U.S. GOVERNMENT PRINTING OFFICE

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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

(

For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ii

COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

SCOTT MCINNIS, Colorado

RON LEWIS, Kentucky

MARK FOLEY, Florida

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

LLOYD DOGGETT, Texas

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON TRADE

PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

AMO HOUGHTON, New York

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JENNIFER DUNN, Washington

WALLY HERGER, California

JIM NUSSLE, Iowa

SANDER M. LEVIN, Michigan

CHARLES B. RANGEL, New York

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

XAVIER BECERRA, California

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.

iii

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

(1)

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:]

2

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON TRADE

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721

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, antinarcotics, 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, exemptVerDate 20-JUL-2000 10:41 Nov 20, 2000 Jkt 060010 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 K:\HEARINGS\66565.TXT WAYS1 PsN: WAYS1
3

ing 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.

4

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 be submitted on an IBM

compatible 3.5-inch diskette in WordPerfect 5.1 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/WAYSlMEANS/’.

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 accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.

f5

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 onehalf 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.

6

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.

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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

8

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.

one witness who was invited to appear today at Mr. Rangel’s reMr. LEVIN. And I would also notice that one witness—note—that

f quest, 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

9

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

10

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 con- trols 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.’’

11

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.

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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

13

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.

terest of time, I would ask our witnesses to limit their oral testiChairman CRANE. We have a full schedule today, and in the inf mony 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

14

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:]

15

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 C

And I apologize to you, Earl. I think I called you Adam. But Earl

RANE. Thank you, Cal.

f Blumenauer is our next witness to testify.

16

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 onefifth, 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 ourVerDate 20-JUL-2000 10:41 Nov 20, 2000 Jkt 060010 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 K:\HEARINGS\66565.TXT WAYS1 PsN: WAYS1
17

selves 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 C

And now our final witness, George Nethercutt.

RANE. Thank you very much, Earl.

f 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 coVerDate 20-JUL-2000 10:41 Nov 20, 2000 Jkt 060010 PO 00000 Frm 00021 Fmt 6633 Sfmt 6602 K:\HEARINGS\66565.TXT WAYS1 PsN: WAYS1
18

sponsor 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

19

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.

20

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 higherthan-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.

statement will be made a part of the permanent record.

Chairman CRANE. Well, we thank you, George. And your written

f 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 reimpose 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

21

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

22

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.

23

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 examVerDate 20-JUL-2000 10:41 Nov 20, 2000 Jkt 060010 PO 00000 Frm 00027 Fmt 6633 Sfmt 6602 K:\HEARINGS\66565.TXT WAYS1 PsN: WAYS1
24

ples 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

25

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

26

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 agriVerDate 20-JUL-2000 10:41 Nov 20, 2000 Jkt 060010 PO 00000 Frm 00030 Fmt 6633 Sfmt 6602 K:\HEARINGS\66565.TXT WAYS1 PsN: WAYS1
27

culture, 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

28

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

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29

plies, 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

30

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

31

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

32

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.

questions here. We are apparently going to be going back in earlier

Thank you.

Chairman CRANE. Thank you. And let me ask you a couple quick

f 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 broadbased 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

33

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 counVerDate 20-JUL-2000 10:41 Nov 20, 2000 Jkt 060010 PO 00000 Frm 00037 Fmt 6633 Sfmt 6602 K:\HEARINGS\66565.TXT WAYS1 PsN: WAYS1
34

try 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.

35

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 nationalinterest-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.

36

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

37

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——

38

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?

39

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 caseby-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.

40

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.

41

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 teenage, 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.

42

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.

43

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,

44

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.

45

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.

46

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

47

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.

48

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.

49

[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,

50

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. H

Mr. Bowe.

OUGHTON. Thank you, Mr. Kinzer.

f 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.

51

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

52

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

53

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.

f54

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

55

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.

56

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.

57

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

58

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

59

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 Sanctions) 1996

Imports Share Imports Share Imports Share Imports Share Imports 

France ....................... 754,758 51 709,451 23 5,325,605 34 4,479,040 40 3,190,359 Sudan ........................ 0 0 2,097,000 68% 2,537,000 17% 3,564,140 33% 3,299,760 Chad .......................... 658,182 44.6% 157,600 5% 5,640,633 37% 2,425,189 22% 1,577,053 UK ............................. 24,151 1.6% 24,326 .79% 244,171 1.6% 282,374 2.6% 323,999 Nigeria ...................... 20,000 1.35% 80,000 2.60% 569,442 3.72% 676,349 6.2% 639,486 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

61

French Imports of Gum Arabic

[Quantity in Tons]

1998 1997 1996

Imports Share

[In percent] Imports Share[In percent] Imports Share[In 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

1998

1997

(Imposition of

Sanctions)

1996

Jan/Feb Jan/Feb

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

62

f63

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 opportuniVerDate 20-JUL-2000 10:41 Nov 20, 2000 Jkt 060010 PO 00000 Frm 00067 Fmt 6633 Sfmt 6602 K:\HEARINGS\66565.TXT WAYS1 PsN: WAYS1
64

ties 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 marketoriented 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 341⁄2 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 LockheedKhrunichev-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

65

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

66

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 LockheedKhrunichev-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.

67

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 spacebased 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

68

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 C

Mr. Hamod.

RANE. Thank you.

f 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.

69

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 kneejerk 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 hardnosed 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.

70

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.

71

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 shortterm 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

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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).

73

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.

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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.

f75

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.

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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 geostationary 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

77

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.

78

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 coldblooded 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

79

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 extraterritorially. 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 threepart 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.

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• 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.

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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.

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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

83

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 nationalsecurity 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

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1The 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.’’ 2More detailed information is provided in table 2–1 and in Appendix D.

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.

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).

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

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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 longterm 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

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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.

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3These 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.

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

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

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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,

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would provide a more comprehensive assessment and understanding of the shortand long term costs of sanctions on the U.S. economy.

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f96

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

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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 longlasting 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.

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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

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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

100

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 C

Dr. Haass.

RANE [presiding]. Thank you.

f 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 disVerDate 20-JUL-2000 10:41 Nov 20, 2000 Jkt 060010 PO 00000 Frm 00104 Fmt 6633 Sfmt 6602 K:\HEARINGS\66565.TXT WAYS1 PsN: WAYS1
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agreement 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.

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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

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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.

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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 C

Dr. Haass, wouldn’t you agree that experience has shown that it

RANE. Thank you, Dr. Haass.

f 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

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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.

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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

f 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.

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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-bysector 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.

f108

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.

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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 forwardlooking, 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

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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

fBusiness 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

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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.

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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 standalone 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.

fIMPORTERS 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

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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.

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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

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1We 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.

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.

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%

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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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