serbia-
Montenegro for its role in the Bosnian conflict. The United States imposed several
implementing measures in compliance with the U.N. sanctions. After conclusion of
the Dayton Peace Agreement in November 1995, the U.N. Security Council
suspended sanctions. Sanctions were terminated in October 1996, after Bosnia held
its first national elections.
Since Dayton, the United States has maintained a unilateral policy of upholding
a so-called “outer wall” of sanctions against Serbia-Montenegro that holds full
diplomatic relations and U.S. economic benefits, as well as U.S. support of FRY
membership in international organizations or of economic assistance from
international financial institutions. These limited sanctions are to remain until the
FRY demonstrates further progress in cooperation with the war crimes tribunal and
with respect to the situation in Kosovo. In December 1996, in response to the
political crisis in Serbia, the State Department emphasized that this policy would
remain in place until the Serbian leadership reversed its anti-democratic practices.
At the end of 1996, the sanctions debate was focused on two related but
distinguishable policy objectives: to respond to and possibly affect the internal
political crisis in Serbia-Montenegro; and, to press for greater compliance with
aspects of the peace accord in Bosnia. For the first objective, policymakers were able
to consider various forms of sanctions in order to support democratic movements in
Serbia-Montenegro and to condemn the repressive government under Slobodan
Milosevic. For the latter objective, economic sanctions that had been in place would
have been difficult to restore. Rather, the international community or individual
countries used international reconstruction aid as an economic lever to influence
compliance with the peace process in Bosnia.

Overview ........................................................1
U.S. Economic Sanctions............................................2
Current Status of Sanctions..........................................6
Policy Considerations..............................................7

Economic Sanctions and the Former Yugoslavia:
Current Status and Policy Considerations
Sanctions are often viewed as a useful policy tool where a military response
would not be feasible or appropriate. Since late 1995, the threat of sanctions has
frequently been invoked by the international community as a means to pressure the
Bosnian parties, especially the Bosnian Serbs, to comply with the terms of the
Bosnian peace agreement. More recently, attempts by the Serbian leadership in
Belgrade to manipulate the electoral process at home have prompted some calls for
sanctions to be re-imposed against Serbia-Montenegro.
Beginning in 1992, the U.N. Security Council imposed a series of economic1
sanctions against the Federal Republic of Yugoslavia (FRY)/Serbia-Montenegro (S-
M), and later against the Bosnian Serbs in the Republika Srpska, for their respective
roles in perpetrating the war in Bosnia and Herzegovina. The total package of
sanctions against the FRY/Serbia-Montenegro was virtually comprehensive; once the
sanctions were in place, international policy on sanctions focussed on sanctions
enforcement. Sanctions primarily targeted the FRY/Serbia-Montenegro, which
financially and materially supported the Bosnian Serb armed forces, but which was
not a direct party in the conflict.
As the war continued, the Serbian leadership under Slobodan Milosevic sought
to play a "peacemaking" role in order to remove the burden of sanctions and the
status of international pariah state. As part of the U.S.-led peace process concluded
in Dayton, Ohio, almost all U.N. sanctions against the FRY/Serbia-Montenegro were
suspended in late 1995, and sanctions against the Bosnian Serbs were suspended in
early 1996. After Bosnia and Herzegovina held national elections in mid-September

1996, the Security Council terminated the economic sanctions in October 1996.

Some observers contend that economic sanctions could continue to serve a
useful role for a variety of purposes. They argue that some form or threat of
sanctions could foster greater compliance with aspects of the Bosnian peace
agreement, such as cooperation with the international war crimes tribunal, assurance
of freedom of movement, improved human rights practices, and participation in joint
political institutions, among others. The Civilian Consolidation Plan for Bosnia
agreed to in Paris in November 1996 referred to the possibility of renewed sanctions
against any party that failed significantly to meet its obligations under the peace

1The arms embargo against all of the former Yugoslavia that had been imposed in 1991 is
not addressed in this report.

