1. 1 Shirkers and Drug Runners: Why U.S policy fail to induce crackdowns on drug trafficking through transit countries By Horace Bartilow Kihong Eom The University of Kentucky Department of Political Science

2. 2 Abstract

3. 3 Drug trafficking and the threat to US Security Drug consumption, production, and sales have become a growing threat to American security, in particular since the U.S is the world’s largest consumer of illicit drugs. In the late 1980s, the U.S Congressional Research Service reported that “America is consuming drugs at an annual rate of more than 6 metric tons (mt) of heroin, 70 to 90 mt of cocaine, and 6,000 to 9,000 mt of marijuana - 80 percent of which is imported. American demand therefore is the linchpin of one of the fastest growing and most profitable industries in the world.”

4. 4 Drug trafficking and the threat to US Security (contd) In the early 1990s, the Organization for Economic Cooperation and Development estimated that US$122 billion was spent each year in the United States and Europe on heroin, cocaine, and cannabis (OECD, 1990). Other studies estimate that approximately US$50 billion is spent each year on illicit drugs in the United States (Rhodes, 1995). Former US drug ‘czar’, General Barry McCaffrey, estimated that about three hundred metric tons of the approximately 575 metric tons of cocaine available world wide in 1994 was consumed in the US (McCaffrey, 1995).

5. 5 The threat to social and economic security in the US Drug trafficking and America’s appetite for illicit drugs poses a direct threat to the country’s social and economic security. In the US drug trafficking and drug abuse continues to lower economic productivity and competitiveness while contributing to the explosion of health care costs. According to the Office of National Drug Control Policy, economic productivity losses in the U.S due to drug abuse have risen from $69,421 million in 1992 to $110,491 million in 2000. Health care costs due to drug abuse have risen from $10,820 million in 1992 to $14,899 million in 2000 (National Drug Control Policy, 2001a). Individuals incarcerated for drug offenses in Federal and State prisons have risen from 147,000 in 1989 to 336,400 in 2000 (National Drug Control Policy, 2000b). And the number of deaths from drug induced causes increased from 7,101 in 1979 to 19,102 in 1999 (National Drug Control Policy, 2000c).

6. 6 The significance of the Caribbean Basin – Drug Transit Centers The Caribbean basin’s geographic proximity to South and North America makes it a major transshipment center for South American drugs that are destined for markets in the U.S and Europe. According to American policy makers, a primary security threat to the United States is the transshipment of large amounts of cocaine through the Caribbean basin (Perl, 1993-94; Tokatlian, 1994).

7. 7 The significance of the Caribbean Basin – Money Laundering Centers In addition to facilitating drug trafficking, the Caribbean basin also plays an important role in drug-related money laundering. Many countries in the region have well- developed offshore banking systems and bank secrecy laws that facilitate money laundering. In countries with less developed banking systems, cash often is moved in bulk shipments through the region. In January 2000, the United Nations (UN) reported that approximately 42 percent of the world’s offshore banks and 38 percent of the world’s offshore corporate entities (also known as international business companies or IBCs) are located in the Caribbean basin. The Caribbean Financial Action Task Force (CFATF) recently estimated that US$60 billion in drug trafficking and organized crime proceeds are laundered through the Caribbean every year (Griffith, 1997:97-113; The Strategic South American/Caribbean Unit, 2001)

8. 8 US International Drug Policy American anti-drug policy is informed by the logic that the reduction of the supply of drugs will increase market prices and as a result US consumers will forgo drug consumption and drug abuse. By this logic, efforts to reduce domestic drug consumption in the US have led American policy makers to seek collaboration with foreign countries (Toro, 1992).

9. 9 US International Drug Policy (contd) Consequently, the goal of American drug policy has been to secure the cooperation of foreign governments in three areas in the ‘war on drugs’: Drug interdiction, crop eradication and the arrests or ‘immobilization’ of drug traffickers. However, the primary purpose of this research is to analyze the effectiveness of foreign cooperation in drug interdiction.

10. 10 US International Drug Policy: The Anti-Drug Abuse Act of 1986 To ensure foreign country cooperation in the ‘war on drugs’ the Reagan administration introduced the anti-drug abuse act which made US financial assistance, positive votes within multilateral lending institutions and trade preferences conditional on foreign governments’ cooperation against drug trafficking (Perl, 1989; United States Senate, 1988b).

11. 11 The Anti-Drug Abuse Act of 1986 (contd) The legislation also strengthened the capacity of the US to impose the extraterritoriality of its criminal laws throughout the Western hemisphere. Under the threat of ‘decertification’ (sanctions) the US government has been able to secure over flight and bilateral Maritime Law Enforcement Cooperation agreements with various countries in the Caribbean basin.

