[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
USE AND EFFECT OF UNILATERAL
TRADE SANCTIONS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
MAY 27, 1999
__________
Serial 106-68
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
66-565 CC WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California SANDER M. LEVIN, Michigan
E. CLAY SHAW, Jr., Florida CHARLES B. RANGEL, New York
AMO HOUGHTON, New York RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan MICHAEL R. McNULTY, New York
JIM RAMSTAD, Minnesota WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington XAVIER BECERRA, California
WALLY HERGER, California
JIM NUSSLE, Iowa
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of May 5, 1999, announcing the hearing.................. 2
WITNESSES
U.S. Department of State, Hon. Stuart E. Eizenstat,
Undersecretary of State for Economic, Business, and
Agricultural Affairs........................................... 26
Congressional Budget Office, Richard D. Farmer, Ph.D., Natural
Resources and Commerce Division................................ 96
______
American Business Council of the Gulf Countries, David A. Hamod.. 68
Blumenauer, Hon. Earl, a Representative in Congress from the
State of Oregon................................................ 16
Center for Strategic and International Studies, Sidney Weintraub. 77
Dooley, Hon. Calvin M., a Representative in Congress from the
State of California............................................ 13
Frutarom, Inc., Shirley Christian................................ 54
Gibbons & Company, Hon. Sam M. Gibbons........................... 40
Haass, Richard N., Brookings Institution......................... 100
Idaho Grain Producers Association, Keith Kinzer.................. 47
Lockheed Martin Corporation, and Lockheed-Khrunichev-Energia
International, Inc., Hon. John N. McMahon...................... 63
Nethercutt, Hon. George R., Jr., a Representative in Congress
from the State of Washington................................... 17
Small Business Exporters' Association, and Ellicott Machine
Corporation International, Peter A. Bowe....................... 50
United States International Trade Commission, Robert A. Rogowsky. 82
SUBMISSIONS FOR THE RECORD
American Bar Association, Section of International Law and
Practice, statement............................................ 106
American Farm Bureau Federation, statement....................... 106
Electronic Industries Alliance, Arlington, VA, statement......... 108
European-American Business Council, Willard M. Berry, statement.. 110
Frutarom, Inc., statement........................................ 112
Importers Service Corporation, Jersey City, NJ, Eric Berliner,
letter and attachment.......................................... 112
U.S. Chamber of Commerce, Willard A. Workman, statement.......... 8
USE AND EFFECT OF UNILATERAL TRADE SANCTIONS
----------
THURSDAY, MAY 27, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 11:08 a.m., in
room 1100, Longworth House Office Building, Hon. Philip M.
Crane (Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
May 5, 1999
No. TR-8
Crane Announces Hearing on
the Use and Effect of Unilateral Trade Sanctions
Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade
of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on the use and effect of unilateral
trade sanctions. The hearing will take place on Thursday, May 27, 1999,
in the main Committee hearing room, 1100 Longworth House Office
Building, beginning at 11:00 a.m.
Oral testimony at this hearing will be from both invited and public
witnesses. Invited witnesses will include the Honorable Stuart E.
Eizenstat, Undersecretary of State for Economic, Business, and
Agricultural Affairs. Also, any individual or organization not
scheduled for an oral appearance may submit a written statement for
consideration by the Committee or for inclusion in the printed record
of the hearing.
BACKGROUND:
A number of U.S. laws and executive actions authorize unilateral
economic or trade sanctions on other countries or entities for a
variety of purposes, including: human rights, anti-terrorism, nuclear
non-proliferation, political stability, anti-
narcotics, worker rights, and environmental protection. While these
sanctions are imposed for foreign policy, national security, or other
non-trade reasons, they have consequences on the U.S. economy in terms
of lost trade opportunities for U.S. firms and workers. Studies have
found that U.S. unilateral sanctions cost the U.S. economy $15 to $19
billion per year in lost exports.
In recent years, Congress has passed several unilateral trade
sanctions limiting the ability of U.S. companies to trade with certain
countries, including third party countries or entities involved in
trade with sanctioned countries. For example, the Iran and Libya
Sanctions Act of 1996 (P.L. 104-172) mandates sanctions against foreign
investment in the petroleum sectors of Iran and Libya as well as
exports of weapons, oil equipment, and aviation equipment to Libya. The
Cuban Liberty and Democratic Solidarity Act (P.L. 104-114), commonly
known as ``Helms-Burton'' or the Libertad Act, strengthened the U.S.
embargo against Cuba and established sanctions against certain persons
or entities in third countries involved in trade and investment in
Cuba. Most recently, the International Religious Freedom Act of 1998
(P.L. 105-292) was enacted to provide for the imposition of sanctions
against countries engaged in a pattern of religious persecution.
Other statutes provide discretionary or mandatory authority to the
President to impose unilateral sanctions under certain circumstances.
Among these statutes are the International Emergency Economic Powers
Act (IEEPA, P.L. 95-223, Title II), the International Narcotics Control
Trade Act (P.L. 99-570, Title 9), the International Security and
Development Cooperation Act of 1985 (P.L. 99-83), and the Arms Export
Control Act (AECA). Recent unilateral sanctions imposed by executive
action under IEEPA and other statutes include those invoked against
Burma (Mynamar) in May 1997 and Sudan in November 1997. After India and
Pakistan tested nuclear devices in May 1998, the President implemented
sanctions mandated under the AECA. Subsequently, Congress passed
legislation, P.L. 105-194, exempting for one year AECA restrictions on
financing for food and agricultural exports. In November, President
Clinton eased some economic sanctions using the one-year waiver
authority given to him under the Omnibus Appropriations Act for fiscal
year 1999 (P.L. 105-277).
On April 28, 1999, President Clinton announced a formal policy
change in the way unilateral sanctions are imposed under executive
action. Specifically, the policy change exempts commercial sales of
agricultural commodities and products, medicine, and medical equipment
from new unilateral economic sanctions regimes unless doing so is in
the national interest. With respect to currently embargoed countries,
the President also approved a modification to current licensing policy
to permit, to the extent permitted by law, the case-by-case review,
according to certain specified criteria, of proposals for commercial
sales of agricultural commodities and products, medicine, and medical
equipment to Iran, Libya, and Sudan.
In the 106th Congress, Chairman Crane, together with 72 bipartisan
cosponsors, introduced H.R. 1244, the ``Enhancement of Trade, Security,
and Human Rights Through Sanctions Reform Act,'' to provide a
procedural framework for the consideration of future legislative and
executive sanctions. In addition, H.R. 1244 would amend the AECA to
provide permanent waiver authority to the President with respect to the
sanctions imposed against non-nuclear countries that conduct nuclear
tests.
In announcing the hearing, Chairman Crane stated: ``In recent
years, we have seen a significant increase in the tendency to impose
unilateral trade sanctions in the pursuit of foreign policy or other
non-trade objectives. Often it is hard to see any tangible results of
the sanctions, except in terms of lost opportunities for U.S. exporters
to the benefit of our foreign competitors in the global market and to
the detriment of our businesses, workers, and consumers. Before we
impose unilateral sanctions in the future, we should have a full
understanding of their ramifications and the probability that they will
produce the desired results. Moreover, we should fully explore the
possibility of multilateral sanctions before acting unilaterally to
enhance the likelihood of achieving our goals. I look forward to this
opportunity to learn more about the implications of U.S. unilateral
trade sanctions on U.S. economic interests.''
FOCUS OF THE HEARING:
The focus of the hearing is to examine the use of U.S. unilateral
trade sanctions, including those imposed by legislative and executive
action. The Subcommittee will also assess the impact of such sanctions
on the U.S. economy, businesses, workers, and consumers, as well as
whether recent trade sanctions have achieved their stated goals.
Finally, the Subcommittee will take testimony on the procedural
framework proposed in H.R. 1244 to govern the consideration of future
unilateral economic sanctions to ensure that they actually advance U.S.
interests.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to
Traci Altman or Pete Davila at (202) 225-1721 no later than the close
of business, Thursday, May 20, 1999. The telephone request should be
followed by a formal written request to A.L. Singleton, Chief of Staff,
Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515. The staff of
the Subcommittee on Trade will notify by telephone those scheduled to
appear as soon as possible after the filing deadline. Any questions
concerning a scheduled appearance should be directed to the
Subcommittee on Trade staff at (202) 225-6649.
In view of the limited time available to hear witnesses, the
Subcommittee may not be able to accommodate all requests to be heard.
Those persons and organizations not scheduled for an oral appearance
are encouraged to submit written statements for the record of the
hearing. All persons requesting to be heard, whether they are scheduled
for oral testimony or not, will be notified as soon as possible after
the filing deadline.
Witnesses scheduled to present oral testimony are required to
summarize briefly their written statements in no more than five
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full
written statement of each witness will be included in the printed
record, in accordance with House Rules.
In order to assure the most productive use of the limited amount of
time available to question witnesses, all witnesses scheduled to appear
before the Subcommittee are required to submit 200 copies, along with
an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, of their
prepared statement for review by Members prior to the hearing.
Testimony should arrive at the Subcommittee on Trade office, room 1104
Longworth House Office Building, no later than Tuesday, May 25, 1999.
Failure to do so may result in the witness being denied the opportunity
to testify in person.
WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit at least six (6)
single-spaced copies of their statement, along with an IBM compatible
3.5-inch diskette in WordPerfect 5.1 format, with their name, address,
and hearing date noted on a label, by the close of business, Thursday,
June 10, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways and
Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Trade office, room 1104 Longworth House
Office Building, by the close of business the day before the hearing.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
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format, typed in single space and may not exceed a total of 10 pages
including attachments. Witnesses are advised that the Committee will
rely on electronic submissions for printing the official hearing
record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press,
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
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materials in alternative formats) may be directed to the Committee as
noted above.
Chairman Crane. All right, I think we will come to order
and proceed with our hearing this morning.
We are going to be interrupted, I am told, by a vote in
about one-half hour on the rule on the floor, and then we will
reconvene after that and proceed.
This is a hearing of the Subcommittee on Trade on the use
and effect of unilateral trade sanctions. In recent years,
there has been a growing tendency by both the Congress and the
executive branch to impose unilateral trade sanctions to
enforce foreign-policy or other non-trade goals.
There is little evidence, however, to suggest that
sanctions have achieved their stated goals. Instead, the use of
sanctions has translated into billions of dollars in lost
opportunities for U.S. exporters to the benefit of European,
Japanese, and other foreign competitors, whose home governments
have not bound them by similar sanctions.
And, in fact, I saw a recent report that it is about $20
billion a year that we are losing in trade because of the
unilateral sanctions and thousands and thousands of high-wage
jobs here in the United States.
Unilateral sanctions have long-term ramifications for U.S.
firms and workers in terms of ceding market shares to our
foreign competitors and adversely affecting the reputation of
the United States as a reliable supplier of goods and services.
I believe that the better policy is to pursue our goals through
multilateral fora with our allies and trading partners.
By developing a consensus approach to changing the
offending behavior of the targeted government, we increase the
likelihood of success and ensure that the full brunt of the
sanctions is felt by the targeted government. Experience has
shown us that before we impose unilateral sanctions, we should
think long and hard about the direct effect of such sanctions
on the U.S. economy and the likelihood of success if we act
alone.
Earlier this year, 16 Members of the Ways and Means
Committee, including Chairman Archer, joined me, Congressman
Dooley, and Congressman Manzullo in sponsoring bipartisan
legislation to provide a commonsense framework for the
consideration of future or unilateral trade sanctions. This
legislation, H.R. 1244, the Enhancement of Trade, Security, and
Humans Rights Through Sanctions Reform Act, would not prohibit
the imposition of trade sanctions, but it would establish a
more deliberative and disciplined approach to U.S. sanctions
policy. We currently have 90 cosponsors.
Specifically, H.R. 1244 would ensure that Congress and the
Administration have adequate information about the likely
effectiveness, as well as economic and humanitarian costs, of a
proposed sanction. Moreover, the bill would provide for a
detailed analysis of whether the proposed sanction is the best
tool for achieving U.S. objectives and would establish regular
reporting and sunset
requirements if a sanction is imposed.
Finally, the bill would provide permanent waiver authority
to the President under the Glenn amendment, the provision of
law which required the President the impose sanctions against
India and Pakistan last year.
Overall, I believe that the framework provided by H.R. 1244
would allow us to pause and examine the impact that unilateral
sanctions would have before we rush into what may be a
counterproductive effort.
And I would now like to recognize Mr. Levin--here, let me
remove that.
[Chairman removes paper from Mr. Levin's nameplate.]
Mr. Levin. What did that say?
Chairman Crane. It said, ``Mr. Gibbons, Chairman.''
[Laughter.]
I recognize Mr. Levin, the Ranking Member of the Trade
Subcommittee for an opening statement.
Mr. Levin. Well, Mr. Chairman, I am glad we have called
this--you have called this hearing today on this very important
subject of unilateral trade sanctions. And I am pleased to see
that we have a very distinguished group of witnesses who will
help us with this topic, including several of our colleagues,
including, as you indicated with your sign, the former chairman
of our Committee. I think he deserves better than a paper sign.
[Laughter.]
And the Deputy Secretary of the Treasury-designate Stuart
Eizenstat.
I know that each of our witnesses has given a great deal of
thought as to how we use sanctions as instruments of foreign
policy and how they affect the American economy. In conducting
foreign policy, our country relies upon a wide range of tools.
At the one end of the spectrum is simple jawboning; at the
other is the use of military force.
In between is a variety of diplomatic and economic
incentives and deterrents. Being able to select from an array
of instruments is surely essential to the pursuit of a
sophisticated and effective foreign policy, but at the same
time, we must recognize that there are costs associated with
whatever instruments we employ.
As I know some of today's witnesses will tell us, when it
comes to trade sanctions, the costs are often difficult to
quantify. It is not, though, simply a question of lost
purchases or sales for U.S. enterprises. Sanctions may mean
lost opportunities to develop lucrative business relationships
with enterprises in the targeted country as well as with
enterprises in third countries that wish to do business.
They may also mean increased legal costs for companies
seeking to navigate complex sanction regimes. The ability of
U.S. companies to do business in a formally sanctioned country
also, once those sanctions have been lifted, may entail higher
than usual startup costs. And the simple unpredictability that
comes with some sanctions may be very costly.
The fact that these sanctions may come at a cost to
particular U.S. businesses and to the U.S. economy in general
does not mean they should never be used. However, we should
take those costs into account in deciding whether and how they
should be utilized. And we should weigh those costs against the
goals we are seeking to accomplish and the likelihood that they
can be accomplished.
Unfortunately, it seems that thorough cost-benefit analysis
does not always accompany the imposition of a new sanction.
This is suggested by the proliferation of trade sanctions in
recent years. And we hear testimony in October 1997 from Mr.
Eizenstat on that score.
Additionally, in recent years, we have seen a growing
number of State and local sanctions, usually in the form of
selective purchasing laws, affecting U.S. trade relations.
With the end of the cold war and the increasing
globalization of the economy, it is understandable that trade
sanctions have become a more attractive tool of foreign
economic policy.
Recognizing the use of this tool, we need to assess what
guidelines are or should be followed governing their use. I
expect that the witnesses testifying today will offer
suggestions on how to do that, and we look forward to
discussing this with them.
Mr. Rangel will be here later, I believe. He has been
detained. And I would ask that his statement be entered into
the record.
Chairman Crane. Without objection.
[The opening statement of Mr. Rangel follows:]
Statement of Hon. Charles B. Rangel, a Representative in Congress from
the State of New York
Mr. Chairman, thank you for holding today's hearing on this
important topic. As you know, I have long been interested in
the effectiveness, or lack thereof, of using unilateral trade
sanctions. I believe that there are probably some limited
instances where unilateral trade sanctions are warranted. The
imposition of unilateral sanctions in South Africa was a prime
example of when it is appropriate to use such tools. In that
case, we and the rest of the world held fast to the belief that
such sanctions were morally and universally needed to overcome
the injustices of apartheid.
As the South Africa experience shows, trade sanctions are
sometimes useful and necessary in very limited situations. When
used in appropriate circumstances, they can be effective in
reaching the intended results. However, in the vast majority of
instances where unilateral trade sanctions are applied, I
believe that the intended objectives sought by the imposition
of sanctions is both ambiguous and ineffective. Cuba is a prime
example of sanctions simply not accomplishing the intended
results.
The application of trade sanctions in Cuba was originally
intended to topple the communist government. It was never
intended to harm women, children or the elderly. Unfortunately,
the stated objective has not been met. Fidel Castro is alive
and well and still in power, notwithstanding our best efforts
to implement sanctions. What the unilateral sanctions have done
is to harm the weakest and most vulnerable members of Cuba's
society. Women, children and the elderly are the ones that are
suffering from our trade sanction policies, not Fidel Castro.
In January, the Administration agreed to ease some of the
restrictions placed on our ability to interact and trade with
the Cuban people, out of recognition that we must stop hurting
the very people we are trying to free from this repressive
regime. The new policy eases restrictions on travel to and from
Cuba, and finally re-establishes direct mail service between
our two countries. These may seem like small measures, but they
will have a big impact. It is only by re-establishing ties with
the people of that country--by reaching out to them, rather
than isolating them--that we will bring about an end to the
Castro regime.
As part of its new policy, the Administration also
announced that it would allow commercial sales of agricultural
commodities to non-governmental entities in Cuba. The
Administration's decision to stop using ``food as a tool of
foreign policy'' is the right one. Unfortunately, the announced
policy is lacking in two key areas. As a result, I believe the
intended benefits of this policy change will not be realized by
the people of Cuba.
First, U.S. banks will not be allowed to provide financing
for commercial sales of food. I question whether the sales will
happen unless we allow financing for these limited
transactions.
Second, sales may be made only to private entities. Again,
this limitation creates a significant obstacle to these sales
actually happening, given that there is very little, if any,
private ownership in Cuba, including of farms. In contrast to
its new Cuba policy, the Administration announced that under a
new sanctions policy for other countries, such as Iran, Libya
and Sudan, it will allow agricultural sales to parastatal
entities. I do not understand why we have one policy for Cuba
and another for these other countries. If our intent is to
ensure that the people of these countries have the food they
need to survive, then we must change our policies in a way that
makes that happen. Symbolic gestures will not feed these
people.
Moreover, while the Administration's recent efforts on Cuba
are a step in the right direction, I think we need to do more
now. The use of economic sanctions in Cuba has many drawbacks.
Unilateral sanctions have reduced American corporate
competitiveness, and resulted in a needless backlash of anti-
American sentiment among our allies. Further, our isolationist
policy toward Cuba is inhibiting our ability to work with that
country on drug interdiction efforts. Cuba wants to stop the
flow of drugs from Central and South America through their
country and into ours, but it cannot because it lacks the funds
and equipment it needs. And we cannot give them what they need
because we are too focused on isolating rather than helping.
There is a better way of bringing about political change in
Cuba. Engagement, rather than utilization of an ineffective
unilateral trade sanction, is the better approach. I believe
it's time we all took a good dose of common sense and tried
that approach.
I have offered two pieces of legislation, H.R. 229, which
would end the useless embargo we have against Cuba, and H.R.
230, which would exempt food, medicines, medical supplies,
medical instruments, and medical equipment from the embargo. At
the heart of both pieces of legislation is the goal of helping
the most vulnerable members of Cuban society. For once, Mr.
Chairman, let us be guilty of doing the right thing at the
right time. I hope you will consider holding another hearing to
consider these proposals. I would be honored to work closely
with you in that endeavor.
Mr. Levin. And I would also notice that one witness--note--
that one witness who was invited to appear today at Mr.
Rangel's request, Willard Workman of the U.S. Chamber of
Commerce, will not be able to appear due to scheduling
conflicts. And his written statement is submitted for the
record.
Chairman Crane. Without objection.
[The prepared statement follows:]
Statement of Willard A. Workman, Vice President, International U.S.
Chamber of Commerce
Introduction
The U.S. Chamber is the world's largest federation of
business organizations, representing more than three million
businesses and professional organizations of every size, in
every business sector and in every region of the country. The
Chamber serves as the principal voice of the American business
community. An important function of the Chamber is to represent
the interests of its members before the U.S. Congress, the
Executive Branch, the independent agencies of the federal
government, and the federal courts. The Chamber welcomes this
opportunity to present its views on the use and effect of
unilateral economic sanctions.
Engagement, Not Isolationism, Fosters Positive Change
The Chamber is second to none in its quest for basic human
rights and political and economic freedom. No reasonable or
moral person can countenance the persecution, torture and other
atrocities that are committed around the world against our
fellow human beings, whatever the political, economic, social
or religious pretext. Basic human rights are core American
values. We believe just as strongly in the need to combat other
man-made scourges, such as terrorism, weapons proliferation,
and drug trafficking, that plague us. But we do not believe
that unilateral economic sanctions are an appropriate approach
toward solving these problems.
Throughout the U.S. and around the world, individual
liberty and free enterprise go hand in hand. By their very
presence and operations, American companies and the expatriate
communities that depend on them contribute mightily to
economic, political and religious freedom in their host
countries. Continuing U.S. company presence and engagement
abroad is critical to the inculcation of American civic values.
Evidence of the positive effects of the U.S. presence abounds
worldwide.
In 1980, nearly every country in Latin America, lived under
authoritarian regimes and closed economies. But after years of
economic liberalization and efforts to attract foreign
investment--much of it from the United States--every nation in
Latin America except Cuba is now democratic. While there remain
significant problems and challenges to these democratic systems
in many countries, there is no question that political and
economic liberalization have proceeded together. And our
unilateral policy toward Cuba--the hemisphere's last holdout
against democratic change--has served to reinforce rather than
weaken Castro's dictatorship, and to discourage, rather than
encourage, the democratic changes we all seek.
In eastern Europe and the former Soviet Union, a
combination of economic collapse and a continuing quest for
economic, political and social freedom led to the end of
generations of totalitarian Communist rule. Considerable credit
for this victory is due to the Catholic Church under Pope John
Paul II's leadership and the Solidarity labor movement in
Poland. But at the same time unrelenting exposure to western
culture, economics and politics played a significant role.
Through its business council network, the Chamber federation
and the U.S. business community have had an organized presence
in the former Soviet bloc since at least the Brezhnev era. And
it is through networks such as these that western society is
best able to maintain a lifeline to the forces of reform and
freedom in that part of the world. While progress in the region
is clearly uneven, substantial reforms have taken place in the
Czech Republic, Hungary, Poland and Slovenia. And despite
enormous problems that persist to this day, Russia has cast off
seven decades of Communist rule and continues to move forward
in its own way toward modernity.
In Asia, U.S. trade and investment played significant roles
in fostering the transition away from authoritarianism and
toward democracy in Taiwan and Korea. And in China, U.S.
business presence has resulted in greater job choice for
workers, higher wages and living standards, better workplace
safety and health standards, improved education and training
opportunities, and a host of other benefits sought by workers
in the U.S., China and all over the world. And as hundreds of
millions of Chinese people continue to migrate from the
interior to the coastal regions to take advantage of these
imported economic opportunities, the potential for expanded
U.S. economic, social, cultural influence will be historic.
These workers will make more money, read more western books and
periodicals, and receive greater exposure to western ideals of
social, economic and political reform than their compatriots
who remain isolated. Unilateral restrictions on U.S. firms in
China not only imperil U.S. competitiveness in that country,
but also undermine a principal source of human progress for
nearly one-fourth of the world's people.
In southern Africa, it is precisely the multilateral
character of sanctions against South Africa--rather than a
unilateral, go-it-alone approach--that permitted those
sanctions to have some positive effect. And it should not be
forgotten that the de Klerk regime's concerns over increasing
internal violence were no less important than external economic
sanctions as a motivating force for South Africa's own
homegrown version of glasnost.
Unilateral Sanctions Do Not Work
Recent history is replete with U.S. actions to terminate,
restrict, or impose unilateral conditions on commerce with
other nations for the stated purpose of penalizing various
aspects of other countries' behavior. The United States has
imposed some form of economic or trade sanctions on other
countries more than 120 times in the past 80 years. Over half
of these have been imposed in the last five years. Currently,
the U.S. maintains unilateral economic sanctions of one kind or
another against over seventy countries.
And in virtually all meaningful instances, those actions
failed to alter materially the target countries' objectionable
behavior. Instead, erstwhile ``allies'' castigate U.S. foreign
policy, while the regimes we target gain support and U.S.
businesses and their workers bear the burden of market
opportunities lost to Asian and/or European competitors, whose
own countries have chosen not to embark on similar unilateral
courses of action. Various studies have indicated that
unilateral sanctions have cost the American economy between $15
billion and $20 billion a year in lost export sales, and up to
250,000 export-related jobs. And this may be an understatement,
as it is often difficult to quantify additional business
opportunities that were lost because they were never pursued in
the face of unilateral sanctions.
Moreover, unilateral economic sanctions imposed by the
United States often extract horrific costs when measured by the
adverse effects on the quality of life of the most vulnerable
citizens in targeted countries. The embargo against Cuba is a
case in point: despite a nearly four-decades-long embargo
against that country, Castro is not only still well-established
as head of state, but we maintain restrictions on the sale of
food and medicine to that country that we don't maintain
against much worse regimes, such as Iraq and North Korea.
Other major industrial countries that find themselves
targeted by U.S. sanctions are not sitting still for them. The
European Union has made clear on several occasions that it will
not remain idle in the event sanctions are imposed on its
companies that do business in or with Cuba, Iran and Libya.
In November 1997, Russia's huge natural gas consortium
Gazprom--which controls 40 percent of the world's natural gas--
cancelled a $750 million Eximbank deal that would have
permitted U.S. equipment producers to supply a $2 billion
Gazprom gas field development project. Gazprom took this action
because U.S. policy objected to the fact that the project is in
Iran. Yet, participating French, Russian and Malaysian
companies faced no similar constraints, and U.S. sanctions
policy will do nothing to stop the project.
The continuing unilateral U.S. embargo of Cuba--which was
codified and expanded with the 1996 enactment of the Helms-
Burton legislation--has not only failed to weaken that
country's Communist regime, it has actually permitted that
regime to obtain quasi-martyr status by permitting its subjects
to focus on an external enemy, namely, the United States. With
the enactment of Helms-Burton, the Cuba embargo has mutated
into a secondary boycott of a variety of Canadian, European and
other interests -some of whose governments have actually passed
laws blocking their citizens from complying with this U.S. law
in their countries.
In south Asia, the U.S. threat and subsequent application
of automatic, non-discretionary sanctions failed to deter
either India or Pakistan from taking nuclear proliferation
steps each regarded as indispensable to its national security.
Worse, without flexibility and discretion, the U.S. government
found itself in a very weak position to engage the two states
in order to stabilize one of the most dangerous conflicts on
earth.
Opposition to U.S. sanctions policies is not limited to
business leaders, policy analysts and technocrats. During his
1998 trip to Cuba, Pope John Paul II made very clear his
humanitarian opposition to the U.S. embargo against that
nation. Similarly, with respect to China, the Dalai Lama has
spoken on several occasions of his preference for engagement as
opposed to efforts to isolate that country. And prior to his
1998 visit to the United States, South Korean President Kim Dae
Jung called for a relaxation of the multilateral embargo
against North Korea, on the grounds that those sanctions have
extracted major costs from the North Korean people without
achieving significant changes in their government.
State and Local Economic Sanctions Are Unconstitutional
As problematic as federally-imposed unilateral sanctions
are, they are by no means the only problems with which we must
come to grips.
Increasingly, state and local governments are seeking to
express their displeasure at developments in other countries by
punishing dozens of them--and their industries and companies--
for a variety of human rights, labor, environmental and other
policies and practices. Dozens of state and local measures are
either on the books or awaiting action which, among other
things, would restrict local and state procurement from and/or
investment in companies doing business with targeted countries.
On April 30, 1998 the National Foreign Trade Council
(NFTC), an association representing some 550 companies with
substantial international interests, filed a lawsuit
challenging the constitutionality of a Massachusetts law
prohibiting state agencies and authorities from contracting
with companies that do business in Burma. Doing business is
defined very broadly and would, for example, include U.S.
subsidiaries of foreign parents. This means, for example, that
a U.S. subsidiary of a Japanese parent could be subject to
sanctions--even if the U.S. subsidiary had no connection to
Burma--if the Japanese parent was doing business in Burma, as
allowed under Japanese law.
The NFTC's challenge to the ``Massachusetts Burma law,'' as
it has come to be known, was based on three principles:
1. Responsibility for the conduct rests with the federal
government, and should rest as such, as it is the entire United
States that is targeted for criticism or retaliation by other
countries as a consequence of foreign policy actions taken by
states.
2. The Massachusetts Burma Law also violates the Foreign
Commerce Clause of the United States Constitution, which
prohibits state laws that discriminate against foreign
commerce, burden foreign commerce, or impede the federal
government's ability to ``speak with one voice when regulating
commercial relations with foreign governments.''
3. The Massachusetts Burma law conflicts with and
undermines more limited and responsible federal efforts to
bring about desired changes in Burma's repressive internal
policies. Significantly, those federal efforts include a
commitment to work with other countries in the region, as well
as trading partners, to achieve the desired changes.
The U.S. Chamber views the proliferation of such state and
local initiatives around the country with alarm. For this
reason, we were pleased to endorse the NFTC effort via amici
curiae briefs we filed in July 1998 and again in March 1999. On
November 4, 1998, the U.S. District Court for Massachusetts
agreed with the NFTC and the Chamber and struck down the
Massachusetts law. Application of a patchwork quilt of often
inconsistent sub-federal sanctions on top of our already flawed
federal regime--which will prompt numerous, as yet undefinable
and hostile foreign reactions--threatens to do incalculable
additional harm to our national interests.
Recommended Changes In U.S. Sanctions Policy
U.S. economic sanctions policy is in clear need of
substantial revision. The failure of the automatic sanctions we
imposed on India and Pakistan in the wake of their nuclear
tests is but one indicator of this need. The current system
simply cannot work. Accordingly, to begin coming to terms with
the global realities of the 1990s and beyond, we should refrain
from using unilateral economic sanctions other than to counter
direct threats to the national security of the United States.
There is no evidence that such sanctions have achieved their
stated objectives. The U.S. experience is that the only
measurable consequences of unilateral economic sanctions have
been harmful to American businesses and their workers. Congress
and the Administration should also enact legislation and take
other actions as needed to:
Mandate the application of a series of ``cost-benefit''
measurements and evaluations that must be considered prior to
implementation of economic sanctions. U.S. laws currently
require that we consider the environmental impact of a wide
variety of economic projects and initiatives. U.S. law
identifies preservation of endangered species, maintenance of
clean air and water and other objectives as of such importance
that other activities should be placed on hold if they might
run counter to these objectives. Yet we maintain almost no
comparable standards for protecting our national interests from
potentially unwise foreign policy actions. It makes no sense
for us to assign lower priority to vital U.S. international
interests than we do to our domestic environmental interests.
Accordingly, we should establish and enforce a series of
criteria that require consideration of costs and benefits
before sanctions are imposed. Such criteria should include: (a)
will the sanctions work; (b) what are the resultant economic
costs to U.S. industry and agriculture; (c) will the sanctions
result in a serious backlash against other U.S. humanitarian,
security, and foreign policy objectives; and (d) have other
policy alternatives such as multilateral initiatives or
diplomacy, been tried and failed? Bipartisan legislation
introduced by Chairman Phil Crane, the ``Enhancement of Trade,
Security, and Human Rights through Sanctions Reform Act'' (H.R.
1244), and similar legislation (S. 757) introduced by Senator
Richard Lugar, are models for achieving these objectives.
Economic sanctions activity that should be subject to Crane-
Lugar criteria includes, but is not necessarily limited to: (a)
prohibitions or restrictions on export or import trade with
target countries; (b) prohibitions on investment or other types
of participation in target countries; (c) denial of access to
the benefits of trade and investment development programs, such
as Eximbank, OPIC, the Trade and Development Agency or other
trade agencies identified in the annual National Export
Strategy report; (d) opposition to World Bank, International
Monetary Fund and other multilateral assistance programs in
target countries; (e) secondary boycotts or other penalties
against third countries which permit their nationals to do
business in U.S.-targeted countries; (f) government application
of ``codes of conduct'' to U.S. company behavior; and (g)
unilateral prohibitions or restrictions on U.S. travel by
nationals of targeted countries or third countries doing
business with targeted countries.
Make China's ``Normal Trade Relations'' (NTR) status
permanent. Termination of Normal Trade Relations (previously
known as ``Most-Favored-Nation'' or MFN status) with China
would amount to a draconian economic sanction against the
world's largest nation and one of its fastest growing
economies. U.S. tariffs on imported Chinese products would
skyrocket and Chinese retaliation would be certain and severe.
Our Asian and European competitors would fill in the vacuum
left by American business and we would forfeit countless
opportunities for leaving an American imprint on the
development of China's rapidly evolving society. Congress did
the right thing last summer when it recognized ``Most-Favored-
Nation'' status as normal trade treatment which we provide
virtually to every trading nation. Revised U.S. laws reflect
this changed designation. Still, the annual NTR renewal process
itself casts a continuing pall over China-U.S. commercial
relations--without regard to the actual outcome. Pending China-
U.S. deals are in effect held up or suspended for weeks before
each annual China vote until it can be confirmed that the vote
will be ``positive.'' It is time to enact such legislation as
may be necessary to make permanent that status.
Lift the embargo on Cuba. The ``Cuban Democracy Act''
(incorporated into Public Law 102-484) and the ``Cuban Liberty
and Democratic Solidarity (LIBERTAD) Act of 1995'' (Public Law
104-114) should be repealed. Both statutes are notable for
their isolating effects on U.S. foreign policy and continuing
failure to weaken the Castro regime. The latter, more severe
statute, often referred to as the ``Helms-Burton'' law,
codifies and goes beyond the three-decades-old unilateral U.S.
embargo of Cuba. However, it has failed to weaken Castro's
regime as intended. But its extraterritorial provisions
providing for lawsuits and entry restrictions against
foreigners doing certain business in Cuba have undermined U.S.
interests and reputations in Canada, Europe and elsewhere. As
noted above, both Canada and Europe have enacted blocking
statutes which prohibit compliance with the Helms-Burton law in
their countries.
Repeal section 211 of the fiscal year 1999 supplemental
appropriations law (Public Law 105-277). Enacted on October 21,
1998, this provision prevents enterprises that operate ``in
connection with'' property confiscated by the Cuban government
from registering a trademark in the U.S. or from pursuing any
enforcement of its trademark or trade name by way of treaty
rights, registration rights or common law rights--regardless of
whether the prior owners of such marks maintained them in the
United States in conformity with this country's laws. This
provision prevents U.S. courts from enforcing the referenced
Cuban enterprises' common law rights against false advertising,
trademark or trade name violations, inaccurate product
descriptions, etc. Therefore, with respect to Cuba, U.S. courts
are now prevented from enforcing treaty rights established
under the 1931 Inter-American Convention on Trademarks, to
which both the U.S. and Cuba are signatories. As a result, and
under public international law, Cuba is now relieved of its
1931 treaty obligations to recognize U.S. marks registered in
Cuba. Dozens of U.S. companies have been therefore identified
as registrants of such marks and, as such, are in danger of
losing intellectual property protections to which they were
entitled under the 1931 Convention. Section 211's implications
extend to non-U.S. firms as well. On April 13, Judge Shira
Scheindlin of the U.S. District Court for the Southern District
of New York ruled that Section 211 prevented her recognizing a
Cuban-French joint venture's right to a trade name they
contended was being misused by a Bermudan company defendant.
Lift restrictions on the sale of food, medicine and medical
supplies, medical instruments, and medical equipment. As noted
above, U.S. unilateral economic sanctions do not work, and are
often even injurious to U.S. national interests. But such
sanctions are especially pernicious when they harm women,
children and other particularly vulnerable citizens of another
country, without achieving the objectives we are seeking. There
can be no moral or practical basis for denying our fellow human
beings the opportunity to purchase or receive donations of food
and medicine in the absence of a clear and present danger from
those persons to U.S. national security interests. There are
several bills pending in Congress which would address this
issue either in individual countries (e.g., Cuba) or worldwide
and should receive favorable consideration.
Repeal requirements for unilateral sanctions against Iran
and Libya as contained in the ``Iran and Libya Sanctions Act''
(Public Law 104-472). Among other things, this law (often
referred to by its acronym ILSA) directs the President to
impose extraterritorial U.S. sanctions against foreign firms
engaged above a certain financial threshold in the development
of those countries' petroleum sectors. National security waiver
authority is available. Nevertheless, like the Helms-Burton
law, ILSA has unnecessarily and counterproductively irritated
Europe-U.S. relations without achieving the results its
advocates have sought. At the same time, ILSA has added to the
pall of unreliability that U.S. firms operate under, through no
fault of their own.
Conclusion
As the twenty-first century approaches, global competition
becomes more acute, and U.S. leadership becomes ever more
critical, we as a nation must take stock of our mission, our
capabilities and our limitations. Despite numerous conflicts
and differences we share with other nations, the United States
is still both the sole remaining superpower and an inspiration
to billions of our fellow human beings. The fall of Communism
demonstrates that the market-based American approach to
prosperity is critical to our continuing status, power and
influence. But leadership requires a willingness of others to
follow. If we use our clout to engage other societies as they
aspire to our freedoms and accomplishments, we can grow and
lead indefinitely. But if we insist on adhering to a
restrictive, isolationist model that has no relevance to the
global community, other nations will look for other paths -
paths which may lead not only to tragic consequences for them,
but diminished horizons for us as well.
Going it alone no longer works, if it ever really did. As
President Reagan was fond of repeating, we have a choice: lead,
follow or get out of the way. Through engagement, we can lead.
With unilateral sanctions, we encourage others to push us out
of the way.
Chairman Crane. We have a full schedule today, and in the
interest of time, I would ask our witnesses to limit their oral
testimony to 5 minutes each. We will include your entire
written statement as a part of the permanent record.
Our first panel will consist of our colleagues, Congressman
Cal Dooley of California, Congressman Adam Blumenauer of
Oregon, and we will get Congressman George Nethercutt of
Washington. He is testifying before another Committee right
now. But he will join us later.
And all of them have been working extensively on this issue
and are cosponsors with me of H.R. 1244.
And with that, I yield to you, Mr. Dooley.
STATEMENT OF HON. CALVIN M. DOOLEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Dooley. Well, thank you, Mr. Crane and Mr. Levin. I am
delighted to be joining you here today to testify in support of
H.R. 1244. And I am pleased that we have been able to generate
a broad, bipartisan base of support both in the House and the
Senate for this legislation. And I think the reason we have
been able to is because we actually put together a bill that is
very simple, in that we are trying to improve the way that the
U.S. Government makes decisions to impose unilateral sanctions
and create a commonsense framework for the consideration of
future unilateral sanctions policies.
I won't go into the arguments for that. I think you have
already made those, in terms of the cost to our economy, but I
also think, just recently, in last year in Congress, we acted
exempt agricultural products from sanctions imposed against
India and Pakistan after both countries conducted unauthorized
nuclear testing.
I supported the legislation as did the overwhelming
majority of our Congressional colleagues. And in a follow-up to
that effort, just yesterday the Senate approved legislation
that would exempt agriculture products from sanctions imposed
on foreign nations. And about 2 months ago, the House
Agriculture Committee unanimously approved similar legislation.
And why have we moved to exempt agricultural products from
imposed sanctions? One reason is, is that we clearly understand
that when we impose unilateral sanctions, it is U.S. farmers
and U.S. interests which are harmed by that. And it is
impossible to accept that the interests of U.S. agriculture is
being harmed by the imposition of unilateral sanctions, and not
accept that any other interest and any other commodity that we
are trying to export to a country that is subject to a
unilateral sanctions is not also harming the interests of the
businesses and the working men and women who are employed in
the production of those products.
Our legislation really builds from the basic sentiment that
is embraced by our colleagues in this. It is not something in
any way that I think will restrict the ability of the Congress
to impose unilateral sanctions, but what it will do will ensure
that Members of Congress and the Administration will make a
more informed decision before they vote to impose unilateral
economic sanctions.
You know, we are simply asking the Administration and
Congress to consider whether or not that the sanctions that we
are going to impose will be effective, and also to consider
what are going to be the costs to our domestic interests,
including our economy.
We are going to have the testimony of the Administration,
and Mr. Eizenstat, Under Secretary of State, is going to be
testifying. I want to commend the Administration for their
cooperation in working with us to try to craft a piece of
legislation which they will whole-heartedly support. And I am
confident, at the end of the day we will get there.