Policymakers may also consider imposing sanctions in response to the civil
unrest in Serbia-Montenegro. U.S. leaders have specified that limited sanctions
against Serbia-Montenegro would remain in place until the Serbian leadership
respected the political and civil rights of its people. Some policymakers have also
threatened unspecified sanctions as a warning to the Serbian leadership not to resort
to violent means of ending the demonstrations. However, the international sanctions
regime that had been built up since 1992 has for all intents and purposes been
dismantled. Re-imposition of the former U.N. sanctions would require passage of
a new Security Council resolution. Alternatively, a new sanctions framework might
be considered by U.S. policymakers for future policy.
U.S. Economic Sanctions2
The United Nations Security Council passed a Security Council Resolution 757
on May 30, 1992, requiring its members to impose economic and diplomatic
sanctions against Yugoslavia.3 In 1991, prior to U.N. action, the Administration
prohibited new Overseas Private Investment Corporation (OPIC) loan guarantees to
U.S. business activities in Yugoslavia and suspended export licenses for defense4
materials and services. A policy of presumed denial continues today for export
licensing of defense articles and defense services for FRY (S/M).5
To implement U.N. Security Council resolutions mandating sanctions,6 U.S.
Presidents have issued five Executive orders (EO):

2 For further discussion, including sequence of events, Presidential authority, the
Administration's implementation of sanctions, and penalties for violation, see Serbia and
Montenegro: U.S. Economic Sanctions, by Dianne E. Rennack, CRS Report 93-954F.
October 18, 1993.
3 The U.N. Security Council passed two earlier sanctions-related resolutions with respect
to Yugoslavia and its successor states: S/Res/713 of September 25, 1991, imposed an
international arms embargo against all of the former Yugoslavia after several attempts at
ceasefire failed; and S/Res/724 of December 15, 1991, established the U.N. Sanctions
Committee, initially formed to monitor compliance with the arms embargo.
4 In November 1990, the 101st Congress, with the President's signature on Public Law 101-

513, also prohibited U.S. direct assistance to the former Yugoslavia in that fiscal year,

effective May 5, 1991. The same law (Section 599A) required the Secretary of the Treasury
to instruct U.S. executive directors of international financial institutions to oppose most
financial assistance to the Federal Republic of Yugoslavia. The Secretary of State, however,
certified on May 24, 1991, that Socialist FRY was meeting certain conditions and waived
the prohibition on assistance and IFI support.
5 Restrictions on export licensing for defense articles and defense services was lifted for
successor states of Yugoslavia other than FRY (S/M) by the State Department, effective
July 12, 1996 (Department of State Public Notice 2410; 61 FR 36625). See 22 CFR 126.1.
6 Resolutions 757 (1992), 787 (1992), 820 (1993), 942 (1994), 943 (1994), 988 (1995), 992
(1995), 1003 (1995) and 1015 (1995).

Descri p ti o n E xecu ti ve Date Status
Declaration of National12808May 30, 1992National emergency
Emergency[57 FR 23299]continued in effect
through mid-May
The President declared FRY1997.
(S/M) a threat to U.S. national7
security, and blocked all FRYBlock on most
(S/M) government property andproperty suspended
interests in the jurisdiction of theDecember 27, 1995.
United States.Property the
ownership of which
is disputed is still
Extensive Sanctions12810Jun 5, 1992Suspended December
[57 FR 24347]27, 1995. Property the
In issuing EO 12810, theownership of which isdisputed is still
President restated the blocking,blocked.

initiated in EO 12808, of FRY
(S/M) property in the United
States' jurisdiction. The EO also
prohibited: import or export to or
from FRY (S/M); U.S. persons
from importing from FRY (S/M)
by way of a third country;
transactions relating to U.S.-
registered vessels or aircraft that
travel to, from or through FRY
(S/M); any aircraft from landing
in, taking off from, or flying over
the U.S. if the flight path has
included FRY (S/M); U.S.
persons from executing contracts
in commerce, industry, public
utilities, or contracts with the
FRY (S/M) government; making
any financial support available to
the FRY (S/M) government or
individuals there; transactions
related to, or participation in,
U.S. sports events where FRY
(S/M) representatives are
participating; U.S./FRY
scientific and technical
cooperation or cultural
exchanges (other than
participation at the U.N.).
7 The national emergency was renewed annually by presidential notice. The last notice was
given on December 6, 1996.