12. 12 Does the US Drug Policy induce foreign country cooperation? Students of the politics of transnational organized crime have consistently noted that the US certification process may have created an environment that discourages foreign country cooperation in combating drug trafficking (Toro 1992; Bryan 1997; Granada 2002; Naylor 2002). Most governments in the region perceive the imposition of the extraterritoriality of American law enforcement agents and criminal justice as a loss of state control as an infringement on their national sovereignty and the independence of their legal systems.

13. 13 The Argument Beyond bruised national feelings, the failure to induce foreign country cooperation to combat drug trafficking is largely a function of the structural impediments that are inherent in drug interdiction cooperation between unequal partners; namely the US, the world’s only super- power and the largest consumer of illicit drugs, and Caribbean basin countries who are politically and economically vulnerable, and compared to the US, less exposed to illicit drug consumption.

14. 14 The Argument (contd) American power may coerce smaller countries into accepting drug interdiction treaties but power alone may be insufficient to induce their cooperation (Bartilow, 2000; Bartilow, 2001). Since American wealth and the demand for illicit drugs make the US the primary market for drugs, small countries for which drug trafficking represents less of a security threat may be less inclined to cooperate.

15. 15 The Argument (contd) Therefore, asymmetries in power, per capita wealth and the relative demand for illicit drugs structure the nature of the strategic interactions between the US and Caribbean basin countries and provide a greater incentive for small countries in the region to shirk their cooperative responsibilities with the US in the interdiction of illicit drugs.

16. 16 A simple two-player drug interdiction game. In this game between Big state and Little state we make the following assumptions: 1) Bg > Lg (where Bg is the gain for Big State and Lg is the gain for Little State). 2) Bc > Lc (where Bc is the cost for Big State and Lc is the cost for Little State). 3) Bg – Bc > 0 and Lg – Lc > 0 4) The effectiveness of Little State’s drug interdiction is conditional on Big State’s interdiction.

17. 17 Both States can choose to: 1. Shirk, or 2. Interdict

18. 18 The Payoffs 1. If both states interdict, Big state’s payoff is Bg – Bc Little state’s payoff is Lg – Lc. 2. If Big state interdicts and Little state shirks Big state’s payoff is Bg - Bc - Lc Little state’s payoff is Lg. 3. If Big state shirks and Little state interdicts Big state’s payoff is 0 Little state’s payoff is Lg – Lc – Bc. 4. If both states shirk, Big state’s payoff is -Bg Little state’s payoff is –Lg.

19. 19 Who moves first? 1. Big State Moves First 2. Little State Moves First 3. Both States Move Simultaneously Regardless of who moves first, using backward induction, the Nash equilibrium is: “Big state interdict and Little state shirk.”

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22. 22 Central Hypothesis Our formal model of the two player drug interdiction game generates the following proposition: Bilateral drug interdiction agreement between unequal partners – namely the US and Caribbean Basin governments (CB) - is likely to have a negative effect on narcotic interdiction.

23. 23 Measuring the Effects of Bilateral Counter-Narcotics Agreements on Drug Interdiction We empirically test this proposition by estimating cocaine and marijuana seizures utilizing a time-series cross-sectional analysis of the data that spans the period 1984-2000 and includes all the countries in Central America and the greater Caribbean (except for Cuba).

24. 24 The Primary Explanatory Variable The primary explanatory variable measures the bi-lateral drug interdiction agreements between the US and the CB countries in our sample. The US/CB bi-lateral drug interdiction indicator is a dichotomous variable that measures whether or not CB countries, in any given year, are signatories to a maritime interdiction agreement, a ship rider agreement, an over-flight interdiction agreement or an extradition treaty with the U.S. This variable is coded 1 if a country is party to any of these agreements and 0 otherwise.

25. 25 The Dependent Variables The drug seizure dependent variables are operationalized as the ratio of a country’s drug seizures as a proportion of a country’s law enforcement personnel. For the countries in our sample, it is calculated by dividing a country’s yearly drug seizure of cocaine and marijuana in kilograms by the yearly number of a country’s active law enforcement personnel.

26. 26 Empirical Limitations To test the effect of US/CB bilateral drug interdiction agreement on the level of drug seizures in the region, one must first consider the factors that shape the behavior of drug traffickers – since the behavior of traffickers affect drug seizures. However, due to the fact that drug trafficking is an illicit enterprise, the behavior of the drug trafficker is unobservable and therefore cannot be measured directly. If the trafficker’s behavior could be observed directly then drug trafficking would cease to be a global problem.