I would also like to point out that we have already tried
to address their concerns by increasing the flexibility that
this legislation will provide to the President. We are
modifying that to provide at least a 45-day advance notice on
contract--in contract, the provisions.
And there has been some concern by the Administration that
we need to have parallel disciplines between--for Congress as
well as the executive branch. And I would say that we are
trying to do that also, but I think we all have to recognize
that the Constitution imposes some restrictions that can never
be overcome. And, quite frankly, some of the concerns of the
Administration that Congress always has the ability to amend
legislation is true. And it is not something that this
legislation or any other will be able to, you know, hold future
Congresses to not have the authority which is vested in them by
the Constitution.
But we have tried, I think, to ensure that both Congress
and the executive branch will have to maintain similar
disciplines. And also, some of the concerns of the
Administration as related to whether or not the process and the
public comment period is going to send--give too much time for
a nation that we are considering imposing a sanction on to
respond.
We are also, I think, interested in amending the
legislation to ensure that the 45-day advance notice provision
does not apply to asset forfeitures.
So I think, as long as we maintain, I think, a very
constructive dialog with the Administration, we will have the
ability to put together a piece of legislation that will ensure
that we have a unilateral economic sanctions policy that will
be imposed when it can be effective, but will also do--will
only be imposed with the Members of Congress having the full
knowledge and understanding of what the impacts will be to the
domestic interests of the United States.
[The prepared statement follows:]
Statement of Hon. Calvin M. Dooley, a Representative in Congress from
the State of California
Chairman Crane, Ranking Member Rangel, and Members of the
Committee, thank you for allowing me to testify in support of
H.R. 1244, the Enhancement of Trade, Security and Human Rights
through Sanctions Reform Act. I am pleased to join my
colleagues, Chairman Crane and Phil Manzullo as the lead
sponsors of this important legislation, and that the
legislation has generated broad-based bipartisan support in
both the House and the Senate.
Our message is simple. H.R. 1244 is designed to improve the
way the U.S. government makes decisions to impose unilateral
sanctions and to create a commonsense framework for the
consideration of future unilateral sanctions policy.
In recent years the imposition of unilateral sanctions by
the U.S. has exploded, with more than 75 nations currently
subject to or threatened by U.S. sanctions. While unilateral
economic sanctions have been used as foreign policy tools for
many years, they have proven to be largely ineffective in
achieving their intended goal.
In fact, too often the U.S. imposition of unilateral
sanctions has caused more harm to our economy than to the
economy of the nation the sanctions were intended to punish.
The imposition of unilateral sanctions costs between $15 and
$19 billion annually in U.S. exports and more than 200,000
high-wage jobs, causing serious damage to U.S. trade and
competitiveness in international markets.
Last year, Congress acted to exempt agricultural products
from the sanctions imposed against India and Pakistan after
both countries conducted unauthorized nuclear testing. I
supported the legislation, as did the vast majority of our
congressional colleagues. Yesterday, the Senate approved
legislation that would exempt agricultural products from
sanctions imposed on foreign nations. The House Agriculture
Committee has approved similar legislation. And why have we
moved to exempt agricultural products from imposed sanctions?
One reason is because we don't want U.S. farmers to suffer
adverse economic impacts by losing access to important foreign
markets. Our legislation builds on the basic sentiment that has
been embraced by an overwhelming majority of our colleagues
with regards to agricultural products, and simply argues that
before imposing unilateral sanctions, Members of Congress
should have access to basic information, including the economic
implications of unilateral sanctions for all sectors of our
domestic economy.
Under our sanctions reform legislation, before sanctions
could be imposed by either the Congress or the President an
analysis of the anticipated impact of sanctions to U.S.
economic, foreign policy and humanitarian interests would be
required. The Congressional Budget Office would also be
required to analyze the economic impact that proposed sanctions
would have on American workers, farmers and businesses.
Our current sanctions policy is hurting U.S.
competitiveness in the global marketplace and harming U.S.
workers and businesses more than the country targeted by the
sanctions. When Members of Congress and the Administration
consider the imposition of unilateral sanctions, we need to
have a sound decision-making process to ensure they have
relevant economic data. Our legislation would create a type of
cost-benefit analysis process to ensure that Congress and the
Administration understand the impact and efficacy of proposed
unilateral sanctions.
The sanctions reform legislation would also establish an
annual review of all existing sanctions and their effectiveness
in addressing foreign policy goals, and would exclude food and
medicine exports from future U.S. sanctions.
Let me be clear. Our legislation would not eliminate the
imposition of unilateral sanctions as a foreign policy tool. We
agree that, in some cases, sanctions can be a useful foreign
policy tool. All we would require under this legislation is for
members of Congress to receive the information necessary to
make an informed decision.
We need a common sense approach to unilateral sanctions.
The Enhancement of Trade, Security, and Human Rights through
Sanctions Reform Act seeks to restore an appropriate balance to
U.S. sanctions policy and to ensure that we apply a common
sense framework when consider the imposition of future
unilateral sanctions.
Thank you again for allowing me to testify before you
today. I look forward to working with members of this committee
to advance this important legislation.
Chairman Crane. Thank you, Cal.
And I apologize to you, Earl. I think I called you Adam.
But Earl Blumenauer is our next witness to testify.
STATEMENT OF HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF OREGON
Mr. Blumenauer. Thank you, Mr. Chairman. And I appreciate
your leadership and the momentum that has been built on the
Lugar-Hamilton legislation of the prior session. As Congressman
Dooley mentions, there are more people moving forward.
I think it is a realization that people have that
difficulties, not unlike what we are having with the bombing
campaign in the Balkans, blunt instruments of force often don't
work as planned.
Similarly, blunt instruments of unilateral sanctions often
end up bruising ourselves more than those that we are trying to
punish. And I applaud the Committee and the sponsors of this
legislation for taking a step backward to reassess exactly what
we are trying to accomplish.
As the chairman mentioned, there is significant economic
impact that is associated with these activities, and yet there
is persuasive evidence over the last 20 years that only a
fraction, perhaps one-fifth, of the sanctions initiatives that
we have applied have come anywhere near reaching their intended
goals.
The examples that have been referenced here of what
happened with India and Pakistan, the threat of sanctions did
not deter the behavior that we were concerned about. And yet,
instantly, after there was the threat of the sanctions being
implied--being applied, we had the spectacle of the U.S.
Congress rushing to reverse that pattern of behavior.
The example of Cuba is often cited as perhaps one of the
most stark examples of the failure of a sanctions policy, where
there is evidence that despite over 40 years of sanction, that
Fidel Castro, the object of our frustration, anger, and scorn,
has, if anything, been strengthened by our opposition.
Virtually everyone in the rest of the civilized world
acknowledges that it is sort of a goofy policy.
And many people in this Congress and in our government
acknowledge that we have a policy that is sort of trapped in
amber, not being able to move our objectives forward. Yet we
are trapped, enmeshed in a pattern of established politics,
ethnic and partisan activities, where we are the victim of our
sanctions policy.
We need to establish these facts before we apply sanctions.
We want to know when we ought to apply them; we want to judge
their impact; and we want to know when it is time to stop and
declare victory or admit defeat.
I have had the privilege of meeting with parliamentarians
from other developed countries who have established very
thoughtful approaches to allow their country to answer these
fundamental questions, the same way that H.R. 1244 would allow
us to do in this country.
The discussion is important not just for the future of the
American economy, but it is even more important for our
foreign-policy objectives. The specter of our not being able to
respond in a timely and thoughtful fashion consistent with our
real-world objectives does not strengthen our foreign policy,
it, indeed, weakens it.
At a time when we are seeing the limited results of
military action, we should do everything in our power to
strengthen our other tools. We owe it to our armed forces, to
our constituents, to ourselves to make sure we have the most
effective foreign-policy tools available and that they are used
in a thoughtful fashion.
I believe there is no more important tool that we are going
to discuss in this Congress than being able to revise and
reform our sanctions policy. And I thing it may, indeed, set a
pattern for what Congress should be doing in terms of a
deliberate fashion that could have impacts in other areas of
policy as well.
I commend you for your leadership in having this hearing,
hope that you are able to take rapid and effective--a positive
action, and look forward to supporting you in any way that I
can.
[The prepared statement follows:]
Statement of Hon. Earl Blumenauer, a Representative in Congress from
the State of Oregon
As evidenced by the difficulties we are having with our
bombing campaign in the Balkans, blunt instruments of force
often don't work as planned.
Similarly, the blunt instrument of unilateral sanctions
often ends up bruising ourselves more than those we are trying
to punish.
It is time for us to take a step back and reassess our
thinking about how we can apply our sanctions policy that can
be more in tune with what actually happens in the world.
As half the world's population is currently subject to some
sort of sanction on the part of the United States, it is
estimated that only one-fifth of the sanctions we have applied
in the last 20 years achieved their intended goals.
These actions carry a real economic price. Sanctions cost
upwards of $20 billion per year in lost opportunities, which
translates into a hundreds of thousands of lost American jobs
in the export sector, often among the highest paying. Is this a
price we want to pay to achieve our goals, and is it the best
way to pay it?
There is persuasive evidence that unilateral sanctions
simply do not work. The threat of sanctions not only failed to
deter the nuclear tests in India or Pakistan, but its failure
would have severely punished wheat farmers in the Pacific
Northwest if Congress had not acted quickly to grant a waiver
authority to the President.
The example of Cuba is perhaps one of the most abject
failure of sanctions, where we have imposed them on a
unilateral basis for more than 40 years. Despite this, Castro
continues to thrive and, in fact, is perhaps strengthened by
our opposition to his regime.
We need to establish three facts before we apply sanctions:
(1) when to apply them, (2) how to judge their impact, and (3)
when to stop. I have met parliamentarians from other developed
countries who have established very thoughtful approaches that
allow their countries to answer these fundamental questions.
The best way to guarantee these criteria are met in this
country is to pass the sanctions reform bill that's before this
committee.
This discussion is important for the American economy, but
it is even more important for our foreign policy objectives. A
rational approach to sanctions will make our foreign policy
much more effective in the long-run, while minimizing the
impact on the American worker, consumer and taxpayer.
At a time when we are seeing the results of military
action, we should do everything in our power to strengthen our
other tools. We owe it to our armed forces, our constituents,
and ourselves to make sure that we have the most effective
foreign policy tools available and that they are used in a
thoughtful fashion.
Chairman Crane. Thank you very much, Earl.
And now our final witness, George Nethercutt.
STATEMENT OF HON. GEORGE R. NETHERCUTT, JR., A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF
WASHINGTON
Mr. Nethercutt. Thank you very much, Mr. Chairman and
Members of the Committee. I am delighted to be here with my
colleagues to testify in support of H.R. 1244. I am happy to be
a cosponsor of it. I think it is a fine piece of legislation. I
hope this Committee will move on it very quickly.
I am aware that H.R. 1244 looks ahead, and I think we must
do that as we analyze the American sanctions policy as it
relates to our trade policy. But I also think it is important
to look back and see what we might do in the present tense to
change our policy currently.
I have introduced, Mr. Chairman, a bill called H.R. 212. It
is the Freedom to Market Act. And I come from a region of the
State of Washington that is critically dependent on exports for
agriculture commodities and other products. And so what H.R.
212 does is look to remove current unilateral sanctions with
the hope that we can increase our exports of agriculture
commodities. It also covers the distribution of medical
supplies--food and medicine, essentially--to these countries on
which we have placed unilateral sanctions.
I think the cruelest thing we can do is not only to deny
our farmers the opportunity to export, but we deny people who
are on the other end of that export of food and medicine and
the opportunity to benefit from the kinds of products that we
can provide and the relationships that we can develop with
these countries, even though we may disagree with these
countries that are currently sanctioned in terms of their
foreign policy objectives and their forms of government.
But yet, I think it is a humanitarian effort if we can, as
the chairman wants to do, lift these sanctions and increase
commerce. I think it is good for our country and it has
potential to be very productive and beneficial to these
countries that we currently sanction in terms of exporting
freedom.
The bill that I have introduced, and these I think would be
covered, certainly, by your measure as well, Mr. Chairman,
cover the countries of Iran and Iraq, Libya, Sudan, North
Korea, and Cuba. They aren't friends of ours, but I think that
prohibiting the sale of food and medicine weakens these
regimes--I should say it gives the potential to weaken these
regimes--if they are exposed to the kinds of relationships that
we might develop on the issue, within the limited issues of
agriculture and medicine.
Under Secretary Eizenstat, I believe, will testify here
today or later, has said that the funds spent on agriculture
commodities are not available for other less desirable uses.
So, when the Clinton
administration lifted sanctions on Sudan and Libya and Iran, I
think that was a good signal. It still, I believe--provides
impediments to the clear need to comprehensively lift
sanctions, but it is a good start.
And so I applaud the Administration for doing what it has
done so far. With regard to the agriculture community and the
consequences of sanctions, the evidence is clear that if we did
lift sanctions on these countries on which we currently have
sanctions, that would mean the possibility of a $6 billion
market for our farmers, for our agriculture exports, to say
nothing of the humanitarian potential that would come from
dealing with these countries from the export of medical
supplies.
So I think your bill is a good one, Mr. Chairman, and I do
have a statement for the record that I hope could be included
in its entirety, but I am here to support you and will continue
to urge that sanctions be lifted, and that we continue to study
it, for it is bad policy.
On the Appropriations Committee on which I serve, just last
week on the agriculture bill, we had a very good debate in the
full Committee of Appropriations on the agriculture bill on
lifting sanctions. It was a narrowly-drawn measure, but
Democrats and
Republicans were both for and against for different reasons. It
was a wonderful vote and a wonderful debate.
And it failed 28-24, I'm sorry to say, but we will be back
another day. And we will be back not only on supporting H.R.
212 but supporting your measure, and every opportunity, I
certainly intend to do so.
So thank you for holding this hearing and for allowing me
to testify with my very able colleagues.
[The prepared statement follows:]
Statement of Hon. George R. Nethercutt, Jr., a Representative in
Congress from the State of Washington
Mr. Chairman, Members of the Committee, thank you for the
opportunity to address the use and effect of unilateral trade
sanctions. I appreciate the work you have done on H.R. 1244
this year and I am pleased to be a cosponsor of that important
legislation which will provide a clear mechanism for the
consideration of future sanctions. But while that legislation
looks forward to preventing future unintended consequences of
sanctions, I believe that Congress has a responsibility to also
correct the wrongs of our present sanction policy.
I have introduced H.R. 212, the Freedom to Market Act, and
it serves as an important complement to H.R. 1244. My
legislation would look back to those sanctions that are
particularly burdensome and indefensible--those on food and
medicine--and prohibit all such unilateral sanctions, subject
to a national security waiver from the President. This
legislation merely allows our farmers to have equal access in
markets where our allies have gladly replaced us as a supplier
of food.
H.R. 212 would lift sanctions on such countries as Iran,
Iraq, Libya, Sudan, North Korea and Cuba. While these states
may not be friends of the United States, we should discard the
illusion that prohibiting the sale of food and medicine weakens
these regimes in any way. As Undersecretary Eizenstat has said,
funds spent on agricultural commodities are not available for
other less desirable uses.
I was pleased to see the Clinton Administration's tacit
endorsement of such legislation in the recent dramatic shift in
economic sanctions policy. The details are still being
finalized, but some sales of food and medicine to Iran, Sudan
and Libya will now be permitted. But even as this is a move
forward, it is very slight progress, for the Office of Foreign
Asset Control will still review sales to these states on a
case-by-case basis. Agricultural exporters seeking to develop a
long-term relationship will be hard pressed to do so if the
bureaucracy of the Treasury Department must consider each and
every sale.
A recent CBO study on this issue concluded that sanctions
have had a negligible effect on the overall U.S. economy. I
question that conclusion but can testify to the fact that
specific sectors of the economy feel very acutely the effects
of sanctions. The agricultural community is particularly
reliant on exports and smaller international markets mean lower
prices for our producers.
In 1996, the untapped agricultural market in unilaterally
sanctioned states was worth more than $6 billion according to
USDA, and the demand touches every U.S. agricultural sector,
with a potential for sales of corn, rice, wheat, vegetable
oils, meat products, sugar and milk. The enormous market
potential was demonstrated following the recent Presidential
decision on Iran sanctions, allowing an American exporter to
bid on a $500 million sale of wheat and sugar. Similarly, last
year, when the Congress passed legislation lifting sanctions on
Pakistan, our wheat farmers were rewarded with a substantial
sale. These markets are particularly significant when one looks
at severely depressed prices throughout commodity markets. A
week ago Congress approved an emergency spending measure for
farmers, but I believe that simply expanding the available
export market will help to make such aid less necessary.
Beyond the immediate costs of lost sales due to sanctions
are the opportunity costs. The President's Export Council
concluded that unilateral sanctions create advantages for
foreign competitors, magnify uncertainty about the availability
of U.S. goods and raise questions about the reliability of our
suppliers. Wheat farmers in my district are still feeling the
consequences of the short-sighted grain embargo of the Soviet
Union in 1980, as the U.S. has yet to reclaim the market share
we once held. Our agricultural competitors are consistent in
not sanctioning food and buyers seeking stable supplies are
less likely to buy from the United States.
I would also point to an important and little realized
consequence of our sanctions policy. Single-desk exporters in
Canada and Australia can presently take advantage of lessened
competition brought by the removal of U.S. traders to charge
higher-than-prevailing market rates. Competitors can then
underbid the U.S. in other foreign markets, where the U.S.
legally can try to compete. In effect, our sanctions policy
denies our farmers access to both markets.
It should not be the policy of the U.S. government to deny
sales of food and medicine to any country. A growing
recognition of the significant economic and humanitarian costs
of our policy is leading Members to reevaluate such sanction.
Last week, the House Appropriations Committee voted on an
amendment to repeal such sanctions and this week the Senate
Agriculture Committee passed a bill to the same effect. I
appreciate the work and attention of the Members of this
Subcommittee on this important issue and thank you for the
opportunity to testify this morning.
Chairman Crane. Well, we thank you, George. And your
written statement will be made a part of the permanent record.
And I want to express appreciation to all of you. It's not
a Democrat or Republican issue; it's what is in the best
interest of this country. But it is also what is in the best
interest of some of our trading partners.
For example, who benefited from the sanctions against Fidel
Castro? Fidel Castro.
And we were the ones that got hurt by that, coupled with
the working Cuban people. They are the ones who have paid the
price for it. And I would hope that we would give more
consideration before jumping to one of those immediate
responses to rogues throughout the world.
Let me ask you guys a question: Should the President have
the flexibility to tailor sanctions to meet the intended goal,
or do you think Congress should establish some clear guidelines
on the sanctions to be imposed?
This question is for all of you.
Mr. Nethercutt. Well, let me start to say I think the
Congress should establish a policy. And again, I will be a
little self-serving in terms of H.R. 212. What we do is allow
the President to re-
impose sanctions if sales of food and medicine are deemed a
national security threat. I think that is the kind of
flexibility we want to leave the President, but I think
Congress should establish the policy.
Chairman Crane. Cal.
Mr. Dooley. I would just state that I think that we have,
you know, struck an appropriate balance with giving the
President the flexibility. The real question would be, you
know, whether it is a national-security issue or national-
interest issue and what is the definition between those two to
give the President the adequate authority.
The administration has expressed some concerns in the past
that under a national security that they might not have
adequate flexibility. But I would almost, you know, ask the
Administration, of any unilateral sanctions that were imposed
by the Administration over the past 20 years, which one of
those would not have fallen under the national-security
exemption and waiver that we have included in the legislation.
And it is from my assessment, none would have--all of them
would have been under that waiver authority that is included in
the legislation. But I know Senator Lugar has been interested.
We have been communicating with the Administration. You know,
there needs to be, you know, further consideration given to
that. You know, I am willing to do it, but I also think we need
to be honest with ourselves too and really look back from a
historical perspective and see just when would we have
handcuffed the Administration.
Chairman Crane. Thank you, Cal. Earl.
Mr. Blumenauer. My strong personal bias is that we ought to
be dealing with broad guidelines. As much respect as I have for
the institution, what I have seen is I do believe that the more
surgical and precise efforts ought to be left to the
Administration. We get in trouble in a whole host of ways when
we try and go beyond our ability to have broad guidelines.
And I come down firmly in terms of establishing the goals
and direction, but not trying to go too far. I think we bite
ourselves.
Chairman Crane. Well, I couldn't agree with you more. I
mean, imposing sanctions on the sale of military goods, that's
one thing, but especially in the critical, basic areas, like
food and medicine, those are essential. And you don't want to
cut them off. And, ideally, you don't want to cut off more than
that because there are opportunities for those folks as well as
here. And you can't blame the people always for a tyrant's
behavior.
Mr. Levin.
Mr. Levin. Well we are kind of re-starting the dialog. So
let me if I might just make a couple of points, and then
perhaps we should move on. We'll have plenty of time to talk
about this back and forth.
Two points. I agree very much we should re-examine our
policies regarding sanctions, trade sanctions. Indeed, as Mr.
Crane knows and others, I am in favor of looking at all of our
trade policies in a fresh way. And I hope everybody will join
in doing that and not limit it to the issue of trade sanctions.
Second, I would urge that we not oversimplify this because
I think if we do, there won't be a fruitful debate. It will
kind of polarize people right at the beginning. In that regard,
I would point to, for example. If this becomes an issue
revolving around our policy vis-a-vis Cuba, I am not sure we
will have a very illuminating discussion. I don't think you can
look at our policies vis-a-vis Cuba only in terms of whether
Fidel Castro is still there. I am sure that proponents of the
sanctions would point to the fact that every other nation in
Latin America is today a democracy.
And I am not suggesting that flows strictly or perhaps even
essentially from our policy vis-a-vis Cuba, but I just caution
that I think there is a danger in just zeroing in on Cuba and
oversimplifying and saying Cuba, Castro is still there,
therefore we never should have imposed sanctions.
I also think we need to take a balanced view as to the
history of sanctions, including how they worked in relationship
to South Africa, which became multilateral sanctions. But if it
is going to become an argument whether sanctions ever work, I
don't think it will be a particularly productive discussion.
I do think we need a more comprehensive look at the whole
history of imposition of sanctions, and look at their failures
in many, many respects as well as in some cases where they may
have worked.
So, your testimony has helped to re-ignite this discussion,
and I simply want to urge that we adopt an ability to take a
fresh look at all of our trade policies, No. 1, and No. 2, we
do avoid overstating or oversimplification because trade issues
become so polarized usually. And I don't think this issue
deserves that, it deserves better.
Thank you, Mr. Chairman.
Mr. Dooley. Mr. Chairman, if I may just briefly respond.
Mr. Levin, I agree with you whole-heartedly, and I want to make
sure that you appreciate the legislation that we are talking
about today is only prospective and that we realize that that
would be the appropriate focus now, at this time, to look in
terms of how do we impose a new process that gives Congress
more time to consider more information on the imposition of
unilateral sanctions as we look forward.
And we have thus not dealt with looking back at existing
sanctions that are put in place. And, in large part, out of,
you know, sensitivity to some of the, you know, considerations
and the real strong convictions that many of our colleagues
feel with Cuba and other countries that we have imposed
sanctions on.
Mr. Levin. Let me just say, I think the effect would be
prospective, but inevitably we are going to look backward to
judge what would be a good future policy. And I just think when
we do that, for example, and I will finish, I think if the
proposed legislation were in place, had been in place several
decades ago, I am not sure our policy vis-a-vis Cuba would be
any different.
But I don't want to focus only on that. I am just
suggesting that we take, indeed, a comprehensive look at this
and not choose up sides automatically as too often happens on
trade issues. We need a more broad, broader, a more
comprehensive intelligent discussion.
Chairman Crane. Well, let me add just a footnote.
Multilateral sanctions can be, in fact, very effective. The
question is the efficacy of imposing unilateral sanctions when
the rest of the world is out there ready to fill that void.
Mr. Levin. That is a problem, but sometimes multilateral
sanctions follow unilateral sanctions. But I agree, unilateral
sanctions have the thorniness that often other countries simply
step into the vacuum that we have left. And that is surely a
consideration.
Chairman Crane. Ms. Dunn.
Ms. Dunn. Thank you very much, Mr. Chairman. And it is
great to welcome you gentlemen to this Committee. This hearing
today is about something that has concerned a lot of us over
the last few years. And Chairman Crane has been very helpful in
convening people who have focused on this issue to try to
explain some very complicated parts of this whole sanctions
issue.
I would like to ask Mr. Nethercutt, who is from my State of
Washington and did such great work on that sanctions issue when
something like a third of the wheat from our part of the
country was precluded from being sold in Pakistan and India,
when that unilateral was called by the President. In your
written testimony, I want to just read something you have
written and maybe ask you to expand on this. You say:
I would also point to an important little realized
consequence of our sanctions policy. Single-desk exporters in
Canada and Australia are currently taking advantage of lessened
competition brought by the removal of U.S. traders to charge
higher than prevailing market rates, competitors can then
underbid the United States in other foreign markets where the
United States legally can try to compete. In effect, our
sanctions policy denies our farmers access to both markets.
And I wonder if you would take a minute or two and expand
on this please.
Mr. Nethercutt. Well, thank you for asking. That is true,
especially if it is agriculture because you will have Canada,
who can sell peas, for example, to Cuba, charging a higher
price for peas than the market would bear, but they can sell
peas to Cuba, for example, and our farmers cannot. And so
therefore, they get a higher price back from Cuba for their
peas and then when we bid on a sale of wheat, for example, in
Pakistan, which we have had a wonderful relationship with over
the years in terms of a reliable trading partner, they can
underbid us there.
So they make money in Cuba in order to underbid us on a
commodity sale that we are competing with in a country that is
not sanctioned. So we can't sell our peas to Cuba and compete
there, and then we are competitively disadvantaged in Pakistan,
for
example, on another commodity.
So it is a vicious cycle for our farmers, and they are
terribly frustrated. They want to be able to market around the
world agriculture products and be able to complete with other
countries that are not sanctioned by their countries and their
governments.
Ms. Dunn. Thanks very much, Mr. Nethercutt.
I wanted to ask all you gentlemen--right now, we are having
a big debate over trade with the PRC, and we have had some
problems lately. This has been a long and complicated
relationship. Lots of rocks in the road.
But many of us, and I am included in this, believe that we
can de-couple the issues of trade, which is a business
relationship, with the other problems that we might be having
with that nation, like human rights violations and intellectual
property piracy and the straits around island of Taipei for
example, and the most recent bombing incident, and, obviously,
the security risks.
If we can de-couple trade from the rest of our relationship
with China, why can't we also do that with a country like Cuba?
Mr. Dooley. Well, I would, Ms. Dunn, suggest we should. Is
that the policy, every time this country historically has
engaged in a policy of economic engagement, which has
facilitated the development of a particular economy, which has
resulted in an increase in per-capita GDP that has, with almost
without exception, been associated with greater personal
freedoms, whether it be human rights, whether it be religious
freedoms, and greater movement toward democracy in that
country--and I think we see, time and time examples of that.
And thus maintaining a policy of economic engagement with China
is, I think, in the longer term interest of the United States
in building a relationship that actually could have greater
influence on the military threat that they might pose.
And I would also suggest a policy similar--of that type of
policy with Cuba would also manifest itself in greater progress
toward human rights and greater democracy in Cuba.
Mr. Blumenauer. I only hope that people can be able to
separate those issues as you describe with China. I am not
quite as sanguine, and I am actually very apprehensive about
what is going to happen in this chamber in the next couple of
months. But I agree with your assessment.
Mr. Nethercutt. Let me just quickly add, and I agree
basically with these witnesses' testimony. Cuba is a little
different because China has some economic capability. I don't
believe Cuba does. In other words, I don't know that we would
want to grant Cuba as we do Pakistan, for example, some credits
under our USDA, current USDA policy as it relates to
agriculture because that is probably a very bad credit risk.
And Cuba, to my knowledge, doesn't have much in the way of
capital in order to buy peas from us particularly.
So, notwithstanding the Canadian experience that I have
mentioned, Cuba, it seems to me, is a little different in terms
of their economic viability relative to China.
But conceptually I think it is a very hard case to
distinguish. The idea that Cuba is somehow different than the
other countries on which, with which we would like to do
business, which are sanctioned, then I think that de-coupling
makes some sense.
Mr. Levin. Let me just finish up, Mr. Chairman, if I may.
Then what is the answer with Cuba, where all of us want to
strangle a terrible dictator who has brought horrible burdens
on his people since 1959? How do we move to end that regime? Do
we move to end it? And, if so, what ought we to be doing if we
were not using unilateral sanctions?
Mr. Blumenauer. Well, I think time is our best ally there
in terms of the aging of Mr. Castro and to the extent that it
is personalized. But it just seems to me that we ought to be
able to have the courage as a country to have the faith in the
commercial relationship to be able to build on it.
I just agree, identify with what Mr. Dooley said in terms
of the force of the economic interaction has worked
marvelously, and I would hope that we would have the courage as
a country to try to advance it.
Mr. Nethercutt. Let me just say, I think, perhaps, evidence
that relief from sanctions would provide relief from the regime
is the best evidence that we could have. As Earl says, we could
wait and then deal with the next generation of leadership in
Cuba, but to the extent that there is an opportunity to show
that lifting sanctions and having some economic relationship
would weaken Castro, then I think it is in our best interest to
explore that opportunity.
Mr. Dooley. I want to just add that, you know, the most
potent weapon the United States has in expanding democracy
throughout the world is not our military might, it is, in fact,
our economic might. And lifting the unilateral sanctions we
have on Cuba, you know, engaging them economically, I think is
going to give far greater returns in terms of securing greater
democracy in Cuba, greater personal freedoms for the citizens
in Cuba.
And historically, you cannot demonstrate hardly any example
where this hasn't been true in the past. And I think we have a
policy, foreign policy with Cuba, is wait until Castro dies,
and I don't think that is the most responsible policy we should
have as a country.
Chairman Crane. Mr. Rangel.
Mr. Rangel. Let me thank you, Mr. Chairman, for focusing on
the effectiveness of unilateral trade sanctions. And I want to
thank my colleagues for the attention they have given this
controversial subject matter. I don't really see how we can
determine what policy we would like to see in the future
without reviewing existing and past policies, especially that
as it relates to Cuba.
If we are trying to correct and give guidance to our
President, certainly we have to be able to focus on where we
have a unilateral sanction that has been a total disaster and
has not only not toppled a communist government but has brought
us embarrassment throughout the entire international community,
besides, of course, loss of revenue.
It would seem to me, that as we review this, that we should
be concerned about the health of children that are denied food
or the sick that are denied medicine.
And being a Korean veteran, I cannot for the life of me see
how we can have more hatred for the dictator in Cuba than the
North Koreans and the North Vietnam dictators, and, certainly,
the brutality that has been displayed by the communist Chinese.
I think that review of Cuba is long overdue, and they
cannot possibly be considered a threat to our national
security. And we have to be very sensitive about the emotional
feelings of our colleagues always, but not at the expense of
our national security.
So I think it is good, Mr. Chairman, that you once again
provided the leadership on this subject matter, and our
colleagues would take the time to prepare testimony and
participate. And I hope that this is just the beginning, not
just in legislation but in trying to encourage this
administration to change our policy toward Cuba.
Thank you very much.
Chairman Crane. Thank you, Mr. Rangel. And next is Mr.
Becerra.
Mr. Becerra. Mr. Chairman, thank you and thank my
colleagues for taking the time to make some constructive
statements on this issue. I think most of the questions I would
have been interested in asking have been addressed. I will only
make one additional comment.
With regard to Cuba--such a dynamic issue--and it involves
much more than just the politics or even the economics of these
trade sanctions we have had on the country for quite some time.
But it certainly is a case in point of why legislation as you
posed probably carries a great deal of weight and may have some
chance in the future of succeeding if we work it the right way.
Certainly the issue of unilateral sanctions has to be
addressed, and I would hope that we are able, as Mr. Levin
said, to try to remove some of the clutter in the debate and
focus on really the
legitimate questions about how we use our economic leverage to
try to pursue policies. And certainly among those questions
will have to be how we try to engage other countries to try to
join with us, if indeed we ever get to the point of believing
sanctions of some sort can work.
I think it is becoming very clear to most that multilateral
sanctions can work. It also is becoming very clear that
unilateral sanctions are very difficult to enforce and,
certainly, when it is done at the expense of a lot of our own
sectors of our society and economy, it ultimately damages us
probably more than it does the country we are trying to
sanction.
So I appreciate all the comments that have been made by my
colleagues, and, Mr. Chairman, I would yield back the time.
Chairman Crane. Mr. Herger.
Mr. Herger. Thank you, Mr. Chairman. I want to thank each
of you, each of my colleagues, for your testimony, for the work
that you are doing, which I think is very positive, very
constructive. This is a debate that has to proceed here in this
nation, and I want to lend my support to what you are doing
and, again, commend you and thank you.
Chairman Crane. And Mr. Neal.
Mr. Neal. Just a quick comment: I had a chance to travel to
Cuba with the Pope, and Mr. Rangel was there as well. I think
that the argument that is being made by the panel, particularly
by Mr. Dooley, is right on target.
Chairman Crane. Well, let me express appreciation to all of
you for your efforts. And we still have our work cut out for
us, but continue down the path. We are headed in the right
direction, and we are getting increasing support on a
bipartisan basis constantly.
So thank you, gentlemen. And you are now excused, and I
would like to invite our next witness to the dais, the
Honorable Stuart Eizenstat, Under Secretary of State for
Economic Business and
Agricultural Affairs at the U.S. Department of State.
And notwithstanding the fact that we are temporarily
adjourned over on the floor, we don't know exactly what the
schedule holds. So if you could try and condense your verbal
statement to in the neighborhood of 5 minutes, any printed
statement will be made a part of the permanent record.
Please proceed.
STATEMENT OF HON. STUART E. EIZENSTAT, UNDER SECRETARY OF STATE
FOR ECONOMIC, BUSINESS, AND AGRICULTURAL AFFAIRS, U.S.
DEPARTMENT OF STATE
Mr. Eizenstat. Thank you, Mr. Chairman, and I very much
appreciate your holding this hearing and your leadership on
this issue.
Properly designed, implemented, and applied as a part of a
coherent strategy, sanctions are a valuable tool for enforcing
international norms and protecting our national interests. At
the same time, they are a blunt instrument. They are not a
panacea, and they are not cost-free as your own Congressional
Budget Office recently reported.
Indeed, used inappropriately, they can impede the
attainment of our objective and come at a significant cost to
business and agriculture, and to policy objectives of the
United States. We believe that our use of sanctions should be
governed by a number of common-sense principles.
First is effectiveness. We should have a realistic
expectation that the sanctions measures will help in achieving
their desired result, that is, changing the conduct of the
target country. Ineffective sanctions send a message of U.S.
irrelevance, not U.S. resolve.
Second, unilateral economic sanctions should not be a first
resort. We should first aggressively pursue available
diplomatic options to change the conduct of a country in
question. We should turn to sanctions only after other options
have failed.
Third, sanctions are most effective when they have broad,
multilateral support. The history of our use of unilateral
sanctions shows that in the majority of cases, they failed to
change the conduct of the target country or, at best, were a
contributory but not necessarily decisive factor in securing
the changes of behavior we seek.
In contrast, multilateral sanctions exert more
international pressure and do less damage to our own interests
because other countries and companies from other countries are
involved.
Nonetheless, there will be instances when our diplomacy
will not succeed and when we cannot build a multilateral regime
and we must be prepared to act unilaterally.
Fourth, flexibility of application is absolutely essential
if we are to use sanctions effectively. When we do act, Mr.
Chairman and Members of the Committee, unilaterally, we should
do so with a cost-gain analysis, with making sure that
effectiveness is likely.
Flexibility is, again, absolutely essential. Congress and
the executive branch share constitutional responsibility for
shaping our trade and foreign policy, but it is the President
who is responsible for day-to-day conduct of that policy.
Sanctions legislation should therefore set forth broad
objectives but allow flexibility to respond to changing and
evolving situations, and give the President the necessary
authority to tailor specific U.S. actions to meet our foreign
policy objectives.
Ultimately, only the President can weigh all the issues at
stake and tailor our response to a specific situation.
We support a single national-interest-waiver standard
applicable to all future sanctions legislation, and Mr.
President--Mr. Chairman, this is perhaps the single most
important feature that we would insist on in any legislation.
Our experience with the Glenn amendment sanctions, the
Libertad Act, and the Iran-Libya Sanctions Act underscores the
importance of flexibility in achieving the purposes of those
Acts.
For example, with Helms-Burton, the exercise of our title
III waiver authority led the European Union to tie concrete
improvement of its relations with Cuba to fundamental changes
in respect to human rights and political freedoms there. And
they have since spoken out much more forcefully in support of
democracy and human rights.
With these general principles in mind, we have suggested an
approach to sanctions reform that we believe would be
productive in achieving the improved discipline on the use of
sanctions by Congress and the executive branch. Many of our
views are close to those in H.R. 1244, but we have some
important differences with those bills.
We have proposed appropriate and flexible guidelines, many
of which would be taken from the provisions of your bill, Mr.
Chairman, to govern our use of discretionary executive-branch
unilateral economic sanctions. The executive branch is willing
to consider appropriate guidelines that would apply to future
imposition of sanctions under IEEPA as well as discretionary
sanctions under future sanctions laws passed by Congress.
If I may now talk about some of the concerns we have. The
Crane bill does not provide comparable constraints on Congress
and the executive branch. Congress can always pass a change in
its own rules or simply a law saying, notwithstanding any other
provision of law, therefore, end any binding authority on
itself. We believe there ought to be symmetry between what you
yourself can impose on yourself and what you try to prescribe
for the executive branch.
We believe that flexibility accompanied by national-
interest waiver authority applicable to all future unilateral
sanctions legislation is the single most essential element to
make sanctions reform work. The President should be authorized
to refrain from imposing or taking any action that would result
in the imposition of any unilateral economic sanction and be
authorized to suspend or terminate the application of such a
sanction based on a national-interest determination.
Now your bill, in contrast, does say that it should be the
policy of Congress that they should provide such national-
interest waiver authority, but the bill we believe must go
further and include a stand-alone provision allowing national-
interest waiver authority to apply to all future unilateral
sanctions legislation unless Congress acts specifically to
exclude it.
We agree that Congress should also have a role to play in
this decision. Thus we have suggested an advance notification
requirement before a national-interest waiver authority is
exercised by the President, and then the inclusion of an
expedited procedure to allow Congress to pass legislation
disapproving any waiver authority within a certain number of
days.
Many of the restrictions in H.R. 1244 are quite inflexible.
It is critical for us that each procedural constraint in the
bill should permit discretion beyond just procedural waiver
authority. For example, the 45-day-notice provision, contract
sanctity, sunset clause should all have discretion.
An example, with 45-day-notice provision, is that if this
was done publicly, it would provide the target country or
entity warning that we were going to try to impose a sanction
or freeze an asset, giving them time to restructure their
business and remove their assets from the United States.
So we would like to work with you to deal with these
procedural hurdles, make them less inflexible, but critically,
critically, critically, it is also important as title III of
Helms-Burton has, as section 9(c) and 4(c) of ILSA have, that
there be national-interest waiver authority on the sanction
itself.
Your bill would also prohibit restrictions on the export
financing support of provision of medicine, medical equipment,
medical supplies, food, or other agricultural commodities. In
general, this is largely consistent with our April 28
announcement; however, that announcement indicated, and we
would hope your legislation would build in, a provision that
would allow the President under compelling circumstances not to
permit this waiver.
For example, where the offending is using the import of
food and medicine as an internal political tool, where the
regime or its officials derive unjustified economic benefit, or
where indeed we are engaged in armed conflict with that regime.
Here too, the President must be given the flexibility to
tailor and use sanctions, including those on food and medicine,
as appropriate in any particular circumstance, although, again,
as we announced on April 28, we have changed the presumption so
that food and medicine should generally not be used as a tool
for sanctions.
We very much look forward to working with you, Mr. Chairman
and Members of your Committee to craft an effective sanctions
reform package in 1999. We likewise, as you and so many of your
members have indicated, feel that it is time to look at this
area and put more rationality into our unilateral sanctions
regime.
Thank you very much, Mr. Chairman, and thank you for your
leadership.
