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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

 
                     USE AND EFFECT OF UNILATERAL 
                            TRADE SANCTIONS

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 27, 1999

                               __________

                             Serial 106-68

                               __________

         Printed for the use of the Committee on Ways and Means

                    U.S. GOVERNMENT PRINTING OFFICE
66-565 CC                   WASHINGTON : 2000
_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402

                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Trade

                  PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California              SANDER M. LEVIN, Michigan
E. CLAY SHAW, Jr., Florida           CHARLES B. RANGEL, New York
AMO HOUGHTON, New York               RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan                  MICHAEL R. McNULTY, New York
JIM RAMSTAD, Minnesota               WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington            XAVIER BECERRA, California
WALLY HERGER, California
JIM NUSSLE, Iowa

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 5, 1999, announcing the hearing..................     2

                               WITNESSES

U.S. Department of State, Hon. Stuart E. Eizenstat, 
  Undersecretary of State for Economic, Business, and 
  Agricultural Affairs...........................................    26
Congressional Budget Office, Richard D. Farmer, Ph.D., Natural 
  Resources and Commerce Division................................    96

                                 ______

American Business Council of the Gulf Countries, David A. Hamod..    68
Blumenauer, Hon. Earl, a Representative in Congress from the 
  State of Oregon................................................    16
Center for Strategic and International Studies, Sidney Weintraub.    77
Dooley, Hon. Calvin M., a Representative in Congress from the 
  State of California............................................    13
Frutarom, Inc., Shirley Christian................................    54
Gibbons & Company, Hon. Sam M. Gibbons...........................    40
Haass, Richard N., Brookings Institution.........................   100
Idaho Grain Producers Association, Keith Kinzer..................    47
Lockheed Martin Corporation, and Lockheed-Khrunichev-Energia 
  International, Inc., Hon. John N. McMahon......................    63
Nethercutt, Hon. George R., Jr., a Representative in Congress 
  from the State of Washington...................................    17
Small Business Exporters' Association, and Ellicott Machine 
  Corporation International, Peter A. Bowe.......................    50
United States International Trade Commission, Robert A. Rogowsky.    82

                       SUBMISSIONS FOR THE RECORD

American Bar Association, Section of International Law and 
  Practice, statement............................................   106
American Farm Bureau Federation, statement.......................   106
Electronic Industries Alliance, Arlington, VA, statement.........   108
European-American Business Council, Willard M. Berry, statement..   110
Frutarom, Inc., statement........................................   112
Importers Service Corporation, Jersey City, NJ, Eric Berliner, 
  letter and attachment..........................................   112
U.S. Chamber of Commerce, Willard A. Workman, statement..........     8

              USE AND EFFECT OF UNILATERAL TRADE SANCTIONS

                              ----------                              

                         THURSDAY, MAY 27, 1999

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 11:08 a.m., in 
room 1100, Longworth House Office Building, Hon. Philip M. 
Crane (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE

May 5, 1999

No. TR-8

                       Crane Announces Hearing on

            the Use and Effect of Unilateral Trade Sanctions

    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on the use and effect of unilateral 
trade sanctions. The hearing will take place on Thursday, May 27, 1999, 
in the main Committee hearing room, 1100 Longworth House Office 
Building, beginning at 11:00 a.m.
      
    Oral testimony at this hearing will be from both invited and public 
witnesses. Invited witnesses will include the Honorable Stuart E. 
Eizenstat, Undersecretary of State for Economic, Business, and 
Agricultural Affairs. Also, any individual or organization not 
scheduled for an oral appearance may submit a written statement for 
consideration by the Committee or for inclusion in the printed record 
of the hearing.
      

BACKGROUND:

      
    A number of U.S. laws and executive actions authorize unilateral 
economic or trade sanctions on other countries or entities for a 
variety of purposes, including: human rights, anti-terrorism, nuclear 
non-proliferation, political stability, anti-
narcotics, worker rights, and environmental protection. While these 
sanctions are imposed for foreign policy, national security, or other 
non-trade reasons, they have consequences on the U.S. economy in terms 
of lost trade opportunities for U.S. firms and workers. Studies have 
found that U.S. unilateral sanctions cost the U.S. economy $15 to $19 
billion per year in lost exports.
      