Description Executive Da t e St a t us
Prohibiting Transshipment12831Jan 15, 1993Suspended December
[58 FR 5253]27, 1995.
The President prohibited
transactions within the United
States or by a U.S. person
related to the transshipment of
good and products through FRY
Further Tightening12846Apr 25, 1993Suspended December
[58 FR 25771]27, 1995. Property
The President imposedthe ownership of
additional sanctions to conformwhich is disputed is
with U.N. Security Councilstill blocked.

resolution S/RES/820, April 17,
1993. EO 12846: blocked
access to any FRY (S/M)
property, or interests in property,
relating to commerce, industry,
or public utility in the
jurisdiction of the United States;
charged the expenses of seizing,
blocking, and maintaining
property to its owners or
operators; authorized full
investigation of all vessels,
freight vehicles, rolling stock,
aircraft and cargo that are not
under the U.S. blocking as
imposed in earlier EO, but are
suspected of violating U.N.
Security Council resolutions
713, 757, 787, or 820;
prohibited any U.S.-registered,
or U.S.-owned or -controlled
vessel--other than a U.S. naval
vessel--from entering the
territorial waters of FRY (S/M);
prohibited import from, export
to, and transshipment through
Serb-controlled areas in Croatia
and Bosnia and Herzegovina.

Description Executive Da t e St a t us
Expanded Measures Against12934Oct 25, 1994National emergency
the Bosnian Serb-Controlled[57 FR 54117]continued in effect
Areas of Bosnia through mid-May
The President expanded the scope
of the U.S. national security threatBlock on most
to include actions of the Bosnianproperty suspended
Serb forces. EO 12934 blockedMay 10, 1996.
all property, and interests inProperty the
property, of the Bosnian Serbownership of which
military, paramilitary, anyis disputed is still
authority, entity or individual inblocked.
Bosnian Serb-controlled territory
that was in the jurisdiction of the
United States. It also prohibited
the provision or export of U.S.
services to Bosnian Serb-
controlled territory, and the use
by U.S.-registered vessels (other
than U.S. Navy) of Bosnian Serb-
controlled ports.
In addition, Congress passed and the President signed legislation (P.L. 102-420)
that withdrew most-favored-nation (MFN) trade status for products of Serbia-
Montenegro in October 1992. This remains in force today. Terms that Serbia-
Montenegro must meet for the President to renew MFN were based on political
conditions in 1992, however, and have been overtaken by events.
The Administration maintains a so-called "outer wall" of sanctions against the
FRY that withholds full diplomatic relations and U.S. economic benefits, as well as
U.S. support of FRY membership in international organizations or of economic
assistance from international financial institutions, until further progress is
demonstrated in FRY cooperation with the war crimes tribunal and with respect to8
the situation in Kosovo. In Kosovo, Serbian authorities have continued to repress
the ethnic Albanian majority population, which seeks independence from Serbia.9
The "outer wall" constitutes more of a unilateral U.S. policy than an international
sanctions regime. No formal or informal international organization has adopted the
"outer wall" as part of a multilateral strategy. This lack of formality is particularly
important in regard to international financial institutions, where the United States,
without other voting members' concurrence, cannot block FRY from participating or
receiving economic assistance.

8 As outlined by Assistant Secretary of State John Shattuck at a Hearing on Prospects for
Peace with Justice in Bosnia. House Committee on International Relations. 104th Congress,
Second Session. February 1, 1996.
9 For further background on the situation in Kosovo, see U.S. Library of Congress.
Congressional Research Service. Kosovo and U.S. Policy, by Steven Woehrel. CRS Report

96-790F. September 26, 1996.