[The prepared statement follows:]
Statement of Hon. Stuart E. Eizenstat, Under Secretary of State for
Economic, Business, and Agricultural Affairs, U.S. Department of State
Mr. Chairman, I was pleased to see that Congress will again
examine the issue of sanctions reform. As you know I have
testified on this a number of times including before the Ways
and Means Committee on October 23, 1997, the International
Relations Committee on June 3, 1998, the Lott Bipartisan
Working Group on Economic Sanctions on September 8, 1998 and,
most recently, the Senate Agricultural Committee on May 11.
Various pieces of legislation have already been introduced in
both the House and Senate on several aspects of our use of
sanctions, most notably the bills introduced by Congressman
Crane and Senator Lugar.
Our view is clear. Properly designed, implemented and
applied as a part of a coherent strategy, sanctions--including
economic sanctions--are a valuable tool for enforcing
international norms and protecting our national interests. At
the same time, sanctions are a blunt instrument. They are not a
panacea nor are they cost free. Indeed, used inappropriately,
they can impede the attainment of our objective and come at a
significant cost to other U.S. policy objectives.
As you know, Mr. Chairman, we believe that our use of
sanctions should be governed by a number of common sense
principles. I first spelled out these principles in testimony
before the Ways and Means Trade Subcommittee in October, 1997.
The first principle is a test in effectiveness. We should
have a realistic expectation that the sanctions measures will
help in achieving their desired result, changing the conduct of
the target country. Ineffective sanctions do not send a message
of U.S. resolve or U.S. commitment. Rather, they send a message
of U.S. irrelevance.
Second, unilateral economic sanctions should not be a first
resort. We should first aggressively pursue all available
diplomatic options. In general, we should turn to sanctions
only after other options have failed or have been judged
inadequate or inappropriate.
Third, sanctions are most effective when they have broad
multilateral support. The history of our use of unilateral
sanctions shows that in the majority of cases they fail to
change the conduct of the targeted country or, at best, are a
contributory but probably not a decisive factor in securing the
changes of behavior or policy that we seek. Multilateral
sanctions in contrast maximize international pressure on the
offending state.
Nonetheless, if we are unsuccessful in building a
multilateral regime, and important national interests or core
values are at issue, we must be prepared to act unilaterally.
To maintain its leadership role, the United States must
sometimes act even though other nations are not compelled to do
so.
Fourth, flexibility of application is absolutely essential
if we are to use sanctions effectively. The Congress and the
Executive Branch share the responsibility for shaping our
foreign policy, but the President is responsible for the day-
to-day conduct of that policy. Sanctions legislation should set
forth broad objectives but allow flexibility to respond to
constantly changing and evolving situations and give the
President the necessary authority to tailor specific U.S.
actions to meet our foreign policy objectives. Ultimately, only
the President can weigh all the issues at stake at any given
moment and tailor our response to a specific situation. We
support a single national interest waiver standard applicable
to all future sanctions legislation.
Our experiences with the Glenn Amendment sanctions, the
Libertad Act and the Iran-Libya Sanctions Act underscore the
importance of flexibility to achieving the purposes of those
acts.
In the case of Helms-Burton, the exercise of Title III
waiver authority led the EU to tie concrete improvement of its
relations, specifically, the provision of development
assistance, to fundamental changes in respect for human rights
and fundamental freedoms in Cuba. The EU has spoken more
forcefully in support of democracy and human rights.
The prospect of an amendment to Title IV that would
authorize a waiver led the EU to agree to negotiate new
disciplines on limiting investment in illegally expropriated
properties, including in Cuba. The Understanding we reached
with the EU on May 18, 1998, will establish for the first time
multilateral disciplines among major capital exporting
countries to inhibit and deter investment in properties which
have been expropriated in violation of international law. These
restrictions will discourage illegal expropriations and chill
investment in Cuba, warning investors to keep ``hands off.''
This result would not have been possible had we not been able
to hold out the possibility of waiver authority for Title IV.
We believe that our success in agreeing with the Europeans on
property disciplines merits that authority. Unless Title IV is
amended to provide a targeted waiver authority, these important
new restrictions on investment in Cuba will never go into
effect, nor will the worldwide ban on investing in illegally
expropriated property.
Similarly, the flexibility included in ILSA--the ability to
decide whether to impose or waive sanctions--was central to our
ability to advance the objectives of that law. In developing
ILSA, Congress was motivated by its deep concern about the
proliferation of weapons of mass destruction (WMD) and
terrorism and expressed its deep concern about Iran. We used
the Act's waiver authority to help consolidate the gains that
we had made with the EU and Russia on strengthening
international cooperation to oppose Iran's dangerous and
objectionable behavior. It helped us avoid a major dispute with
allies that would not have served the Act's objectives and
would have heavily strained our cooperation with our allies
across the board.
With these general principles in mind, we have suggested an
approach to sanctions reform that we believe would be
productive in achieving improved discipline on the use of
sanctions by both the Congress and the Executive Branch.
While many of our views are close to those in H.R. 1244
(the Enhancement of Trade, Security, and Human Rights through
Sanctions Reform Act introduced by Representative Crane) and S.
757 (the Sanctions Policy Reform Act introduced by Senator
Lugar), we do have a number of important differences with those
bills.
We have proposed appropriate and flexible guidelines--many
of which would be taken from the provisions of the Crane bill--
to govern our use of discretionary unilateral economic
sanctions. The Executive Branch is willing to consider
appropriate guidelines that would apply to future imposition of
sanctions under IEEPA as well as discretionary sanctions under
future sanctions laws passed by Congress.
The Crane bill does not provide comparable constraints on
the Congressional and Executive Branches of the government,
notwithstanding its appearance to the contrary. However,
Congress's ability to amend the legislation, change its own
rules, or to pass future legislation that takes precedence over
it, for example, through ``notwithstanding any other law''
language, makes it less likely the bill would serve as a
practical constraint on Congress. The fundamental principle
underlying our approach is one of symmetry between the two
branches--Congress, in short, should be no more prescriptive of
the Executive Branch than it is of itself.
We believe that flexibility accompanied by national
interest waiver authority applicable to all future unilateral
sanctions legislation is the single most essential element if
we want to make sanctions reform work. The President should be
authorized to refrain from imposing, or taking any action that
would result in the imposition of, any unilateral economic
sanction, and be authorized to suspend or terminate the
application of such a sanction based on a national interest
determination.
The Crane bill, in contrast, provides only that it is the
sense of Congress that any future unilateral sanctions
legislation ``should'' provide national interest waiver
authority. We believe that the bill must go further and include
a stand-alone national interest waiver authority that would
apply to all future unilateral sanctions legislation unless the
Congress acts specifically to exclude it.
We agree that Congress should also have a role to play in
this decision. Thus, we have suggested an advance notification
requirement before a national interest waiver is exercised and
the inclusion of expedited procedures to allow Congress to pass
legislation disapproving the President's decision within a
certain number of days.
The bill would authorize the President to waive certain of
its procedural constraints on Executive Branch use of sanctions
(for example, requirement for 45 days advance notice in the
Federal Register, prior consultation with the Congress, a
public comment period, some of the reporting requirements) if
he determines that it is in the national interest to do so. If
so, the requirements would still have to be met within 60 days
or the sanctions would automatically terminate even if the
President had exercised the waiver.
Other requirements, including contract sanctity
requirements, provisions for narrow targeting, and restrictions
on food and medicine, would be waivable only in the case of
actual or imminent armed conflict involving the United States.
Some provisions would not be waivable under any circumstances.
Another section of the bill would provide ``national
security'' waiver authority applicable to the so-called Glenn
amendment to the Arms Export Control Act and certain provisions
of the Foreign Assistance Act of 1961 and Export Import Bank
Act of 1945.
As we have stated generally about authority to waive
sanctions, we have also stressed that any constraints agreed
upon should also be subject to a standard national interest
waiver authority.
Let me turn now to the specific procedural and substantive
restrictions the Crane bill would place on the Executive
Branch, which apply both to the imposition of new sanctions
under IEEPA and all future unilateral economic sanctions laws.
Many of those restrictions, given appropriate flexibility
of application, contain ideas which we would support in
principle. If, however, they must be applied in an inflexible
manner, they could prove unworkable and extremely onerous to
administer by any President, Democrat or Republican.
Let me cite just a few examples. The bill would require 45
days notice in the Federal Register before the imposition of
any new unilateral economic sanction under any provision of
law, whether or not the President has any discretionary
authority to impose that sanction. It also would require a
period for public comment prior to the imposition of sanctions.
While such advance notice may at times be useful in sending a
strong diplomatic signal to a target country, at the same time
it would provide that country ample advance warning to
restructure its business and other economic relationships with
third countries, or to take other steps (such as stockpiling of
potentially embargoed goods) to enable it to blunt the impact
of the potential sanctions. Although the bill attempts to
address some of our specific concerns about the impact of this
provision with respect to financial sanctions, it does not
adequately address our other broader concerns.
Establishing a presumption, where appropriate, in favor of
advance public notice and the opportunity for public comment
may indeed be a desirable goal. But requiring advance notice
and an opportunity for public comment in all circumstances, or
requiring the President to invoke a national interest waiver
under circumstances when such advance notice would clearly be
inappropriate is neither desirable nor workable.
The Crane bill also lays out a series of substantive
requirements for sanctions imposed by the Executive Branch. The
first of these is an assessment of whether the proposed
sanction is likely to achieve a specific objective within a
stated period of time. We agree that sanctions should not be
employed unless there is some reasonable expectation that they
will be effective in achieving their purpose.
Sanctions are only one of a mix of policy measures that are
employed together, hopefully as part of a coherent strategy, to
influence a target country. Even though a specific sanctions
measure by itself may not cause a change in policy or behavior,
it may be an important, even essential part of a broader policy
mix. History clearly suggests that in the vast majority of
cases, unilateral sanctions may be at most a contributory but
probably not a decisive factor in securing the changes of
behavior or policy that we seek. So it may be difficult to
judge whether a sanctions measure by itself would be effective.
At the same time, many of the reasons for which we impose
sanctions--non-proliferation, environmental degradation, to
combat drug trafficking, to combat terrorism, to encourage
greater respect for human rights--are simply not time bound. As
part of the principles on the use of economic sanctions that I
laid out earlier, we clearly state that sanctions should be
subjected to a test of effectiveness and that they should be
imposed only when there is a reasonable expectation that they
will contribute to the achievement of their goal.
The Crane bill would also generally require that sanctions
regimes provide for contract sanctity. Such a provision, while
understandable, may also be similarly unworkable and
counterproductive--for example, in dealing with front companies
in the counter-narcotics area. When combined with the
requirements for advance notice of intent to impose sanctions
and an automatic sunset clause, they would simply encourage
businesses and the target government to negotiate quick deals
to get in under the wire and avoid the effect of sanctions. The
President must have the flexibility not to provide for contract
sanctity in a given situation if doing so would, for example,
detract from the effectiveness of the sanctions.
Sunset clauses tied to time rather than performance may
also often not be appropriate. As I have already noted, many of
the purposes for which we may impose sanctions are long term.
We should not give the targets of sanctions the ability to wait
us out by imposing time bound sanctions in every instance. We
have suggested instead that the President could annually review
on specific sanctions measures and, depending on his review of
the continued effectiveness of such measures, determine whether
certain of them should terminate.
The Crane bill would prohibit restrictions on the export,
financing, support or provisions of medicine, medical
equipment, medical supplies, food or other agricultural
commodities other than restrictions imposed in response to
national security threats, where multilateral sanctions are in
place, or where the United States is engaged in armed conflict.
In general terms, that provision is largely consistent with
the President's April 28 announcement that the Administration
will generally exclude agricultural commodities and products,
and medicines and medical equipment from future discretionary
unilateral sanctions regimes, and will extend that same
principle to existing regimes where we have the discretion to
do so. The President went on to note, however, that there may
be compelling circumstances where this would not be
appropriate: for example, where the offending regime is using
import of foods and medicines as an internal political tool,
where a regime or its officials derive unjustified economic
benefit from such imports, or where we or our allies are
engaged in armed conflict. The President must be given the
flexibility to tailor and use sanctions--including sanctions on
food and medicine--as appropriate in any particular situation.
In sum, if our policies are to be effective, we must work
together--Administration, Congress, at the state and local
level, as well as the business community, including NGOs--to
see that our use of sanctions is appropriate, coherent, and
designed to attract international support. We hope to work with
key Congressmen and Senators to craft an effective sanctions
reform package in 1999.
Thank you.
Chairman Crane. Thank you. And let me ask you a couple
quick questions here. We are apparently going to be going back
in earlier than anticipated.
Mr. Rangel. I don't think so.
Chairman Crane. You don't think so. Oh, OK. Insider trading
information, Charlie?
Undersecretary Eizenstat, if we are unsuccessful in
building a multilateral regime, we must be prepared to act
unilaterally. To maintain its leadership role, the United
States must sometimes act even though other nations are not
compelled to do so. They have never been compelled to do so,
but that goes back to the imposition of unilateral sanctions,
does it not?
Mr. Eizenstat. Yes, sir. But there will be instances, for
example, Burma is a case, the Sudan is a case, where we don't
have broad-based unilateral sanctions, but where unilateral
sanctions may state at least some moral interest.
Burma is also a case where Mr. Levin's point, and that is
sometimes they lead to other countries taking action. The
European Union, for example, now has fairly broad-based
sanctions with respect to Burma following our lead on
unilateral sanctions.
Now again, no one feels more strongly than I do the
limitations of unilateral sanctions. We simply are saying there
may be instances where all other avenues having been exhausted,
they still might be used. But that is where your bill comes in.
When we use unilateral sanctions, we ought to subject them to a
filter. Let's balance costs and gains. Let's look at whether
they are going to be effective.
Let's not simply jump willy nilly into them.
Chairman Crane. What criteria does the Administration use
to determine the cost of unilateral sanctions it contemplates
to the U.S. economy? And will unilateral sanctions lead to the
desired changes in the behavior or policy of a targeted
government?
I mean, you cited the Burma case in an example, but do you
think there ought to be time constraints imposed? And if people
aren't getting on board and it is an extension of simply
unilateral sanctions, they ought to be re-evaluated?
Mr. Eizenstat. We think that there should be an annual
review by the President of our sanctions to determine whether
or not those in place are effective. And if they are not, then
they shouldn't remain.
At the same time, to put an arbitrary sunset clause saying
that at the end of 1 or 2 years they automatically remove
sanctions is also not a good idea. The reason being, that sends
a message to the target country or entity, whether it be the
Taliban or whomever, that there is a time limit on how long the
sanctions will last.
The key ought to be effectiveness. Are the sanctions still
effective. And we would support the requirement for an annual
review to look at those sanctions and make a report to the
Congress on whether or not they are still effective and, if
not, then they should expire.
Chairman Crane. Well, except, that it seems to me that you
could very hastily renew a period of sanctions against a
country if you thought it was working.
Mr. Eizenstat. If necessary, but I think that you would
lose an awful lot of traction in your foreign policy if you put
sanctions on and off. Again, rather than having an arbitrary
deadline, our feeling is, it is better for Congress to suggest
to the executive branch, and the requirement for an annual
review, and to report to you whether or not that sanction
remains effective.
Chairman Crane. And did I understand you correctly when you
were talking about food and medicine, that permitting the
export of food and medicine, if the recipient country is
dispensing it, is inappropriate?
Mr. Eizenstat. We spent well over a year looking at the
issue of food and medicine. And the President's April 28
decision is the result of that. In short, what we are saying is
by and large, except for really compelling circumstances, like
we are in war with the country, that using food and medicine as
a tool of a sanction is counterproductive, in two respects.
First, it hurts our own agricultural interests and our own
companies. Second, it gives the target country the opportunity
to suggest that the United States is hurting the average
citizen in that country rather than the regime. And, indeed,
food and medicine often--one would be hard-pressed to find a
dictator in any country who can't get a good meal on his table.
It's the citizens of the country who are most disadvantaged
by having food and medicine deprived from them. So that is why
the president has changed the presumption. Our presumption is
that food and medicine should not be used as a foreign-policy
tool. Starvation is not a legitimate foreign-policy tool
except, again, under the most compelling circumstances.
Chairman Crane. Compelling? Starving people?
Mr. Eizenstat. Yes. For example, if we are at war with the
country, or if there is evidence that the food or medicine is
being
diverted for illicit or illegal purposes. But again, generally,
it should not be subject to sanction.
Chairman Crane. All righty. Mr. Levin.
Mr. Levin. Thank you. And thank you for your testimony. Let
me just ask you to try to summarize what you feel are the key
issues here because you have been a leader, as I read it and as
I remember it in stimulating some further thought on these
issues within the Administration.
And I think you are in favor, are you not, of trying to
further
rationalize our approach to this issue, to try to develop some
guidelines? I mean, that is an accurate description, right, of
where you come from?
So, I mean, you have credibility to try to help us focus on
what the issues are--the three or four basic issues--so we
don't get caught up in all the details. For example, you talked
about, and I did earlier, about unilateral sanctions. And I
detect some difference here. I think our sanction policy, vis-
a-vis Iraq, started as unilateral, did it not? I don't remember
all the details.
But tell us what you, from your perspective, what are the
three or four key questions that we need to confront and work
out together within this Committee and with the Administration.
Mr. Eizenstat. Thank you. I will be very precise about it.
First of all, start with the principle of symmetry and comity
between the branches, that what Congress imposes on itself to
restrain its own actions with respect to sanctions should
mirror those on the executive branch. And because you can
always, regardless of a general sanctions bill, have a bill
tomorrow passing a new sanction that says notwithstanding any
other provision of law, we are going to impose sanctions for
religious persecution, for child abuse, whatever.
So give the President the same flexibility. Second, there
are in H.R. 1244, a number of procedural hurdles before the
President can exact a sanction, 45-day notice in the Federal
Register for example, reporting requirements. What we are
saying here is give the President maximum flexibility, because
there may be instances in which, not just having to waive each
one of those, which is very difficult and comes at a political
cost, allow the President the discretion to determine whether
that kind of notice is reasonable.
It would be unreasonable to say, in every instance, you
have to give 45 days advance notice to the country you are
going to sanction, because one of the sanctions freezes might
be freezing assets. And that allows them to remove their
assets.
So give the President on the procedural hurdles maximum
flexibility.
Third, we do agree with what I would say is the heart of
the Crane bill, the heart of the Lugar bill, and that is the
concept of a cost-gain analysis. Now, you can't put this into a
computer and come out with a one-to-one ratio. How do you
measure the benefit of preventing a proliferation of a product?
How do you deal with the benefit of protecting human rights?
But, nevertheless, there should be some real effort to look
at the economic costs and measure those against the benefit.
And then last, and most important, there must be a stand-
alone provision in the bill, in this generic reform bill, that
says that for every future sanctions bill, the President should
have national-
interest-waiver authority to waive that sanction if he feels it
is necessary. That is what was done with title III of Helms-
Burton. We have that authority.
That is what is done with section 4(c) and 9(c) of ILSA. We
use that authority, in 9(c). And we used it to lever positive
things that advance the benefit of the bill. Without that, we
are in a straightjacket, and we cannot tolerate it.
Now, we built in to our suggestion that Congress could have
the opportunity to override that waiver authority on an
expedited basis, subject to constitutional limitations.
Those are really the four items. And, again, to narrow it
even to just two, give us flexibility on the procedural
guidelines and give us stand-alone national-interest-waiver
authority for any future sanctions bill.
Mr. Levin. Thank you.
Chairman Crane. I failed to ask you one other question that
I would like to bring up before I yield. Later today we are
going to hear from a witness on the issue of imports of gum
arabic from Sudan, which are currently banned as a result of
U.S. sanctions. And sanctions were applied to this product even
though Sudan controls 90 percent of the world market.
And to date, there has been no identifiable consequence of
the sanctions on the Sudanese regime. Is this not a classic
example of the failure of unilateral trade sanctions and the
consequences they can have on U.S. firms and workers?
Mr. Eizenstat. Mr. Chairman, we granted last year a 1-year
waiver on the gum arabic sanction because of the impact on a
few important U.S. companies and indicated to them we hoped
that they would use that 1-year period to see if they could
find alternative sources. That 1-year period is now coming to
an end, and we are now in an interagency review and an internal
look within the State Department as to what to do with respect
to the future on that. We have come to no decision yet, but we
know that this is something we have to address, and we are
looking at the issue from all perspectives.
Chairman Crane. Well, we can get you the testimony of the
witness later on, on one of our panels on the issue from his
perspective as a utilizer of gum arabic.
Mr. Eizenstat. It is certainly timely, and it is something
again we are looking at, at this very moment.
Chairman Crane. Mr. Rangel.
Mr. Rangel. Thank you for your long interest in this area.
How does our policy with Cuba fit into the policy that you
stated in not using food and medicine as a weapon when there is
no war?
Mr. Eizenstat. We have done a number of things with respect
to Cuba to try to make sure that the regime, not the Cuban
people, were the targets of our sanction. For example, the
President now twice has encouraged greater remittances from
Cuban-Americans to their families. And, indeed, on January 5
permitted any American citizen, including yourself or me, to
provide a remittance to a Cuban family.
Mr. Rangel. Let me interrupt. I am talking about the
sanction against the sale of food and medicine to Cuba.
Mr. Eizenstat. Yes, sir.
Mr. Rangel. I know, I know what has been done, but I really
am concerned about the prohibition of people selling food and
medicine to Cuba. And I thought you were saying that this was
against U.S. policy.
Mr. Eizenstat. With respect to the sale of food, this was
governed by the President's decision of January 5, in which he
indicated that sales could be made if they were sold to non-
governmental entities. And the difference, if I may, between
the decision on January 5 with respect to Cuba, and the April
28 decision with respect to food and medicine, is the
following.
The President's decision on April 28 applied to commercial
sales of agricultural commodities and products, medicines, and
equipment where the Administration has authority to act. And we
are defining what is a food. But it specifically did not refer
to agricultural inputs, such as tools, farm, and equipment.
In contrast, the President's January 5 announcement with
respect to Cuba did include agricultural inputs. It is in that
sense different from the April 28 measure.
Mr. Rangel. Mr. Secretary, can we sell chickens, beans,
food products and medicines to the Cuban people?
Mr. Eizenstat. Only if it goes to private entities.
Mr. Rangel. That is a restriction on the commercial sale of
foods to a country that we are not at war with.
Mr. Eizenstat. That is correct. It is correct that it is a
restriction on a sale. We, by the January 5 decision, expanded
the allowance of sales so that it can go to private entities,
but only to private entities.
Mr. Rangel. But food is being used as a weapon.
Mr. Eizenstat. There is clearly a limitation on the sale to
any governmental entity in Cuba. That is correct.
Mr. Rangel. And we are not at war with Cuba.
Mr. Eizenstat. We are not at war with Cuba.
Mr. Rangel. And medicine, the same rules apply. There is a
restriction on the sale of medicine to Cuba.
Mr. Eizenstat. There are limitations on the sale of
medicine, although hundreds of millions of dollars of medicines
have been distributed to Cuba.
Mr. Houghton. Would the gentleman yield?
Mr. Rangel. No. Not at this point.
But are you aware of the fact that drugs are going into
Cuba from South America? And a lot of it is coming into the
United States. A lot of it is being dropped into Cuba. Some of
it is being dropped near Cuba. And that the U.S. Government is
restricted from giving any assistance to Cuba while other
governments are attempting to assist them.
And because of the sanctions, we have a prohibition from
providing assistance to that government and preventing the
international trafficking of drugs in and around Cuba.
Mr. Eizenstat. I will answer that question specifically,
but permit me just to mention on your previous question one
other fact. And that is, humanitarian donations of medicine or
medical equipment to non-governmental organizations in Cuba,
like CARITAS, for example, the Catholic Church-based
organization, don't require any induced monitoring. And last
year alone, we licensed almost a hundred million dollars in
humanitarian donations of medicine and medical equipment.
Mr. Rangel. Mr. Secretary, are we restricting the sale of
medicine to this government?
Mr. Eizenstat. Yes, sir.
Mr. Rangel. And are we restricting the sale of food to this
government?
Mr. Eizenstat. Yes, we are.
Mr. Rangel. And this is because of our policy, our foreign
policy as it relates to the government of Cuba.
Mr. Eizenstat. Absolutely.
Mr. Rangel. All right.
Mr. Eizenstat. With respect to drugs and drug interdiction.
There is some cooperation. I don't deal with this issue
specifically, but my understanding is that there are some
limitations on our cooperation but that there is a degree of
cooperation with respect to drug interdictions with Cuba.
Mr. Rangel. Well, I met yesterday with Tom Constantine. He
didn't know about it. I have been reading that General
McCaffrey has been asking to be able to give some assistance in
this, and he has been rebuffed.
Who, what agency--the Cuban desk doesn't know about this.
This is a very, very serious issue. The Cuban government has
unofficially been requesting assistance, been anxious to go
into treaties. I have discussed it with the Cuban officials.
Europeans have gone into treaties with them to assist in
stopping international trafficking of drugs.
And I don't know of anything--I talk with Commissioner
Kelly. He is in charge of Customs. I have talked with the Coast
Guard officials. I don't know of any cooperation we have given
to stop drugs from--Cuba being used as a place to interdict
drugs.
Mr. Eizenstat. Well, clearly we are precluded from giving
any financial assistance, technical assistance, anything of
that sort.
I understand that there is some sharing of information.
Mr. Rangel. Information?
Mr. Eizenstat. Sir, I don't deal with drug interdiction. So
I will be glad to try to get you the information. And you
deserve an answer. It is an important question. But it is not
an area in which----
Mr. Rangel. Could you direct me to who might have this
actual----
Mr. Eizenstat. I will try to do so. And I will try to get
you very specific information. It is a very important question,
and you deserve to get a specific answer.
Mr. Rangel. Do you think we should be cooperating with the
Cuban government to stop the international trafficking of
drugs?
Mr. Eizenstat. I think it is important we cooperate with as
many countries as we can, including Cuba, to stop drugs from
coming into the United States. But I think it has to be bound
by our overall policy with respect to Cuba, and that is where
the balance has to come into play. But certainly drugs are
extraordinarily dangerous, and anything we can do to cooperate
we ought to try to do within the limits of our legal
restrictions.
Mr. Rangel. But the policy should be stronger than the
damages done to the United States by the drugs that's coming in
through Cuba.
Mr. Eizenstat. Again, I don't deal with drug policy, but I
will try to not only direct to who does but try to give you a
much more specific answer in terms of drug interdiction. It is
a legitimate question on a very important issue.
I saw the article in the Post about this a couple of days
ago. And it is something that deserves a specific response.
Mr. Rangel. I would like to work with you on this.
Mr. Eizenstat. I would like to work with you on this.
Chairman Crane. The time of the gentleman has expired. Mr.
Houghton.
Mr. Houghton. Yes. Just very briefly. If you make the
assumption that food and drugs are necessary, Mr. Secretary,
are there any practical, viable non-governmental agencies or
vehicles through which these products can be directed?
Mr. Eizenstat. In Cuba, do you mean? Yes, sir, CARITAS.
Mr. Houghton. Churches?
Mr. Eizenstat. CARITAS is the Catholic Church's
organization.
Mr. Houghton. And if a private agency, a company wanted to
contribute to that, that would be sufficiently large to be able
to distribute medicine or food throughout the country?
Mr. Eizenstat. They have a very good system of
distribution. Yes.
Chairman Crane. Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman. Secretary, thank you
for being here. Congratulations on the appointment. I, too,
would be very interested in some of the follow-up to the
questions that were asked by Mr. Rangel. I won't belabor the
point any, but I, too, would like to see how the Administration
reconciles the differences in treatment, and to have a better
understanding of how the Administration would try to support
its differentiation of the various countries.
So, Mr. Chairman, with that I will yield back.
Chairman Crane. Mr. Neal.
Mr. Neal. Thank you, Mr. Chairman. Mr. Eizenstat, let me
see if I can get you to frame this in philosophic terms. How
did we move, in your judgment, from perhaps Jimmy Carter's best
moment, his focusing on the whole notion of human rights in the
world, to such a patchwork of how we deal with these issues
today?
Mr. Eizenstat. Well, I don't think there is a patchwork. It
think that human rights are and remain a central feature of our
foreign policy. Our human rights reports are very specific,
very detailed. We put a tremendous amount of effort into our
human rights campaign.
I think that President Carter certainly helped start that,
but we like to feel that we are continuing in that direction.
And, indeed, the actions that the President took on April 28
with respect to food and medicine is a reflection of our
feeling that human rights of average citizens should in general
not be affected by restrictions in dealing with food and
medicine.
Mr. Neal. But my point I think, in a broader context, is
this. We seem to have moved away from the Carter position on
human rights to a policy that is based more upon the potential
for economic reward. And I think most of us would say, as Mr.
Rangel pointed out, that there are some inconsistencies along
the way.
And maybe you are not the one to answer the question. Maybe
that should come from Madeline Albright. I have spoken to her
about Cuba. And many of her positions on Cuba are, I think,
intransigent. She doesn't seem to be interested in much
movement at all.
Mr. Eizenstat. Well, no, I think indeed that if the only
factor were the economic factor, one would have no sanctions of
any kind at all. So the moral judgment in foreign policy comes
into account that there are instances, both with respect to
unilateral and, particularly, with multilateral sanctions,
which have a much better chance of being successful, in which,
notwithstanding the economic loss to the country, it is
important for the United States to take a moral stand. Burma,
Sudan are examples. Iran, Iraq, Serbia. These are all examples
of instances in which we have consciously made a decision that
our moral and foreign-policy interests outweigh whatever
economic gain there may be.
Mr. Neal. All right. I vote for most-favored trade status
with China. And the argument the Administration uses there is
that it is economic contact that will in the end bring about
democratic reform.
Mr. Eizenstat. I believe that in many instances that is
true, but there is a big difference, a huge difference between
the government of China, what everyone thinks about it, and the
government of rogue states like Iran or Iraq or Sudan, which
are slaughtering and murdering their people.
There is a very big difference. And so you have to take on
a case-by-case basis--and this is why the legislation has to
give flexibility. Clearly, and believe very strongly, that
economic engagement with China has profoundly changed that
country. And, indeed, if we could get a WTO Agreement along the
lines of the April decisions, it would open up that society in
remarkable ways to foreign penetration, to foreign ideas, the
Internet, information, access to U.S. corporate values.
But there are other regimes, Iraq, Iran, where that kind of
engagement would not have that effect, it would indeed do what
the Bush administration was criticized for doing with Iraq, and
that is simply stoking a dictator's capacity to take actions
which are contrary to our interests.
And that is why it is very difficult to have a blanket
policy. You literally have to look on a case-by-case basis.
Mr. Neal. OK. Thanks, Mr. Chairman.
Chairman Crane. Well, thank you, Mr. Secretary. We
appreciate your participation in our hearing today, and we look
forward to working with you continuously on this until we get a
bill reported out.
Mr. Eizenstat. Thank you. This is very important
legislation, and I really do look forward to working with you
to see if we can come together on it.
Chairman Crane. Thank you so much. And now I would like to
welcome our next visitor, who is someone that I get confused
with when he is sitting there and not up here because Mr.
Rangel, Charlie Rangel, was our--Charlie Rangel [laughter]--Sam
Gibbons--Charlie too--but Sam Gibbons was our chairman of the
Trade Subcommittee for a long time. And I had the privilege of
working under him, and then he became chairman of the Full
Committee, and he is probably the most solid, Grover Cleveland,
free-market, free-trade Democrat that I have encountered in
recent history.
And I want to welcome you before the Committee, Sam, but
unfortunately I have to make another meeting quickly. If they
extend their questioning of you, I think I can get back here in
time to throw a couple curve balls your way.
But I look forward to also having the opportunity to see
you again later today. And thank you for coming to testify. And
if you will make your presentation now, then I will put Amo in
charge here and start the questioning of you.
Thank you, Sam.
STATEMENT OF HON. SAM M. GIBBONS, GIBBONS & COMPANY; AND FORMER
MEMBER OF CONGRESS
Mr. Gibbons. Thank you, Mr. Crane. Thank you, Mr. Chairman.
I appreciate it.
Let me say I am very pleased and very happy to be back here
on this subject. I hope no one has taken the trouble to
research my record on this. I will relieve you of that
responsibility by saying--asking a mea culpa and realizing that
I have made some mistakes in this area. Please forgive me.
But upon reflection, I have never seen a unilateral trade
sanction that was worth a hoot, that ever did any good except
hurt Americans. And it is time we got rid of them.
I sometimes used to think when I was chairman of the
Committee that there must be a staffer over in the Foreign
Affairs Committee who would scan the headlines and listen to
the news reports every morning and come up with the latest
atrocious act of some foreign concern. He had a form over
there, or she had a form over there, just filled it out and
filled in the name of the country and that afternoon we were
voting on the House floor on another sanction.
Early in this game, they were not very careful about how
they drew the legislation, and they put trade sanctions in
there to enforce their legislation. And I would get our staff
to capture that legislation, drag it over to the Ways and Means
Committee, bury it in my Subcommittee, and it would never see
the light day.
But, you know, after awhile, the Foreign Affairs Committee
caught onto to what I was doing and they changed the way they
drafted the legislation, and I couldn't use that anymore to get
rid of these unilateral trade sanctions.
I did spend quite some time working with sponsors of
international trade sanctions, unilateral trade sanctions, to
try to persuade them that they were impractical, but I was
never able to succeed in that area. I was able to get them to
modify some of their language through threats and persuasion,
but frankly, in my estimation, there has never been a good
unilateral trade sanction that I have ever seen.
I first became acquainted with them back in 1935 or 1936,
when the United States started its unilateral trade sanctions
against Hitler and Mussolini and Tojo and all that bunch of
hoodlums that were running the world then. They didn't do any
good. They didn't need to buy any of our products. But there
were lots of other people around the world that needed to buy
our products that were affected by those.
And I think that we actually encouraged Tojo and Hitler and
Mussolini to expand their aggression because we had cutoff,
through our neutrality acts and through our sanctions there,
all hope of people in the free world from being able to buy the
kind of materials that they needed to buy.
I did note that one unilateral sanction worked during my
teen-age, and that was the fact that we cutoff the supply of
helium gas to Germany. So they substituted hydrogen for helium,
and all of us who are of my age remember what happened over
Lakehurst, New Jersey, when the Hindenburg exploded, fried a
lot of Americans and great many Europeans up in the sky. And we
saw their bodies being, falling to the Earth either jumping or
falling out of the Hindenburg as it burned.
So that one, at least, put an end to the transportation of
passengers by lighter than aircraft. Nobody has ever built one
of those things since that time.
During modern times, though, they have not been effective,
and perhaps they were somewhat effective after World War II,
when we had a sort of monopoly on the supply of technological
material. Everybody else had been bombed out of existence.
But that technology advantage rapidly evaporated, and,
frankly, I haven't seen one that has worked in my time.
Now I am not being paid by anybody to come here today and
talk against these things. I am one of the co-chairs of
Americans for Humanitarian Trade With Cuba, but we are having
an election right now, and I may not get re-elected. So I can't
pretend to represent that organization there.
But I want to tell you, I think our unilateral embargo on
Cuba may have started off with some good intention and some
good practical impact, but it has been in existence far too
long and it has been a miserable, miserable failure. And we
have done some real damage to Cuban children, infants, and to
old people and dependent people by our embargo.
I see the red light is on, and I will welcome any questions
that you gentleman may have.
Mr. Houghton [presiding]. Thanks very much, Sam. Wonderful
to have you here.
Mr. Levin.
Mr. Levin. Well, maybe I will forego because I think we are
going to have much of a chance to be visiting on this and, I
hope, on other trade issues. Your continued presence here
remains a source of pleasure as well as uplift for us.
Mr. Gibbons. Thank you, Sander.
Mr. Levin. And rather than trying to do this across this
gap here, we will be visiting on other issues. As you know, we
have an open-door policy for everybody, in your case, there is
not even a door. So, we will be chatting on this. And there are
other trade issues coming along, and we hope very much that you
will have the time to give us the benefits of your experience
and insights.
Mr. Gibbons. May I say, you know, I got here a little early
for this today and I looked over some of the testimony of
others that are following me. There is a real interesting
article in the--testimony in there by Mr. Bowe of Ellicott
Machinery. I think you would be interested in it. You have
always been interested in that kind of thing. And he lays out,
you know, he is in the business of making dredging machinery up
here in Baltimore, and he lays out by date and time and by
amounts how much all these embargoes, these unilateral
embargoes have cost in jobs, in sales to his company.
Now, you know, we always talk in terms of agriculture. And
that is an important part of our society, but here is a
little--and they are not little, because anybody who
manufactures dredges is not little--but here is a rather
obscure part of the American economy, and he lays out. I would
encourage you to read his statement because it will give you
some real meat you can put your teeth into.
Mr. Levin. And we are doing that.
Mr. Gibbons. Mr. Ellicott. He is in the next panel, and he
is the second witness.
Mr. Levin. Thank you.
Mr. Houghton. Mr. Rangel.
Mr. Rangel. Thank you, Mr. Chairman. Welcome back, Sam. You
are one of the members that didn't have to retire in order to
say what you believed. And you have been outspoken over your
years as a colleague, friend, and member.
The sanctions on Cuba, do you believe that the politics of
the Cuban, of the Floridian vote, especially that that relates
to the Electoral College, has some impact on our foreign policy
in Cuba.
Mr. Gibbons. There's no doubt in my mind about that, Mr.
Rangel. I have lived in Florida all my life. And Florida has
had the reputation for a long time of being a swing State in
the presidential vote. And so, candidates of both parties,
Democrat and Republican, have come down to Florida to try to
figure how to get just enough popular votes in order to get the
huge electoral vote that's there.
And that has influenced both Democrat and Republican
candidates to come down there. And they find that the most
eager to deal with them are the Cuban-Americans in Miami. And
both the Democrats and Republicans have made, I think,
unfortunate agreements with the Cuban-Americans in Miami about
what they would do about the embargo if elected.
That's been my experience. And it is--they have taken full
advantage, as they are entitled to--of their ability to promise
their vote to either candidate. It's a ridiculous thing, but
that is the way the American system works.
Mr. Rangel. Well, that has been my view, but that would
really be saying that our foreign policy in Cuba is really
based on our domestic political problems right here in the
United States.
Mr. Gibbons. Yes. It is a peculiarity of the Electoral
College system and the fact that Florida is a swing state and
the fact that you look for swing votes in Florida, and the most
promising swing votes are right here in the Cuban-American
community in Miami.
Mr. Rangel. This group that you mentioned that you enjoy
membership in, there are a humanitarian groups, and religious
groups, but a large number of the members are actual business
groups. Is that correct?
Mr. Gibbons. That's correct. That's correct.
Mr. Rangel. And they have been able to show the tremendous
amount of moneys and jobs that have been lost to Americans as a
result of this trade embargo against Cuba. Is that correct?
Mr. Gibbons. That is correct. In all honesty, let me say, I
have received campaign contributions from the Cuban-American
groups in Miami. I don't know whether they want their money
back or not, but, you know, they have been pretty generous. And
they were well financed.
Mr. Rangel. But, isn't it safe to say that not all Cuban-
Americans support the embargo against Cuba?
Mr. Gibbons. Oh. Well, we have done some polling down
there, and we find that the opposition to doing something
positive about our relations with Cuba is very much an age-
related phenomenon now. There are some younger folks who feel
very strongly about the policy and want to continue the current
policy, but generally speaking it is an age-related thing.
People my age, who lost a lot with the Castro takeover, are
bound to be very strongly opposed to doing anything about it
until they regain their property and get their just
compensation for whatever losses they may have had.
Mr. Rangel. But it seems to me that there are Cuban-
Americans our age that have become very successful
entrepreneurs that are very anxious to do business in Cuba.
Mr. Gibbons. Oh, they are hard-working folks, and they have
done real well. Yes, they have.
Mr. Rangel. But I mean, but they are restricted from doing
business in Cuba, where they could be most successful.
Mr. Gibbons. Well, they do a lot of business all throughout
South America because of their being able to speak the Spanish
language and knowing the culture very well. And they have done
extremely well in this country, Mr. Rangel. They are good, hard
workers. And you have to admire them for that.
I have quite a few of them in my own old constituency that
I have known over the long period of time. I have respect for
them, whether they be in Miami or Tampa or wherever they may
be.
They are generally honest, hard-working folk, but they have
had a tremendous impact upon American policy toward Cuba. And,
frankly, I think American policy toward Cuba is just
counterproductive, and it has been for quite some time.