27. 27 Empirical Limitations: Spatial Correlation A significant limitation of empirical narcotic interdiction research is that we cannot observe how traffickers adjust their behavior in response to the interdiction measures of law enforcement officials (Crawford et al., 1988). In other words, if Costa Rican law enforcement is rigorous in the patrol of their territorial waters and air space, then traffickers seeking to penetrate the American market could simply move their smuggling operations through Haiti where law enforcement drug surveillance may be less rigorous

28. 28 Empirical Limitations: Spatial Correlation (contd) In essence, empirical research on drug interdiction must address the problem of spatial correlation. This simply means that the interdiction of drugs across countries are related. Our estimation model corrects for spatial correlation by adopting the statistical solution that is offered by Nathaniel Beck and Jonathan Katz (Beck, 2001; Beck and Katz, 1995).

29. 29 Data Imperfection Another significant limitation of empirical narcotic interdiction research is that we cannot observe what portion of the total amount of drugs that is being smuggled is actually seized. High levels of drug seizures may reflect the reality that more rather than less drugs are being smuggled into countries (Bagley, 1989:46-47; Stares, 1996:11). Empirical narcotic interdiction research is therefore limited by imperfect data, which will produce random measurement error. But random measurement error would simply push the coefficients of our central explanatory variables towards zero - lessening the magnitude of their coefficients and thus produce conservative estimates (Kmenta, 1997).

30. 30 Modeling the Incentive Structure of Drug Trafficking Our research design compensates for this data imperfection by controlling for a package of theoretically motivated proxy variables that capture the incentives that shape the underlying level of drug trafficking. These include: geography, per capita national income, and the domestic consumption of illicit drugs, the level of government corruption, the level of economic openness, the level of institutional political openness, and the level of individual political freedoms.

31. 31 Geographic Distance Drug trafficking is as much about acquiring wealth as it is about covering distance. We assume that the geographical distance between drug transit countries in the CB and destination markets in North America is an important aspect of the incentive structure that shape the underlying level of drug trafficking. Traffickers are more likely to move their drugs through CB countries that are closer to the US than CB countries that are further away. All things being equal, CB countries that are closer to the US will be exposed to higher levels of trafficking and are expected to interdict more drugs than countries that are further away from the American market.

32. 32 Coastline The length of a country’s coastline is another aspect of the incentive structure that shapes the level of smuggling. Drug traffickers are more likely to move their drugs through countries with longer coastlines, which reduce the chances for detection by law enforcement than countries with shorter coastlines, which increases the likelihood of detection. All things being equal, CB countries with longer coastlines will be exposed to higher levels of trafficking and are expected to interdict more drugs than countries with shorter coastlines.

33. 33 National Income Per-Capita We assume that the levels of per-capita national income among CB countries are critical aspects of the incentive structure of drug trafficking. All things being equal, since richer countries in the CB are likely to spend more on illicit drugs and they will be exposed to higher levels of trafficking and are expected to interdict more drugs than countries in the region that are poor. This proposition, however, is conditional on the different demand and supply elasticities and market constraints under which cocaine and marijuana traffickers conduct their business (Caulkins, 1994; Wisotsky, 1986). As a result our proposition is more likely to hold true for cocaine interdiction than marijuana interdiction.

34. 34 National Income Per-Capita (contd) Since the street value and financial proceeds are higher for cocaine than marijuana, we expect that CB countries with high levels of per-capita income will be exposed to higher levels of cocaine trafficking and will interdict more cocaine than poorer countries in the region. On the other hand, since the street value and financial proceeds for marijuana are low relative to cocaine (Wisotsky, 1986), we expect that richer countries in the CB will not attract a high level of marijuana trafficking and therefore high levels of per-capita income may have a negative effect on marijuana interdiction. The fact that CB countries serve as drug transit zones for the US market, we control for US per-capita income since the level of interdiction among CB countries is influenced by America’s wealth.

35. 35 Domestic Demand for Illicit Drugs We assume that the level of CB countries domestic appetite for illicit drugs is also an important aspect of the incentive structure of drug trafficking. Since marijuana is more widely produced and consumed throughout the CB, we suspect that the available data sources on illicit drug consumption among users in CB countries may be biased in favor of marijuana users. The strong cultural acceptability and preference for marijuana consumption throughout CB countries has the tendency to decriminalize marijuana while criminalizing cocaine (Campbell, 1987; Chvannes, 1988; Kleiman and Saiger, 1992; MacDonald, 1988; Rubin and Comitas, 1976). Therefore, given the cultural preference for marijuana usage, we expect that illicit drug consumption among CB countries will have a negative effect on marijuana interdiction while having a positive effect on cocaine interdiction. Moreover, the fact that CB countries serve as drug transit zones for the US market, we control for US drug consumption since the level of interdiction among CB countries is influenced by America’s demand for illicit drugs.