Current Status of Sanctions
U.N. Security Council Resolution 1022 (November 22, 1995) suspended all
sanctions against the FRY, with the exception of frozen or impounded Yugoslav
assets the ownership of which is being disputed. Sanctions were to be finally
terminated ten days after free and fair elections were held in Bosnia. Sanctions
against the Bosnian Serbs were not to be suspended until the Bosnian Serb forces had
withdrawn behind the zones of separation established in the peace agreement. NATO
Secretary-General Javier Solana certified such a withdrawal on February 26, 1996,
triggering the suspension the following day. Following the holding of "reasonably
democratic"10 national and entity (Bosnian Federation and Republika Srpska)
elections on September 14, 1996, the Security Council terminated the sanctions on
October 1 (Resolution 1074).
Correspondingly, in December 1995, President Clinton directed the Secretary
of the Treasury to suspend the application of most U.S. sanctions imposed on the
FRY and the Bosnian Serbs, effective in January and May 1996, respectively. To do
this, the President determined that waiving or modifying the sanctions codified by the
National Defense Authorization Act, FY 199411 was necessary to achieve a
negotiated settlement of the conflict in Bosnia-Herzegovina acceptable to all parties.
In May 1996, however, President Clinton gave notice of a fourth year's extension of
the national emergency that had been declared in May 1992 and expanded in October
1994. He cited the still incomplete process of implementing the peace agreement and
the unfulfilled terms of the U.N. suspension of sanctions. To date, President Clinton
has not yet taken action to formally terminate sanctions in conformity with U.N.
resolution 1074 of October 1, 1996, so that U.S. sanctions remain in suspension only.
Foreign assistance appropriations acts for fiscal years 1996 and 199712
reaffirmed the intent of the National Defense Authorization Act, FY 1994, requiring
that the President certify to Congress that certain conditions have been met before
sanctions against FRY (S/M) cease to be effective. The FY1997 Act pins
certification on: substantial progress toward "the realization of a separate identity for
Kosova and the right of the people of Kosova to govern themselves; or the creation
of an international protectorate for Kosova"; substantial improvements in the human

10 The elections were characterized as such by Organization for Security and Cooperation
in Europe (OSCE) Bosnia mission chief Ambassador Robert Frowick.
11 Section 1511 of Public Law 103-160 (50 U.S.C. 1701 note), popularly referred to as the
"Levin amendment," codified Executive Orders 12808, 12810, 12831, and 12846, the State
Department's 1991 public notice to suspend munitions export licenses (Public Notice 1427;
July 11, 1991; 56 F.R. 33322), Department of Transportation/Federal Aviation
Administration air travel prohibitions (DOT Order 92-5-38; May 20, 1992; and FAA action;
June 19, 1992; Special Federal Aviation Regulation (SFAR) No. 66; RIN 2120-AE48, and
subsequent issues); and the removal of Yugoslavia from the Generalized System of
Preferences trade list (Presidential Proclamation 6389; December 5, 1991; 56 F.R. 64467).
12 Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1996
(sec. 540A of Public Law 104-107; 50 U.S.C. 1701 note); and Foreign Operations, Export
Financing, and Related Programs Appropriations Act, 1997 (title I, sec. 101(c), title V, sec.

540 of Public Law 104-208; 50 U.S.C. 1701 note).