I would encourage Members of Congress to go to Cuba. You
know, you all can go legally, where I cannot go legally
anymore. I can get a license from the Treasury Department and
go, and I have done that, but you don't have to do that. You
all ought to go. I know you have been, and I know others have
been. But the whole Congress should go down there and take a
look at that place.
I think it would be good for the American policymakers.
Mr. Rangel. Does your group plan a visit to Cuba? What is
the name of your group again?
Mr. Gibbons. Americans for Humanitarian Trade With Cuba. We
have----
Mr. Rangel. Have they been to Cuba?
Mr. Gibbons. Have they been to Cuba?
Mr. Rangel. Yes, the group.
Mr. Gibbons. Well, we didn't go as that organization. We
went as American businesspeople. I went there, and we complied
with all of the requirements that--you know, if you go in that
kind of licensed group, you can't spend any money. Now let me
say I had to violate restriction real fast because I didn't
realize they had privatized the restrooms in the airport there.
Well, that's enough said on that subject.
Mr. Rangel. Well, I hope that you would visit with me soon
and update me on the activities of this group that you are a
member of so I can work more closely with them.
Mr. Gibbons. Well, thank you.
Mr. Rangel. Thank you, Mr. Chairman.
Mr. Houghton. Thank you. Mr. Gibbons, I would like to just
ask you a couple of questions. The first is, what sort of
impact this has on our allies. I mean, if we are talking about
Cuba. But also, I would like to talk about other countries.
What are the alternatives?
I mean, you have a country like Burma. I have this list
here because there are approximately 75 countries that are
either on the list with sanctions or threatened with sanctions.
Only about 30 of those have actual sanctions against them. But
Burma for narcotics, political repression, North Korea for an
export we called terrorism, Republic of Serbia--what do you do
about those, those countries?
Mr. Gibbons. Well, we need better multilateral ways of
dealing with them. I first think you need to look at who we are
as Americans. You know, I am struck by the fact that we are
only less then 5 percent, some 4-point-something percent, of
the Earth's population now. We have control of a lot of the
Earth's wealth, and we go around patting ourselves on the back
that we are the only superpower left on Earth. I'm not sure we
ought to be around bragging about that because too many people
want to call our card on that.
But we need better multilateral organizations in dealing
with the pariahs that spring up from time to time and thrive in
the political environment of their particular countries. There
are times when you will want to express yourself, saying that
we don't agree with this policy, and the Congress has most
often responded by imposing unilateral sanctions.
Now, frankly, Mr. Houghton, I have never seen the Congress
in all the years that I spent here, sit down and weigh the
impact of those unilateral sanctions. They usually come up so
fast and so quickly that people are going to get hurt by these
unilateral sanctions never have a chance to come to Congress
and express their opposition to the sanctions.
They may not even be aware of the fact that they are about
to get whacked by the sanctions. And so, you know, Congress
does need to back off, stop, look, and listen long enough
before we do that, before we take any steps.
So the legislation that is being proposed here is mainly
stop, look, and listen legislation--stop, look, listen, and
think, reason--what is the reasonable chance of our sanction
being successful. But, essentially, the world needs to develop
better multilateral means of dealing with these matters.
The United Nations isn't much, but it is the best we have
got. And we ought to try find ways that we can make the United
Nations more effective in these sanctions. And we have got NATO
over there. It's not the United Nations, and it is not a
political body. It is a military body. But it is pretty
effective.
And, truthfully, the problem is that we as civilization
just don't have the tools available to us to step in and take
some meaningful action against the pariahs that have constantly
haunted this world since history has been written.
Mr. Houghton. So, in effect, as far as the function of the
economy is concerned, goods and services, that you would think
it would be business as usual with Serbia and with North Korea
and Cambodia and places like Sudan.
Mr. Gibbons. I don't think we ought to resign ourselves as
business as usual. I really think we ought to try to find more
effective ways of getting a world consensus on some of these
problems.
Mr. Houghton. And what might that be, Mr. Gibbons?
Mr. Gibbons. I don't have the answer to that. I wish I were
wise enough to have the answer to that. As I say, the United
Nations is not much, but it is the best thing we have, and we
ought to try to honestly go in there, pay up our back dues, and
roll up our sleeves, and get to work in that organization and
try to find ways of getting it to do the kind of things--or
find a, create better institutions.
Mr. Houghton. Just one more question. So if we paid our
back dues and rolled up our sleeves and worked with the United
Nations and sufficient number of people in the United Nations
thought that maybe the only squeeze we could put, short of war,
on some of these countries was a sanction policy, would you
think that would be appropriate?
Mr. Gibbons. Be better than what we do. At least, it
wouldn't hurt us. The current system really hurts us. We are
losing American jobs and maybe even families that we sacrifice
without knowing who they are or really caring who they are when
we slap on these unilateral embargoes.
I remember in my own district. It was very directly
affected by the Cuban embargo. In the city of Tampa, we perhaps
lost as many as 10,000 jobs directly connected to the Cuban
embargo when it was slapped on.
Now, I probably would have supported and did support the
Cuban embargo when it was first slapped on, but it has gone too
far. I remember the first time I met Senator Moynihan, he was
working down in the Kennedy White House, and when I got to
complaining about how many jobs I had lost and how many people
I had unemployed in my district, they sent Pat Moynihan up to
work with me as a little freshman Congressman up here to try to
find some to get those people back into work.
We weren't very successful, but we tried. And I was really
impressed with Senator Moynihan's sincerity and his ability at
that time.
I picked up something in Mr. Eizenstat's testimony about
private agencies in Cuba. There are no private agencies in Cuba
that Americans can deal with. CARITAS is a fine attempt, but
the Catholic Church in Cuba is not like the Catholic Church in
the United States. The Catholic Church in Cuba is extremely
weak. It has not very many employees. It does not have many
people that work as volunteers in their church effort.
And, frankly, the folks in CARITAS will say we are just not
capable of doing the Administration of all the food and
medicine. We don't have the manpower or the womanpower to do
it. We don't have the resources to do it. We are marginal,
because the government is so hostile to us in our activities in
Cuba. And we have our own political problems within Cuba
ourselves, just pushing our belief, much less trying to push
food and medicine and handle all the administrative
difficulties of handling food and medicine for 11 million
people.
And, frankly, all these charitable contributions that Mr.
Eizenstat has talked about, I can't see any evidence that they
have gotten to the Cuban people.
You ought to try to ship something to Cuba. You know, we
have got an embargo. If any ship or plane travels from the
United--travels to Cuba, they are quarantined for, the vessel
is, for 6 months from even entering the United States after
that. Well, nobody wants to dedicate a ship or an airplane to
flying into Cuba because, gee whiz, it can't fly into or come
into the most profitable market in the world.
You can't ship anything from the United States to Cuba. If
you want to ship anything from the United States to Cuba, you
have got to go up to Canada and hope you can find a ship that
comes through there, and make a charitable contribution and
send it to Cuba.
There is just no vessels traveling between the United
States and Cuba, except yachts.
Mr. Houghton. Sure.
Mr. Gibbons. Now if you are a yachtsman and you want to
race, you can, you can race to Cuba and, I don't know what the
heck they do when they get down there----
Chairman Crane. Well, I'm not a yachtsman; maybe Mr. Levin
is. Are you a yachtsman? You're not, huh? [Laughter.]
Mr. Gibbons. Well, there are a lot of them in Florida, I
want to say. They are fine folk, and they race off to Cuba
every year, and they promise the State Department and everybody
else that they won't get off their boats while they are down
there. But I don't think that there is anybody around to check
up on them.
The Cuban people don't care if they get off the boats.
Mr. Houghton. Sam, thank you very much. I really--have you
got any other questions. I really appreciate your being here. I
feel strange looking down at you. I should be there looking up
at you here. [Laughter.]
Mr. Gibbons. Well, I understand how you feel, and let me
say there are advantages on both sides of this. [Laughter.]
Thank you.
Mr. Houghton. Thanks so much. Really appreciate this.
Now, the panel of Mr. Kinzer, Bowe, Mr. Christian, Mr.
McMahon, and David Hamod, would you please come to the table
here. Thank you very much.
All right. Well, thank you very much. I am sorry I called
Mrs. Christian ``Mr. Christian.'' I apologize for that.
Well, anyway, Mr. Kinzer, would you begin your testimony.
STATEMENT OF KEITH KINZER, PRESIDENT, IDAHO GRAIN PRODUCERS
ASSOCIATION, GENESEE, IDAHO
Mr. Kinzer. Yes, sir. Thank you. I would like to thank the
Members of the Subcommittee on Trade for allowing me this honor
to present this in front of you and to get off the tractor seat
after about a month straight.
Unilateral export sanctions unduly burden U.S. wheat
producers. There is strong historical evidence that trade
restrictions imposed by the U.S. Government adversely impact
U.S. commodity exports. A sanction applied against an importing
country immediately results in the loss of that market. But
wheat producers have seen the ripple effect of these economic
restrictions.
The first associated impact is that competing exporters
change their marketing practices to adjust to U.S. unilateral
economic sanctions to the direct detriment of the United
States. This is particularly true for Canada and Australia, who
market their wheat through single-desk monopoly agencies.
In addition, when the U.S. retreats from a world wheat
market, it loses its reputation as a reliable supplier and
hinders future efforts to rebuild lost market share. Moreover,
sanctions on the export of agricultural commodities rarely
result in changes in the behavior of the targeted country.
Our competitors are quick to fill any need that the United
States leaves unmet. It is the American farmer who feels the
brunt of any negative impact caused by the use of unilateral
export restrictions on agricultural goods.
On April 28 of this year, the White House announced a shift
in U.S. sanctions policy that will exempt food and medicine
from existing and, possibly, future export restrictions. U.S.
wheat producers strongly support this decision.
This policy change immediately affects three countries,
Iran, Libya, and Sudan. The inclusion of Iran is particularly
significant in so far as Iran imports an average of 4.5 million
metric tons of wheat per year. This demand is currently being
met by our competitors in Canada and Australia. At other times,
Argentina and the European Union have been significant wheat
exporters to Iran.
In other words, of the world's main wheat exporters, only
the United States, the largest wheat exporter, was excluded. We
urge the Administration to quickly develop and implement the
necessary regulations that provide the flexibility and the
facilitation to export U.S. wheat to these countries.
The recent easing of sanctions does not apply to Cuba,
North Korea, or Iraq, who are currently eligible to receive
food, food assistance, and medicine from the United States
through various other means. In the case of Cuba, U.S. wheat
growers anxiously await the relaxation of congressional
restrictions on the commercial sale of commodities to that
country.
We currently estimate that the elimination of sanctions and
other restrictions would open 10 to 12 million metric tons of
global wheat trade, previously off limits to the U.S.
producers. This would have a significant boost to the U.S.
farmer.
We appreciate the chairman's work and leadership in
introducing H.R. 1244, the Enhancement of Trade, Security, and
Human Rights Through Sanctions Reform Act. We respectfully urge
Congress to undertake comprehensive sanctions reform as
embodied by H.R. 1244.
The key provisions of the bill necessary for any meaningful
attempt at sanctions reform include the establishment of clear
policy goals, a comprehensive economic analysis of costs, a
permanent Glenn amendment exemption for agriculture, the
codification of a contract sanctity clause, and the inclusion
of a sunset provision.
I would like to emphasize the importance of Congress'
effort last year to exempt export credit guarantees from the
Glenn amendment restrictions. In marketing year 1997-98,
Pakistan was the third largest export marketer for U.S. wheat,
comprising--excuse me--10 percent of the total wheat exports.
Congress' quick action on sanctions last year save an important
wheat market for the United States.
Finally, we want to reiterate our view that the Federal
Agricultural Improvement and Reform Act of 1996 makes farmers
even more dependent on the world market for their income. Since
most of the world's consumers live beyond our borders, U.S.
wheat producers are committed to seeking increased access to
the world market.
U.S. unilateral export sanctions coupled with high tariffs,
unsubstantiated sanitary and phytosanitary restrictions, unfair
practices of state trading enterprises, and continued high
levels of European subsidies provide U.S. wheat farmers with
yet another hurdle to overcome in competing for the world
market share.
The imposition of the U.S. unilateral export sanctions that
limit our access to foreign markets is incompatible with the
FAIR Act. It is time--in a time of low-commodity prices,
greater competition for export sales, and the adverse impact of
unilateral sanctions on farmers, we are pleased with the
attention Congress has given to the long-term-sanctions-reform
policy.
We look forward to working with you and the other Members
of the Committee to restore, maintain, and expand export
markets for the U.S. wheat producers.
And I would like to again thank you for this opportunity,
and look forward to taking any questions.
[The prepared statement follows:]
Statement of Keith Kinzer, President, Idaho Grain Producers
Association, Genesee, Idaho
Mr. Chairman, Members of the Subcommittee on Trade, my name
is Keith Kinzer. I am President of the Idaho Grain Producers
Association and a wheat producer from Genesee, Idaho. Before I
begin my prepared remarks, I would like to thank the
subcommittee for the opportunity to comment on a subject of
immense importance to the nation's wheat producers.
Unilateral export sanctions unduly burden U.S. wheat
producers. There is strong historical evidence that trade
restrictions imposed by the U.S. Government adversely impact
U.S. commodity exports. A sanction applied against an importing
country immediately results in the loss of that market, but
wheat producers have seen the ripple effects of these economic
restrictions. The first associated impact is that competing
exporters change their marketing practices to adjust to U.S.
unilateral economic sanctions--to the direct detriment of the
U.S. This is particularly true for Canada and Australia who
market their wheat through single-desk monopoly agencies. In
addition, when the U.S. retreats from the world wheat market it
loses its reputation as a reliable supplier and hinders future
efforts to rebuild lost market share. Moreover, sanctions on
the export of agricultural commodities rarely result in changes
in the behavior of the targeted country. Our competitors are
quick to fill any need that the United States leaves unmet due
to the wide availability of agricultural commodities. It is the
American farmer who feels the brunt of any negative impact
caused by the use of unilateral export restrictions on
agricultural goods.
On April 28, 1999, the White House announced a shift in
U.S. sanctions policy that will exempt food and medicine from
existing and possibly future export restrictions. In the words
of the President, ``. . . food should not be used as a tool of
foreign policy, except under the most compelling
circumstances.'' U.S. wheat producers strongly support this
decision. This policy change immediately affects three
countries: Iran, Libya, and Sudan. The inclusion of Iran is
particularly significant insofar as it imports on average 4.5
million metric tons of wheat per year. This demand is currently
being met by our competitors in Canada and Australia. At other
times Argentina and the European Union have been significant
wheat exporters to Iran. In other words, of the world's main
wheat exporters only the United States, the largest wheat
exporter, was excluded. We urge the Administration to quickly
develop and implement the necessary regulations that provide
flexibility and to facilitate the export of U.S. wheat to these
countries.
The recent easing of sanctions does not apply to Cuba,
North Korea, or Iraq who are currently eligible to receive
food, food assistance and medicine from the United States
through various other means. In the case of Cuba, U.S. wheat
growers anxiously await the relaxation of congressional
restrictions on the commercial sale of commodities to that
country. We currently estimate that the elimination of
sanctions and other restrictions, including licensing, for
agricultural commodities, would open ten to twelve million
metric tons of global wheat trade, previously off-limits to
U.S. producers. This would provide a significant boost to U.S.
farmers.
In making the April 28 announcement, Under Secretary of
State for Economics and Agricultural Affairs, Stuart Eizenstat,
noted that this was a first step toward ``the goal of
comprehensive sanctions reform by both Congress and the
Executive Branch.'' We concur with this view and appreciate the
Chairman's work and leadership on this issue in introducing,
the `Enhancement of Trade, Security and Human Rights through
Sanctions Reform Act (H.R. 1244).' We respectfully urge
Congress to undertake comprehensive sanctions reform as
embodied by H.R. 1244. The key provisions of the bill necessary
for any meaningful attempt at sanctions reform include; the
establishment of clear policy goals, a comprehensive economic
analysis of costs, a permanent Glenn Amendment exemption for
agriculture, the codification of a ``contract sanctity''
clause, and the inclusion of a ``sunset'' provision. I would
like to emphasize the importance of Congress' effort last year
to exempt export credit guarantees from the Glenn Amendment
restrictions. In marketing year 1997/98, Pakistan was the third
largest export market for U.S. wheat, comprising 10 percent of
total wheat exports. Congress' quick action on sanctions last
year saved an important wheat market for the United States.
Finally, we want to reiterate our view that the Federal
Agriculture Improvement and Reform Act of 1996 (FAIR) makes
farmers even more dependent on the world market for their
income. Since most of the world's consumers live beyond our
borders, U.S. wheat producers are committed to seeking
increased access to the world market. U.S. unilateral export
sanctions, coupled with high tariffs, unsubstantiated sanitary
and phytosanitary restrictions, unfair practices of state
trading enterprises, and continued high levels of European
subsidies, provide U.S. wheat farmers with yet another hurdle
to overcome in competing for world market share. The imposition
of U.S. unilateral export sanctions that limit our access to
foreign markets is incompatible with the FAIR Act. In a time of
low commodity prices, greater competition for export sales, and
the adverse impact of unilateral sanctions on farmers, we are
pleased with the attention Congress has given to long-term
sanctions reform policy. We look forward to working with you
and the other members of the committee to restore, maintain,
and expand export markets for U.S. wheat producers.
Thank you for the opportunity to appear today. I look
forward to taking your questions at the appropriate time.
Mr. Houghton. Thank you, Mr. Kinzer.
Mr. Bowe.
STATEMENT OF PETER A. BOWE, PRESIDENT, ELLICOTT MACHINE
CORPORATION INTERNATIONAL, BALTIMORE, MARYLAND, AND DIRECTOR,
SMALL BUSINESS EXPORTERS' ASSOCIATION
Mr. Bowe. Yes, sir, Mr. Houghton. My testimony is on behalf
of the Small Business Exporters' Association and Ellicott
International, a 100-year-old manufacturer. We have been
exporting dredges for port construction ever since we built all
of the dredges used in the original construction of the Panama
Canal.
Today, over half of our sales go to developing countries.
We are still a small business with about 125 employees,
including unionized steel workers. Our competitors are large,
aggressive European companies actively supported by their
governments.
Even though we are a small company in a relatively small
industry, we have been heavily affected by American trade
sanctions. They cost us millions of dollars per year in sales,
jobs, market share, lost investment in R and D, profits, and
even tax revenue to State and local governments.
To give you an idea how sanctions have affected our
business, I would like to illustrate the issue with four
anecdotal case studies.
In the late 1970's Ellicott was working with a Finnish ship
yard to supply dredges to the Soviet Union. The cooperation was
based on using our technology and machinery. After President
Carter embargoed exports of American grain because of the
Soviet invasion of Afghanistan, the Soviets required the
Finnish yard, who was the prime bidder, to get rid of us as an
American supplier in retribution for the American embargo. The
Finns quickly complied and bought from a European supplier
instead.
For 20 years after America's withdrawal from Vietnam in
1975, we were legally unable to do business there. We had
previously been the market share leader. During the embargo,
our European competitors moved in. Even now, U.S. Government
financing agencies are still not fully in place.
For example, Ex-Im Bank is not open for medium-term
financing on the same basis as the export credit agencies of
our European competitors, Canada, Australia, and so forth. Our
most recent lost sale only 4 months ago was for about $2
million, where we lost even though we had a lower price but we
could not offer comparable financing.
India is another target market because of its major
infrastructure investment needs. Last year, we signed a
multimillion-dollar deal with an Indian company but subject to
Ex-Im Bank financing. We received a cash downpayment, and the
financing was in process, but the Indian government conducted
its nuclear test. Our customer could not wait for Ex-Im Bank
availability to be restored, so he canceled the order.
The biggest market in the world today for dredging today is
China. They need dredges for flood control and environmental
cleanup, nothing sensitive from a security perspective. While
America's relationship with China is currently controversial,
none of our allies have been reluctant to promote their
commercial technologies there.
Our Dutch competitors developed significant market share
there before President Nixon opened China to American business.
The Dutch have since done hundreds of millions of dollars worth
of business there. It is their most important customer.
I had the privilege of attending Secretary Daley's trade
mission to China just 2 months ago. The ministers we met said
that American companies would sell more if Ex-Im Bank offered
financing on the same terms as the Europeans and if OPIC was
available.
Just a month ago, our Dutch competitor, on their own trade
mission, announced contracts for six dredges worth over $125
million. The key to this deal was a Dutch government grant
comparable to our AID, which is closed in China, which paid for
as much as 45 percent of some of the dredges purchased.
What makes American sanctions so ineffective and so harmful
to American exporters is the extent to which they are
unilateral. Our European competitors, our diplomatic and NATO
allies, are aggressively pursuing, with official government
support, the same markets we have determined are ineligible to
American companies.
Right now, the Dutch and Germans have grants for China,
Vietnam, India, and Indonesia, just for dredging. When the U.S.
Commerce Department wrote a report recently describing how the
Europeans, Canadians, and Japanese promoted their exports to
the environmental market in China, an important infrastructure
industry, it took them over 88 pages to cover the breadth and
depth of this report. This is an example of that.
The spending is over $100 million per year.
The Dutch foreign trade minister described her government's
policy this way: Our work is to develop special advantageous
arrangements with these developing countries in order to assure
that Dutch companies have a place at the table. All of our
ministries cooperate and work closely to maintain a coherent
package of export promotion measures.
This is the real world of foreign competition. It is not
just between companies, but between countries. So unilateral
sanctions amount to unilateral withdrawal and disarmament. The
process of sanctions is inherently flawed except where U.S.
industry enjoys an international monopoly where foreign
substitutes are not available.
However, I am not aware of many, if any, such American
monopolies. It certainly does not apply to construction
equipment. If there is no international monopoly, then
sanctions are doomed to fail without multilateral action, which
would bring our foreign competitors into the same sanctions
regime.
My conclusion is that while sanctions may make us feel good
emotionally, they rationally ignore the significant negative
consequences imposed on our manufacturing economy. Furthermore,
they are completely ineffective, given the competitive world
where our foreign customers have choices. And they are not
reluctant to exercise their options, especially if we force
them to do so.
Thank you.
[The prepared statement follows:]
Statement of Peter A. Bowe, President, Ellicott Machine Corporation
International, Baltimore, Maryland, and Director, Small Business
Exporters' Association
My testimony is on behalf of the Small Business Exporters'
Association and Ellicott Machine Corporation International, a
100 year old manufacturer of dredging equipment. We have been
exporting dredges for port construction, land reclamation, and
mining ever since we supplied all of the dredges used in the
original construction of the Panama Canal. Today over half of
our sales come from exports, mostly to developing countries. We
are a small business with over 125 employees and a plant in
Baltimore with unionized Steelworkers. We are the U.S. leader
in this market; our competitors are large, aggressive European
companies actively supported by their governments. While we
have the leading technologies in the field, none of these
technologies are sensitive to our defense or national security
concerns.
Even though Ellicott is a small company in a relatively
small industry, we have been, and continue to be, heavily
affected by American trade sanctions. They cost us millions of
dollars per year in lost sales, and dozens of jobs.
To give you an idea how trade sanctions have affected our
business, I'd like to illustrate the issue with five anecdotal
case studies. American sanctions have cost us jobs, market
share, lost investment in research and development, lost
profits, and even tax revenue to state and federal governments.
Case Study #1--Former Soviet Union: In the late 1970's
Ellicott had been working hard for several years, together with
a Finnish shipyard, to supply dredging equipment to the Soviets
for port maintenance. The cooperation was based on using
Ellicott technology and machinery. When we were close to
securing a contract, President Carter embargoed exports of
American grain and oil field equipment to the Soviet Union
because of their invasion of Afghanistan. Virtually at the
contract signing table the Soviets required the Finnish yard,
who was the prime bidder, to get rid of its American supplier,
i.e., Ellicott, in retribution for the American embargo. Rather
than risk the loss of a sale, the Finns quickly complied and
bought their equipment from a European supplier instead. The
cost to us was a contract worth over $10 million in today's
terms.
Case Study #2--Vietnam: For 20 years after the America's
withdrawal in 1975, we were legally unable to do business in
Vietnam. We had previously been the market leader in South
Vietnam. During the embargo period, our French and Dutch
competitors moved in aggressively and established significant
market share. Even now with the embargo lifted, the
prerequisite US government financing agencies are still not
fully in place. For example, Eximbank is not open for medium
term equipment financing on the same basis as the export credit
agencies of our European competitors, Canada, Australia, etc.
Our most recent lost sale only four months ago, was for about
$2 million, where we lost even though we had a lower price, but
could not offer comparable financing.
Case Study #3--India: India is another target market for
our company because of its major transportation infrastructure
investment needs. A few years ago we developed a toehold with
an Indian contractor. Building on that relationship, last year
we signed a multi-million dollar deal with the same Indian
company for a construction contract it won. We received a firm
order and a cash downpayment, all subject to Eximbank
financing. While this financing was in process, the Indian
government conducted its nuclear test. Our customer could not
wait for Eximbank availability to be restored, and we lost the
order which included the equivalent of ten Steelworkers' jobs
plus significant spending on our vendor base such as
Caterpillar and other industrial firms across the country.
Case Study #4--Iran: While American commercial activities
in Iran have been severely restricted, our European competitors
have been active for port projects and waste water treatment
plants. Our Iranian sources tell us our products would be
competitive if they were available. Ironically it is our NATO
allies who benefit from our unilateral action and self-
initiated harm.
Case Study #5--China: The biggest market in the world today
for dredging equipment is China. They need dredges for flood
control, environmental clean-up, and ports--nothing sensitive
from a security perspective. While America's relationship with
China is currently controversial, none of our NATO allies have
been reluctant to promote their commercial technologies in
China for our industry and others. Our Dutch competitors
developed substantial market share there before President Nixon
opened China to American business. They have since done
hundreds of millions of dollars in export business to China. It
is now their most important customer. On the other hand, we
still have post-Tiananmen Square sanctions affecting our
ability to do business there, and Eximbank, which is still open
in China, is not as aggressive as the credit agencies of our
foreign competitors.
I had the privilege of attending Secretary Daley's trade
mission to China in March just two months ago. The ministers we
met told our group that American companies would sell more if
Eximbank offered financing on the same terms as the Europeans,
and if OPIC was available. Just a month ago our Dutch
competitor, on a trade mission of their own with a Dutch
Minister, announced contracts for six dredges worth over $125
million. The key to this deal was a heavily subsidized Dutch
government grant, comparable to our AID (which is closed in
China), paying for as much as 45 percent of some of the dredges
purchased.
The cost of these sanctions to Ellicott in some years can
exceed $10 million in lost sales.
What makes American sanctions so ineffective in achieving
their desired intentions, and so harmful to American exporters
is the extent to which they are unilateral. Our European
competitors--our diplomatic and NATO allies--the Dutch and the
Germans--and even the British in some cases--are aggressively
pursuing with official government support many of the same
markets we have determined are ineligible to American
companies. They are spending tens of millions of dollars
annually even on an industry as obscure as dredges. Right now
the Dutch and Germans have a mixture of bi-lateral grants and
ad hoc project grants for China, Vietnam, India, and Indonesia
just for dredging equipment. When the U.S. Commerce Department
recently wrote a report describing how the Europeans,
Canadians, and Japanese governments promoted their exports to
the environmental market in China--an important infrastructure
industry--it took them over 88 pages to cover the breadth and
depth of this support. The spending is over $100 million per
year. The Dutch Foreign Trade Minister described her
government's policy this way: [our work is to develop]
``special advantageous arrangements with these [developing]
countries in order to assure that Dutch companies have a place
at the table . . . ; [all of our ministries] cooperate and work
closely to maintain a coherent package of [export promotion]
measures.'' This is the real world of foreign competition: it's
not just between companies, but between countries, so that our
unilateral sanctions amount to unilateral withdrawal and
disarmament.
The process of sanctions is inherently flawed and doomed to
failure unless the US industry affected enjoys an international
monopoly where foreign substitutes are not available. I am not
aware of many, if any, such cases, where American companies
enjoy such a monopoly. Certainly it is not true in my industry
of construction equipment. If there is no international
monopoly, then sanctions are doomed to fail in achieving their
objectives without multilateral action which brings the
governments of our foreign competitors into the same sanctions
regime. As most of our sanctions have in fact been unilateral,
they have been doubly doomed to failure.
Not only are these sanctions ineffective in achieving their
desired result of depriving the sanctioned country of specific
technologies, but the party hurt is we ourselves. Our
manufacturing labor, often union members, our vendors, our
shareholders, and even the government suffer. Had we been able
to export more, we would have more employees, spent more money
on vendors, been more profitable, and paid more taxes.
We have also lost market share, sometimes on a long term
basis. Lost market share is not easily recovered. This is not a
small issue when our exports are flat and our record trade
deficit is likely to exceed $200 billion this year.
My conclusion is that while sanctions may make us feel good
emotionally, they irrationally ignore the significant negative
consequences imposed on our manufacturing economy. Furthermore,
they are completely ineffective in achieving their desired
results on the sanctioned country, given the competitive world
where our foreign customers have choices and are not reluctant
to exercise their options especially if we force them to do so.
Mr. Houghton. Thanks very much.
Ms. Christian.
STATEMENT OF SHIRLEY CHRISTIAN, BUSINESS MANAGER, FRUTAROM
INC., NORTH BERGEN, NEW JERSEY
Ms. Christian. Thank you, Mr. Chairman and Members of the
Subcommittee, for this opportunity to testify. I am pleased to
testify today on behalf of Frutarom Incorporated in my capacity
as business manager of Frutarom Gum Division. Frutarom is a
leading processor and supplier of gum arabic.
Mr. Houghton. Would you pull that microphone just a little
bit closer to you? That would be great. Thank you.
Ms. Christian. And we are one of only three processors in
the United States. Gum arabic is an essential ingredient in a
wide variety of products important to the United States
economy.
Prior to the imposition of the sanctions, Sudan was our
principal source of supply for gum arabic. Since their
imposition, the importation of Sudanese gum arabic is banned.
America's unilateral sanctions against Sudan have not hurt
Sudan economically. Sudan is free to trade with the rest of the
world and does.
Instead, the sanctions have been felt mainly by the U.S.
gum arabic processors, who have been left without adequate
alternative product sources. This has left us vulnerable to
foreign competition at home and abroad and has left our
customers and the U.S. consumer subject to the monopolistic
practices of foreign processors.
Current trade data, which we have included with our
submission to the Subcommittee, demonstrate that the Khartoum
government remains unaffected by the sanctions. Sudan has a
ready market for gum arabic, particularly in France. Since the
imposition of the U.S. sanctions, French gum arabic processors
have doubled their imports from Sudan and have moved
aggressively to gain market share in the United States and in
our export markets.
It appears that those who benefit the most from U.S.
unilateral sanctions against Sudan are our foreign competitors.
They benefit from the failure of their governments to support
human rights and anti-terrorism policies of the United States.
Those who lose are the parties our government should strive
the most to protect and help.
To understand the effect of unilateral sanctions against
Sudan, to understand how unilateral sanctions have hurt our
business and the business of our customers, you must first
understand the importance of this product to the U.S. economy.
Gum arabic is grown primarily in what is known as the gum
belt in the southern Sahara Desert. About 80 percent of the
world's gum arabic is produced in Sudan. The finest quality gum
arabic comes from Sudan.
Gum arabic is a remarkable substance. There is no adequate
substitute for gum arabic. It is used in products purchased
every day by U.S. consumers.
In pharmaceuticals, gum arabic is used as a binder in
tableting, in the flavor and beverage industries as a preferred
emulsifier. Gum arabic is used to stabilize foam in the
manufacture of soft drinks and beer, and to clarify wine. Also,
it is widely used in cosmetics to stabilize lotions and creams.
In lithography, it is used in the preparation of etching and
plating solutions. In confections, it is primarily to retard
sugar crystallization and emulsify fat. In foods, it is
commonly used in meats, sauces, dressings, baked goods,
candies, cheeses, ice creams, icings, and numerous other food
products.
Gum arabic is vital to the U.S. economy.
The next largest source of gum arabic is from Chad. Chadian
gum arabic is of much lesser quality than Sudanese gum, but
because of the demand created by the unilateral sanctions, the
price of the Chadian gum arabic is higher than world prices for
the Sudanese product. Currently, we are paying about 40 to 50
percent more for lesser quality Chadian gum than our European
competitors are paying for the highly desirable Sudanese gum
arabic.
It is not unthinkable that our European competitors might
be bidding up the price in order to drive American processors
out of business. The other U.S. gum arabic processors have
addressed this issue in their submission to the Subcommittee,
and we urge you to carefully consider their statement.
Recent cancellation of international orders placed with
Frutarom as well as current trade data, already shows signs
that the U.S. processors are losing international export
markets to our French competitors. But much more threatening is
the potential loss of the domestic market to France and other
European competitors who have unfettered access to high-grade
Sudanese gum arabic.
French import data shows that French imports of gum arabic
from Sudan have doubled since the sanctions were imposed, more
than compensating Sudan for the direct loss of U.S. gum arabic
trade. At the same time, French exports of gum arabic to the
United States have reached a record high, replacing Sudan as
the leading exporter of gum arabic to the United States.
Because Chadian gum arabic is widely available from
Frutarom and other U.S. processors, it seems unlikely that the
sharp rise in French exports to the United States is due to a
demand for a Chadian product. There can be no doubt that the
French exports to the United States include high-quality
Sudanese gum arabic, which has been sprayed, dried, and
processed in France and exported to the States as a product of
France.
Thus the only differences in gum arabic available in the
United States prior to and after the imposition of the
sanctions, are that the French processors have replaced the
U.S. processors and that the French are now in the position to
control the price of the Sudanese processed product.
We cannot match our European competitors in terms of price
and quality in international markets. Examination of the United
States and French trade data show a loss of export market share
to the French in traditional U.S. export markets.
Frutarom has just lost a long-time customer in Asia for
reasons our customers describe as a product-quality issue. Our
overseas customer of many years just broke his contract with us
in favor of our French competitors who are marketing the
Sudanese processed product at prices the U.S. processors are
unable to offer for the Chadian product.
All of the factors discussed today and all of the data
submitted lead to two inevitable conclusions. As a direct
result of the unilateral sanctions, United States has lost
competitive position in the vital gum arabic trade both
domestically and internationally. And the French have picked up
the slack and thereby canceled the effect of the sanctions.
It would have been just as effective to have sanctioned
U.S. gum arabic processors directly and to have turned over the
business to our European competitors because this is the
unintended result of the unilateral sanctions as they affect
our gum arabic business.
We acknowledge that unilateral sanctions may be useful
instruments of foreign policy when American interests are at
stake and Americans are not unintentionally injured. But the
Congress should not support the imposition of unilateral
sanctions no matter how justifiable the provocation when the
only parties damaged by the sanctions are Americans.
Thank you very much for allowing me to appear.
[The prepared statement follows:]
Statement of Shirley Christian, Business Manager, Frutarom, Inc.,
North Bergen, New Jersey
Use and Effect of Unilateral Sanctions Against Sudan
Thank you Mr. Chairman and Members of the Subcommittee for
this opportunity to testify. My name is Shirley Christian. I am
pleased to testify today on behalf of Frutarom, Inc. in my
capacity as Business Manager of Frutarom Meer's gum division.
Frutarom is a leading processor and supplier of gum arabic in
the world, and one of only three processors in the United
States. Gum arabic is an essential ingredient in a wide variety
of products important to the United States economy. Prior to
the imposition of the sanctions, Sudan was our principal source
of supply for gum arabic. Since their imposition, the
importation of Sudanese gum arabic is banned.
America's unilateral sanctions against Sudan have not hurt
Sudan economically. Sudan is free to trade with the rest of the
world, and does. Instead, the sanctions have been felt mainly
by United States gum arabic processors, who have been left
without adequate alternative product sources. This has left us
vulnerable to foreign competition in the United States and in
international markets, and has left our customers and United
States consumers subject to monopolistic practices of foreign
processors.
Current trade data, which we have included with our
submission to the Subcommittee, indisputably demonstrate that
the Khartoum government remains unaffected by the sanctions.
Gum arabic is one of Sudan's major exports. Sudan has a ready
market for gum arabic throughout Europe and particularly in
France, where since the imposition of the U.S. sanctions French
gum arabic processors have doubled their imports from Sudan and
have moved aggressively to gain market share in the United
States and in our export markets.
It appears that those who benefit the most from United
States unilateral sanctions against Sudan are our foreign
competitors. They benefit from the failure of the United States
government to first seek and enforce targeted and multilateral
sanctions. They benefit from the failure of their governments
to support human rights and antiterrorism policies of the
United States. Those who lose are the parties our government
should strive the most to protect and help.
To understand the effect of unilateral sanctions against
Sudan, to understand how unilateral sanctions have hurt our
business and the business of our customers, you must understand
the importance of this product to the United States economy.
Gum arabic is a natural gummy exudate obtained by tapping the
branches of the Acacia Senegal tree. It is grown primarily in
what is known as the Gum Belt along the southern periphery of
the Sahara Desert. Approximately 80 percent of the world's gum
arabic is produced in Sudan. Much more important to our
business, the finest quality gum arabic is found in Sudan.
Gum arabic production begins with the Sudanese farmer who
tends his very valuable trees throughout the year. At exactly
the right time of year, determined by expertise acquired over
many years, the farmer taps his trees. Gum exudes where the
bark has been cut and three weeks later the first gum arabic
collection is made. Millions of Sudanese men and women, of
every ethnic background, rely on gum collection as a vital
source of income.
Gum arabic is a remarkable substance. It is used in
products purchased every day by United States consumers. In
pharmaceuticals, gum arabic is used as a binder in tableting.
In cough syrups it is used as a demulcent. In the flavor and
beverage industries it is a preferred emulsifier. Gum arabic is
used to stabilize foam in the manufacture of soft drinks and
beer and to clarify wine. As an emulsifier, gum arabic provides
excellent shelf-life stability to oil-in-water emulsions and
does not mask flavors with filmy texture or off-flavor on the
tongue, features unmatched by synthetic additives. In
cosmetics, it functions as a stabilizer in lotions and screens.
Gum arabic increases the viscosity of cosmetics, imparts
spreading properties, and gives a protective coating and smooth
feel. In lithography, it is used in the preparation of etching
and plating solutions, plate washes, and protective coatings
for the plates in storage. In confections, it is used primarily
to retard sugar crystallization and emulsify fat. It also is
used as a glaze component in chewing gums, cough drops, and
lozenges. In textiles, it is used as a fabric finish. In foods,
it is commonly used in meats, sauces and dressings, baked
goods, candy, cheeses, ice creams, icings and numerous other
food products. The product is vital to the United States
economy.
No substitutes match gum arabic's extraordinary film-
foaming and emulsifying qualities. Users of gum arabic have
encountered every form of disincentive to continue using this
beleaguered product. Famine, drought, pestilence, wild price
swings, shortages, and political crises have given the broadest
opportunity for suppliers of competitive products to replace
gum arabic. Synthetic imitators from modified starches and
maltodextrins, and other products have been developed to take
advantage of the vulnerability of supply of gum arabic, but
these substitutes have failed to replace gum arabic in most
pharmaceutical, food, and beverage products where taste, mouth
feel, superior emulsification, low calorie value, high fiber
content and extended product shelf-life are demanded by United
States industries and consumers.
In the early 1970's United States gum arabic consumption
exceeded 33 million pounds per year. The famine in the gum belt
of 1973-1975 resulted in a tripling of gum prices and gum
arabic usage was cut nearly in half. Certain bulk usage
applications in non-food products were permanently replaced. We
believe that most applications where gum arabic was
substitutable were successfully targeted during this period.
Since the disastrous period of the 1970's, and the
droughts, shortages, and price increases during the 1980's and
1990's, gum arabic usage in the United States has not
diminished. The volume has actually grown roughly in line with
the growth of the product category served. Periodic displeasure
with the challenges of supply have led to warnings of the
product's demise, but its film-foaming and emulsifying
qualities have necessitated its survival. The emphasis in
recent years on the importance of ``natural'' and ``soluble
fiber'' have further secured gum arabic's position in the
United States market.
The inability of certain industry sectors, such as the
beverage, food and pharmaceutical industries, to secure high
quality gum arabic would have an immediate and negative impact
on the United States economy by lessening the quality of their
products and reducing their sales. Competing imported products
manufactured with gum arabic would gain a qualitative
advantage, and thus would further damage United States
producers.