36. 36 Government Corruption We assume that the level of a country’s corruption is another aspect of the incentive structure that shapes the level of drug trafficking. Government corruption can ‘grease the wheels’ of drug trafficking by improving the efficiency of smuggling - enabling traffickers to smuggle drugs in and out of countries with impunity (Galtung, 2000; Kaufmann and Wei, 1999; Leff, 1964; Lui, 1985). Drug traffickers are, therefore, more likely to move their drugs through countries where government corruption is embedded in the normal operations of the state and its agents, as opposed to countries where government agents and institutions are relatively clean. Since corruption undermines the integrity of the state and its officials, high levels of corruption is expected to have a negative effect on a government’s ability to interdict drugs.

37. 37 Government Corruption (contd) However, this proposition is conditional on the risk threshold of corruption prone government officials. Since corruption carries the risk of detection and punishment, corruption prone government officials are more likely to accept a bribe payment that exceeds their risk threshold and are more likely to reject a bribe payment that is lower than their risk threshold. Therefore, corruption is expected to have a negative effect on cocaine interdiction since the street value and proceeds from this drug are consistently high enough to effectively exceed the risk threshold of corrupt government officials.

38. 38 Government Corruption (contd) On the other hand, corruption may have a positive effect on marijuana interdiction. Since the street value and proceeds form marijuana may not be high enough to effectively meet or exceed the risk threshold of corrupt government officials, these officials may be more vigilant in marijuana interdiction in order to project an image of integrity and seriousness in combating the drug trade. In short, marijuana traffickers could be disadvantaged in their ability to buy protection from corrupt government officials since they may not meet or exceed the expected bribe payment that is established by wealthier cocaine traffickers. Therefore, we expect that corruption will have a negative effect on cocaine interdiction but have a positive effect on marijuana interdiction.

39. 39 Economic Openness Globalization scholars contended that higher levels of global economic openness in trade and investment facilitates the expansion of the drug industry (Andreas, 2000:15-26; Andreas, 2002; Serrano, 2002; Stares, 1996). We, therefore, assume that a country’s level of economic openness is an essential incentive that shapes the level of drug trafficking. Drug traffickers are more likely to smuggle drugs through countries where the state plays a minor role in regulating the flow of goods, services and people that move across its borders.

40. 40 Economic Openness (contd) As global free markets displace the state in the regulation of trade and migration, the likelihood of detecting drug trafficking is reduced. Greater economic openness attracts drug traffickers since the probability of detection by the state is much lower than if they smuggled drugs through countries where the state played a central role in the regulation of trade and the monitoring of its borders. All things being equal, countries with open economies will be exposed to higher levels of drug trafficking and is expected to interdict more drugs than countries with relatively closed economic systems.

41. 41 Individual Political Freedoms and Civil Liberties The spread of economic globalization has also given rise to the spread of democratization and individual political freedoms (Drake, 1998; Gill, 1996; Mittleman, 1996; Monshipouri, 1995; Rueschemeyer and Evans, 1985). We argue that individual political freedoms, defined in terms of the level of political and civil liberties of citizens, is an important aspect of the incentive structure that shapes the level of drug trafficking. In countries where political and civil liberties are relatively high, citizens are protected from arbitrary arrest, intimidation and searches by the state (Craig, 1980).

42. 42 Individual Political Freedoms and Civil Liberties (contd) While these rights protect the civil liberties of citizens they may also constrain the state’s ability to combat the drug trade. Drug traffickers are, therefore, more likely to smuggle drugs through countries where political rights and civil liberties are relatively high as opposed to countries where individual political freedoms are low and the state is not constrained by the civil liberties of its citizens.

43. 43 Individual Political Freedoms and Civil Liberties (contd) All things being equal, CB countries that enjoy high levels of individual political freedoms and civil liberties will be exposed to a higher level of drug trafficking and will interdict more drugs than countries where individual political freedoms and civil liberties are limited.