    In recent years, Congress has passed several unilateral trade 
sanctions limiting the ability of U.S. companies to trade with certain 
countries, including third party countries or entities involved in 
trade with sanctioned countries. For example, the Iran and Libya 
Sanctions Act of 1996 (P.L. 104-172) mandates sanctions against foreign 
investment in the petroleum sectors of Iran and Libya as well as 
exports of weapons, oil equipment, and aviation equipment to Libya. The 
Cuban Liberty and Democratic Solidarity Act (P.L. 104-114), commonly 
known as ``Helms-Burton'' or the Libertad Act, strengthened the U.S. 
embargo against Cuba and established sanctions against certain persons 
or entities in third countries involved in trade and investment in 
Cuba. Most recently, the International Religious Freedom Act of 1998 
(P.L. 105-292) was enacted to provide for the imposition of sanctions 
against countries engaged in a pattern of religious persecution.
      
    Other statutes provide discretionary or mandatory authority to the 
President to impose unilateral sanctions under certain circumstances. 
Among these statutes are the International Emergency Economic Powers 
Act (IEEPA, P.L. 95-223, Title II), the International Narcotics Control 
Trade Act (P.L. 99-570, Title 9), the International Security and 
Development Cooperation Act of 1985 (P.L. 99-83), and the Arms Export 
Control Act (AECA). Recent unilateral sanctions imposed by executive 
action under IEEPA and other statutes include those invoked against 
Burma (Mynamar) in May 1997 and Sudan in November 1997. After India and 
Pakistan tested nuclear devices in May 1998, the President implemented 
sanctions mandated under the AECA. Subsequently, Congress passed 
legislation, P.L. 105-194, exempting for one year AECA restrictions on 
financing for food and agricultural exports. In November, President 
Clinton eased some economic sanctions using the one-year waiver 
authority given to him under the Omnibus Appropriations Act for fiscal 
year 1999 (P.L. 105-277).
      
    On April 28, 1999, President Clinton announced a formal policy 
change in the way unilateral sanctions are imposed under executive 
action. Specifically, the policy change exempts commercial sales of 
agricultural commodities and products, medicine, and medical equipment 
from new unilateral economic sanctions regimes unless doing so is in 
the national interest. With respect to currently embargoed countries, 
the President also approved a modification to current licensing policy 
to permit, to the extent permitted by law, the case-by-case review, 
according to certain specified criteria, of proposals for commercial 
sales of agricultural commodities and products, medicine, and medical 
equipment to Iran, Libya, and Sudan.
      
    In the 106th Congress, Chairman Crane, together with 72 bipartisan 
cosponsors, introduced H.R. 1244, the ``Enhancement of Trade, Security, 
and Human Rights Through Sanctions Reform Act,'' to provide a 
procedural framework for the consideration of future legislative and 
executive sanctions. In addition, H.R. 1244 would amend the AECA to 
provide permanent waiver authority to the President with respect to the 
sanctions imposed against non-nuclear countries that conduct nuclear 
tests.
      
    In announcing the hearing, Chairman Crane stated: ``In recent 
years, we have seen a significant increase in the tendency to impose 
unilateral trade sanctions in the pursuit of foreign policy or other 
non-trade objectives. Often it is hard to see any tangible results of 
the sanctions, except in terms of lost opportunities for U.S. exporters 
to the benefit of our foreign competitors in the global market and to 
the detriment of our businesses, workers, and consumers. Before we 
impose unilateral sanctions in the future, we should have a full 
understanding of their ramifications and the probability that they will 
produce the desired results. Moreover, we should fully explore the 
possibility of multilateral sanctions before acting unilaterally to 
enhance the likelihood of achieving our goals. I look forward to this 
opportunity to learn more about the implications of U.S. unilateral 
trade sanctions on U.S. economic interests.''
      

FOCUS OF THE HEARING:

      
    The focus of the hearing is to examine the use of U.S. unilateral 
trade sanctions, including those imposed by legislative and executive 
action. The Subcommittee will also assess the impact of such sanctions 
on the U.S. economy, businesses, workers, and consumers, as well as 
whether recent trade sanctions have achieved their stated goals. 
Finally, the Subcommittee will take testimony on the procedural 
framework proposed in H.R. 1244 to govern the consideration of future 
unilateral economic sanctions to ensure that they actually advance U.S. 
interests.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Traci Altman or Pete Davila at (202) 225-1721 no later than the close 
of business, Thursday, May 20, 1999. The telephone request should be 
followed by a formal written request to A.L. Singleton, Chief of Staff, 
Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515. The staff of 
the Subcommittee on Trade will notify by telephone those scheduled to 
appear as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee on Trade staff at (202) 225-6649.
      