Gum arabic grown in Chad holds the best promise of
replacing Sudanese gum arabic, but only in the future. Current
crop yields in Chad are immature and of lesser quality than
Sudanese gum arabic, with viscosity levels as much as ten times
higher than the levels present in the Sudanese product. Much of
the gum arabic we have purchased from Chad is of viscosity
levels too high to be accepted by key industry sectors which we
serve. The best method of achieving an appropriate viscosity
level using Chadian gum arabic is by mixing the product with
Chadian gum arabic containing lower viscosity levels, or
blending the product with Sudanese gum arabic. Mixing and
blending are both processes which add considerable costs and
can drive up the price of the customer specified product. In
some instances, even after costly mixing of the Chadian gum
arabic, our customers have rejected orders, causing us to begin
the expensive process again with a different batch of gum
arabic. But quality is not the only issue affecting Frutarom's
competitive position in United States and international
markets.
Because of the artificial demand created by the unilateral
sanctions, and despite its lesser quality, the price of the
Chadian gum arabic is higher than world prices for the Sudanese
product. Currently, as a direct result of unilateral sanctions
against Sudan, we are paying about 40 percent to 50 percent
more for lower quality Chadian gum arabic than our European
competitors are paying for the highly desirable Sudanese gum
arabic. Other factors may be driving up the price of the
Chadian gum arabic. It is not unthinkable that our European
competitors might be bidding up the price in order to drive
American processors out of business. The other United States
gum arabic processors have addressed this issue in their
submission to the Subcommittee, and we urge you to carefully
consider their statement.
Without authorization to import additional quantities of
the Sudanese product, Frutarom and other United States
processors will not be able to compete with our European
counterparts in quality and price. Recent cancellation of
international orders placed with Frutarom, as well as current
trade data, already show signs that United States processors
are losing international export markets to our French
competitors. But much more threatening is the potential loss of
the domestic market to France and other European competitors
who have unfettered access to high grade Sudanese gum arabic.
French import data show that French imports of gum arabic
from Sudan have doubled since the sanctions were imposed, more
than compensating Sudan for the direct loss of United States
gum arabic trade. At the same time, French exports of gum
arabic to the United States have reached a record high.
Incredibly, in just one year French imports of gum arabic
from Sudan jumped from 5,556 tons during 1997 to 10,701 tons
during 1998. During the combined years of 1997 and 1998, French
exports to the United States increased almost 60 percent over
1996 exports. French import and export data for the first
quarter of 1999 is not yet available to us, but United States
import data for January and February of 1999 show that France
has replaced Sudan as the leading exporter of gum arabic to the
United States with a record 51 percent share of the U.S. import
market, substantially up from the 23 percent share for the same
period in 1998. (No significant increases were found in imports
from the U.K.) And as expected, United States imports from Chad
increased due to the sanctions, but only to a 45 percent share
of U.S. imports. If the Chadian product were of suitable
quality, this number would be much higher and the French share
much lower.
One concern we have with the sharp increase in French
exports to the United States is that it coincides with the
depletion of United States inventories of Sudanese gum arabic
held by United States processors and other commercial sectors.
French processors must be well aware that the United States
government has not granted waivers for imports of Sudanese gum
arabic for 1999 and beyond.
The French trade data for 1998 show that 51 percent of its
total gum arabic imports came from Sudan, and only about 28
percent imported from Chad. Because Chadian gum arabic is
widely available from Frutarom and other United States
processors, it seems unlikely that the rise in French exports
to the U.S. is due to a demand for a Chadian product processed
in France. There can be no doubt that French exports to the
United States include high quality Sudanese gum arabic which
has been spray dried and processed in France and exported to
the States as a product of France. Thus, the only differences
resulting from the United States sanctions in gum arabic
available prior to and after the November, 1997 Executive Order
are that the French processors have replaced the U.S.
processors and the French are now in the position to control
the price of the Sudanese processed product.
We cannot match our European competitors in terms of price
and quality in international markets. Frutarom just lost a
long-time customer in Asia for reasons our customer described
as a product quality issue. Our overseas customer of many years
just broke its contract with us in favor of our French
competitors, who are marketing the Sudanese processed product
at prices United States processors are unable to offer for the
Chadian product.
Frutarom's loss of international business is not isolated.
Current trade data support the conclusion that this is a
frequent occurrence. A close examination of United States and
French trade data show a loss of export market share to the
French in traditional United States export markets. The data
show early signs of declines in exports to Mexico and certain
South American countries such as Brazil, Colombia, Argentina,
Chile, and Venezuela, with corresponding increases in French
exports to these markets. For the combined years of 1997 and
1998, French exports worldwide increased more than 40 percent.
U.S. export data show that exports of gum arabic declined
approximately 15 percent in 1998, from the previous year. Due
to our diminished inventories of Sudanese gum arabic, the
decline in United States exports of gum arabic will continue in
1999 and become more pronounced by 2000 if the situation
remains unchecked and relief is not granted.
All of the factors discussed today and all of the data
submitted lead to two inevitable conclusions. As a direct
result of the unilateral sanctions, the United States has lost
competitive position in the vital gum arabic trade, both
domestically and internationally, and the French have picked up
the slack and thereby canceled the effect of the sanctions. It
would have been just as effective to have sanctioned U.S. gum
arabic processors directly and to have turned over the business
to our European competitors, because this is the unintended
result of the unilateral sanctions as they affect our gum
arabic business.
We acknowledge that unilateral sanctions may be useful
instruments of foreign policy when American interests are at
stake and Americans are not unintentionally injured. But the
Congress should not support the imposition of unilateral
sanctions, no matter how justifiable the provocation, when the
only parties damaged by the sanctions are Americans.
Once again, I would like to thank the Chairman and the
members of the Subcommittee for the privilege of appearing
before you today. I look forward to your questions and will be
happy to provide you with any additional information that your
staff may need in further analyzing unilateral trade sanctions.
United States Imports of Gum Arabic
[Quantity in Kilograms]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1999 Jan/Feb 1998 Jan/Feb 1998 1997 (Imposition of 1996
------------------------------------------------------------------------------ Sanctions) -------------------------
--------------------------
Imports Share Imports Share Imports Share Imports Share Imports Share
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
France........................................................ 754,758 51 709,451 23 5,325,605 34 4,479,040 40 3,190,359 32
Sudan......................................................... 0 0 2,097,000 68% 2,537,000 17% 3,564,140 33% 3,299,760 33%
Chad.......................................................... 658,182 44.6% 157,600 5% 5,640,633 37% 2,425,189 22% 1,577,053 15.7%
UK............................................................ 24,151 1.6% 24,326 .79% 244,171 1.6% 282,374 2.6% 323,999 3.2%
Nigeria....................................................... 20,000 1.35% 80,000 2.60% 569,442 3.72% 676,349 6.2% 639,486 6.4%
World......................................................... 1,473,591 3,069,501 15,288,286 10,908,755 10,021,268
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Source: United States Department of Commerce, Census Bureau. Global Trade Database
** HTS No. 1301.20.0000
French Imports of Gum Arabic
[Quantity in Tons]
----------------------------------------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------
Share [In Share [In Share [In
Imports percent] Imports percent] Imports percent]
----------------------------------------------------------------------------------------------------------------
Sudan................................... 10,701.900 51 5,556.000 33 5,344.100 40
Chad.................................... 5,925.100 28 5,033.100 30 3,977.500 30
Nigeria................................. 1,577.100 7.5 2,301.800 14 1,119.900 8
United States........................... 391.100 1.9 335.300 2.0 206.000 1.5
World................................... 20,965.200 16,853.200 13,199.29
----------------------------------------------------------------------------------------------------------------
* Source: Global Trade Information Services
** HTS No. 1301.20.0000
United States Exports
[Quantity in Kilograms]
----------------------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------- (Imposition
1998 of 1996
Jan/Feb Jan/Feb Sanctions)
----------------------------------------------------------------------------------------------------------------
Mexico......................................... 14,646 22,725 182,438 129,270 208,979
Brazil......................................... 0 0 20,735 126,007 117,278
Argentina...................................... 774 678 21,580 47,686 33,897
Colombia....................................... 0 16,896 51,414 54,126 71,571
Chile.......................................... 0 0 4,465 0 27,837
Venezuela...................................... 0 2,068 2,803 80,040 25,266
Philippines.................................... 0 21,284 21,284 47,183 161,854
Japan.......................................... 8,294 8,016 62,491 228,928 247,809
World.......................................... 225,891 225,118 2,052,068 2,384,716 2,064,877
----------------------------------------------------------------------------------------------------------------
Source: United States Department of Commerce, Bureau of Census, Global Trade Database
[GRAPHIC] [TIFF OMITTED] T6565.001
Chairman Crane. [presiding] Thank you, Ms. Christian.
Mr. McMahon.
STATEMENT OF HON. JOHN N. MCMAHON, MEMBER, BOARD OF DIRECTORS,
LOCKHEED-MARTIN-KHRUNICHEV-ENERGIA INTERNATIONAL, INC., ON
BEHALF OF LOCKHEED MARTIN CORPORATION; AND FORMER DEPUTY
DIRECTOR, CENTRAL INTELLIGENCE AGENCY
Mr. McMahon. Thank you, Mr. Chairman. I appreciate the
opportunity to appear here today and offer my views on
unilateral trade sanctions, focusing in particular on the de
facto use of such sanctions by failing to lift the current
trade quota on the Russian proton vehicle.
Since its inception in 1993, I have served as a member of
the board of directors of Lockheed-Khrunichev-Energia
International, the U.S.-Russian joint venture providing
worldwide commercial satellite launch services using the proton
launch vehicle system. In many cases, the United States has
sought to respond to the challenges of post-cold war era with
unilateral trade sanctions. However, the cost to the U.S.
economy has been high.
As you yourself said, Mr. Chairman, in your opening
comments, around $15 to $20 billion a year. And we understand
by some estimates, as many as 250,000 well-paying jobs.
It would be one thing if these costs could be justified by
an impressive string of victories for American security and
foreign policy interests. Unfortunately, all the unilateral
sanctions have achieved, as General Brent Scowcroft told this
Committee last year, is, ``an unblemished record of failure.''
But this should come as no surprise, given the underlying
premise for unilateral sanctions that if the United States acts
alone in denying exports, no other nation in the world will
fill the breech. Common sense tells you otherwise.
That is why I support H.R. 1244 and the efforts of those
that have advocated its enactment. H.R. 1244 does not prohibit
the use of unilateral sanctions, but requires a common-sense
set of reforms that would impose greater discipline in the use
of this instrument.
The bill is based on the proposition that U.S. interests
should be pursued through vigorous and effective diplomatic,
political, commercial, strategic, and other forms of
engagement.
I agree.
U.S. purchase of highly-enriched uranium and our pursuit of
cooperative threat reduction through the far-sighted
congressional efforts launched by Senators Nunn, Lugar, and
Domenici are but two successful initiatives that have
exemplified the possibilities.
Another important success has resulted from our
encouragement of the United States-Russian commercial space
business ventures. These partnerships engage thousands of
highly-skilled Russian aerospace engineers and scientists in
commercial pursuits, thereby fulfilling cooperative threat
reduction objectives.
Moreover, because this is being done on a company-to-
company basis, there is no expenditure of public funds. And the
opportunities to effect real change in the way business is
carried out in Russia are significant.
In the case of the Lockheed-Khrunichev-Energia venture, as
an example, our partners, Khrunichev State Research Production
Space Center and its subcontractors employ some 100,000 people
in the production and launch of the proton system, which in
turn generates economic activity supporting 1-million Russians.
Moreover, Khrunichev has instituted a rigorous program of
export control measures and is fully integrated into LKEI's
market-oriented approach to the market and supply of commercial
proton launch services.
I believe that the two-track system strategy that the
United States has pursued, vigorously opposing Russian entities
that do proliferate while promoting commercial engagement with
Russian entities to provide incentives for them to refrain from
proliferating or doing business with proliferators is
fundamentally sound. However, the two tracks are becoming
tangled with one another.
A policy of denying Russian entities not involved in
proliferation activities the opportunity to provide commercial
space-launch services will damage U.S. interests in the long
term. In an era of shrinking defense budgets, preserving U.S.
leadership in space depends on a robust commercial underpinning
to the American aerospace industry.
In conclusion, Mr. Chairman, I believe that both in the
specific instance of the proton space launch quota and in the
broader array of unilateral sanctions, we need a more reasoned,
deliberative process to increase the odds that U.S. policies
will achieve their desired results.
Lifting the quota and adopting H.R. 1244 provide a strong
foundation on which to build that kind of process.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Hon. John N. McMahon, Member, Board of Directors,
Lockheed-Martin-Khrunichev-Energia International, Inc., on behalf of
Lockheed Martin Corporation, and former Deputy Director, Central
Intelligence Agency
Mr. Chairman, I appreciate the opportunity to appear here
today and offer my observations on the issue of trade sanctions
as a policy tool in general; and, in particular, on the current
situation involving the de facto use of sanctions on a
commercial space launch venture by failing to lift the current
trade quota on the Russian Proton vehicle. By way of
background, I served 34\1/2\ years with the CIA culminating in
the position of Deputy Director of Central Intelligence.
Following my government service, I was President and CEO of
Lockheed Missiles & Space Company. Since its inception in 1993,
I have served as a member of the Board of Directors of
Lockheed-Khrunichev-Energia International, the United States-
Russian joint venture providing worldwide commercial satellite
launch services using the Proton launch vehicle system. The
views expressed in my testimony today are my own, but are the
product of experience both in the public and private sectors in
addressing the intersection of international trade policy and
national security policy.
I spent a good part of my government career addressing
national security issues precipitated by the Cold War between
the two major superpowers. I certainly would not wish to return
to that era, when the specter of nuclear confrontation hung
threateningly over Europe and Communist aggression posed a
continuing challenge to American interests around the globe. In
some ways, though, it was a simpler time. The world divided
between East and West, communist and democratic, and our
principal military, economic and diplomatic assets were
marshaled to preserve our advantage through our alliances,
beginning with NATO. The economic complement of NATO was the
Coordinating Committee on East-West trade, or CoCom. CoCom
members apprised each other of prospective product sales--and
agreed to let any member government veto a sale to be made by
another if that export were deemed to afford a military
advantage to our communist adversaries.
These measures worked because Americans were unified and
our allies were unified on the nature of the threat we faced
and the kinds of measures needed to combat it, including on the
trade front. We succeeded by maintaining a multilateral export
control system that preserved our technological advantage over
the Warsaw Pact from the era of the Berlin Airlift to the fall
of the Berlin Wall.
While the end of the Cold War reduced the risk of East-West
conflict, in many ways the dangers we face are no less
worrisome than those we defeated--including the proliferation
of weapons of mass destruction, the expanded activities of
international terrorists like Usama bin Laden, the one-two
punch of organized crime and narcotrafficking. It requires just
as much determination and commitment on our part to counter
these threats, but we must do so with less coherence and
coordination among our allies. This is especially true now that
CoCom has been dismantled, and there exists less consensus
among the allies on who, precisely, the enemy is and how best
to respond to the myriad threats we now face.
In many cases the United States has sought to respond to
the challenges of the post-Cold War era with unilateral trade
sanctions. A January 1998 Congressional Research Service report
cited 125 measures authorizing unilateral U.S. economic
sanctions targeting 30 countries. The President's Export
Council identified 73 countries subjected to some form of
unilateral U.S. sanction as of January 1997. That year, the
International Institute for Economics concluded that unilateral
trade sanctions cost the U.S. economy $15 billion to $20
billion a year, and that 250,000 jobs are lost from the well-
paying export sector of our economy.
Some have questioned the significance of these costs. As a
businessman I can tell you that these burdens are significant,
not least because they tend to fall on the most dynamic and
competitive parts of our economy--such as the high-tech export
sector. Moreover, at issue is not simply a lost sale, but
rather a lost market. America will simply be unable to maintain
its global leadership in the cutting edge business sectors if
we take vital markets off the table for American exporters.
It would be one thing if these costs could be justified by
an impressive string of victories for American security and
foreign policy interests. Unfortunately, the opposite has been
the case. As General Brent Scowcroft told this Committee last
year, unilateral sanctions have achieved an ``unblemished
record of failure.'' From the Soviet grain embargo of 1980 and
the Soviet pipeline embargo of 1981 until the present, the most
frequent result of unilateral U.S. sanctions has been to hurt
the international economic competitiveness of the United States
far more than the intended targets of the sanctions, all the
while strengthening our rivals and competitors.
These poor results should not be a surprise. The use of
unilateral sanctions depends on a fatally flawed premise: that
if the United States acts alone in denying exports, no other
nation in the world will fill the breach. Common sense tells
you that our foreign competitors are delighted to take away
American markets whenever they can.
I do not believe that we should outlaw unilateral
sanctions. The United States must have the broadest array of
foreign policy instruments at its disposal. There may be times
when U.S. vital interests are at stake and require that
American act alone. We must not shrink from that
responsibility. We should, however, think through our
objectives, and the means deployed to meet those objectives,
before we act.
That is why we support H.R. 1244. It does not prohibit the
use of unilateral sanctions, but requires a common-sense set of
reforms that would impose greater discipline in the use of this
instrument. We agree that, before unilateral sanctions are
imposed, the Congress and the President should assess their
likely effectiveness, costs and benefits, and long-term
implications for other U.S. humanitarian, security, and foreign
policy interests. We should require an exploration of
alternatives and of multilateral approaches.
When unilateral sanctions are imposed, we believe that it
is essential that some discipline is maintained to optimize
their effectiveness, and avoid having them lapse into permanent
sanctions to be applied year after year even if they do not
work. To that end, we support the bill's proposal to grant the
President sufficient authority to waive sanctions that have
been imposed. Once sanctions have been applied, the target
government may rationally conclude that it may as well continue
its offending conduct, having paid the ``price of admission''
of incurring U.S. sanctions--if there is no prospect of a
waiver.
We also support the bill's provision protecting the
sanctity of existing contracts, unless there is a threat to
U.S. security. Without contract sanctity, American suppliers
cannot provide the level of assurance needed to protect our
ability to compete in the global marketplace. We also agree
with the bill's sponsors that unilateral sanctions should
sunset in two years unless re-authorized. It is simply unfair
to continue to penalize Americans year after year without even
requiring Congress and the Executive Branch to step up to the
plate by explaining and taking responsibility for their
actions, so that they may be held accountable to the
electorate.
Finally, we agree with the bill's premise that U.S.
interests should be pursued through vigorous and effective
diplomatic, political, commercial, strategic and other forms of
engagement. I would like to address how we have done that in
the area of combating the proliferation of weapons of mass
destruction and their delivery systems.
Faced with the end of the Cold War and the break-up of the
Soviet Union, both the Bush and Clinton Administrations, as
well as the Congress, fully recognized new and dangerous risks
associated with the proliferation of nuclear, chemical, and
biological weapons and the missiles that deliver them, as well
as related materials and technologies. In response, both
Administrations adopted a vigorous policy of opposing dangerous
transfers, while promoting cooperative programs designed to
provide commercial opportunities for Russia's vast military
industrial potential, so that Moscow would see its self-
interest best served by cooperating with the United States
rather than with rogue states. The cooperation between the
United States and Russia on commercial space ventures is
particularly noteworthy. In several ventures, Russian
technology is being exported to American partners.
The United States has opposed dangerous transfers through a
variety of means, including direct diplomatic engagement with
Russia and other nations, and through the use of export
controls and interdiction of illicit commerce where possible.
We have promoted cooperative programs through such efforts as
the establishment of the International Science and Technology
Center, through which Russian weapons scientists and engineers
are supported in redirecting their talents toward peaceful
endeavors.
In the nuclear arena, the United States has purchased
highly-enriched uranium, so that it can be diluted from
weapons-grade to low-enriched uranium that can be used as
commercial fuel for nuclear power stations. We have pursued
cooperative threat reduction, through the far-sighted
Congressional efforts launched by Senators Nunn, Lugar and
Domenici.
Turning to commercial space, we have encouraged industry-
to-industry partnerships in U.S.-Russian commercial space
business ventures--like Lockheed-Khrunichev-Energia
International (LKEI) which supplies commercial Proton launch
vehicle services to the international satellite launch
marketplace. These partnerships have made the world safer by
engaging thousands of highly-skilled Russian aerospace
engineers and scientists in commercial pursuits, thereby
fulfilling cooperative threat reduction objectives. Moreover,
because this is being done on a company-to-company basis, there
is no expenditure of public funds and the opportunities to
effect real change in the way business is carried out in
Russia--to establish greater accountability and adherence to
export control regimes--are significant. In the case of LKEI,
as an example, our partner Khrunichev State Research and
Production Space Center and its subcontractors employ some
100,000 people in the production and launch of the Proton
system, which in turn generates economic activity supporting
one million Russians. Moreover, Khrunichev has instituted a
rigorous program of export control measures and is fully
integrated into LKEI's market-oriented approach to the
marketing and supply of commercial Proton launch services.
Indeed, these business ventures are far more effective than
relying simply on jawboning and other diplomatic efforts to
persuade Russia to steer clear of cooperation with rogue
states. They create a vested interest for the Russians to
conduct legitimate business in the international marketplace
with us and others, instead of engaging in the black market of
proliferation with those who would turn space and missile
technology against American interests. By contrast, those
Russian entities that have cooperated with the Iranian missile
program have been subjected to Presidential sanction, and
properly so.
U.S.-Russian commercial space cooperation has been good for
the Russian economy, but it has also promoted U.S. interests.
U.S. military superiority, and therefore our national security,
depends upon our dominance of space. It has taken more than a
decade for American space launch to recover in the
international marketplace from the Challenger disaster. U.S.
partnership with Russia--like the LKEI business which offers
one of the world's most powerful payload lift capabilities
available today to launch commercial satellites into high earth
orbit--has contributed to that recovery. Particularly as the
Pentagon turns more and more to commercial suppliers of space
technology and services, it is critical that we keep America's
launch and satellite industries strong.
I believe that the two-track strategy the United States has
pursued--vigorously opposing Russian entities that do
proliferate, while promoting commercial engagement with Russian
entities to provide incentives for them to refrain from
proliferating or doing business with proliferators--is
fundamentally sound. Last summer, and earlier this year, the
United States imposed sanctions against Russian entities found
to be assisting others in the development of their ballistic
missile capabilities. At the same time, to the best of our
knowledge, the Russian entities that are participating with
Lockheed Martin in commercial space ventures are not engaged in
any proscribed activity. It is critical that we keep these
incentives properly aligned.
That is why I am troubled by reports that the two tracks
are becoming tangled up with one another. Specifically, the
effective extension of U.S. economic sanctions from Russian
entities that are engaged in illicit commerce to those that are
not, by blocking the latter from conducting legitimate launches
of commercial payloads, is a serious mistake.
There are two reasons why this is so. First, from a
nonproliferation perspective, a policy of ``shooting the
hostages'' will either be counterproductive, ineffective, or
both. Second, such a policy will also damage long-term American
interests. I will discuss each of these points in turn.
From a nonproliferation perspective, the original premise
of U.S. policy--that it is in our national interest to provide
peaceful civil and commercial avenues for Russian military
capabilities--remains valid. To the degree that we close off
those avenues, and if the Russian government becomes
complacent, we risk a counterproductive result: driving our
would-be Russian partners straight into the arms of whatever
rogue state will pay the freight for buying Russian missile
technologies, equipment and know-how. Beyond its purely
financial dimension, such an approach would reinforce those
within the Russian Federation who believe that Moscow's long-
term strategic interest is better served not through
partnership with the United States, but rather through
leveraging their nation's diminishing economic and military
strength through alliances with America's rivals. This could
better position Russia to act as a potential spoiler in
relation to U.S. interests, thereby enhancing Russia's ability
to seek to extract concessions on critical issues.
Moreover, in today's globalized economy, any U.S. effort to
coerce better behavior through unilateral economic sanctions
may prove to be ineffective. In the short run, if the United
States blocks access to Russian launchers, customers for launch
services--satellite builders and satellite telecommunications
and information services providers--can and will go to Europe
to buy another ride to space. Moreover, the Russian companies
involved in these ventures with U.S. industry may find the lure
of other partners irresistible. If that happens, U.S.
``leverage'' will turn to dust in our hands. Since no other
nation has export controls as strict as the United States,
Russia would face fewer nonproliferation constraints let alone
incentives to refrain from proliferation in any such
transactions. In the long run, launch services customers may
very well invest in European and other launch systems in order
to assure their access to space, further diminishing U.S.
ability to exert meaningful leverage through coercive use of
launch quotas. And the business base for the U.S. satellite
industry--which has long been the undisputed leader in cutting-
edge space-based information and communications technology--may
erode as customers turn to our European and other foreign
competitors that are not limited in their access to the full
range of launch capability available in the marketplace.
This prospect leads directly to my second concern. Denying
Russian entities not involved in proliferation activity the
opportunity to provide commercial space launch services will
damage U.S. interests in the long-term. Such a policy sends a
signal not just to Russia, but to the world. It tells every
nation, telecommunications company and ministry, every
satellite services provider, that the United States is an
unreliable partner in commercial space business ventures. The
long-term strategic damage this could inflict on our country
cannot be overstated. American leadership in space is vital to
this nation's economic future and, more importantly, to our
ability to prevail in any future military conflict. In an era
of shrinking defense budgets, preserving that leadership
depends on a robust commercial underpinning to the American
aerospace industry. Actions that tell customers of U.S. goods
and services to shop elsewhere if they need a predictable,
transparent environment in which to conduct their business play
right into the hands of our already formidable foreign
competitors. And the history of unilateral sanctions--as
exemplified in the cases of the Soviet grain and pipeline
embargoes of the early 1980s--demonstrates that markets, once
lost, cannot easily be regained.
This policy--of restricting compliant Russian launch
suppliers from commercial satellite launch opportunities--also
calls into question for key market participants the commitment
of the U.S. to execute the agreed-upon terms of its bilateral
launch trade agreements. The United States-Russia Commercial
Launch Services Trade Agreement--and its key provisions, the
quota on GEO/GTO launches and the pricing standard--was
established to allow entry for Russian launch services
providers into the international market without disruption to
the market resulting from the availability of a large number of
low-priced launch vehicles (i.e., ``dumping''). Through LKEI,
this objective has been met. LKEI has facilitated the smooth
transition of Proton vehicles into the market, ensured market
pricing for commercial Proton launch services and accomplished
the transition of our Russian partners to market-oriented,
commercial business practices. Moreover, market demand is
robust and far exceeds the forecasts on the basis of which the
quota was put in place in 1993 and amended in 1996. Yet,
despite the fact that the terms of the launch trade agreement
have been fully complied with and the trade criteria for
lifting the quota have been met--and, further, despite the fact
that our Russian partners are not engaged in proliferation--the
Administration refuses to execute the provisions of the
agreement to lift the quota. In holding the quota hostage to
the proliferation issue, under these circumstances, U.S.
credibility to make and keep its trade-related commitments may
be seriously compromised.
We need to be clear-eyed and steady as we pursue America's
long-term strategic objectives. We should continue to encourage
Russian entities to cooperate with us in peaceful applications
of space and missile technology. We should continue to press
the Russian Federation to take all necessary steps to curtail
any assistance that other Russian entities are providing to
rogue states' missile programs. This should include working
cooperatively with Moscow on such measures as enhancing its own
export control system and, where necessary, impose sanctions
against the offending entities as we have in the past. It also
requires working with our allies to avoid falling into a trap
where, in the name of nonproliferation, we end up with exactly
the result we are trying to avoid and, in the process, push the
United States to the sidelines of space, to our lasting
disadvantage.
In conclusion, Mr. Chairman, I believe that--both in the
specific instance of the Proton space launch quota and in the
broader array of unilateral sanctions that have been imposed or
proposed to advance a variety of worthy American goals--we need
a more reasoned, deliberative process to increase the chances
that U.S. policies will achieve their desired results. The
sanctions reform legislation before you provides a strong basis
to begin to build that kind of process. Consistent with the
intent of the legislation, lifting the quota on commercial
Proton launch services now, by preserving the LKEI venture,
will yield significant economic and national security benefits
to the United States.
Thank you.
Chairman Crane. Thank you.
Mr. Hamod.
STATEMENT OF DAVID A. HAMOD, U.S. REPRESENTATIVE, AMERICAN
BUSINESS COUNCIL OF THE GULF COUNTRIES
Mr. Hamod. Thank you, Mr. Chairman, for the opportunity to
testify today. The American Business Council of the Gulf
Countries consists of the nine American chambers of commerce in
the Gulf Cooperation Council nations, representing the more
than 700 U.S. companies with operations in the region. This
non-profit, non-partisan organization is composed primarily of
small- and medium-size companies, and is widely recognized as
the voice of American business in the Gulf region.
And on a personal note, Mr. Chairman, we greatly appreciate
the time you have spent with our doorknock delegations when
they have come to visit Washington.
Mr. Chairman, throughout much of the past decade, exports
have served as the engine of growth for the U.S. economy.
Increased globalization and widespread use of the Internet
means that the international marketplace is literally in
America's living rooms like at no other time in U.S. history.
This also means that the U.S. Government's international
trade policies are having more of an impact on local
communities in the United States than ever before. America's
reputation as the world's leading proponent of free and fair
trade is on the line, as are the jobs of millions of Americans
whose livelihoods now depend on global commerce.
Over the years, the United States has increasingly resorted
to the use of unilateral economic sanctions as a cure-all
elixir. However, experience shows that elixirs and snake oils,
no matter how elegantly they are packaged or how aggressively
they are marketed, rarely achieve satisfactory results.
From our perspective, as U.S. business leaders overseas,
America's sanctions process is deeply flawed. From where we
sit, these policies appear to be erratic, ineffectual, and
based more on knee-jerk diplomacy than on a careful and
realistic analysis of the likelihood of success and the
economic costs and benefits to the United States.
The imposition of unilateral economic sanctions may play
well for certain audiences and constituencies within the United
States, but it carries adverse circumstances for U.S.
companies, American citizens, and the reputation of the United
States around the world.
Mr. Chairman, America's trade competitors are laughing all
the way to the bank because unilateral U.S. sanctions eliminate
the American competition. Here are just a few instances of lost
business in Iran, for example, as a result of U.S. sanctions.
Federal Express had to discontinue courier
service to Iran while its non-American competitors tout the
fact that they are able to serve the burgeoning Iranian market.
Fuji film, produced by Japan, has replaced
America's Kodak film in Iran, which had been a major and
lucrative market for Kodak for decades.
McDermott had to withdraw recently from a major
fabrication tender, which its Korean competitor was then able
to win at greatly inflated prices.
American President Lines had to discontinue its
extensive container service to Iran, where it was then replaced
entirely by NYK of Japan and P&O of Europe.
Unilateral sanctions also take their toll on Americans
abroad because they apply directly to individual U.S. citizens.
In the hard-nosed world of business, most foreign employers are
not especially tolerant of unilateral U.S. policies, and the
result is that American employees are being replaced by non-
Americans who can get the job done in sanctioned countries.
Under virtually no circumstances, in the ABCGC's opinion,
should expansive U.S. sanctions be applied directly to
individual U.S. citizens. In most cases, these Americans abroad
are merely trying to hold down a job and are not in a position
to prevent foreign transactions by foreign companies.
The significance of this Gordian knot goes far beyond the
loss of jobs in the Gulf. European and Asian companies, which
no longer need to worry about competing against U.S. companies
in places like Iran, are winning very lucrative contracts there
and using their large profit margins to subsidize their bids
and operations elsewhere in the world.
Looked at another way, U.S. companies are being penalized
by America's sanctions not just once, but multiple times.
This is a lose-lose situation that threatens U.S.-based
jobs and American leadership around the world. From our
perspective in the Gulf, ILSA is a toothless paper tiger. It
frightens none of our trade competitors who routinely thumb
their noses at the United States and who scoff at America's
efforts to enforce extraterritorial laws. ILSA is unworkable,
it is applied inconsistently, and it has failed to achieve even
the most modest of successes.
Mr. Chairman, the ABCGC strongly supports H.R. 1244. We
believe that this type of legislation is long overdue, and we
consider it an important first step in rationalizing and
establishing workable guidelines for America's use of
sanctions.
In conclusion, Mr. Chairman, the imposition of unilateral
economic sanctions is a blunt instrument that has often been
used when a more strategic weapon in the arsenal of U.S. trade
policy would have been more appropriate.
The ABCGC believes that such ``big-stick diplomacy'' must
be used very sparingly, and even then, it should be employed
only in a measured, predictable, and targeted way.
With this in mind, the ABCGC supports H.R. 1244 and this
Subcommittee's efforts to rationalize America's sanctions
process, enhance U.S. global competitiveness, and level the
international playingfield for U.S. companies and American
workers.
Thank you, Mr. Chairman, for the opportunity to testify.
[The prepared statement follows:]
Statement of David A. Hamod, U.S. Representative, American Business
Council of the Gulf Countries
Examining U.S. Unilateral Economic Sanctions
Thank you, Mr. Chairman, for the opportunity to testify
today. My name is David Hamod, and I serve as the U.S.
Representative of the American Business Council of the Gulf
Countries (ABCGC). The ABCGC consists of the nine American
Chambers of Commerce in the Gulf Cooperation Council (GCC)
nations of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the
United Arab Emirates. Our organization, representing the more
than 700 U.S. companies with operations in the region, is
widely recognized as the voice of American business in the
Gulf. Affiliated with the U.S. Chamber of Commerce, the ABCGC
is a non-profit, non-partisan organization composed primarily
of small and medium-sized enterprises (SMEs). ABCGC chapters
are actively involved in the American communities throughout
the GCC, where they serve as a resource to the public and
private sectors and work with the U.S. Government to enhance
America's business competitiveness overseas.
* * * * *
Mr. Chairman, throughout much of the past decade, exports
have served as the engine of growth for the U.S. economy. As a
result of these exports, millions of new jobs were created in
the United States, and tens of thousands of American companies
that once did business only in the USA are now selling U.S.
goods and services in foreign markets. Increased globalization
and widespread use of the Internet means that the international
marketplace is literally in America's living rooms like at no
other time in U.S. history.
This also means that the U.S. Government's international
trade policies are having more of an impact on local
communities in the United States than ever before. America's
reputation as the world's leading proponent of free and fair
trade is on the line, as are the jobs of millions of Americans
whose livelihoods now depend on global commerce. As a result of
this deeper commitment to American business around the world,
decisionmakers at both ends of Pennsylvania Avenue are looking
more carefully at policies that will affect U.S.
competitiveness in foreign markets for decades to come. It is
in this spirit, Mr. Chairman, that you have called us together,
and we are pleased to appear before your subcommittee this
morning.
Unilateral Economic Sanctions: A Cure-All Elixir?
In an effort to send a range of political messages and to
encourage what the United States deems to be acceptable
behavior, the United States has increasingly resorted to the
use of unilateral economic sanctions. More than any other
country in the world, the U.S. employs such sanctions as a
foreign policy weapon, imposing unilateral economic sanctions
on some countries for transgressions in such fields as
narcotics, terrorism, human rights, religious rights, and the
spread of chemical, biological, and nuclear weapons. The ABCGC
supports many of these objectives, of course, but not through
unilateral economic sanctions--which have consistently failed
to accomplish their economic and political goals. Moreover,
according to the President's Export Council, the direct cost of
economic sanctions to the U.S. economy during the period 1993
to 1996 amounted to $15-$19 billion in lost export sales per
year and as many as 250,000 U.S. jobs annually.
Fighting Dictators and Despots
Like most Americans, the thousands of members who make up
the ABCGC oppose the world's dictators, despots, terrorists and
drug dealers. We are against violations of fundamental human
rights, and we have as strong a reaction as anyone to brutal
regimes whose policies undermine the rule of law and fly in the
face of basic decency. As U.S. citizens living and working
overseas, we understand--perhaps better than even our families
``back home'' in the States--the need to combat those leaders
and nations that are actively working against the interests of
our country. The ABCGC recognizes the importance of the United
States leading the world not just economically, but ethically
and morally as well.
With this in mind, and in the context of sanctionable
activities, the American Business Council of the Gulf
Countries:
Encourages U.S. initiatives for multilateral
sanctions that address U.S. national security and foreign
policy objectives, and which include America's key allies and
trading partners;
Supports U.S. controls on exports of certain
weaponry and advanced & sensitive technology, and encourages
U.S. prohibitions on support for and dealings with known drug
dealers and terrorist organizations;
Recognizes the right of the United States to
curtail aid and to oppose other forms of government support for
countries acting against U.S. interests; and
Respects the right of the United States to deny
access to our country, for national security and other
legitimate reasons, for certain foreign individuals and
government officials.
In short, the ABCGC supports multilateral economic
sanctions and U.S. Government actions that can realistically
serve as an effective foreign policy tool for changing the
behavior of oppressive and antagonistic regimes around the
world. We cannot agree, however, with the broad unilateral
economic sanctions regimes of the United States--whether
imposed by statute or by executive order--that so often produce
no more than a ``feel good'' domestic public relations effect.
Shortcomings of Unilateral Economic Sanctions
From our perspective, as U.S. business leaders overseas,
America's sanctions process is deeply flawed and out of
control. From where we sit, these policies appear to be
erratic, ineffectual, and based more on ``knee jerk diplomacy''
than on a careful and realistic analysis of the likelihood of
success and the economic costs and benefits to the United
States. Too often, such sanctions represent not a policy, but
the absence of a policy--a reaction to frustration, or worse.
The imposition of unilateral economic sanctions may play well
for certain audiences and constituencies within the United
States, but it carries adverse consequences for U.S. companies,
American citizens, and the reputation of the United States
around the world.
Should America remain silent in the face of evil or
injustice? Of course not. Quite to the contrary: the United
States, as the world's economic engine and its only remaining
Superpower, is uniquely positioned to sound the alarm. The real
question is whether America's power will be frittered away on
simplistic solutions for short-term political gains, or whether
our nation's leaders will use this power wisely to achieve the
desired results and to enhance America's clout and prestige.
The ABCGC opposes unilateral economic sanctions because
they are: (1) Ineffective; (2) Harmful to America's reputation;
(3) Undermining U.S. economic interests; (4) Taking their toll
on U.S. citizens. These four shortcomings are discussed below.
(1) ``If It Don't Work, Don't Use It!''. Our direct
experience, which is borne out by an increasing amount of
professional, academic and governmental analysis, supports the
conclusion that unilateral sanctions programs are not effective
in changing the behavior of foreign governments. Because our
trading partners do not join America's unilateral sanctions
efforts, our prohibitions on trade and investment do not cut
off the flow of goods and services to the target country.
Further, they often allow the targeted government to rally
domestic support by ``standing up'' to the Superpower and
blaming domestic problems on U.S. actions. Finally, because
U.S. businessmen and businesswomen are unable to communicate
and develop personal relationships with their commercial
counterparts in the targeted countries, these sanctions
eliminate an important avenue for Americans to explain and
justify U.S. positions to citizens of the targeted countries.
(2) Harming America's Reputation and World Standing.
America's use of broad unilateral economic sanctions programs
is undermining our nation's moral authority and leadership
position, earned over the past century at great human sacrifice
and economic cost. Too often, the United States appears to act
internationally in response to partisan or parochial
considerations at home and without due regard for international
opinion. In our headlong rush to impose unilateral economic
sanctions, America has often been seen as maintaining a double
standard. America's reputation for thoughtful, considered
policies has suffered, too, when the United States has ignored
the likely consequences of our country's actions.
(3) Undermining U.S. Economic Interests. Our European and
Asian allies welcome unilateral U.S. sanctions programs because
these programs eliminate the American competition. In the Gulf
region, the loss in sales of U.S. goods and services, which are
readily available from America's international competitors, is
obvious. As a result of unilateral U.S. sanctions imposed on
Iran, for example:
Federal Express had to discontinue courier service
to Iran, while its non-American competitor, DHL, ran
advertisements in the region touting the fact that it was able
to serve Iran while its unnamed competitors could not;
Fuji film, produced by Japan, has replaced
America's Kodak film in Iran, which had been a major and
lucrative market for Kodak for decades;
McDermott had to withdraw recently from a major
fabrication tender, which its Korean competitor was then able
to win at greatly inflated prices;
American President Lines had to discontinue its
extensive container service to Iran, where it was then replaced
entirely by NYK of Japan and P&O of Europe.