44. 44 Individual Political Freedoms and Civil Liberties (contd) Our proposition is conditional on the type of drug in question. High levels of individual freedoms and civil liberties in CB countries may shield cocaine traffickers and users from arbitrary state power and hence may reduce the capability of law enforcement to interdict cocaine. On the other hand, since the cultural tendency among CB countries is to decriminalize marijuana consumption, in countries where political freedoms and civil liberties are high, individuals may be encouraged to take more risks in the consumption and trafficking of marijuana which would result in higher levels of marijuana seizures.

45. 45 Institutional Political Openness Economic globalization has also facilitated the decentralization and the openness of political institutions (Roberts, 1996; Self, 1993; Sheth, 1995). We argue that the openness of a country’s political institutions is another important aspect of the incentive structure that shapes the level of drug trafficking. The more open countries national political institutions become the easier it is for drug traffickers to gain access to political leaders and potentially corrupt the national policy making process. Drug traffickers are therefore more likely to smuggle drugs through countries where national political institutions are relatively open as opposed to countries where political institutions are closed. All things being equal, countries with open political institutions will be exposed to a higher level of drug trafficking and will interdict more drugs than countries with closed political institutions.

46. 46 Potentially Confounding Variables In addition, to the above proxy variables that captures the incentives that shape the underlying level of drug trafficking, we control for potentially confounding influences on the level of drug interdiction (cocaine and marijuana seizures) among CB countries. These variables include: the level of US economic and military assistance to CB countries and the level of cocaine and marijuana seizures among the drug producing Andean countries (Columbia, Bolivia, and Peru) in Latin America.

47. 47 The Level of US Economic and Military Assistance An important carrot of the US ‘certification processes’ is the provision of aid to countries that American policy makers deem to be cooperating with US anti-drug policies. Since US financial assistance is given to countries as an incentive to encourage bilateral cooperation in combating drug trafficking, US aid may have a positive impact on the amount of drugs that recipient countries actually interdict. We, therefore, control for the level of US military and economic assistance to CB countries in our sample. However, as our general theory predicts, we expect that the level of US aid to CB countries will not sufficiently induce their cooperation in drug interdiction and will therefore not have a significant impact on the level of cocaine and marijuana seizures among them.

48. 48 The Level of Andean - South American Drug Interdiction Since CB countries serve as transit zones for drugs that are largely produced in the Andean countries of Latin America, the level of drug seizures that is made by law enforcement personnel in Columbia, Bolivia and Peru also affects the level of CB drug interdiction. We therefore control for the level of Andean drug seizures. We operationalize this variable as the ratio of drug seizures among Andean countries as a proportion of their law enforcement personnel. It is calculated by dividing each Andean country’s yearly drug seizure of cocaine and marijuana by the yearly number of their active law enforcement personnel.

49. 49 The Statistical Model The theoretical model as discussed can be written as a regression equation in which the independent variables are total coast line of CB countries (CBCOASTLINE), CB countries distance from the U.S. (CBDISTANCE), South American drug seizures (ANDEANSEIZURE), per capita purchasing power parity in CB countries (CBINCOME), government corruption in CB countries (CBCORRUPTION), domestic illicit drug consumption in CB countries (CBDRUGCON), domestic illicit drug consumption in the U.S. (USDRUGCON), economic trade openness of CB countries (CBECONOPENNESS), individual political freedom and civil liberties

50. 50 The Statistical Model (contd) in CB countries (CBPOLRIGHTS), institutional political openness in CB countries (CBINSTOPENNESS), U.S. aid to CB countries (USAID), U.S. per capita purchasing power parity (USINCOME), and U.S. bilateral drug interdiction agreement with CB countries (US/CBBIAGREE). The unit of analysis in the statistical model is the nation state where the analysis of the data in each case is cocaine and marijuana interdiction in a given year. In order to prevent negative predicted values for drug interdiction, the level of drug interdiction is a natural log transformation.

51. 51 The Statistical Model (contd) Ln(DRUGINTERDICTIONit) =  +  1CBCOASTLINEit +  2CBDISTANCE1it +  3ANDEANSEIZURESit +  4CBINCOMEit +  5CBCORRUPTIONit +  6CBDRUGCONit +  7USDRUGCONit +  8CBECONOPENNESSit +  9CBPOLRIGHTSit +  10CBINSTOPENNESSit +  11USAIDit +  12USINCOMEit +  13US/CBBIAGREEit + eit. where i is country and t is year. The estimation method is ordinary least squares (OLS) method with panel corrected standard errors (PCSE) (Beck, 2001; Beck and Katz, 1995).

52. 52 The Results Table.1 presents the results of our analysis of the effects of US/CB bi-lateral drug interdiction agreements on cocaine and marijuana seizures among CB countries during 1984 to 2000 using OLS with PCSE estimator