rights situation in Kosova, including access to the region for international observers;
and the ability of the elected government of Kosova to meet and conduct business.
The President may waive the requirement, however, to meet emergency humanitarian
needs or "to achieve a negotiated settlement of the conflict in Bosnia and
Herz egovina."
Policy Considerations
International policymakers have frequently invoked the threat of economic
sanctions in order to advance certain policy objectives in the former Yugoslavia.
During the war, sanctions were imposed to bring pressure on Serbian President
Milosevic to end the war, and were in part the reason he took on the role of
peacemaker. In the current situation, U.S. and other western policymakers may
maintain multiple policy objectives in the Balkans that are distinct but mutually
interactive. International policy directed at affecting developments in Serbia-
Montenegro or Croatia, for example, may affect developments in Bosnia as well.
With regard to sanctions, at least two separate policy objectives can be identified:
to respond to and possibly affect the recent internal political crisis in Serbia-
Montenegro; and, to press for greater compliance with aspects of the peace accord
in Bosnia.
Political unrest in Serbia-Montenegro erupted after the Serbian government
partially overturned the results of the November 17 municipal elections, during
which the opposition claimed victory over the ruling Socialists in numerous cities,
including Belgrade. In response, tens of thousands of citizens took to the streets in
daily protests. The State Department decried the Belgrade government's anti-
democratic measures and specified that the United States would maintain its limited
sanctions against Serbia-Montenegro and would "reserve the right" to consider a re-13
imposition of sanctions. The State Department also called for European countries
to impose measures similar to the U.S. "outer wall" of sanctions.
While the United States and other countries have demanded that the Serbian
government respect the results of the municipal elections, the threat of restoring
sanctions against Belgrade appears to be directed primarily at forestalling any violent
suppression of the protests. At the London peace implementation conference in
December, FRY Foreign Minister Milan Milutinovic pledged not to use force to end
the rallies. Many analysts predict that the international community will not actively
press for multilateral economic sanctions unless the situation on the streets turns
violent. They point to Milosevic's role as guarantor of the Bosnian peace process, his
ability in the past to survive political challenges, and the lack of international
consensus as yet on sanctions. Nevertheless, some individuals may call for some
form of sanctions, or other measures, against Belgrade that would convey support for
the democratic movement in Serbia-Montenegro and condemnation of the Serbian
government's anti-democratic policies.

13 U.S. Department of State Daily Press Briefing, December 3-4, 1996.

An ongoing policy objective of the United States has been to promote
implementation of the Bosnia peace agreement. Since the conclusion of the
agreement one year ago, the threat of sanctions has often been raised by the
international community in response to violations to or lack of progress in peace
implementation. With the current situation regarding war criminals and refugee
returns at a stalemate, one can expect that some individuals may again call for the
imposition of sanctions in order to compel compliance by one or more of the Balkan
parties. In particular, many observers have called for sanctions to be imposed on any
party that does not cooperate with the Hague war crimes tribunal and facilitate the
arrest and transfer of indicted war criminals.
In the first year after Dayton, the threat of restoring suspended sanctions (in
effect from November 1995 until October 1996) may have enhanced President
Milosevic's interest in moving forward with peace implementation. Current
circumstances, however, raise some doubts as to the feasibility and likely
effectiveness of future sanctions. The United Nations could re-impose sanctions only
by approving a new Security Council resolution. Support among other Security
Council member countries for restoring multilateral sanctions against Serbia-
Montenegro with regard to the Bosnian peace process remains uncertain. Even if
other European countries in the Security Council were eventually to support renewed
economic sanctions, Russia would likely remain opposed. It would be easier for the
President to order or for the Congress to legislate unilateral U.S. sanctions, but such
measures would have lesser economic impact than multilateral sanctions.
Whom to target for possible future sanctions related to the Bosnian peace
process is also a problematic issue. By most accounts, all of the interested parties,
including neighboring Serbia-Montenegro and Croatia, remain out of compliance
with one or another aspect of the peace agreement. Could sanctions feasibly be
targeted on multiple parties? Even if sanctions were to be concentrated on the
ostensibly worst offender, the Bosnian Serbs, the impact of such sanctions would be
questionable, given that the Republika Srpska remains a sub-state entity that would
be difficult to target within the greater Bosnia and Herzegovina.
Rather than sanctions, the international community appears to have settled on
utilizing international reconstruction assistance as its primary economic lever. The
Paris meeting of the Bosnia presidency in November 1996 specified a link between
the availability of assistance from the international financial institutions and
implementation by the Bosnian parties of the peace agreement. In December 1996,
international leaders at the London conference emphasized that economic aid would
be conditional on the political willingness of the Bosnian parties to implement the
peace.14 Individual donor countries conceivably may exercise the prerogative of
withholding funds for reconstruction aid or conditioning economic assistance on
certain political goals.

14 The Washington Post, December 5, 1996, p. A39.