The effects of unilateral economic sanctions extend far
beyond the targeted countries. Dubai, for example, is an
international entrepot, with American, European, and Asian
goods being re-exported to numerous countries in the region, in
Africa, and in the former Soviet Union. An American company
exporting standardized goods or commodities to a Dubai trader
cannot be certain whether its goods will be re-exported to a
sanctioned country, such as Iran or Sudan, or to one of the
many non-sanctioned countries with which most Dubai traders do
business.
Because of the risk of an inadvertent violation of U.S.
sanctions regulations, some U.S. exporters simply decline to do
business in the GCC nations. Moreover, because of the risk that
a U.S. exporter might have to terminate a supply contract due
to the imposition of unilateral U.S. sanctions, some Dubai
traders are discouraged from marketing American products or
doing regular business with American companies.
(4) Taking Its Toll on U.S. Citizens. Most U.S. economic
sanctions programs apply directly to individual U.S. citizens,
regardless of their residence, job title, or the nationality of
their employers. The regulations prohibit Americans from being
involved in any way in a business transaction with a U.S.-
sanctioned country. The result is to encourage foreign
companies to replace their expatriate American employees with
non-American employees.
For example, European, Asian, and Gulf-owned companies do
business with Iran. U.S. citizen employees of these foreign
companies violate U.S. law, according to the U.S. Treasury
Department's Office of Foreign Assets Control (OFAC), if they
participate in a meaningful way in any aspect of their
employer's business transactions with Iran (or any other
sanctioned country). According to OFAC, if a non-U.S. company
in Dubai does business with Iran, any U.S. citizen employees of
that foreign company should recuse themselves from any
involvement in these transactions.
Unfortunately, in the real world of business, most foreign
employers are not especially tolerant of unilateral U.S.
sanctions programs. If a U.S. citizen employee advises his non-
American boss that any paperwork or decisions relating to Iran
must be passed to a different employee, or if he suggests that
a new employee be hired to handle these issues, the response is
usually simple--the American loses his job to another national.
Most non-U.S. companies will neither decline Iranian business
nor hire duplicative employees to accommodate a U.S. citizen
who is trying to comply with a unilateral U.S. sanctions law
applicable only to him. The American employee is faced with a
difficult dilemma: lose his job, or violate OFAC's regulations
(and OFAC does enforce these regulations against individual
U.S. citizen employees of foreign companies).
The significance of this Gordian knot goes far beyond the
direct loss of jobs in the Gulf. The ABCGC encourages the
hiring of U.S. citizens by local and international companies in
the region because they generate jobs in the United States.
American employees overseas have a history of buying American,
selling American, specifying American, and creating
opportunities for other American companies and workers. U.S.
unilateral sanctions programs, by applying prohibitions
directly to U.S. citizens employed outside the United States by
non-American companies, defeats that effort to ``promote
American'' without scoring any meaningful U.S. foreign policy
or national security gains.
The Specter of Sanctions Proliferation
In recent years, the ABCGC has grown increasingly concerned
about the proliferation in the United States of unilateral
economic sanctions initiatives, which are now being pursued by
government officials at the State and local levels. Such
unbridled, myopic policymaking damages America's credibility as
the world's leading proponent of free and fair trade, and it
prevents U.S. companies from doing business in foreign markets
that want to purchase U.S. goods and services. In the end, this
is a lose/lose situation that threatens U.S.-based jobs and
American leadership around the world.
Examples of this ``seat of the pants'' policymaking abound.
For purposes of today's testimony, it will suffice to mention
just two laws that affect U.S. business and American interests
in our part of the world: the Iran and Libya Sanctions Act
(ILSA) of 1996, and the International Religious Freedom Act
(IRFA) of 1998.
(1) Iran and Libya Sanctions Act (ILSA). ILSA (P.L. 104-
172), rushed through Congress with great fanfare in 1996, has
proved to be a toothless paper tiger. It frightens none of our
trade competitors, who routinely thumb their nose at the United
States and who scoff at America's efforts to enforce
extraterritorial laws. Nor has ILSA had any perceptible effect
on political leaders in Iran and Libya, who continue to cut
deals with foreign powers whose interests are diametrically
opposed to those of the United States. And as ABCGC member
companies like Conoco and Mobil can attest, ILSA continues to
preclude U.S. businesses from securing major contracts that
would create thousands of jobs in the United States.
Since ILSA became U.S. law, ABCGC member companies have
also noticed a disturbing ``piggyback'' phenomenon. Foreign
companies, which no longer need to worry about competing
against U.S. companies in Iran, are winning very lucrative
contracts there. Once they have their foot in the door in Iran,
these European and Asian companies are using their large profit
margins there to subsidize operations elsewhere in the world.
These subsidies are undercutting U.S. firms in other markets--
in the Gulf and beyond. In other words, U.S. companies are
being penalized by ILSA not once, but multiple times, because
of their inability to compete and win contracts in Iran.
In short, Mr. Chairman, ILSA is a shambles. It is
unworkable, it is applied inconsistently, and it has failed to
achieve even the most modest of successes.
(2) International Religious Freedom Act (IRFA). U.S.
citizens working in the Gulf, like most Americans, support
carefully thought out efforts to combat discrimination and
persecution of all types--including those based upon one's
religious beliefs. Freedom of religion is a hallmark of
American culture and society, and it is something that each of
us cherishes.
Nevertheless, the ABCGC is concerned about how the
International Religious Freedom Act (P.L. 105-292) will be
applied in the months and years ahead. Telling other nations
how to conduct their religious affairs is a tricky business,
one that could blow up in America's face. The roots of this law
can be traced to U.S. domestic politics, and the ABCGC remains
concerned that IRFA could become a political tool that goes far
beyond the laudatory purposes for which the law was written.
The ABCGC wrote to Congress last year to express concern
that implementing IRFA could:
Jeopardize U.S. exports to the Gulf.--If used for political
purposes, IRFA has the potential to threaten more than a
quarter million U.S.-based jobs that are directly linked to
U.S. exports of goods and services to the GCC. There is little
doubt that Gulf countries, rather than succumbing to U.S.
pressure over religious affairs, would shift market share away
from American companies to our European and Asian competitors
instead.
Undermine the precarious Middle East peace process.--Gulf
nations are expecting to be targeted by what they perceive as a
highly politicized process for monitoring religious
persecution. Under the circumstances, GCC states will be less
inclined to follow America's lead on regional cooperation if
they are being attacked on religious issues by the very same
U.S. Government that is encouraging them to take bold steps
toward peace.
Threaten existing religious tolerance.--In the GCC nations
today, Americans are free to practice the religion of their
choice, provided that it does not offend local customs. If the
United States puts pressure on the Gulf countries over
religious issues that are widely regarded in the GCC as
internal matters, it is very conceivable that there will be a
negative reaction against current religious freedoms enjoyed by
the American communities in the Gulf.
Encourage religious extremism.--Unless properly
implemented, IRFA may convince religious extremists throughout
the world that the United States is attempting to serve its own
particular religious preferences rather than the cause of
religious freedom. This would be counter-productive, to say the
least, and could lead to serious unintended consequences in the
Gulf and elsewhere.
Policymakers in Congress and the Clinton Administration
worked hard last year to craft a compromise law that could be
used to combat religious persecution. The ABCGC is counting on
the U.S. Government to adhere to commitments made last year and
to rein in any efforts to politicize this new law. Domestic
jobs, American lives overseas, and U.S. interests around the
world are on the line, and it would be a serious mistake to put
these in jeopardy.
ABCGC's Position on H.R. 1244
Mr. Chairman, the ABCGC strongly supports H.R. 1244, the
``Enhancement of Trade, Security, and Human Rights through
Sanctions Reform Act.'' We believe that this type of
legislation is long overdue, and we consider it an important
first step in rationalizing and establishing workable
guidelines for America's use of sanctions.
The ABCGC is a business organization, and we see the world
through the prism of business. As such, we look upon H.R. 1244
as a ``contract'' between America's public and private
sectors--a pact that encourages U.S. commercial interests yet,
at the same time, recognizes the role to be played by economic
sanctions. As businessmen and businesswomen, we appreciate the
cost / benefit features of the bill, the focus on developing a
plan of action before leaping headlong into the fray, the
commitment to contract sanctity, the need to provide
appropriate justifications for sanctions activity, and the
ability to give our country's ``CEO''--the President of the
United States--the flexibility he needs to adjust policies to
meet changing economic and political conditions.
In our estimation, H.R. 1244 affects American business more
than anyone else, and we appreciate the fact that this bill
takes into consideration the needs and concerns of U.S.
companies. H.R. 1244 adopts a no-nonsense, common sense
approach to reforming the sanctions process, and we see this as
a key step in providing policymakers with ``big picture''
information that will enable them to make better informed
decisions affecting U.S. commercial interests worldwide.
Perhaps our only regret, Mr. Chairman, is that H.R. 1244
and its counterpart bill in the Senate, S. 757, envisage
guidelines that are non-binding. The sooner that we can put
``sharper teeth'' behind these proposed ground rules, the
better.
Conclusions
The imposition of unilateral economic sanctions is a
``blunt instrument'' that has often been used when a more
strategic weapon would have been more appropriate. The ABCGC
believes that such ``big stick'' diplomacy must be used very
sparingly, and even then it should be employed only in a
measured, predictable, and targeted way.
If engagement and dialogue are deemed to be ineffective,
then the United States should pursue multilateral sanctions,
restrictions on U.S. and multilateral government aid and, if
appropriate, restrictions on sales of specific products that
are being used against American will or interests. The
objectives of the sanctions must be clearly stated, but not
necessarily in the form of public ultimatums.
The ABCGC believes that unilateral economic sanctions
should only be employed as a weapon of last resort in the
arsenal of U.S. foreign policy. Only in extreme situations,
after all other options have failed, should the U.S. Government
impose such broad prohibitions--and only if positive results
can realistically be achieved. Under virtually no circumstances
should expansive U.S. sanctions be applied directly to
individual U.S. citizens, who in most cases are merely trying
to hold down a job and are not in a position to prevent foreign
transactions by foreign companies.
With this in mind, the ABCGC supports H.R. 1244 and this
subcommittee's efforts to rationalize America's sanctions
process, enhance U.S. global competitiveness, and level the
international playing field for U.S. companies and American
workers.
Thank you, Mr. Chairman, for the opportunity to testify
today. I would be pleased to answer any questions raised by you
or other members of this subcommittee.
Chairman Crane. Thank you, Mr. Hamod.
There are many folks, especially colleagues, that insist
that there are situations in which economic leverage can be an
appropriate tool in foreign policy. Can any of you folks cite
an instance where such leverage has been effective?
Mr. Hamod. I can't speak for the other American chambers of
commerce. I do believe that our policy in South Africa made a
difference, but that wasn't unilateral economic sanctions, that
was multilateral sanctions. And in our experience, the
unilateral sanctions do not work.
Chairman Crane. Well, that, frankly, has been my conviction
all along. I am not opposed to sanctions, but unilateral
sanctions are, to me, just absolute stupidity, especially in
the kind of world economy, global economy we live in today
where all these alternatives are out there and bidding and
salivating over a chance to replace us.
And just as you mentioned with Kodak versus Fuji, it is
this sort of thing where we shoot ourselves in the foot, it
seems to me. And while that may be politically effective when
the bill comes up for a vote in selling it to your constituency
back home, getting those things off the books is not easy. And
most folks back home haven't the vaguest idea what the impact
is to our economic interests.
So we have a major educational effort on our hands.
Mr. Kinzer, in your statement, you mentioned that our
foreign competitors charge their marketing practices to adjust
to U.S. unilateral economic sanctions, and in particular you
cite Canada and Australia. Can you elaborate on that point?
Mr. Kinzer. Well, sir, there is quite a bit of evidence,
although it is very hard to gather because the State trading
enterprises used in Canada and Australia are not transparent.
So we don't get any of the information that we would love to
see. But it is apparent to us just by how much wheat is being
bought in Pakistan and Egypt and other countries that we do
deal with, it looks suspiciously that the State trading
enterprises in Australia and Canada, perhaps, charge more to
countries like Iran that are, that have been under the trade
sanctions and embargoes and what else.
And then they can undercut us when we get to Pakistan and
Egypt. And because of their ability to go over and act as
salesmen, it may only be a dollar or two per ton, but then we
look at what their growers are receiving afterward and their
growers are receiving as much as our growers do if not more.
So it looks very suspicious to us that they are predatory
pricing us out of our markets.
Chairman Crane. Ms. Christian, are you able to get the
quantity and quality of gum arabic that your customers demand
from sources other than Sudan?
Ms. Christian. We can get Chadian gum; it is of a lesser
quality. I have a problem with it. I have to blend Chadian. It
comes in a very high viscosity; it comes in a range of about
2,000 cps, and to make a good product, I need 200 cps. So I am
constantly blending, and there is a lot of waste. And it has
been a real problem.
Chairman Crane. And is the quantity, though, available?
Allthe quantity you----
Ms. Christian. Yes, but I have to buy more in order to get
what I need.
Chairman Crane. What is the estimated increase in the cost
of your product because of this? What percentage increase?
Ms. Christian. It does not appear to seem like much, but it
could be as much as 10 cents a pound, which could make or break
me.
Chairman Crane. Yes. If you are not able to obtain a waiver
for gum arabic from the sanctions on Sudan, will you be able to
maintain yourusiness operation?
Ms. Christian. I am losing it constantly. I am absolutely
losing my business. I have lost three major companies this
year, and I don't see anything for the year 2000 and 2001. And
they have told me that they cannot resist the price that the
French are offering.
Chairman Crane. Mr. McMahon, Lockheed Martin is involved in
a high-tech joint venture with a Russian partner, how do you
ensure that the Russians do not acquire technology they can use
to bolster their own military capabilities and/or sell to rogue
countries like Iran?
Mr. McMahon. The beauty of our arrangement is that we have
a firewall, so to speak, between the booster and the satellite.
And what we are using is Russian technology for the booster,
and the satellites that we acquire around the world for launch,
or market around the world to launch, come and are integrated.
And there is no getting into the satellite itself on the part
of the Russians.
In fact, we do find that we are the importers of Russian
technology. In another joint venture we have with the Russians,
we are using their RD-180, built by an Ergomash and going to
use it in the EELV that the Department of Defense has us
building. Boeing builds some, and we build some. So in that
case, it is reverse technology. And this engine is the finest
engine in the world.
If I may, Mr. Chairman, go back to your original comment.
We, in the Lockheed-Khrunichev venture are not under a
unilateral sanction as stated, but in essence that is what we
are living with now. We had a quota of 15 vehicles that we
could market to geo-stationary orbit. We have now sold all of
those. So we have not been able to sell another system in the
last 8 months.
And our quota expires with the launch this fall. So, in
essence, we are under a unilateral sanction right now, and we
are losing business to the French, particularly to the Ariane
launch vehicle. So in essence, this quota that we are under
right now is putting our joint venture out of business if we
don't get it lifted.
Chairman Crane. Mr. Hamod, what has been the experience of
U.S. business in the Persian Gulf region since the enactment of
the Iran-Libya Sanctions Act 3 years ago, and has the sanctions
Act succeeded in deterring investment in Iran?
Mr. Hamod. In our experience, Mr. Chairman, the real
penalty is being used against American companies and American
workers. We see no let off in international business going into
those markets. But what we do see is that American business is
losing out.
You have heard us say it before, Mr. Chairman. From our
perspective, Americans abroad equal U.S. exports equal U.S.
jobs. And when you put Americans in overseas markets, they buy
American, they sell American, they specify American, and they
create opportunities for American companies.
We are losing out under the current circumstances, and we
hope that that might change.
Chairman Crane. Thank you very much. Mr. Levin.
Mr. Levin. Well, thank you for your testimony. It is
illuminating. Just two quick points.
I do think we have to be careful between, careful in
distinguishing between the impact of sanctions and the absence
of effective mechanisms to help exporters, like effective Ex-Im
programs. Mr. Bowe, I think that part of your testimony relates
to sanctions, but part of it also shows that this country needs
to be very effective in supporting those who are competing with
entities from other countries, where those countries have
subsidization of financing mechanisms that it is hard for us to
compete with.
And then maybe the last comment, and this may be a good
segue to our last panel, I think we have to ask ourselves
whether if 1244 had been in effect, it would have been any
difference in result as to Iran or Libya. And it may be, Mr.
Hamod, that your testimony really gets down to the issue of
whether unilateral sanctions should ever be available, because
my guess is that 1244, especially as we have discussed some
changes with the Administration but even internally, if it had
been in effect I don't know that there would have been any
different impact.
So, we need to really ask ourselves whether there are
occasions when the United States must act when nobody else is
willing to. And don't try to answer it now. It is too difficult
to do it in 2 minutes.
I don't mean to throw an unfair question. But I think that
question does really help to flush out what our basic attitude
is: Are we really opposed to unilateral sanctions, period, or
do we really favor their availability under restricted
circumstances?
But anyway, why don't we let the next panel discuss that.
Thanks very much for your testimony.
Chairman Crane. Let me express appreciation to all of you
for participation and the information that you have provided to
the Committee. And God willing, we will make progress
beneficial to one and all.
[Pause for next panel to come to table.]
And we will proceed in the order in which I introduced you
all. Dr. Weintraub, you are first.
STATEMENT OF SIDNEY WEINTRAUB, PH.D., WILLIAM E. SIMON CHAIR IN
POLITICAL ECONOMY, CENTER FOR STRATEGIC AND INTERNATIONAL
STUDIES
Mr. Weintraub. Mr. Chairman, thank you very much for having
me here today, for holding these hearings. My institution--I am
at the Center for Strategic and International Studies--
completed a study just recently. We had spent about a year and
a half on the study. And there were three components to it, one
of which was detailed case studies of five countries where we
used unilateral sanctions. The five countries were Burma, Cuba,
China, Iran, and Vietnam. I will give you some of the
conclusions in a few moments.
The second element was a study on alternatives to the use
of unilateral economic sanctions. And the conclusion there was,
as my full statement says, that almost all of them fail almost
all of the time. That means that occasionally--if you want I
can cite some specific cases--they have worked, but not many.
And finally, a policy paper, which is called ``Altering
U.S. Sanctions Policy.'' I have copies of these, and I have
summaries.
Let me make a point on a few key issues and summarize very
quickly what we concluded in those studies and then what I
believe personally.
The policy report, and I personally, support the substance
of H.R. 1244. That point is explicit in the policy paper that
CSIS has produced. We do not oppose the imposition of
unilateral economic sanctions in the conduct of U.S. foreign
policy. We think there is a place for them at times; we think
it is a limited place. And I will come back to that soon.
I'll do it right now. Trying to deal with the very point
that Mr. Levin raised toward the end of his comments about ILSA
and what was done there. What we--our research--found is that
when you use what I would like to abbreviate as CUES,
Comprehensive Unilateral Economic Sanctions, we really could
not find a single case where they achieved their stated
foreign-policy objective.
We found cases where cues hurt countries, and hurt a good
many people, but if you define what the foreign policy
objective was when the process started, we didn't find a single
case of success.
It may well be that occasionally when we start with
unilateral sanctions, comprehensive ones, they mutate into
multilateral ones. But I think you would be hard-pressed to
find another example other than South Africa. That is the one
that is always cited, because it is the only one that I think
you can list.
This means, therefore, that if we are going to impose
unilateral economic sanctions, that they rarely should be
comprehensive. They may have to be comprehensive when you are
fighting a war, as in Iraq, but there we have support from
other countries.
In most cases, we have concluded there are alternatives
that are superior and less costly than sanctions, particularly
CUES, the comprehensive kind. That really means that continued
engagement with offending states is better than cutting off
practically all economic and political relations with them,
which is really what comprehensive economic sanctions imply.
I don't want to get sidetracked on Cuba because that gets
too emotional--but I don't understand why we cutoff
communications, tourism, the movement of people there, which is
probably the best way you can get information about the United
States to a country.
The conclusion our study reached was that if we are going
to use sanctions, we should come to this at the end of the day,
as a last resort, not the first.
Let me summarize in a sort of philosophical way, the main
conclusions that we reached. One is that it really is that the
United States frequently takes actions that it would not take
if a cold-blooded analysis were done first, before imposing the
sanctions. In the first book on case studies of comprehensive
sanctions, we discovered the United States never once in
advance made a complete assessment of what the effects would be
either on the United States or on the country which was being
sanctioned.
The sanctions are imposed hurriedly and a lot of actions
get taken that I don't think we would take in the light of
clear, thoughtful analysis.
Let me give you four or five examples of these and then I
will quit.
We know that economic sanctions, particularly the
comprehensive type, hurt most the most downtrodden part of the
population in the country where they are imposed. This was the
Pope's point when he went to Cuba. In Haiti, the consequences
of some of the things we did are hurting the poor in that
country to this day.
In other words, I assume the U.S. public doesn't favor
punishing poor people in the target country, particularly in
dictatorships, because they are already being punished. Yet
that is the outcome in case after case.
The second thing we do, which I don't think sensible people
would do, if they thought it through, is to isolate the United
States from its major allies. And that is what we do when we
act extra-territorially. We cite in our report a United Nations
General Assembly vote last October when only one country,
Israel, supported the United States on the extra-territoriality
issue. All of our other allies differed with us.
You have heard over and over again from the previous panel
that our sanctions punish individual businesses--U.S.
producers--when we impose sanctions unilaterally. And I don't
think the members of Congress want to do that, want to take
action that punishes our own people.
It would hardly be a policy of the United States to make
our country look ineffective, and yet--if our conclusion is
right, that comprehensive sanctions don't work, and only rarely
do targeted sanctions work--that is exactly what we are doing.
And finally, I don't think it would be a wise policy to
subordinate all issues in any country to a single offense, and
frequently that is what unilateral sanctions accomplish.
I guess the conclusion we have reached is that before we
take actions, we would hope our Congress and the Administration
have carefully looked at the consequences of what they are
doing, that they have looked in advance, in some careful way,
what they are doing. That, I take it, is the objective of the
proposed legislation.
Thank you.
[The prepared statement follows:]
Statement of Sidney Weintraub, Ph.D., William E. Simon, Chairman
Political Economy, Center for Strategic International Studies
The Center for Strategic and International Studies recently
completed a three-part examination of the use of unilateral
economic sanctions by the United States. The project, which
took place over an 18-month period, produced three publications
which the Center believes are pathbreaking because they examine
the use and effects of unilateral sanctions from many
perspectives. The three publications, which are available from
CSIS, are the following:
Ernest H. Preeg, Feeling Good or Doing Good with
Sanctions: Unilateral Economic Sanctions and the U.S. National
Interest. This book examines the use of unilateral sanctions by
the United States in five countries--Burma (Myanmar), Cuba,
China, Iran, and Vietnam--and quantifies the costs and benefits
for the United States and the effects on the five target
countries.
Joseph J. Collins and Gabrielle D. Bowdoin, Beyond
Unilateral Economic Sanctions: Better Alternatives for U.S.
Foreign Policy. The conclusion of this study is best summarized
by the first sentence in the executive summary: ``Nearly all
unilateral sanctions fail nearly all of the time.
Douglas Johnston and Sidney Weintraub, project
coordinators, Altering U.S. Sanctions Policy: Final Report of
the CSIS Project on Unilateral Economic Sanctions. This
publication contains an analysis drawing on the other two
components and sets forth the policy conclusions of the
steering committee for the project which was made up of
distinguished Americans from a variety of occupations. The
policy recommendations in my testimony today draw on this
consensus document.
Position on Key Issues
I wish to make clear at the outset of my testimony where I
stand on the key issues before this subcommittee:
1. I support the substance of H.R. 1244, the ``Enhancement
of Trade, Security, and Human Rights Through Sanctions Reform
Act.'' This position of support is explicit in the CSIS policy
paper cited above.
2. I do not oppose the imposition of unilateral economic
sanctions as a tool in the conduct of U.S. foreign policy, but
instead am concerned that it is being used promiscuously and
without adequate analysis of the effects on U.S. interests and
on the target country.
3. As a general proposition, the research done for the CSIS
study convinces all of us who participated in it that narrow,
carefully targeted measures are superior to comprehensive
unilateral economic sanctions, or CUES, to use shorthand.
4. In most cases, moreover, there are alternatives that are
superior in their effectiveness and less costly than either
CUES or narrower unilateral economic sanctions.
5. This position can be phrased succinctly: Continued
engagement with offending states is superior to cutting off
practically all economic and political relations with them,
which is what CUES imply. Engagement does not prevent the use
of targeted sanctions when these are deemed appropriate, but
not as a first resort.
I intend in the remainder of this submission to the
subcommittee to set forth the reasoning that leads to these
conclusions. One way to do this is to demonstrate that U.S.
sanctions measures often lead to outcomes that when dissected
cold-bloodedly are contrary to the overall national interest. I
will also add some additional policy recommendations that stem
from the work done at CSIS.
Actions that Deny Common Sense
The United States has instituted many sanctions that would
not normally be supported by a majority of the U.S. public if
the presentation were less in anger and more in terms of
potential accomplishments.
We know from experience that comprehensive
economic sanctions inflict the greatest hardship on the poor
and already downtrodden population in nations against which
they are imposed. The pope made this point after his visit to
Cuba in January 1998; this result is the central theme of a
book by Elizabeth D. Gibbons, Sanctions in Haiti: Human Rights
and Democracy Under Assault (CSIS, 1999). I assume that U.S.
public opinion does not favor this outcome, especially when the
principal foreign policy objective is not achieved. This point
has now been recognized by the president in foreswearing the
withholding of food and medicines when imposing sanctions.
A policy which isolates the United States from its
closest allies must surely be evaluated as counterproductive,
yet this is exactly what the use of secondary boycotts has
accomplished in Cuba. When the issue of extraterritoriality was
subjected to a vote in the United Nations General Assembly on
October 26, 1998, only one country--Israel--supported the
United States.
It is hard to justify punishing U.S. businesses
for the benefit of foreign competitors, yet that is precisely
what takes place in case after case when sanctions are imposed
unilaterally. In such cases--which are the norm--the sanctions
have clearly failed because the products or services prohibited
to U.S. exporters are supplied by exporters from other
countries.
It can hardly be a goal of U.S. foreign policy to
make the United States look ineffective, but that is precisely
what is accomplished when sanctions fail to achieve their
foreign-policy objective.
Finally, it can hardly be wise to subordinate all
foreign-policy objectives in a given country to a single
offense--unless that offense is particularly grave. Yet, that
exactly what occurs in many sanctions cases.
The conclusion of the CSIS examination is that these
outcomes are common, even as the main foreign policy objectives
are not achieved. This is why I support H.R. 1244. This
legislation would call for procedures to analyze the effects of
sanctions on both the United States and the target country and
provide the calm to determine whether the foreign-policy
purpose is likely to be accomplished before the sanction is
imposed. There are times when speed is essential and it is my
understanding that the proposed legislation permits this when
necessary.
I wish to emphasize that the purpose of economic sanctions
is not to punish a foreign population as an end in itself, but
to bring about some change in a country's policy. Most U.S.
sanctions are imposed against nondemocratic regimes and the
majority of the population in these countries suffers enough in
these circumstances without our adding to the burden.
The Congressional Budget Office, in a report prepared
recently (issued in March 1999) for the House International
Relations Committee, concluded that the size and flexibility of
the U.S. economy minimized the cost of unilateral sanctions for
the economy as a whole, especially when the sanctions are
imposed against countries with small economies. The CSIS
publication, Altering U.S. Sanctions Policy, contains a
conclusion similar in one respect but divergent in another:
``The resulting costs of lost export sales and/or the inability
to invest in any given case may be high to individual companies
and specific industrial sectors but are generally modest when
measured against the totality of the U.S. economy.'' (p. 6)
My problem with the CBO report is that it largely ignores
damage that can be done to specific companies. It fails also to
take into account that the inability to participate early in
some activities in sanctioned countries can build in a long-
term bias against U.S. suppliers, as occurred in the generation
of atomic energy in China. And when U.S. companies are
precluded from oil investment in Iran or the development of
natural gas in Burma while competitors are not, alternative
investments may not be readily available to the U.S. companies.
Policy Recommendations
Many of the recommendations in the CSIS policy paper emerge
logically from the foregoing discussion:
When sanctions are imposed, the primary target
should be the leaders responsible for the offensive action and
not the general population.
Essential foodstuffs and medicines should not be
cut off.
In order to avoid turning business over to foreign
competitors, and to make the action more effective,
multilateral rather than unilateral sanctions should be
sought--although this is not easily accomplished.
A careful assessment of the effects in the United
States--including on particular businesses and communities--and
in the target country should be made before sanctions are
imposed. This is the essence of H.R.1244.
Extraterritorial application of sanctions should
be avoided.
And foreign policy objectives, not domestic
politics, should be paramount when sanctions are imposed.
The overarching recommendation is that U.S. policy in the
face of most grievances should be based on engagement and not
isolation from the offending country. There may be grievances
so severe where this would not apply, but these generally will
be cases in which multilateral measures are possible, e.g., in
the economic sanctions against Iraq. Engagement means that CUES
should not be used, but does not preclude narrow or targeted
sanctions.
Additional policy suggestions include the following:
More effective coordination is necessary between
the executive and legislative branches in the consideration of
sanctions measures.
The use of carrots, or non-threatening actions,
may be preferable to punishing measures in many circumstances.
Better advance intelligence is essential so that
assessment of the results of U.S. actions, whether positive or
punitive, can proceed rapidly.
Sanctions should be targeted as narrowly as
possible so that compliance by the offending state can occur
without undue loss of prestige.
Punishment, when inflicted, should be proportional
to the offense.
Prefer the credible threat of sanctions to
sanctions themselves.
Finally, an effort should be made to take into
account the reactions of U.S. allies before embarking on a path
of sanctions.
The subcommittee was kind enough to give me a voice in its
proceedings and I welcome that. My colleagues who worked with
me on the CSIS sanctions project and I are prepared to provide
additional information.
Thank you.
Mr. Houghton [presiding]. Thank you very much, Mr.
Weintraub. You hold the--I'm sorry I wasn't here earlier. You
hold the chair of a dear friend and a great citizen, Mr. Simon.
Mr. Weintraub. Thank you very much.
Mr. Houghton. A wonderful person.
Now, Mr. Rogowsky.
STATEMENT OF ROBERT A. ROGOWSKY, DIRECTOR, OFFICE OF
OPERATIONS, UNITED STATES INTERNATIONAL TRADE COMMISSION
Mr. Rogowsky. I want to thank you for the opportunity to
come and present the findings of the study on economic
sanctions released by the International Trade Commission last
year. Currently, as you know, we are examining the effect of
sanctions imposed against India and Pakistan at the request of
this Committee.
In 1998, this Committee asked the Commission to provide an
overview and discussion of current U.S. unilateral economic
sanctions. The Committee specifically asked the Commission to
describe U.S. unilateral economic sanctions currently in
effect, to review recent literature on the economic effects of
national-level economic sanctions, and to survey to the extent
possible affected U.S. industries concerning the costs and
effects of U.S. unilateral economic sanctions on such
industries and their markets, and to propose a methodology to
analyze the short- and long-term costs of U.S. unilateral
sanctions and their impact on the U.S. economy.
The approach the Commission took was to review all
available databases, to catalog sanctions, to conduct a phone
survey of over 500 U.S. companies, to elicit their views, and
to review the literature for methods used to estimate the
economic effects of these measures.
In requesting this study, the Ways and Means Committee
defined the term unilateral economic sanctions as meaning,
``any unilateral restrictions or condition on economic activity
with respect to a foreign country or foreign entity that is
imposed by the United States for reasons of foreign policy or
national security.''
Using this definition, the Commission identified 42
separate laws that either mandate particular actions or serve
as the basis for discretionary actions by the executive branch.
Under these laws, a total of 142 statutory provisions
pertaining to unilateral economic sanctions were identified.
Twenty-two percent of these measures concerned terrorism. Other
sanctions concerned nuclear and other arms proliferation,
national security, narcotics, expropriation, human rights,
environmental protection, and communism.
The Commission identified 27 State, county, and city laws
imposing unilateral economic sanctions, most of which were
against Burma, three against Nigeria, one each against Cuba and
Tibet.
There are several basic findings from our study which will
sound very much like what you heard in previous panels.
First, the large number of statutes provide for economic
sanctions in various forms, makes it difficult for both public-
and private-sector entities to catalog these sanctions. For
example, differing definitions of the terms economic sanction
make it difficult to compare the list of sanctions in our
report to those compiled by others.
Second, in addition to the sheer number of statutes
providing for economic sanctions, the statutes themselves may
be difficult to interpret or may vary in impact from year to
year, sometimes simply because of a lapse of funding.
Moreover, in some cases, there is a significant lag between
the time a particular economic sanction is announced and the
actual publication of the implementing regulations. This
uncertainty can pose problems for private-sector compliance
with sanctions, not to mention confusion for those attempting
to examine the impact of these sanctions.
The Commission identified a total of 29 countries subject
to U.S. unilateral economic sanctions, of which seven were
designated as terrorism-sponsoring countries, 11 for foreign-
policy or national-
security reasons, and 11 preventing certain imports from
countries for environmental protection objectives.
Both costs and benefits were reported. Some import-
sensitive U.S. businesses, especially in the agricultural
sector, may experience higher prices, production, and
employment with sanctions because competition is reduced.
On the other hand, direct, quantifiable costs to U.S.
businesses and the U.S. economy as a whole include lower U.S.
exports and imports, reduced investment, and fewer export- and
import-related jobs. Estimates of these costs based on data
from early and the mid-nineties range from $5 billion to $20
billion.
Indirect effects are hard to quantify, such as reduced U.S.
trade opportunities in global markets, loss of consumer and
industrial consumer choice, less competitive U.S. businesses
and a chilling effect on long-term commercial relationships if
foreign partners are reluctant to do business with the United
States.
A variety of analytical methods may be used to assess the
impact of these sanctions. The choice of approach is largely
determined by the nature of the sanction, how long it has been
in force, and the availability of data. Survey research is
always critical in this type of study. If data permit,
statistical analyses can be used to estimate the effects on
bilateral trade.
For a proposed sanction, one that is not in place yet,
relatively sophisticated counterfactual simulation models can
be used to estimate sector-specific and economy-wide effects.
In the Commission's current study on sanctions against
India and Pakistan, for example, surveys and a global
simulation model will be used.
I would be pleased to answer any questions you have about
the study or, to some extent, about the study that is coming
up.
Thank you.
[The prepared statement follows:]
Statement of Robert A. Rogowsky, Director, Office of Operations, United
States International Trade Commission
I want to thank you for the opportunity to present the
findings of the study conducted by the U.S. International Trade
Commission. As you know, on February 19, 1998, the Committee on
Ways and Means, U.S. House of Representatives (the Committee),
requested that the U.S. International Trade Commission (the
Commission) provide an overview and discussion of current U.S.
unilateral economic sanctions. The Committee requested that the
Commission's report include (1) a description of U.S.
unilateral economic sanctions currently in effect; (2) a review
of recent literature on the economic effects of national-level
economic sanctions; (3) a survey, to the extent possible, of
affected U.S. industries concerning the costs and effects of
U.S. unilateral economic sanctions on such industries and their
markets; and (4) a proposed methodology to analyze in future
studies the short-and long-term costs of U.S. unilateral
sanctions and their impact on the U.S. economy.
The Committee defined the term ``unilateral economic
sanctions'' as meaning ``any unilateral restriction or
condition on economic activity with respect to a foreign
country or foreign entity that is imposed by the United States
for reasons of foreign policy or national security.'' The
Committee also set forth a list of trade measures to be
excluded from the present report, such as multilateral
sanctions and measures authorized by multilateral or bilateral
trade agreements; measures imposed to remedy unfair trade
practices, to remedy market disruption, or to respond to injury
to a domestic industry; actions taken pursuant to the extension
by the United States of most-favored-nation trading status; and
measures imposed to protect domestic health or safety.
Approach of the USTIC Study
The actions taken by the Commission to respond to the
Committee's request were (1) compiling a list of U.S.
unilateral economic sanctions based on a review of relevant
legislation and reference to several existing lists of
sanctions compiled by other experts or entities that have
conducted research in this area; \1\ (2) conducting a telephone
survey of nearly 500 U.S. companies and associations, and
holding a public hearing to obtain private sector views on
unilateral economic sanctions; (3) conducting a review of
recent economic literature on the economic effects of national-
level economic sanctions; and (4) proposing likely
methodologies to estimate the short-and long-term costs of
sanctions.
---------------------------------------------------------------------------
\1\ The three primary sources consulted were the President's Export
Council, the Congressional Research Service (CRS) of the Library of
Congress, and the National Association of Manufacturers. Each of these
entities has compiled a list of U.S. economic sanctions using its own
definition of the term ``economic sanction.''
---------------------------------------------------------------------------
List of U.S. Unilateral Economic Sanctions
The Commission identified 42 separate U.S. laws that
authorize economic sanctions. These laws may mandate particular
actions, or may serve as the basis of mandatory or
discretionary actions by the Executive Branch. Under these
laws, a total of 142 statutory provisions pertaining to
unilateral economic sanctions were identified. Twenty percent
of the measures concern terrorism. Other sanctions concern
nuclear and other arms proliferation, national security,
narcotics, expropriation, human rights, environmental
protection, and communism.
A summary of major U.S. unilateral economic sanctions
(statutes as well as implementing regulations) is provided in
table ES-1. The table lists and summarizes the sanctions, the
reasons cited for the sanction, and the countries or entities
to which each listed sanction applies.\2\ The table also
indicates the sectors of economic activity--trade, aid, or
finance--restricted by the sanctions. Some of the sanctions
were implemented as recently as 1998 (for example, the Burmese
and the Sudanese Sanctions Regulations and economic sanctions
against India and Pakistan), while others have long been in
effect (for example, the Trading With the Enemy Act of 1917
continues to provide part of the statutory basis for current
U.S. unilateral economic sanctions against Cuba and North
Korea).
---------------------------------------------------------------------------
\2\ More detailed information is provided in table 2-1 and in
Appendix D.
---------------------------------------------------------------------------
The Commission identified 27 State, county, and city laws
imposing unilateral economic sanctions--22 directed against
Burma, 3 against Nigeria, and 1 each against Cuba and Tibet.
All of these measures involved selective purchasing, selective
contracting, or selective investment restrictions that disallow
procurement or contracts with, or investment in, any company
that does business with or has investments in the targeted
country. The Commission identified 14 additional proposed State
and local measures, including two such pending measures against
Burma for human rights violations, 10 pending against
Switzerland for the possession of funds belonging to Holocaust
victims, and two pending measures against any foreign financial
institution determined to be in possession of funds belonging
to Holocaust victims.
The large number of statutes providing for economic
sanctions present several challenges in working with sanctions
and make it difficult for both public and private sector
entities to catalog these sanctions. For example, differing
definitions of the term ``economic sanctions'' make it
difficult to compare the lists of sanctions in this report with
lists of sanctions compiled by other sources. In addition to
the sheer number of statutes providing for economic sanctions,
the statutes themselves may be difficult to interpret, may be
subject to varying interpretations, or may vary in impact from
year to year because of lapses in funding. Moreover, in some
cases there is a significant lag between the time a particular
economic sanction is announced and the actual publication of
the implementing regulations. These challenges pose significant
problems for the private sector in complying with sanctions as
well as for all who attempt to examine the impact of sanctions.
Countries Subject to U.S. Unilateral Economic Sanctions
Cuba, Iran, Libya, North Korea, Syria, and Sudan are
designated by the United States as terrorism-sponsoring
countries and face the broadest range of U.S. unilateral
economic sanctions. These countries are subject to U.S.
restrictions or prohibitions on trade, aid, and financial
transactions. U.S. economic sanctions against Iraq are pursuant
to United Nations (UN) multilateral sanctions and thus are
beyond the scope of this report as delineated in the request
letter. However, Iraq is designated by the United States as a
terrorism-sponsoring country, and would be subject to U.S.
unilateral economic sanctions were UN sanctions not operative.
All of the designated terrorism-sponsoring countries are
relatively small markets for U.S. exports. Nevertheless, U.S.
industries contacted during the Commission's telephone survey
(especially oil and gas, infrastructure-related machinery, and
construction services) identified lost exports to some of these
countries because of U.S. unilateral economic sanctions.