    In view of the limited time available to hear witnesses, the 
Subcommittee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing. All persons requesting to be heard, whether they are scheduled 
for oral testimony or not, will be notified as soon as possible after 
the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies, along with 
an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, of their 
prepared statement for review by Members prior to the hearing. 
Testimony should arrive at the Subcommittee on Trade office, room 1104 
Longworth House Office Building, no later than Tuesday, May 25, 1999. 
Failure to do so may result in the witness being denied the opportunity 
to testify in person.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit at least six (6) 
single-spaced copies of their statement, along with an IBM compatible 
3.5-inch diskette in WordPerfect 5.1 format, with their name, address, 
and hearing date noted on a label, by the close of business, Thursday, 
June 10, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Trade office, room 1104 Longworth House 
Office Building, by the close of business the day before the hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
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/WAYS__MEANS/'.

      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                

    Chairman Crane. All right, I think we will come to order 
and proceed with our hearing this morning.
    We are going to be interrupted, I am told, by a vote in 
about one-half hour on the rule on the floor, and then we will 
reconvene after that and proceed.
    This is a hearing of the Subcommittee on Trade on the use 
and effect of unilateral trade sanctions. In recent years, 
there has been a growing tendency by both the Congress and the 
executive branch to impose unilateral trade sanctions to 
enforce foreign-policy or other non-trade goals.
    There is little evidence, however, to suggest that 
sanctions have achieved their stated goals. Instead, the use of 
sanctions has translated into billions of dollars in lost 
opportunities for U.S. exporters to the benefit of European, 
Japanese, and other foreign competitors, whose home governments 
have not bound them by similar sanctions.
    And, in fact, I saw a recent report that it is about $20 
billion a year that we are losing in trade because of the 
unilateral sanctions and thousands and thousands of high-wage 
jobs here in the United States.
    Unilateral sanctions have long-term ramifications for U.S. 
firms and workers in terms of ceding market shares to our 
foreign competitors and adversely affecting the reputation of 
the United States as a reliable supplier of goods and services. 
I believe that the better policy is to pursue our goals through 
multilateral fora with our allies and trading partners.
    By developing a consensus approach to changing the 
offending behavior of the targeted government, we increase the 
likelihood of success and ensure that the full brunt of the 
sanctions is felt by the targeted government. Experience has 
shown us that before we impose unilateral sanctions, we should 
think long and hard about the direct effect of such sanctions 
on the U.S. economy and the likelihood of success if we act 
alone.
    Earlier this year, 16 Members of the Ways and Means 
Committee, including Chairman Archer, joined me, Congressman 
Dooley, and Congressman Manzullo in sponsoring bipartisan 
legislation to provide a commonsense framework for the 
consideration of future or unilateral trade sanctions. This 
legislation, H.R. 1244, the Enhancement of Trade, Security, and 
Humans Rights Through Sanctions Reform Act, would not prohibit 
the imposition of trade sanctions, but it would establish a 
more deliberative and disciplined approach to U.S. sanctions 
policy. We currently have 90 cosponsors.
    Specifically, H.R. 1244 would ensure that Congress and the 
Administration have adequate information about the likely 
effectiveness, as well as economic and humanitarian costs, of a 
proposed sanction. Moreover, the bill would provide for a 
detailed analysis of whether the proposed sanction is the best 
tool for achieving U.S. objectives and would establish regular 
reporting and sunset 
requirements if a sanction is imposed.
    Finally, the bill would provide permanent waiver authority 
to the President under the Glenn amendment, the provision of 
law which required the President the impose sanctions against 
India and Pakistan last year.
    Overall, I believe that the framework provided by H.R. 1244 
would allow us to pause and examine the impact that unilateral 
sanctions would have before we rush into what may be a 
counterproductive effort.
    And I would now like to recognize Mr. Levin--here, let me 
remove that.
    [Chairman removes paper from Mr. Levin's nameplate.]
    Mr. Levin. What did that say?
    Chairman Crane. It said, ``Mr. Gibbons, Chairman.'' 
[Laughter.]
    I recognize Mr. Levin, the Ranking Member of the Trade 
Subcommittee for an opening statement.
    Mr. Levin. Well, Mr. Chairman, I am glad we have called 
this--you have called this hearing today on this very important 
subject of unilateral trade sanctions. And I am pleased to see 
that we have a very distinguished group of witnesses who will 
help us with this topic, including several of our colleagues, 
including, as you indicated with your sign, the former chairman 
of our Committee. I think he deserves better than a paper sign. 
[Laughter.]
    And the Deputy Secretary of the Treasury-designate Stuart 
Eizenstat.
    I know that each of our witnesses has given a great deal of 
thought as to how we use sanctions as instruments of foreign 
policy and how they affect the American economy. In conducting 
foreign policy, our country relies upon a wide range of tools. 
At the one end of the spectrum is simple jawboning; at the 
other is the use of military force.
    In between is a variety of diplomatic and economic 
incentives and deterrents. Being able to select from an array 
of instruments is surely essential to the pursuit of a 
sophisticated and effective foreign policy, but at the same 
time, we must recognize that there are costs associated with 
whatever instruments we employ.
    As I know some of today's witnesses will tell us, when it 
comes to trade sanctions, the costs are often difficult to 
quantify. It is not, though, simply a question of lost 
purchases or sales for U.S. enterprises. Sanctions may mean 
lost opportunities to develop lucrative business relationships 
with enterprises in the targeted country as well as with 
enterprises in third countries that wish to do business.
    They may also mean increased legal costs for companies 
seeking to navigate complex sanction regimes. The ability of 
U.S. companies to do business in a formally sanctioned country 
also, once those sanctions have been lifted, may entail higher 
than usual startup costs. And the simple unpredictability that 
comes with some sanctions may be very costly.
    The fact that these sanctions may come at a cost to 
particular U.S. businesses and to the U.S. economy in general 
does not mean they should never be used. However, we should 
take those costs into account in deciding whether and how they 
should be utilized. And we should weigh those costs against the 
goals we are seeking to accomplish and the likelihood that they 
can be accomplished.
    Unfortunately, it seems that thorough cost-benefit analysis 
does not always accompany the imposition of a new sanction. 
This is suggested by the proliferation of trade sanctions in 
recent years. And we hear testimony in October 1997 from Mr. 
Eizenstat on that score.
    Additionally, in recent years, we have seen a growing 
number of State and local sanctions, usually in the form of 
selective purchasing laws, affecting U.S. trade relations.
    With the end of the cold war and the increasing 
globalization of the economy, it is understandable that trade 
sanctions have become a more attractive tool of foreign 
economic policy.
    Recognizing the use of this tool, we need to assess what 
guidelines are or should be followed governing their use. I 
expect that the witnesses testifying today will offer 
suggestions on how to do that, and we look forward to 
discussing this with them.
    Mr. Rangel will be here later, I believe. He has been 
detained. And I would ask that his statement be entered into 
the record.
    Chairman Crane. Without objection.
    [The opening statement of Mr. Rangel follows:]

Statement of Hon. Charles B. Rangel, a Representative in Congress from 
the State of New York