The Commission identified a total of 29 countries subject
to U.S. unilateral economic sanctions. In addition to the 7
designated terrorism-sponsoring countries, 11 other countries
are subject to U.S. unilateral economic sanctions for foreign
policy or national security reasons--Afghanistan, Burma,
Cambodia, China, the Democratic Republic of the Congo, the
Federal Republic of Yugoslavia (Serbia and Montenegro), India,
Niger, Nigeria, Pakistan, and the Republic of Serbia. An
additional 11 countries were identified as subject to U.S.
unilateral economic sanctions that prohibit certain imports
from these countries for environmental protection objectives.
Potential Impact of U.S. Unilateral Economic Sanctions
The Commission was not requested to undertake a
quantitative assessment of the effects of U.S. unilateral
economic sanctions in this investigation, but nonetheless there
are some estimates available on the impact of sanctions from
the economic literature reviewed for this report. The
Commission's telephone survey and public hearing also obtained
input from the U.S. private sector on the effects of sanctions.
Both costs and benefits were reported among the effects of
U.S. unilateral economic sanctions. Costs to U.S. businesses
and the U.S. economy as a whole include direct effects, which
tend to be quantifiable, such as lower U.S. exports, lower U.S.
imports, reduced investment, and fewer export-and import-
related jobs. In addition, economic sanctions also may have
indirect effects that are harder to quantify, such as reduced
U.S. trade opportunities in global markets, loss of consumer
and industrial user choice, less competitive U.S. businesses,
and a ``chilling effect'' on long-term commercial relationships
as some foreign partners become reluctant to do business with
U.S. companies. This is out of concern that U.S. companies are
not reliable suppliers due to the threat of future U.S.
unilateral economic sanctions, or that assets in possession of
U.S. entities may be seized under future U.S. sanctions. This
study did not attempt to examine political costs and benefits
of U.S. unilateral economic sanctions.
In terms of benefits, some import-sensitive U.S. businesses
(especially in the agricultural sector, as discussed below) may
experience higher production and employment while sanctions are
in force because import restrictions imposed by sanctions may
reduce the available supply of competing foreign products in
the U.S. market, or otherwise affect the prices of such foreign
goods.
Costs and Effects of U.S. Unilateral Economic Sanctions: U.S. Industry
Perspectives
General Findings
The Commission contacted 492 U.S. firms and professional or
trade associations in a telephone survey to obtain their views
and information on U.S. unilateral economic sanctions. The
survey was not based on a statistical sampling due to the
short-term nature of this report; nevertheless, an attempt was
made to include firms of all sizes representing a wide cross-
section of manufacturing and service sectors. The selection of
these firms relied on the judgement and expertise of USITC
staff in specific manufacturing and service sectors. Consumer
groups were not contacted, as Congress directed the Commission
to focus on the effects of U.S. unilateral economic sanctions
on U.S. industries. The Commission received a total of 174
responses of varying depth and quality--an overall response
rate of 35 percent. Respondents were asked to identify the
effects of sanctions as ``minimal'' (0 to 5 percent effect),
``modest'' (6 to 10 percent), or ``substantial'' (over 10
percent).
No responding firm indicated that it directly benefits from
U.S. unilateral sanctions in terms of additional business,
profits, or employment; however, some fresh vegetable producers
in Florida expressed concerns about potential economic losses
if U.S. unilateral economic sanctions against Cuba were to be
lifted (see ``agriculture'' below). Energy producers,
especially oil and gas, were reported as being the most
adversely affected by U.S. unilateral economic sanctions (see
``energy and chemicals'' below).
Most other respondents indicated that the economic effects
of U.S. unilateral economic sanctions are small because many of
the countries targeted for sanctions are mainly low-income
countries with relatively small markets. However, in May 1998,
after the Commission's industry survey ended, the United States
implemented economic sanctions against India and Pakistan
following nuclear test explosions by those countries. Under
these sanctions, the United States was statutorily required to
prohibit economic and military aid as well as terminate
financial assistance; the sanctions also required that the
extension of agricultural export credit guarantees also be
terminated for these two countries. As a result of concerns
expressed by the U.S. agricultural sector, the United States
amended the relevant sanctions statute to retroactively
authorize the extension of agricultural export credits.
Survey respondents stated that it was difficult for them to
quantify the economic effects of sanctions. Particularly
difficult to quantify were: (1) the business losses
experienced, compared to the returns expected if sanctions had
not been in place; (2) the effects of delayed entrance into a
market because of sanctions; and (3) the business losses
incurred because sanctions may cause U.S. firms to be perceived
as unreliable suppliers, due to the threat of future U.S.
unilateral economic sanctions. Many respondents stated that
identification of, and compliance with, the large number of
U.S. unilateral economic sanctions is difficult and expensive.
They cited the large number of economic sanctions imposed by
State and local governments as a further hindrance to their
business operations--adding to the expense and the
administrative complications of doing business abroad.
Sectoral Findings
Agriculture. Overall, the costs and effects of U.S.
unilateral economic sanctions were reported to be minimal both
in terms of access to foreign markets and competition from
imports. Some fresh vegetable producers in Florida expressed
concerns about possible adverse effects on their businesses if
Cuban products were allowed to re-enter the U.S. market. These
firms believe that Cuban products would underprice Florida-
grown vegetables. U.S. cigar producers also expressed the
concern that lifting the sanctions against Cuba could disrupt
the U.S. cigar industry.
Energy and chemicals. Respondents indicated that U.S.
unilateral economic sanctions impede their ability to export to
some markets. One large multinational chemical company reported
that U.S. unilateral economic sanctions have harmed its
reputation as a reliable supplier and caused a loss of
international competitiveness in such markets as Iran, Sudan,
and Cuba. That company also reported that the effects of
sanctions can linger even after the sanctions are lifted,
stating that its current market opportunities in Vietnam are
limited because foreign competitors were able to secure most of
that market during the period when U.S. companies were
prohibited from doing business in Vietnam. One large
multinational energy company reported that its operations in
the Middle East, Vietnam, and Cuba have been adversely affected
because of U.S. economic sanctions. In contrast, one large
international pharmaceutical company reported a minimal impact
on its operations as a result of U.S. sanctions.
Minerals, metals, machinery, and miscellaneous
manufactures. Most respondents reported that U.S. unilateral
economic sanctions have a minimal to modest impact overall on
their business operations, although several said that the
effects could be significant with respect to certain business
activities (such as infrastructure-related machinery and parts)
and to certain countries, such as Sudan. Two companies
estimated that sanctions caused aggregate lost exports valued
at $250,000, and total lost export earnings plus follow-on
sales and service of approximately $45 million. Some firms
reported that they had some difficulty re-entering markets that
had previously been prohibited by U.S. unilateral economic
sanctions, and where re-entry was possible the firms incurred
high costs for developing new distribution channels and
marketing.
Electronic technology and transportation. Respondents
reported that economic sanctions most likely affected not more
than 1 percent of total sales, or 5 percent of export earnings;
however, several noted that such losses, especially foregone
export sales, could be significant when accrued over several
years. Several respondents reported the difficulties of re-
entering markets after sanctions are lifted, and noted that the
costs of re-establishing distribution networks are especially
high. One U.S. motor vehicle producer noted that State and
local sanctions have particularly disruptive effects on
business operations, because such economic sanctions affect
procurement and divestiture of stock, are easier to enact, and
have more immediate effects.
Service industries. Respondents indicated that U.S.
unilateral economic sanctions close off new market
opportunities and increase the level of uncertainty for
business operations. Construction firms reported being
adversely affected when submitting bids for certain long-term
infrastructure projects because the threat or potential threat
of U.S. unilateral sanctions contributes to the perception that
U.S. firms may be less reliable than their European or Japanese
competitors. Major multinational financial service firms
indicated that they are vulnerable to U.S. unilateral economic
sanctions if their overseas affiliates are located in countries
that are targets for sanctions. Moreover, investors may be
reluctant to deposit funds in U.S. banks worldwide for fear of
having their accounts monitored or frozen under U.S. sanctions.
Telecommunications services firms also reported foregone
business opportunities in such markets as Colombia, Cuba, Iran,
and Libya as a result of U.S. unilateral economic sanctions.
review of literature
Research that specifically examines the cost of sanctions
to the sender or imposing country is relatively limited. Much
of the academic economic literature treats economic sanctions
as a theoretical problem. Game theory is a commonly used
framework in which countries that impose economic sanctions
(senders) and countries against which the sanctions are
directed (targets) are treated as two opponents, each weighing
the outcomes of various policy options in view of the strategy
of the other. The studies that examined the costs of sanctions
focused on the costs of sanctions to the target countries or
estimated the degree of success of the sanctions in relation to
the sender's stated policy goal or objective. These studies
relate the degree of success to such factors as the costs of
the sanctions to the sender and target countries, the size of
the countries or trade flows involved, the objectives of the
sanctions, the duration of the sanctions, the extent of
international cooperation in implementing or enforcing the
sanctions, and other factors.
survey of methodologies and cost estimates
Researchers have used a variety of approaches to evaluate
the costs of sanctions to senders, leading to results on
several different types of costs and a wide range of dollar
estimates of these costs. The most readily available estimates
of the sender costs of sanctions take the form of aggregate
lost U.S. export sales to target countries due to all sanctions
imposed by the United States. In this research, which covers
all U.S. sanctions including multilateral sanctions, these
estimates range from $5 billion to $20 billion in foregone
export sales to the target countries for the early to mid-
1990s.\3\
---------------------------------------------------------------------------
\3\ These estimates reflect sales to countries targeted by U.S.
unilateral sanctions, and do not attempt to measure whether such sales
were diverted to other markets or lost entirely.
---------------------------------------------------------------------------
Other types of direct costs discussed in the literature
include job losses, compliance costs, lost sales from
intermediate suppliers for goods placed under sanctions, and
lost follow-on sales and market share. In addition, business
representatives have identified a number of indirect, less
easily quantifiable costs, including damage to their reputation
as reliable suppliers, lost opportunities for forming critical
business relationships or participating in joint ventures and
lost competitiveness as these opportunities are taken up by
firms from other countries. Evaluating any of these costs for
the United States from the imposition of U.S. unilateral
sanctions is difficult, but estimating the indirect costs is
especially challenging.
Direct costs of sanctions, such as lost export sales, are
typically estimated econometrically with a gravity model--that
is, a model of bilateral trade flows that detects shortfalls in
trade flows below what would be expected given the economic
conditions prevailing among trade partners and provides means
for estimating the role of sanctions in causing such
shortfalls. Other approaches have also been used to estimate
the costs generated by the imposition of sanctions. These
approaches include partial equilibrium models, which can
examine the impact of restrictions of proposed sanctions on the
economic welfare of participants in the relevant markets, and
general equilibrium models, which connect the restricted
markets to a full representation of all markets in an economy.
Multi-country variations connect several single-country general
equilibrium models together through international trade flows.
Industry surveys and questionnaires have been used to
elicit from affected businesses the different types of costs
they have experienced as a result of sanctions and the extent
of these costs. Information obtained from surveys and
questionnaires is especially valuable in assessing the indirect
costs of economic sanctions. Case studies can also help
identify the full spectrum of costs to senders of economic
sanctions.
Methodology Proposal
The request letter asks that the USITC propose a
methodology to be used to analyze in future studies the short
and long-term costs of U.S. unilateral sanctions to the U.S.
economy. The request letter refers to draft legislation that
would ask the USITC on a recurring basis to report on the costs
of all actual and proposed U.S. unilateral economic sanctions,
and to assess the impact these sanctions have on the
reliability of the United States as a supplier of products,
agricultural commodities, technology, and services, and on the
international competitive position of U.S. industries, firms,
workers, farmers, and communities.
The analytical approaches used by the Commission to provide
such an assessment of existing and/or proposed unilateral
sanctions will need to address three basic concerns. First, the
analysis should include both aggregate and sector-specific
effects of the sanctions under review. Second, the analysis
should provide measures of the costs of sanctions that, to the
extent possible, can be provided on a consistent basis over
time. Finally, the analysis should account for the total net
costs of the sanctions, including both the direct, more easily
quantified costs as well as the indirect costs that are
difficult to quantify. The Commission's likely approach would
be to jointly employ a variety of the methodologies described
above to capture the effects of economic sanctions. In addition
to economic methodologies, the Commission would seek industry
and interested party views through hearings, questionnaires,
and other survey forms.
For example, partial equilibrium and gravity models have
been used most often to assess the impact of economic
sanctions. Partial equilibrium models can provide estimates of
the direct costs of proposed sanctions borne by both producers
and consumers. This type of model can be constructed to allow
for varying degrees of imperfect competition, multiple
suppliers, and multiple buyers. Moreover, such models can
account for varying degrees of substitutability between
tradeable products and can be used to assess the impact of
different types of sanctions, such as export embargoes and
restrictions on export financing. Given the abundance of
information produced, the ability to account for the impact of
policy changes on narrowly defined sectors, the limited data
requirements and simplicity of operation, the partial
equilibrium approach compares favorably in most cases to the
use of a general equilibrium model. A general equilibrium
approach would be a more likely choice for sanctions imposed on
large trading partners (where the economy-wide effects of the
sanctions may be significant) or on those who can influence the
world prices of products in major, broadly-defined sectors such
as oil.
In order to evaluate the economic impact of U.S. unilateral
sanctions on an ongoing basis, it will be valuable to have a
modeling framework that captures more of the dynamic aspects of
that impact. These aspects include the long-term costs, the
impact on the international reputation of the United States as
a reliable supplier of goods and technologies, and the impact
on the international competitiveness of U.S. industries and
firms. Gravity models fill this need in that they can be
applied to test for persistence of the effects of sanctions
after they have been removed. Such a test for persistence can
help indicate how temporary loss of market share or supplier
relationships may affect reputation for reliability or
competitiveness in the long run. In addition, gravity modeling
can help estimate the effects of sanctions on capital flows.
Each of these methodologies has its own advantages and
trade-offs, such as the initial data requirements for the
analysis and the level of detail of the results. Depending on
the specific request as well as the length of time available
for analysis, partial or general equilibrium analysis or
gravity models or a combination of these methodologies could be
applied appropriately to estimate the direct costs such as lost
export sales associated with economic sanctions. Industry input
would be sought via surveys and questionnaires to obtain
information on the indirect as well as the direct costs of
sanctions. Integrating the analysis of estimates of direct and
indirect costs from several appropriate methodologies, in
conjunction with industry surveys, would provide a more
comprehensive assessment and understanding of the short-and
long term costs of sanctions on the U.S. economy.
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Mr. Houghton. Thank you very much, Mr. Rogowsky.
Mr. Farmer.
STATEMENT OF RICHARD D. FARMER, PH.D., PRINCIPAL ANALYST,
NATURAL RESOURCES AND COMMERCE DIVISION, CONGRESSIONAL BUDGET
OFFICE
Mr. Farmer. Thank you. Mr. Chairman and Members of the
Subcommittee, I am pleased to appear here today to report on
CBO's recent study, the Domestic Costs of Sanctions on Foreign
Commerce. The focus of CBO's research was the cost of sanctions
on the national economy. Those are costs that net out losses
and gains for different groups.
I want to emphasize up front that the costs of sanctions to
the United States, large or small, say little about the costs
to the target country or the effectiveness of sanctions in
deterring objectionable behavior. CBO's research and this
testimony do not address questions of effectiveness. However,
our work does note that such information, along with details on
the costs and benefits of all policy options, including
sanctions, would be relevant to any decision to impose
sanctions.
CBO's review of sanctions indicates that many of the
Government's actions that look as though they would restrict
foreign commerce do not actually add new restrictions.
Considerable redundancies exist among current statutes and
executive actions, and many statutes provide for presidential
delays in enforcement, which the President takes advantage of.
The economic effects of such actions are very indirect,
depending largely on people's perceptions of what the
government will do next and, hence, are difficult to assess.
For actions that add new restrictions, CBO concludes that
individual actions could have clear costs for the overall
economy, but those costs are likely to be small.
One reason for the small cost is that, to date, very little
commerce is at stake. The common targets of sanctions are
developing economies that individually account for very little
U.S. trade.
Three closely related factors also point to small costs.
First, many of the U.S. actions are unilateral. They generally
result in a smaller cost to the United States than do
multilateral sanctions because unilateral actions are less
effective in restricting overall economic activity, as we have
heard today.
Second, many of the U.S. actions restrict foreign
assistance or export-promotion programs. Those restrictions
result in smaller national costs than do sanctions that
restrict free commerce. To the extent that such programs
distort free trade, there is even a possibility of some small
economic gains from those sanctions.
And third, the main exports of developing countries (the
common targets of sanctions) are raw materials and standard
manufactured goods, many of which are widely available from
other countries or domestically. Sanctions that narrowly target
goods with such substitute sources of supply generally result
in little cost.
Support for the view that the cost of sanctions to date has
been small comes from recent research by Gary Hufbauer and
others at the Institute for International Economics. They found
that the cost of all current sanctions is an annual loss of
national income of only about $1 billion. That's about 0.01
percent of the current national income of $7 trillion. That
same study is also the source for the figure of nearly $20
billion in lost export trade each year because of sanctions.
CBO understands that at least two issues underlie the
growing political concern about sanctions. First, to the
individuals and businesses who bear the direct impact of
sanctions, the losses can be significant, as we have heard here
today. Other sectors of the economy may gain, but that fact is
of little consolation to the losers.
Second, regardless of their impact today, sanctions could
become costly in the future. That could be true if their use
expands or if they keep U.S. businesses out of fast-growing
markets, especially markets where the United States would
otherwise have a competitive advantage.
In some cases, sanctions may threaten U.S. relationships
with important trading partners who are not the direct targets
of sanctions. The critics of sanctions also express concern
about the long-lasting impact of past actions on the United
States' reputation as a reliable supplier.
To investigate the domestic cost of future actions, CBO
made use of the results of past academic research to calculate
how much economic welfare would drop for each dollar reduction
in U.S. trade.
In general, that research confirms that the lowest cost to
the United States would be from unilateral actions against
small developing economies. Because such actions are so common,
the Hufbauer research on current sanctions provides a direct
indication of their cost. His results suggest a loss in U.S.
national income of 5 cents for each one dollar decrease in
exports.
The highest cost to the economy would come from sanctions
imposed on a large industrialized country, especially if the
sanctions initiated a worldwide round of trade reductions.
However, those countries are rarely the targets of sanctions.
This testimony necessarily provides a very brief overview
of our work. I would be pleased to answer any questions you may
have.
Thank you.
[The prepared statement follows:]
Statement of Richard D. Farmer, Ph.D., Principal Analyst, Natural
Resources and Commerce Division, Congressional Budget Office
Mr. Chairman and Members of the Subcommittee, I am pleased
to appear here today to report on a study that the
Congressional Budget Office (CBO) recently released titled The
Domestic Costs of Sanctions on Foreign Commerce. The focus of
CBO's research was the total cost to the U.S. economy of
imposing sanctions on other countries. That total cost nets out
losses and gains for different groups.
The cost to the United States, large or small, of imposing
sanctions says nothing about the cost to the target country,
the effectiveness of sanctions in deterring objectionable
behavior, or other benefits of such action. CBO's research--and
this testimony--do not address questions of effectiveness.
However, such information, along with details about the
relative costs and benefits of all policy options open to the
United States (economic, diplomatic, and military), would be
relevant to any decision to impose sanctions.
Not all actions by the U.S. government that call for
restricting foreign commerce actually add new restrictions. For
actions that do, CBO concludes, the sanctions may have costs
for the overall U.S. economy--but those costs are likely to be
very small. One reason is that the common targets of U.S.
sanctions are developing economies that individually account
for very little U.S. trade.
Several other factors play a role in determining the
national costs of individual sanctions.
Unilateral sanctions (imposed by the United States
alone) generally result in a smaller cost to the U.S. economy
than multilateral sanctions (in which other nations join the
United States), because unilateral actions are less effective
in restricting economic activity.
Sanctions that narrowly apply to imported goods
for which substitute sources of supply exist or to exported
goods for which substitute outlets exist, generally create a
smaller cost than sanctions on goods without substitution
opportunities.
Sanctions that restrict foreign aid or export-
promotion programs generally result in a smaller cost than
sanctions that restrict open commerce. Because those types of
government support can distort trade, sanctions that restrict
them may even produce small economic gains.
Concerns about sanctions
Broadly, the term ``sanctions'' refers to actions that the
government takes to restrict the flow of goods, services, or
capital between the United States and another country in order
to promote particular foreign policies or enhance national
security. The ultimate goal of sanctions is to deter
objectionable actions by raising the costs of those actions to
other countries. But government restrictions on foreign
commerce can also impose costs on U.S. businesses and
consumers.
Political interest in the domestic costs of sanctions
appears to be growing, fueled by at least two concerns. First,
the individual groups of consumers, workers, and business
owners who bear the direct costs of U.S. sanctions often do not
receive direct compensation for their losses. Other sectors of
the economy may gain from changes in trade patterns produced by
sanctions, but that fact is of little consolation to the
losers. Second, although sanctions have only a small economic
impact today, they could become more costly for the United
States over time if their use expanded or if they kept U.S.
businesses out of fast-growing markets--especially markets in
which U.S. businesses would otherwise have a competitive
advantage. In addition, they might harm the United States'
relationships with important trading partners that were not the
direct targets of sanctions.
Last year, the Congressional Research Service identified
more than 190 provisions of U.S. law that potentially restrict
some aspect of foreign commerce for foreign policy reasons. Of
those provisions, 102 pertain to restrictions on government
foreign aid and trade-promotion programs, including 26 on
defense-related aid. Another 49 pertain to restrictions on
commercial exports, including 26 on defense-related sales.
Those statutes place the most restrictions on commerce with
seven countries: Cuba, Iran, Iraq, Libya, North Korea, Sudan,
and Yugoslavia.
Assessing the amount of trade that federal statutes affect
is difficult for a number of reasons. First, considerable
redundancies, such as multiple laws that call for the same
restrictions, exist in sanctions policies. Second, limits on
U.S. aid to one country may simply make more funds available
for other countries. Third, many statutes provide for
Presidential delays in enforcement. And fourth, sanctions may
be coupled with other government actions that soften their
domestic impact. Analyzing the effect of sanctions is further
complicated by the fact that the domestic policies of the
target countries play a large role in limiting their ability to
trade competitively.
Costs to the Overall U.S. Economy
To date, sanctions on foreign commerce have had only a
small combined impact on the overall U.S. economy. A 1997 study
by Gary Hufbauer and others at the Institute for International
Economics looked at the effects of all current sanctions. It
estimated that sanctions cost the United States about $1
billion in national income and as much as $19 billion in
merchandise exports each year. Those figures may seem large,
but they are quite small compared with total national income of
nearly $7 trillion in 1998 and total merchandise exports of
nearly $700 billion--figures that indicate the high potential
for replacing currently sanctioned trade.
Those estimates, however, do not preclude the possibility
that sanctions will pose a greater threat to the U.S. economy
in the future. To estimate the domestic cost of future
sanctions, CBO used the results of the Hufbauer study as well
as several studies of the benefits produced by lowering
barriers to trade. (In general, the benefits from opening trade
would be symmetrical with the costs of closing it.) On the
basis of those studies' findings, CBO calculated a set of
ratios that relate a loss in economic welfare to each $1
reduction in U.S. trade, depending on the size of the economy
targeted by sanctions, the participation of other nations, and
the time horizon. Those ratios could be used to estimate the
total cost of a particular sanction by multiplying the
appropriate ratio by the direct loss of trade attributable to
that sanction.
Those ratios support the idea--derived from economic
theory--that the cost of unilateral U.S. sanctions on a
particular economy is likely to be smaller than the cost of
multilateral sanctions. And although the cost of both types of
sanctions grows over time, that growth tends to be smaller for
unilateral sanctions because opportunities for substitution
(which are the key reason that unilateral actions are less
effective) also grow over time. In terms of the size of the
economy targeted, the cost will generally be:
Small for small developing economies, which
account for little U.S. trade now;
Somewhat larger for big emerging economies, such
as China, which are likely to account for an important share of
U.S. trade in the future; and
Largest for industrialized economies, which are
highly integrated with the U.S. economy and already account for
significant U.S. trade.
The lowest cost to the overall economy would come from a
unilateral sanction imposed on a small developing economy.
Countries in that category--mainly ones in Latin America,
Africa, Asia, and Eastern Europe--buy about 15 percent of U.S.
exports in all. Current sanctions disproportionately target
developing economies that individually account for a very small
share of U.S. trade and that supply commodities that are widely
available from other sources. Many of those sanctions represent
unilateral actions by the United States. Thus, Hufbauer's 1997
study, which examined the effect of current sanctions, provides
an indication of the costs of unilateral sanctions on small
developing economies. His results suggest a loss in U.S.
national income of 5 cents for each $1 of decrease in exports
because of sanctions.
That figure may represent a ceiling on the actual cost of
such sanctions. Hufbauer's results probably overstate the
disruption of exports caused by current sanctions because they
do not count the economic gains from increased exports to
unsanctioned countries or account for other important factors
that could explain the low volume of trade with sanctioned
countries. For example, the domestic policies of nations such
as Cuba contribute to their poor economic performance and
limited export potential. Moreover, many U.S. actions against
small economies limit only foreign assistance or trade in
commodities (such as petroleum) for which substitutes are
readily available. Those actions should cost the United States
little if anything.
The highest cost to the economy would come from sanctions
imposed on a large industrialized economy. Countries in that
category--including Western European nations, Canada, Japan,
and Australia--account for about 60 percent of U.S. exports. To
determine what sanctions on those countries might cost, CBO
looked at studies of the gains from liberalizing trade by Mun
Ho and Dale Jorgenson, Warwick McKibbin, Drusilla Brown and
colleagues, and Gary Hufbauer and Kimberly Elliot, among
others. Several of those studies modeled the effect of
unilateral U.S. action to reduce trade barriers. Viewed from
the opposite perspective, their results indicate that
multilateral sanctions on trade with an industrialized country
could lower U.S. income by 10 cents for each $1 loss of exports
in the long term. (The same would be true for imports: a 10
cent loss of income for each $1 loss of imports. The reason
those numbers would be the same is that imports tend to move
with exports, because the nation's current-account deficit
depends on total investment and savings, which are not affected
by minor changes in trade policy.)
Other studies of large industrialized economies considered
the effect of comprehensive worldwide initiatives to remove
trade barriers. Their findings, when reversed, describe the
consequences of the global contraction that could result from a
unilateral action to raise trade barriers against a large
industrialized economy and a reciprocal, retaliatory action by
that country. That type of trade war could have an extreme
cost, lowering national income by between 15 cents and 35 cents
for each $1 decrease in U.S. exports (or imports) in the short
term and between 45 cents and 85 cents in the long term.
The income loss from cutting off trade with a big emerging
economy, such as China, is likely to fall somewhere within that
broad range (from 5 cents to 35 cents for each $1 of lost
exports in the short term), depending on the nature of the
sanction and the trade that is disrupted. For example,
unilateral action restricting a few widely available imports to
the United States would have a small cost at most; multilateral
action affecting many specialized imports could have a large
cost.
Costs to Particular Industries
The direct costs of sanctions for individual U.S.
industries would generally be much larger than the net cost to
the overall economy. Whatever the size of those losses, they
can be significant to the businesses, workers, and communities
directly affected by them. Moreover, because the companies and
employees who gain from redirected business as a result of
sanctions do not compensate the companies and employers who
lose, sanctions may seem unfair.
Although they are largely offset at the national level, the
direct losses to an industry can provide a useful indicator of
the social costs of adjusting to trade sanctions. Besides the
dollar amount of trade disrupted, those social costs would
include the costs to workers of finding new employment or
relocating and costs arising from the uncertainty that such
changes bring.
Chairman Crane [presiding]. Thank you.
Dr. Haass.
STATEMENT OF RICHARD N. HAASS, PH.D., DIRECTOR, FOREIGN POLICY
STUDIES, BROOKINGS INSTITUTION
Mr. Haass. Thank you, sir. With the Chair's permission, I
will submit a statement for the record and just make a few
comments.
Chairman Crane. Without objection, so ordered.
Mr. Haass. Thank you, sir. Let me address first the
question of unilateral sanctions, and then if I might, say a
few things about H.R. 1244.
On unilateral sanctions, the intellectually honest point is
that they always have an impact on the target, and from what I
can tell, they always have some adverse economic impact on the
target.
The problem with them as a foreign policy tool is they also
have an adverse economic impact on ourselves, which has to be
factored in, and they have multiple impacts on the target, not
always the ones that we intend.
One therefore has to factor into any assessment of a
particular unilateral sanction the overall impact on the target
society from a humanitarian point of view, a political point of
view, and a military point of view. In many cases, unilateral
sanctions seem to reinforce the power of authoritarian regimes.
They seem to provide an excuse for the regime's own economic
incompetence. They seem to create humanitarian hardship.
And in at least one instance, that of Pakistan, they seem
to have stimulated the very activity we wanted to discourage,
which was a greater emphasis on the development of nuclear
weapons.
My own tentative conclusion on the subject of unilateral
sanctions is that on balance they are not an attractive
foreign-policy instrument for the United States. I say
``tentative'' because, at the Brookings Institution, we are in
the midst of doing an overall assessment of the impact of
American sanctions, and, indeed, we plan to publish in less
than a year's time our own set of impact statements, which we
would then make available to the Congress and the
Administration and others as they assess the utility of this
foreign-policy instrument.
I realize that if one's enthusiasm for unilateral sanctions
is finite, as mine is, it then creates certain policy questions
or challenges. Clearly, getting other countries on board the
sanctions train can be difficult. For the most part, I would
discourage secondary sanctions, i.e., the sanctioning of those
who won't join us in the original sanction.
From what I can see, that tends to cause as many diplomatic
problems as it resolves. Indeed, it tends to spread the area of
disagreement to our friends and distracts attention away from
the target.
If one runs into resistance to join sanctions, one is
obviously left with diplomacy. One is left with options of so-
called conditional engagement, to introduce incentives as well
as penalties as a way of winning others on board. One has the
option of watering down the sanctions. Or one has the option of
turning to other foreign-policy tools, including military
force.
One tool that can actually help build some support for
sanctions is compensation for other countries. One thing we
learned during the gulf war experience is that a device that
proved useful to rally such countries as Egypt and Turkey to
the side of sanctions was to compensate them for the economic
hardship they would bear because of the sanctions.
And one of the things Congress may want to think about, and
I realize this runs against the grain given the financial
situation we always find ourselves in, is the creation of a
dedicated account for the purpose of building support for
American sanctions. This account would be made available to
compensate countries who paid a real price for joining us in a
sanction even though they were not in a position economically
to sustain that price.
Let me just say a few things about the proposed
legislation. My bottom line is that I essentially support it.
In particular, I find very positive the call for a narrow focus
of sanctions, the emphasis placed on humanitarian exemptions,
the provision for Presidential waivers on national-security
grounds, and the emphasis on transparency, including reporting
requirements by both the CBO and various agencies within the
executive branch. I think all of that is to the good.
And I would very much hope that you and your colleagues
would be able to pass such legislation. Indeed, I would also
hope that the Administration would come our foursquare in
support to it.
That said, let me just suggest four parts of the
legislation that I would at least raise questions about. The
first is the so-called sunset provision, the idea that
sanctions would go away after 2 years unless they were
specifically re-enacted. I have got three problems with that.
One is a philosophical one. I have trouble with the idea that
inaction leads to policy change. For a great power like the
United States, reliability and consistency are terribly
important. I just don't like the fact, here or anywhere else,
that inaction by Congress or anyone else can trigger a policy
change.
Second, I do not think automatic sunset provisions are
necessary given the waiver authorities that are written into
the law. A waiver gives the President the option at any time,
short of even the 2 years, to reduce or eliminate a sanction.
Third, and as we have learned with China, having a 2-year
or any arbitrary time limit guarantees a public debate just
prior to expiration. And I am not sure it would always serve
the purposes of American foreign policy to have a formal public
debate about particular sanctions. I can imagine a situation
where diplomacy or private efforts would be at a certain point
where a public debate could actually work against some effort
to bring about, say, behavioral change on the part of a target.
So, again, I would question the desirability of writing
into law a fixed requirement for the automatic elimination of
sanctions after 2 years.
Second, in order to build support among some of your
colleagues who may be skeptical about this legislation, one
idea that might be valuable is to offer Congress a means to
challenge Presidential waivers. You have such a mechanism in
other pieces of legislation. This could be accomplished using
joint resolutions, which would then go to the President, who
would then have the option of vetoing it. Congress would then
have the option of overriding the veto. I think that would be
consistent with Supreme Court decisions in this area. And
again, if that were the price of passing this legislation, I
would think it would be a price worth paying.
Third, the legislation talks about compensation for those
affected in the agricultural community by sanctions. I would
simply raise the question, and I am not an expert here, about
the possibility of extending compensation to others. They might
be individual workers, individual firms, individual
communities. But it is not clear to me that, for export
sanctions, the costs should be borne so disproportionately by a
few.
Last, the legislation recommends the establishment of a
sanctions review Committee in the executive branch that would
oversee sanctions. I assume this review would occur both before
sanctions were adopted and thereafter. That is a welcome idea;
however, when I go down the list of executive branch officials
who would be involved, one of the people conspicuously absent
is the director of Central Intelligence. I would think the DCI
is someone we would want to have at the head table since,
obviously, intelligence-community assessments of the actual or
likely impact of a sanction would be an important component of
decisionmaking.
Thank you.
[The prepared statement follows:]
Statement of Richard N. Haass, Director, Foreign Policy Studies,
Brookings Institution
Mr. Chairman: Thank you for this opportunity to testify on
the use and effect of unilateral economic sanctions and on H.R.
1244, the ``Enhancement of Trade, Security, and Human Rights
Through Sanctions Reform Act.''
I will take these two related but separate matters in
sequence. Unilateral sanctions always have some impact, both on
the United States and on the target country. U.S. sanctions
have clearly weakened the economy of Cuba, slowed investment in
Libya and Iran, and hurt Pakistan, which, prior to sanctions,
received substantial U.S. economic and military assistance.
But it is also important to contemplate the side-effects of
unilateral American sanctions. These consequences transcend
lost American exports, profits and jobs. In the case of Cuba,
U.S. sanctions may have made it easier for the Castro regime to
maintain control over the Cuban economy and society. There and
elsewhere (including Iran), American sanctions have been
exploited as justifications for regime repression and excuses
for regime incompetence. Sanctions may have had the perverse
effect of weakening civilian rule in Pakistan and increasing
its focus on nuclear weaponry.
As a rule, unilateral sanctions tend to be little more than
statements or expressions of opposition except in those
instances in which the tie between the United States and the
target is so extensive that the latter cannot adjust to an
American cut-off. Over time, economic sanctions tend to lose
their bite. In a global economy, unilateral sanctions tend to
impose greater costs on American firms than on the target who
can usually find substitute sources of supply and financing.
The impact of such sanctions can be offset by factors beyond
our control, as in the case of Iran where increases in the
price of oil more than compensated for any penalty introduced
as a result of U.S. policy. Iran is also a textbook example of
how unilateral American sanctions can be little more than a
windfall for European companies who otherwise would have
difficulty competing.
Even advocates of unilateral sanctions would admit that
their impact is second best. The problem is that it is often
extremely difficult to garner international support for
particular sanctions. Prospects for succeeding in bringing
others on board tend to reflect a range of factors, including
commercial stakes, policy preferences, and the availability of
funds to compensate lost revenues. Sanctions tend to work best
when international political consensus exists and non-targeted
countries who must bear an economic cost as a result of the
sanctions are compensated. In most instances, other governments
prefer no or minimal sanctions. Other countries tend to value
commercial interaction more than the United States and are less
willing to forfeit it voluntarily. In addition, the notion that
economic interaction is desirable because it promotes more open
political and economic systems is an argument that normally has
more resonance in other capitals. Such thinking makes achieving
multilateral support for sanctions less feasible than the
United States tends to want. It usually takes something truly
egregious--Saddam's invasion and occupation of Kuwait, Libya's
support of terrorism such as at Lockerbie, the brazen rejection
of Haiti's election results and associated widespread human
rights abuses--to overcome this anti-sanctions bias. And even
in the case of Iraq, generous compensation for affected states,
such as Egypt and Turkey, was a prerequisite for them to
sustain support for sanctions.
Trying to compel others to join a sanctions effort by
threatening secondary sanctions against those third parties
unwilling to sanction the target can cause serious harm to a
variety of U.S. foreign policy interests. This is what has
happened with Cuba, Iran and Libya; in all three instances,
sanctions now apply to overseas firms who violate the terms of
U.S. legislation. This threat has had some deterrent effect on
the willingness of certain individuals and firms to enter into
proscribed business activities, but at a significant political
price. It has increased anti-American sentiment, stimulated
challenges that have the potential to jeopardize the future of
the World Trade Organization, distracted attention away from
the provocative behavior of the target governments, and made
Europeans less likely to work with us in shaping policies to
contend with post-Cold War challenges.
Multilateral support for economic sanctions should normally
constitute a prerequisite for their introduction by the United
States. (This is especially true for export sanctions. If
sanctions are considered desirable, the United States might
want to give thought to import controls, which can distribute
the cost of the sanction within the United States yet still
send a message to the target.) Such support need not be
simultaneous, but it should be all but certain and likely to
follow with little delay. Unilateral sanctions should be
avoided except in those circumstances when the United States is
in a unique situation to derive leverage based on the economic
relationship with the target. Implementing this guideline will
require intense, often high-level diplomatic effort and even
then may not succeed. If this is so, then the task for
policymakers is to compare what can be achieved by weaker
sanctions to an alternative policy course, including both the
use of incentives linked to improved behavior on the part of
the target and the application of military force.
One instrument that can increase compliance is the
provision of assistance to third parties in order to offset the
economic cost of implementing sanctions. Arrangements to
compensate countries whose support for the sanctions is central
can thus be critical. This was the case with the Iraq
sanctions; it is possible that sanctions against Haiti might
have proved stronger had the Dominican Republic been more
cooperative. Greater use should be made of Article 50 of the UN
Charter, which sets forth a means by which third party states
hurt by sanctions aimed at another state can approach the
Security Council for redress. In addition, Congress might
consider establishing a fund for this purpose within the U.S.
foreign assistance budget. Given the current assistance budget,
this money should be additional rather than come out of already
underfunded aid accounts.
A call for greater multilateralism is not identical to a
requirement to seek UN Security Council backing. Indeed, the
United States should be careful about bringing sanctions to the
UN Security Council. Although UN endorsement can buttress
international compliance and complicate the task of any party
seeking to ease sanctions--Iraq comes to mind here--it can also
place the United States in the difficult position of having to
choose between continued compliance with a policy judged to be
no longer desirable or acting unilaterally in defiance of the
Security Council, a step the United States is understandably
reluctant to take as it could create precedents easily abused
by others
Let me now turn to H.R. 1244. I want to say at the outset
that I am sympathetic to H.R. 1244 and would welcome its
passage. It would introduce much needed transparency and
oversight into a process that has often lacked both.
Several of the principles embraced by the legislation are
worthy of specific mention and endorsement. Sanctions should be
targeted as narrowly as possible on the entities involved in
the activity that we oppose. As a rule, humanitarian trade
ought to be exempted, again to limit the collateral damage of
sanctions. Clarity of purpose is always desirable, as is giving
the president the authority to adjust or waive sanctions in the
interest of national security. Such flexibility is essential if
the executive is to have the necessary flexibility to conduct
foreign and defense policy and if sanctions are to contain exit
strategies that can provide incentives to targets to change
their ways. I would similarly welcome the many reporting
requirements contained in the legislation for both the
executive branch and the Congressional Budget Office at the
time a sanction is initiated and at regular intervals
thereafter; the more details contained in such reports the
better.
Let me end with a few questions and suggested modifications
of the proposed legislation. I am uncomfortable with the
``sunset'' provision that would terminate any unilateral
sanction after two years except where Congress acts to
reauthorize. This is reminiscent of War Powers, and here, like
there, I think it wrong to place the burden on those who would
continue policy. I also worry about regular high-profile
debates that could make it more difficult to modify existing
policy. I would instead put the emphasis on transparency and a
requirement for serious reporting by the executive branch and
congressional support agencies both prior to congressional
action and at regular intervals thereafter. The proposed waiver
authority also introduces needed flexibility into the policy
process.
Second, it is possible that the legislation's approach to
waivers would prove too ``anti-sanction'' for some members. In
order to increase prospects for passing reform legislation, it
might be useful to introduce some mechanism by which Congress
can challenge a waiver, possibly by joint resolution which, if
vetoed by the President, could then be made to stand by an
override.