    Mr. Chairman, thank you for holding today's hearing on this 
important topic. As you know, I have long been interested in 
the effectiveness, or lack thereof, of using unilateral trade 
sanctions. I believe that there are probably some limited 
instances where unilateral trade sanctions are warranted. The 
imposition of unilateral sanctions in South Africa was a prime 
example of when it is appropriate to use such tools. In that 
case, we and the rest of the world held fast to the belief that 
such sanctions were morally and universally needed to overcome 
the injustices of apartheid.
    As the South Africa experience shows, trade sanctions are 
sometimes useful and necessary in very limited situations. When 
used in appropriate circumstances, they can be effective in 
reaching the intended results. However, in the vast majority of 
instances where unilateral trade sanctions are applied, I 
believe that the intended objectives sought by the imposition 
of sanctions is both ambiguous and ineffective. Cuba is a prime 
example of sanctions simply not accomplishing the intended 
results.
    The application of trade sanctions in Cuba was originally 
intended to topple the communist government. It was never 
intended to harm women, children or the elderly. Unfortunately, 
the stated objective has not been met. Fidel Castro is alive 
and well and still in power, notwithstanding our best efforts 
to implement sanctions. What the unilateral sanctions have done 
is to harm the weakest and most vulnerable members of Cuba's 
society. Women, children and the elderly are the ones that are 
suffering from our trade sanction policies, not Fidel Castro.
    In January, the Administration agreed to ease some of the 
restrictions placed on our ability to interact and trade with 
the Cuban people, out of recognition that we must stop hurting 
the very people we are trying to free from this repressive 
regime. The new policy eases restrictions on travel to and from 
Cuba, and finally re-establishes direct mail service between 
our two countries. These may seem like small measures, but they 
will have a big impact. It is only by re-establishing ties with 
the people of that country--by reaching out to them, rather 
than isolating them--that we will bring about an end to the 
Castro regime.
    As part of its new policy, the Administration also 
announced that it would allow commercial sales of agricultural 
commodities to non-governmental entities in Cuba. The 
Administration's decision to stop using ``food as a tool of 
foreign policy'' is the right one. Unfortunately, the announced 
policy is lacking in two key areas. As a result, I believe the 
intended benefits of this policy change will not be realized by 
the people of Cuba.
    First, U.S. banks will not be allowed to provide financing 
for commercial sales of food. I question whether the sales will 
happen unless we allow financing for these limited 
transactions.
    Second, sales may be made only to private entities. Again, 
this limitation creates a significant obstacle to these sales 
actually happening, given that there is very little, if any, 
private ownership in Cuba, including of farms. In contrast to 
its new Cuba policy, the Administration announced that under a 
new sanctions policy for other countries, such as Iran, Libya 
and Sudan, it will allow agricultural sales to parastatal 
entities. I do not understand why we have one policy for Cuba 
and another for these other countries. If our intent is to 
ensure that the people of these countries have the food they 
need to survive, then we must change our policies in a way that 
makes that happen. Symbolic gestures will not feed these 
people.
    Moreover, while the Administration's recent efforts on Cuba 
are a step in the right direction, I think we need to do more 
now. The use of economic sanctions in Cuba has many drawbacks. 
Unilateral sanctions have reduced American corporate 
competitiveness, and resulted in a needless backlash of anti-
American sentiment among our allies. Further, our isolationist 
policy toward Cuba is inhibiting our ability to work with that 
country on drug interdiction efforts. Cuba wants to stop the 
flow of drugs from Central and South America through their 
country and into ours, but it cannot because it lacks the funds 
and equipment it needs. And we cannot give them what they need 
because we are too focused on isolating rather than helping.
    There is a better way of bringing about political change in 
Cuba. Engagement, rather than utilization of an ineffective 
unilateral trade sanction, is the better approach. I believe 
it's time we all took a good dose of common sense and tried 
that approach.
    I have offered two pieces of legislation, H.R. 229, which 
would end the useless embargo we have against Cuba, and H.R. 
230, which would exempt food, medicines, medical supplies, 
medical instruments, and medical equipment from the embargo. At 
the heart of both pieces of legislation is the goal of helping 
the most vulnerable members of Cuban society. For once, Mr. 
Chairman, let us be guilty of doing the right thing at the 
right time. I hope you will consider holding another hearing to 
consider these proposals. I would be honored to work closely 
with you in that endeavor.

                                

    Mr. Levin. And I would also notice that one witness--note--
that one witness who was invited to appear today at Mr. 
Rangel's request, Willard Workman of the U.S. Chamber of 
Commerce, will not be able to appear due to scheduling 
conflicts. And his written statement is submitted for the 
record.
    Chairman Crane. Without objection.
    [The prepared statement follows:]

Statement of Willard A. Workman, Vice President, International U.S. 
Chamber of Commerce