Third, it is not obvious why compensation should be limited
to the agricultural sector. Why not consider extending to firms
and workers in other realms?
Fourth and last, I would add the DCI to the Sanctions
Review Committee as intelligence community assessments are sure
to be central to the debate over projected and actual effects.
Thank you for this opportunity to appear before you and
share my thoughts on this important set of policy issues. I
look forward to any questions you might have.
Chairman Crane. Thank you, Dr. Haass.
Dr. Haass, wouldn't you agree that experience has shown
that it is extremely difficult to remove sanctions once they
are in place, even if it becomes apparent that the sanctions
aren't having the desired effect?
Mr. Haass. Yes, sir.
Chairman Crane. And second, shouldn't we have some
procedure in place to review sanctions so that ineffective
policies don't remain on the books for political rather than
practical reasons?
Mr. Haass. I agree. There are different types of reviews,
some of which are in this legislation and that I would welcome.
One is simply the intellectual review of sanctions every 6
months or every year. It could be on an unclassified or
classified basis, or both.
The executive branch should be asked to do it, and I would
think that you would want to turn to the various Congressional
support agencies, whether it was CBO, CRS, or what have you, to
assist you in that task. So clearly we want to have review.
Second, having waivers in place allows you at any moment to
adjust the sanction. You move away from a switch metaphor and
you move toward a reostat metaphor. And I think that is exactly
what we want to have. We want to have the ability to adjust
sanctions to serve our foreign-policy interests, and I believe
waivers would help get around what I took to be the thrust of
your first question, sir, which is the problem of a sanction
once it is in place. If you have waivers, that seems to be the
best way to deal with an existing sanction if you decide that
less would be preferable.
Chairman Crane. Well, we have, as you know, the annual
renewal of normal trade relations with China, and that is
always a sticky battle. And it will be coming up again in
another month or so.
Dr. Farmer, the CBO study noted that the most common
targets of U.S. unilateral sanctions are small, developing
economies. Aren't these the same economies that hold the most
potential for economic growth and where it is critical for U.S.
firms to establish a base and market share for future U.S.
economic growth?
Mr. Farmer. We tried to note that there are fast-growing
economies, and the likely costs of sanctions on those economies
would be different from the costs of sanctions on the many
smaller, stagnant economies.
China, in particular, is a special case. So many of our
exports to China look like those to other industrialized
nations, whereas so many of our imports from China look like
imports from other developing countries. So it would be very
hard to assess the cost of sanctions against China. It is just
a wide range of possibilities, some extreme.
Chairman Crane. The CBO study concludes that unilateral
U.S. sanctions generally result in a smaller cost to the U.S.
economy than multilateral sanctions. Can you explain that?
Mr. Farmer. It's actually just what we have heard today:
unilateral sanctions are not effective in halting trading with
the target nation. There are clear, significant costs to
individual businesses, but the overall economy is hurt by
restrictions on overall economic activity, and unilateral
sanctions don't have that effect.
There is kind of a dilemma in that unilateral sanctions are
probably more costly for individual firms and multilateral
sanctions less costly, whereas for the Nation as a whole, it is
just the opposite.
Chairman Crane. Mr. Levin.
Mr. Levin. Oh, thank you. And thank you for your patience.
Mr. Crane, I will try to spread the word. This has been helpful
testimony. So let me just say briefly that Dr. Weintraub, I was
talking with the staff, you will make available the three
studies, will you, to make sure that we have them.
And Mr. Farmer, you referenced to China. Our trade over the
years, I think, with China will change and look more and more
like industrialized nation imports to us, but that is not too
relevant to what we are talking about today.
So I will finish. Dr. Haass, like the others, your
testimony is very helpful, and we will look forward to the
Brookings studies. I think your analysis about sunset is very
salient. I think it would be risky for a number of reasons that
you have related.
And I think, Mr. Chairman, as we look at this proposal,
this legislation, that we should accelerate our discussions
with the Administration, but also with various experts, or
people who are close to experts, to see if we can handle the
outstanding issues here. And I think, Dr. Haass, you have put
your finger on several of them.
So, anyway, this has been a useful hearing and, hopefully,
it will stimulate some more discussion and so we can begin to
move legislation.
Thank you.
Chairman Crane. Thank you. And I want to thank all of our
panelists where today. We appreciate your input, and don't
confine it just to appearing before the Committee. Having a
steady flow of information from you is very valuable. So we
express appreciation for your patience and for your
presentations today and look forward to seeing you again soon.
That concludes our hearing.
[Whereupon, at 2:13 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of American Bar Association, Section of International Law and
Practice
Recommendation
Resolved, That the American Bar Association recommends that
the United States adhere to the following principles in the
adoption and maintenance of export controls and economic
sanctions measures:
First, to consult with, and seek the support and
cooperation of, foreign governments sharing common objectives
in devising and carrying out programs to constrain foreign
trade and investment detrimental to shared U.S. national
security and foreign policy objectives.
Second, to refrain from the adoption or maintenance of
extraterritorial foreign trade control measures that do not
conform to jurisdictional principles of international law as
generally accepted by the international community and crate the
potential for conflicts with other nations, including:
Controls on foreign trade transactions of foreign
corporations, where those transactions have no jurisdictional
relationship to the United States other than ownership
interests of U.S. nations in the foreign corporations;
Controls on foreign trade transactions have no
jurisdictional relationship to the united States other than the
U.S. origin of transaction products, content or technology; and
Retaliatory trade sanctions on foreign parties by
reason of their foreign trade transactions, where those
transactions have no jurisdictional relationship to the United
States and are not in violation of any U.S. law that conforms
to jurisdictional principles of international law.
Statement of American Farm Bureau Federation
The American Farm Bureau represents over 4.8 million member
families in the United States and Puerto Rico. Our members
produce every commodity grown in America and depend on access
to customers around the world for the sale of over one-third of
our production. However, U.S. farmers and ranchers have been
denied access to five export markets due to unilateral economic
sanctions: Iran, Libya, Sudan, Cuba and North Korea.
The future of American agriculture depends upon access to
foreign markets. Especially today, with agricultural exports
projected to decline more than $2 billion from 1997 levels due
to the Asian financial crisis, any action such as an embargo or
sanction does direct and long-term harm to farmers and the
agricultural economy.
Farm Bureau has longstanding policy opposing artificial
trade constraints such as sanctions. We believe that opening
trading systems around the world and open engagement with our
trading partners are the most effective means of achieving
international harmony and economic stability.
Farm Bureau believes that all agricultural products should
be exempt from embargoes and unilateral sanctions, except in
the case of armed conflict. Should trade embargoes or
restrictions be declared in case of armed conflict, the embargo
or sanction should apply to all trade, technology and
exchanges. An embargo should not be declared without the
consent of Congress.
Moreover, the threat of embargoes or other restrictions
adversely affects markets and is an inappropriate tool in the
implementation of foreign policy. If an embargo is enacted,
farmers should be compensated by direct payments for any
resulting loss.
Finally, all export contracts calling for delivery of
agricultural commodities or products within nine months of date
of sale should never be interfered with by the U.S. government,
except following an embargo consented to by Congress. This
sanctity of contracts is essential to maintain the reputation
of the United States as a reliable supplier.
The cost to American farmers resulting from sanctions and
embargoes is high. According to USDA, the Soviet grain embargo
of the early 1980's cost the United States about $2.3 billion
in lost farm exports and government compensation to American
farmers.
When the United States cut off sales of wheat to protest
the Soviet invasion of Afghanistan, other suppliers--France,
Canada, Australia and Argentina--stepped in. These countries
expanded their sales to the Soviet Union, ensuring that U.S.
sanctions had virtually no economic impact on the target
country.
Not only do unilateral sanctions inflict no economic damage
on the target country, they often result in little change in
the foreign policy actions of that nation. Our competitors in
these markets rub their hands with glee when the United States
imposes unilateral sanctions. They are quick to expand their
sales and take over the U.S. share in these foreign markets.
Moreover, U.S. producers are branded unreliable suppliers and
lose access to important markets for decades to come.
Unilateral sanctions on agricultural exports must end.
In addition, unilateral sanctions are often
counterproductive because target nations use images of
suffering, innocent civilians to depict the United States as
cruel and vindictive, thereby discouraging other nations from
following suit.
As you know, the Administration announced a recent policy
change with respect to unilateral sanctions now in force for
Iran, Libya and Sudan. Commercial sales of food, medicine and
medical equipment are eligible for exemption from sanctions to
these nations.
We understand that the new policy will require exporters to
obtain an export license covering a specific, already
negotiated sale. Each export request will be reviewed on a
case-by-case basis.
This new policy does not signal automatic approval of
agricultural sales. Moreover, the new policy does not
completely resolve the issue of U.S. producers being viewed as
unreliable suppliers, because, in theory, an agricultural sale
could be denied. The Administration must grant approval to all
agricultural sales in order to reverse the unreliable supplier
image caused by unilateral sanctions.
As you are well aware, the Congressional Budget Office
(CBO) recently conducted a study on the economic impact of
unilateral sanctions on the U.S. economy. The CBO concluded
that such sanctions ``can be costly for individual U.S.
businesses that lose out when markets adjust to accommodate new
trade flows.'' The CBO also noted, however, that the overall
cost of unilateral sanctions is negligible because the nation's
total levels of trade and investment do not change as a result
of sanctions.
We believe that this study underestimated the significant
impacts on a sector-by-sector basis, particularly the
devastating decline in loss of exports for U.S. agriculture. As
a result of unilateral sanctions, over 14 percent of our rice
market, 10 percent of our wheat market, 5 percent of our
vegetable oil market, 5 percent of our barley market and 4
percent of our corn market have been taken off the table. This
loss of market access is not ``negligible.'' Given today's low
commodity prices and declining agricultural exports, we simply
cannot afford to have our access to export markets cut off.
It should be noted that when any type of sanction or
embargo is imposed, either political or trade related,
agriculture is the sector that is often the first to be hit in
retaliation. To make matters worse, customers lost due to
unilateral sanctions are very hard to win back. A case in point
is the growth of soybean production in South America, primarily
Brazil, as a result of embargoes in the 1970s and 1980s.
Several Farm Bureau members recently participated in a
trade exploratory mission to Cuba. It became very apparent on
that trip that Castro regime has had an oppressive effect on
the Cuban economy. It was also strikingly obvious, however,
that U.S. sanctions on this tiny island have not had any impact
in ending Castro's influence. U.S. unilateral sanctions on
trade with Cuba have now been in effect for more than three
decades with no tangible results. Meanwhile, leading
agricultural economists predict that U.S. exports to Cuba could
reach $1 billion annually if the sanctions were lifted. Cuban
citizens are hungry for U.S. products and want to engage with
Americans in trade. It is time that we lift unilateral
sanctions on agricultural exports and stop making our producers
pay the price.
The United States has an unprecedented opportunity to
promote its values throughout the world by peaceful engagement.
Reaching out, not withdrawing behind sanctions or embargoes, is
the best way to achieve change.
Statement of Electronic Industries Alliance, Arlington, VA
(The Use and Effect of Unilateral Sanctions)
i. introduction
Thank you for the opportunity to provide testimony on the
use and effect of unilateral sanctions. Representing the entire
spectrum of companies involved in the manufacture of electronic
components, parts, systems and equipment for communications,
industrial, government and consumer uses, the Electronic
Industries Alliance (EIA) is the premier alliance of trade
associations for the U.S. electronics industry.
EIA recognizes that a strong and vibrant high-tech industry
is vital to the economic and national security of the United
States. EIA is aware of the important role of sanctions as a
tool of foreign policy. But we also recognize the severely
limited effectiveness of unilateral sanctions, as well as the
vital importance of a competitive and innovative technology
sector to keep our economy strong and our armed forces a step
ahead of any adversary.
ii. realities of the global economy
With over 2000 member companies, accounting for 80 percent
of the $550 billion electronics industry, EIA represents the
most dynamic and competitive industry in the U.S. economy
today--actually, in the world economy today. The companies we
represent operate globally, they think and plan in global
terms, and they face intense international competition. The
fact is, the days when U.S. companies dominated the high-
technology industry are over. Similarly, the days when the
domestic U.S. market could sustain the industry are also over:
we cannot do business without trading extensively in the global
economy. This is essential to keep in mind as we formulate
public policy in this area.
As any successful CEO will testify to, competing--indeed,
surviving--in the global economy means exporting. The
phenomenal success of the U.S. technology industry comes from
its entreprenurialism, its aggressiveness, its willingness to
compete--all those free market forces that drive innovation. In
this kind of business environment, tapping new markets before
the competition does is the key to success. In 1997, more than
one-third of what the U.S. electronics industry produced was
exported overseas, over $150 billion in goods. That means more
than a third of the 1.8 million employees who work for U.S.
electronics companies depend on exports for their jobs, and the
percentage goes up every year. Too often, we fail to recognize
the profound implications of these facts.
We must also recognize that our high-tech companies are the
engine of technological innovation and economic growth in the
world today. The U.S. economy is the most competitive in the
world due in no small part to the amazing advancements our
companies have achieved. Technologies which, not long ago, had
only military or limited civilian applications are now
pervasive in our society, and the greater economic efficiency
stemming from this diffusion of technology has been the driving
force for the remarkable prosperity so many Americans are
experiencing.
The impact of unilateral sanctions on how this industry
competes in the global economy is substantial. They hold us
back from competing by forcing us to cede the playing field to
our overseas competitors. In short, we agree that when
sanctions are used properly, they can be a useful tool in
pressuring or containing hostile regimes. But they are a tool
to be used carefully and sparingly because of their severe
negative impact on U.S. industry and their often-limited impact
on the target country.
iii. u.s. sanctions policy must reflect post-cold war realities
EIA believes that U.S. sanctions policy must reflect the
new commercial and political realities of the post-Cold War
world. During the Cold War period, export restrictions on high-
tech products were based on the then-accurate premise that if
you prevent U.S. companies from exporting technology to
specified destinations, you will have denied that destination
the use of that technology. But this premise no longer holds.
Whereas U.S. industry once had a near-monopoly over the
development and production of advanced technology products,
today many countries produce the same, or even better,
commercial technologies as U.S. manufacturers. Furthermore, the
governments of our competitors do not impose the same
restrictions on their export activities. When U.S. companies
cannot sell abroad, our competitors are only to willing and
able to fill the void.
Today, the threats to our national interests are more
diffuse than during the Cold War, coming from rogue terrorist
cells or a few outlaw nations. With the collapse of the Soviet
bloc, the multilateral consensus among our key allies regarding
the source of new threats collapsed as well. That is the
reality we are faced with as we consider unilateral sanctions.
The exceptions are the regimes to control Weapons of Mass
Destruction and the multilateral sanctions against so-called
rouge states like North Korea and Iraq. In these circumstances,
strong multilateral controls are more effective. However,
stopping U.S. commercial exports of products and technology
that are not restricted in the case of our competitors does
nothing to protect our national security or advance our foreign
policy.
An export restriction is only as effective as its ability
to limit a target country from obtaining the desired goods and
technology. Only if the U.S is able to gain consensus from
other countries to impose multilateral sanctions will they be
effective. While we recognize that there may be instances where
sanctions are needed in order to isolate a country for its
undesirable activities, we recommend that they be imposed under
strict time limitations combined with a review mechanism that
evaluates their effectiveness.
Besides their negative economic consequences and
ineffectiveness at isolating problem countries, unilateral
sanctions are not a sophisticated tool of foreign policy.
Rather, they are usually a knee-jerk reaction to events
overseas. Despite their record of failure, unilateral sanctions
are too often employed as a foreign policy ``quick fix,''
imposed rather arbitrarily whenever we wish to express our
disapproval with a country's actions of the moment.
Unilateral sanctions have been viewed as a cost-free tool
to demonstrate ``leadership'' or to ``send a message.''
Unfortunately, unilateral sanctions do have costs, including
loss of marketshare and jobs for the U.S. economy, resentment
among our allies, and depriving goods and opportunity from the
ordinary citizens of the target country. While we are trying to
display leadership, unilateral sanctions only highlight our
inability to generate support among our allies. Meanwhile, the
``message'' we are trying to send is usually either ignored or
further antagonizes the target country. In fact, unilateral
sanctions are more effective at impressing domestic
constituencies within the United States, rather than promoting
real change in the offending country's behavior.
As bad as unilateral sanctions are, extraterritorial
sanctions--penalties against a company which does business in a
sanctioned country, but which is under the jurisdiction of a
third country--are even worse. These extraterritorial sanctions
prompt especially strong complaints from our allies, serving
only to further emphasize the failure of U.S. diplomacy. In the
process of isolating the target country with sanctions, we
often end up isolating ourselves.
It is for all these reasons that EIA enthusiastically
supports the sanctions reform legislation sponsored by Chairman
Crane. H.R. 1244 would do something we believe is long overdue:
provide a rational procedural framework for considering future
U.S. unilateral sanctions. Before imposing a sanction, both
Congress and the President would be required to ask themselves
a few essential, common-sense questions: Is the sanction likely
to be effective? Does it have a clearly defined and realistic
objective? What are the likely costs to U.S. industry? Will the
sanctions undermine other foreign policy and humanitarian
objectives? And finally, have other diplomatic efforts with our
allies been initiated? We are also pleased with the bill's
guidelines regarding waiver authority, contract sanctity, and
the two year sunset provision.
iv. information technology can advance our foreign policy
While EIA is generally opposed to most unilateral
sanctions, we recognize that they are likely to remain a
popular tool in the U.S. foreign policy arsenal. Thus, we
support efforts to minimize their arbitrary use, as H.R. 1244
would require, as well as to allow greater flexibility in their
use so as to develop more forward-
looking, sophisticated approaches to foreign policy problems.
We put forward that one way to accomplish this is to use
information technology to promote democratic ideals in closed
societies.
In most cases, unilateral sanctions are proposed and
targeted against closed societies with repressive governments.
However, these sanctions usually fail either to stop a
country's aggressiveness towards its neighbors or ease
repression of its people. Instead of isolating problem
countries from outside influences and ideas, we believe that in
some cases we might find more success doing exactly the
opposite. We should be flooding these countries with a wide
diversity of opinions, images, news, even movies, music, and
fashion.
Information technology, especially the Internet, has proven
to be a powerful means of delivery for diverse ideas. One of
the best examples of how outside ideas can gradually effect
change within a repressive society is Iran. We would argue that
the modest easing we are witnessing there has been caused more
by the proliferation of satellite dishes and Internet
connections among ordinary people than by the U.S. unilateral
and extraterritorial sanctions. Indeed, the spread of
information technology, such as computers, cell phones, fax
machines, and supporting technology, can be among the most
effective tools this country has to promote liberalization in
the repressive countries we are concerned about most. We in the
high-tech industry take pride in the fact that we produce the
equipment that enables the free flow of information and ideas
in this way, and we believe it should be U.S. policy to allow
the use of this technology by repressed peoples. Therefore, we
propose that the President should have the authority, where
circumstances warrant, to allow exports of technology products
and services which enable the free flow of information and
promote democratic ideals around the world.
In places where people are subjected to state-sponsored
misinformation, we should aggressively promote outside sources
of information--what their governments might consider
``subversive'' influence but which their people are hungry for.
We should have confidence in the power of our democratic ideals
of openness and diversity to instigate change in authoritarian
societies. While we should not provide repressive governments
the tools to maintain their authority or threaten their
neighbors militarily, we should provide the citizens of these
countries the tools to gain a greater understanding of freedom
and democracy.
v. conclusion
We would like to make clear that we recognize the
connection between democracy and economic opportunity. Our
companies know that democracies are intrinsically more stable,
have more informed, better educated workers, and have more
reliable, transparent court systems and regulators than
authoritarian regimes do. In short, democracy is good for
business. By criticizing unilateral sanctions, it is not our
intention to prop up the world's authoritarian regimes or lend
moral support to dictators. It is true that business cares most
about the bottom line, and the bottom line is that unilateral
sanctions do not work.
Statement of Willard M. Berry, President, European-American
Business Council
Mr. Chairman and Members of the Committee, thank you for
the opportunity to provide this testimony. I am Willard Berry,
President of the European-American Business Council. The
Council is the one transatlantic business organization that
regularly provides actionable information on policy
developments and works with officials in both the US and Europe
to secure a more open trade and investment climate. Our 85
member companies include many of the largest US and European
firms.
As you will recall, I had the honor of testifying before
this committee two years ago on this same subject of unilateral
economic sanctions. To recap what I said then: experience shows
that these measures have had almost no success in achieving
their stated aims, namely changing the behavior of the target
country. What these measures have instead done is seriously
harm business and in doing so have eroded the competitiveness
of US-based companies, cost Americans jobs, and strained
relations between America and its closest allies.
The EABC is pleased to note, however, a changing attitude
in Congress toward the use of unilateral economic sanctions.
Only a few years ago, it seemed that a new sanctions bill was
being introduced every month. The current Congress, thankfully,
has introduced far fewer unilateral sanctions bills. Instead,
real momentum is building behind a comprehensive effort to
reform the process that governs when and if unilateral
sanctions are imposed.
Others testifying will illustrate for you the large
economic cost of unilateral sanctions. A recent Congressional
Budget Office study estimated this cost at $19 billion
annually. The CBO however went on to suggest that this cost is
negligible as it represents such a small percentage of the
total economy. I consider $19 billion in lost exports a serious
blow, especially given what $19 billion in exports would do to
help correct the US trade deficit. Furthermore, if the US is
going to sacrifice existing and potential US jobs to apply
unilateral sanctions, we should be sure to get our foreign
policy ``bang for the buck.'' We must pursue effective policies
and not trade American jobs for symbolic gestures.
Not only does the CBO study in our view mischaracterize the
cost of sanctions, it also does not measure the full economic
impact of sanctions. Specifically, the study does not include
the untold tens of billions of dollars in secondary costs of
unilateral trade sanctions. These include the loss of joint
venture opportunities (a critical element of global
competitiveness), layoffs in the US by foreign investors, the
loss of supply relationships, and a retraction in outbound
investment.
That is why EABC agrees that the US needs to put in place a
process that will first look at whether or not a proposed
economic sanction will have the desired foreign policy outcome
and what other alternatives exist to sanctions before it is
imposed. The EABC joins other groups testifying in
wholeheartedly endorsing your legislation, Mr. Chairman, that
would comprehensively reform the sanctions process. This
important legislation nearly passed in the Senate last year,
and we are optimistic that momentum is building up to pass it
this year.
While progress on sanctions reform at the national level is
good news, I wish to bring the committee's attention to another
area of concern to our members, namely the considerable
economic damage done by state and local sanctions. Two years
ago it seemed that states everywhere were taking the country's
foreign policy into their own hands and imposing sanctions on
companies doing business in Burma, Indonesia, or other nations.
The EABC fully supports the federal government's leadership and
interest in protecting human rights abroad. We strongly agree
with the court ruling that struck down a Massachusetts select
purchasing law on constitutional grounds, namely that states
may not preempt the federal government in making the nation's
foreign policy. As you know, Massachusetts appealed the
decision.
Although we are confident the appeals court will uphold the
lower court ruling striking down the Massachusetts law, we are
concerned that state and local lawmakers may look to other
forms of sanctions, such as selective investment laws, in an
attempt to skirt the Massachusetts ruling. EABC outreach to
state and local lawmakers has found that many of them do not
seem aware of the economic damage done to their states or of
the constitutionality of such laws, which can lead to the
expensive prospect of spending taxpayer dollars to defend
unconstitutional laws.
Unfortunately, there is an almost endless list of human
rights issues that some interest groups feel can be addressed
with state and local sanctions. Where and when will we draw the
line? This is not a realm for state and local activity. It is
easy for policymakers in subfederal governments to act on a
perceived moral need to impose sanctions. But when they create
a mess of our foreign policy, these officials are not faced
with the negative repercussions nor do they have the
responsibility of defending themselves in international fora.
They do not have to deal with our allies, who are often hurt by
US sanctions, and they do not have to answer to the
international community for their violations of multilateral
commitments and treaty obligations. The constituents of state
lawmakers do pay the price, however, when investment dollars go
elsewhere, when plants are relocated or shut down, when US
companies are seen as unreliable partners, and when US exports
are blocked in retaliation for the sanctions.
It is for the Administration and you here in Congress to
balance multiple foreign policy objectives, including nuclear
nonproliferation, preventing terrorism, and promoting human
rights. We can only achieve these objectives in concert with
our allies. The US cannot strike multilateral deals to address
these problems if states and localities undermine such deals by
acting on their own. State and local officials should recognize
that imposing sanctions has significant global effects. They
should leave foreign policy to those with the responsibility,
expertise, and constitutional authority to conduct it.
That's why the EABC hopes that rulings in the Massachusetts
case--and especially a possible Supreme Court ruling--will send
a clear signal to state and local officials that sanctions are
not a ``political freebie,'' and that foreign policy must be
left to Washington. We very much welcome any effort here in
Washington--both in the Administration and here on the Hill--to
discourage states and localities from taking foreign policy
into their own hands. The EABC hopes that in addition to
reforming the sanctions process at the national level Congress
will not forget the economic damage done by state and local
sanctions.
In conclusion, Mister Chairman and members of the
committee, the EABC wishes again to thank you for this
opportunity to submit written testimony. We also wish to
express our sincere gratitude to you, Mr. Chairman, for once
again championing free trade and leading the fight to bring
moderation and thoughtfulness to the process by which the US
considers using unilateral economic sanctions. We have come a
long way in the last two years, but much work remains, and the
EABC stands ready to help you in any way we can.
Statement of Frutarom, Inc.
Mr. Chairman and Members of the Subcommittee, in follow up
to our testimony of May 27, 1999, we wish to offer a statement
in support of H.R. 1244, Enhancement of Trade, Security, and
Human Rights through Sanctions Reform Act.
Providing a sensible framework to assess future unilateral
sanctions policy is imperative to American business. If the
sanctions against Sudan had been evaluated under the framework
proposed in H.R. 1244, American gum arabic processors likely
would not have been injured as they have been under the present
structure. If an evaluation had been made under the criteria
outlined in the bill, a determination would have been reached
that there were no reliable sources of supply for gum arabic
outside of Sudan and that American gum arabic processors would
be directly harmed by such sanctions. If an appropriate
methodology had been used, the sanctions against Sudan would
have been targeted narrowly to hurt the Government of Khartoum,
not American gum arabic processors and their families. As a
result of current policy, the sanctions against Sudan have
benefited Sudan economically and devastated the businesses of
American gum arabic processors.
We agree with Under Secretary Eizenstat that H.R. 1244 must
include a stand-alone national interest waiver authority that
would apply to all future unilateral sanctions legislation. At
present, the bill provides only that it is the sense of
Congress that any future unilateral sanctions legislation
``should'' provide national interest waiver authority. The
legislation must authorize the President to waive a sanction,
or waive the applicability of a sanction on a specific industry
sector, if it is in the national interest to do so.
We continue to press the State Department with our pending
license application to waive the Sudanese sanctions to permit
badly needed imports of gum arabic, but no such waiver has been
granted as of this date. We understand that the reluctance to
grant our application reflects the strongly held views of some
officials within the State Department that the United States
must not fail to uphold human rights. We agree that human
rights must be upheld in our own country and throughout the
world. But unilateral sanctions, no matter how well intended,
which hurt Americans without achieving stated policy goals, we
believe, do not meet with the approval of this Committee.
American companies will continue to lose competitive
advantage to foreign competition in domestic and international
markets unless you act now to reform our government's system
for implementing unilateral sanctions. We look forward to the
passage of H.R. 1244 by the House this year.
Importers Service Corporation
Jersey City, NJ
May 26, 1999
The Honorable Philip M. Crane,
Chairman, Trade Subcommittee
House Ways & Means Committee,
Washington, D.C.
Dear Congressman Crane:
We thank you and the staff of the Trade Subcommittee for
this opportunity to provide our views regarding the present
prohibition upon importing into the United States gum Arabic
from Sudan. Importers Service Corporation is one of three
companies in the United States that, prior to the November 1997
embargo, imported raw gum Arabic from Sudan, processed it in
the United States, and sold the processed gum to end users. As
explained more fully below, the imposition of the Sudanese
embargo has crippled our business, yet total exports from Sudan
of gum Arabic have increased. Thus, as applied to gum Arabic,
the embargo has had the effect of damaging U.S. companies
without inflicting any corresponding damage upon the government
of Sudan. We believe that, under these circumstances, the
import ban applied to gum Arabic should be lifted.
Background
On November 3, 1997, President Clinton issued an Executive
Order blocking Sudanese government property in the United
States and prohibiting U.S. commercial transactions with Sudan.
In the accompanying letter to the United States Congress,
President Clinton stated that, ``we intend to license only
those activities that serve U.S. interest.'' Among those
activities President Clinton cited was, ``the importation of
products unavailable from other sources, such as gum Arabic.''
Following the issuance of the November letter to Congress,
Importers Service Corporation, supported by 13 industry
associations representing the thousands of U.S. companies that
use the product to manufacture items that U.S. consumers use
every day, applied to the Department of the Treasury's Office
of Foreign Assets Control (OFAC) for a license to continue to
import the Sudanese product into the United States. Contrary to
the assurances provided by the Clinton Administration to the
U.S. Congress, OFAC declined to grant licenses to us beyond a
one-time exemption for 1998. A second license application for
1999 has been pending without a decision since December 1998.
As explained below, any continued inability to import raw gum
Arabic from Sudan will threaten the very existence of our small
company as well as the reliability of the supply of gum Arabic
to thousands of U.S. companies. However, it will have no
negative impact on the government of Sudan.
What is Gum Arabic?
Gum Arabic is a naturally occurring product that is exuded
from the stems and branches of the acacia tree. It is a key
ingredient in a variety of soft drinks, baking and
confectionery items, dietary fiber products, lithography,
cosmetics, pharmaceuticals and other industrial applications.
In confectionery products, gum Arabic retards
sugar crystallization and emulsifies fat to keep the candy
uniform throughout the piece.
In beverages, gum Arabic is the preferred
emulsifier for citrus oil containing flavor emulsions, and has
the ability to stabilize foam on beer and soft drinks.
In pharmaceutical products, gum Arabic is used to
bind medicines into uniform tablets or syrups.
In cosmetics, gum Arabic imparts spreading
properties and gives a protective coating and smooth feel.
In dietary fiber products, gum Arabic is an ideal
ingredient because of its low viscosity, bland flavor and high
fiber content.
Two critical facts need to be emphasized with respect to
gum Arabic. First, for many of these products, there is no
suitable alternative ingredient to the use of gum Arabic. Thus,
an inability to obtain gum Arabic could have extremely
disruptive effects on the United States economy. Second, for
most applications, only a very small quantity of gum Arabic is
used to obtain the desired quality or effect. Thus, the
importance of gum Arabic to entire United States industries is
belied by the small overall total of imports into the United
States.
How is Gum Arabic Produced?
Gum Arabic is harvested from wild acacia trees. Since
precise climatic conditions (hot weather, poor soil, aridity)
are necessary for the acacia trees to exude gum Arabic, efforts
to date to cultivate the product in other regions of the world
(including the U.S. and South America) have proven
unsuccessful.
Where is Gum Arabic Found?
Although quantities of grade one quality gum Arabic are
found in countries such as Chad and Nigeria, Sudan's gum Arabic
harvest accounts for more than 70 percent of the world's supply
of this product on an annual basis (and almost 90 percent of
the world's reliable supply). Currently, the only entity
authorized to export gum Arabic from Sudan is the ``Gum Arabic
Company,'' a trade coalition in which the Sudanese government
owns a 30 percent interest.
Why Must the United States Import Gum Arabic From Sudan?
As noted above, for many applications, there is simply no
substitute or alternative to gum Arabic. Thus, it is a
necessary commodity for entire industries, including the
pharmaceutical, beverage, flavoring, candy and printing
industries. A study conducted by the U.S. Department of
Commerce shortly after the embargo was imposed suggested that
adequate supplies of gum Arabic could be obtained from sources
other than Sudan. However, we believe that Commerce's analysis
is inaccurate in several ways. First, the Tariff Schedule
categorizes all gum Arabic under one tariff heading, making it
impossible to distinguish between high-grade gum Arabic from
Sudan and the low-grade gum utilized in different industry
applications that is available from a number of other
countries. Secondly, the Commerce analysis identifies European
countries as originating countries, when they in fact are
merely purchasing the Sudanese product and selling it to the
United States in a finished form. Finally, the U.S. data shows
a number of countries that have no natural source of the supply
as originating countries. These countries are not gum Arabic
growers, they are simply reselling the Sudanese product.
In fact, the U.S. government's own numbers speak for
themselves. According to the U.S. Census Bureau, in 1996, the
United States demand for gum Arabic was 22 million pounds.
Similar statistics show that the annual Chad crop is 13.2
million pounds per year, and Nigeria's is 4.4 million pounds.
Taken together, even if the U.S. manufacturers were able to
purchase all of the Chad and Nigerian crop (i.e. if European
competitors purchase no gum from Chad or Nigeria), the supply
would still fall short by 4.4 million pounds. Given the current
state of world production, there is simply no alternative to
importing the Sudanese product.
Is Gum Arabic an Important Sudanese Export to the United States?
For many applications, there is no substitute for gum
Arabic. It is therefore a very important product for the U.S.
At the same time, because only small amounts of gum Arabic are
necessary for most applications, total imports into the U.S.
are small and the importance to Sudan of exports to the U.S. is
small as well. On average, Sudan produces a total of 26,000
metric tons of gum Arabic per year. The United States imports
7,000 to 10,000 metric tons of the raw Sudanese product on an
annual basis. A majority of the remaining product is sold to
companies in France (the largest buyer) and England. In the
years before the U.S. embargo was imposed, the price of the
product ranged from $2,200/mt to $4,000/mt. U.S. purchases of
gum Arabic from Sudan amounted to $5.6 million through November
1997, $9 million in 1996 and $20 million in 1995.
What Has been the Effect of The ``Gum Arabic'' Embargo?
The Market for Grade 2 Gum. At the beginning of crop year
1999 (crop years span from October to October), French-based
gum Arabic manufacturers artificially increased the price that
U.S.-based manufacturers have to pay for Chadian Grade 2 gum
Arabic. First, they purchased a significant quantity of grade 2
material through their long-established connections in the
Chadian market. They then offered to purchase additional crude
material at 25 percent over the current market price, and
purchased a small amount of material at this price to
legitimize their offer. This caused all Chadian farmers to
expect a similar price. The final result was a 25 percent
increase in the amount that U.S. manufacturers have had to pay
for the Grade 2 material from Chad that we need to fulfill
existing contracts with end users. In contrast, the French have
been able to secure the balance of the material they require
from Sudan at the world market price. Since U.S. firms cannot
purchase Grade 2 raw material at the world price, the French
have been able to undercut U.S. firms when bidding for
contracts into the year 2000 and beyond.
The difficulties arising from the artificially inflated
price have been exacerbated by the fact that the Chadian Grade
2 crop is now in very short supply. Given that a sapling
requires 5 to 7 years before it may be tapped, it is unlikely
that Chad will be able achieve a significant increase in the
near future.
The Market for Grade 1 Gum. Our French and English
competitors have begun to use the U.S. embargo as a marketing
tool and have begun to poach into the domestic Grade 1 gum
Arabic market. Realizing that our Sudanese supply must be
running low, the French have identified customers who
specifically require Sudanese gum Arabic and have been able to
convince these firms that U.S. manufacturers will no longer be
a viable source of Sudanese material. They then have offered
cut-rate pricing and have been able to make small inroads into
a market that, prior to the embargo, had been dominated by U.S.
manufacturers. The French have also told end users that the
supplies held in the U.S. have deteriorated with the passage of
time, claiming it is best to get fresh Sudanese material
through Europe. Finally, they have questioned the origin of our
raw materials, suggesting that we may not be getting them
through legitimate channels.
No Reduction in Total Exports From Sudan. The embargo of
imports into the U.S. of gum Arabic from Sudan has had no
effect on Sudan's total exports. This has been confirmed to us
by the President of the Gum Arabic Company (``GAC'') and is
corroborated by a letter from GAC (copy attached) summarizing
exports of gum Arabic by the GAC in Sudan to various regions
around the world for the periods 1996, 1997, 1998 and 1999
(projected). Despite the imposition of the U.S. trade embargo
in November 1997, total exports of gum Arabic from Sudan in
1998 increased by 1,000 metric tons as compared to 1997.
The Fall in Exports to the U.S. Has Been Replaced by
Increased Exports to Europe. While total exports of gum Arabic
from Sudan have been unaffected by the embargo, the recipients
of this gum Arabic have shifted dramatically. The U.S. received
7,100 metric tons of gum Arabic from Sudan in 1997, but
received only 1,880 metric tons in 1998. In contrast, exports
to Europe increased by more than 3,000 metric tons in the same
period and are projected to increase by a further 2,000 metric
tons in 1999. This information thus confirms that the
unilateral U.S. trade embargo as it relates to gum Arabic has
no impact whatsoever on Sudan. Rather, it damages U.S.
companies while assisting their European competitors.
The information submitted by the GAC is corroborated by
trade statistics maintained by the European Union. We have
summarized and attached relevant European trade statistics
supplied to us by EUROSTAT. This information shows imports of
gum Arabic from Sudan into France and the United Kingdom for
1995, 1996, 1997 and 1998,\1\ as well as exports of gum Arabic
to the U.S. from France and the U.K. for the same periods. As
you will see, imports of gum Arabic from Sudan into the United
Kingdom more than doubled in 1998, while imports into France
increased by more than 80 percent. Exports to the United States
have also begun to increase. Clearly, if we are unable to
provide our customers with processed gum Arabic, our French and
U.K. competitors will have the ability to quickly supply them.
---------------------------------------------------------------------------
\1\ We obtained 1998 EUROSTAT data only for the period of January
through July. Accordingly, the 1998 data shown on the attachment is an
extrapolation from the trade data for the January through July period.
---------------------------------------------------------------------------
Conclusion
On April 28, 1999, Under Secretary of State Stuart
Eizenstat announced the Administration's new policy pursuant to
which licenses will be granted authorizing the commercial sale
of food, medicine and medical equipment to countries subject to
a unilateral United States embargo such as Sudan, Iran and
Libya. As explained by Under Secretary Eizenstat, the change in
policy is consistent with the basic objectives of the
Administration's overall sanctions reform effort: to ensure
that unilateral economic sanctions are effective and that the
costs to U.S. interests of imposing sanctions are minimized.
Application of these same criteria lead inevitably to the
conclusion that the ban on importing gum Arabic from Sudan
should be lifted. The prohibition has had no impact on total
Sudanese exports. Thus, as applied to gum Arabic, the Sudanese
sanctions are completely ineffective. At the same time, they
are imposing prohibitive costs upon United States companies,
like ours, that have grown through years of hard work by
importing raw gum Arabic from Sudan, processing it here in the
United States, and selling it to end users. If unilateral U.S.
economic sanctions have no impact upon the targeted government,
but threaten to bankrupt U.S. companies and disrupt the United
States economy, we submit that those particular sanctions
should be reviewed and revised. It may be that unilateral
economic sanctions can be justified where they achieve policy
goals. In this particular case, however, the effect of the
sanctions is the opposite of those intended. Companies like
ours should be allowed access to Sudanese gum Arabic
accordingly.
Sincerely,
Eric Berliner,
President
EUROPEAN TRADE IN GUM ARABIC
(Extract and summary of European trade data obtained from EUROSTAT)
------------------------------------------------------------------------
Imports of Gum Arabic from Sudan (Metric Tons)
-------------------------------------------------------------------------
France U.K.
------------------------------------------------------------------------
1995.............................................. 4,525 1,326
1996.............................................. 5,344 1,028
1997.............................................. 5,556 1,522
Jan-July 31, 1998................................. 5,864 1,944
1998 (Annualized)................................. 10,053 3,333
Percentage increase 1997-1998..................... 81% 119%
------------------------------------------------------------------------
------------------------------------------------------------------------
Exports of Gum Arabic to the U.S. (Metric Tons)
-------------------------------------------------------------------------
France U.K.
------------------------------------------------------------------------
1995.............................................. 2,570 741
1996.............................................. 3,030 448
1997.............................................. 4,390 738
Jan-July 31, 1998................................. 2,975 588
1998 (Annualized)................................. 5,100 1,008
Percentage increase 1997-1998..................... 16% 37%
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