                              Introduction
    The U.S. Chamber is the world's largest federation of 
business organizations, representing more than three million 
businesses and professional organizations of every size, in 
every business sector and in every region of the country. The 
Chamber serves as the principal voice of the American business 
community. An important function of the Chamber is to represent 
the interests of its members before the U.S. Congress, the 
Executive Branch, the independent agencies of the federal 
government, and the federal courts. The Chamber welcomes this 
opportunity to present its views on the use and effect of 
unilateral economic sanctions.
         Engagement, Not Isolationism, Fosters Positive Change
    The Chamber is second to none in its quest for basic human 
rights and political and economic freedom. No reasonable or 
moral person can countenance the persecution, torture and other 
atrocities that are committed around the world against our 
fellow human beings, whatever the political, economic, social 
or religious pretext. Basic human rights are core American 
values. We believe just as strongly in the need to combat other 
man-made scourges, such as terrorism, weapons proliferation, 
and drug trafficking, that plague us. But we do not believe 
that unilateral economic sanctions are an appropriate approach 
toward solving these problems.
    Throughout the U.S. and around the world, individual 
liberty and free enterprise go hand in hand. By their very 
presence and operations, American companies and the expatriate 
communities that depend on them contribute mightily to 
economic, political and religious freedom in their host 
countries. Continuing U.S. company presence and engagement 
abroad is critical to the inculcation of American civic values. 
Evidence of the positive effects of the U.S. presence abounds 
worldwide.
    In 1980, nearly every country in Latin America, lived under 
authoritarian regimes and closed economies. But after years of 
economic liberalization and efforts to attract foreign 
investment--much of it from the United States--every nation in 
Latin America except Cuba is now democratic. While there remain 
significant problems and challenges to these democratic systems 
in many countries, there is no question that political and 
economic liberalization have proceeded together. And our 
unilateral policy toward Cuba--the hemisphere's last holdout 
against democratic change--has served to reinforce rather than 
weaken Castro's dictatorship, and to discourage, rather than 
encourage, the democratic changes we all seek.
    In eastern Europe and the former Soviet Union, a 
combination of economic collapse and a continuing quest for 
economic, political and social freedom led to the end of 
generations of totalitarian Communist rule. Considerable credit 
for this victory is due to the Catholic Church under Pope John 
Paul II's leadership and the Solidarity labor movement in 
Poland. But at the same time unrelenting exposure to western 
culture, economics and politics played a significant role. 
Through its business council network, the Chamber federation 
and the U.S. business community have had an organized presence 
in the former Soviet bloc since at least the Brezhnev era. And 
it is through networks such as these that western society is 
best able to maintain a lifeline to the forces of reform and 
freedom in that part of the world. While progress in the region 
is clearly uneven, substantial reforms have taken place in the 
Czech Republic, Hungary, Poland and Slovenia. And despite 
enormous problems that persist to this day, Russia has cast off 
seven decades of Communist rule and continues to move forward 
in its own way toward modernity.
    In Asia, U.S. trade and investment played significant roles 
in fostering the transition away from authoritarianism and 
toward democracy in Taiwan and Korea. And in China, U.S. 
business presence has resulted in greater job choice for 
workers, higher wages and living standards, better workplace 
safety and health standards, improved education and training 
opportunities, and a host of other benefits sought by workers 
in the U.S., China and all over the world. And as hundreds of 
millions of Chinese people continue to migrate from the 
interior to the coastal regions to take advantage of these 
imported economic opportunities, the potential for expanded 
U.S. economic, social, cultural influence will be historic. 
These workers will make more money, read more western books and 
periodicals, and receive greater exposure to western ideals of 
social, economic and political reform than their compatriots 
who remain isolated. Unilateral restrictions on U.S. firms in 
China not only imperil U.S. competitiveness in that country, 
but also undermine a principal source of human progress for 
nearly one-fourth of the world's people.
    In southern Africa, it is precisely the multilateral 
character of sanctions against South Africa--rather than a 
unilateral, go-it-alone approach--that permitted those 
sanctions to have some positive effect. And it should not be 
forgotten that the de Klerk regime's concerns over increasing 
internal violence were no less important than external economic 
sanctions as a motivating force for South Africa's own 
homegrown version of glasnost.
                    Unilateral Sanctions Do Not Work
    Recent history is replete with U.S. actions to terminate, 
restrict, or impose unilateral conditions on commerce with 
other nations for the stated purpose of penalizing various 
aspects of other countries' behavior. The United States has 
imposed some form of economic or trade sanctions on other 
countries more than 120 times in the past 80 years. Over half 
of these have been imposed in the last five years. Currently, 
the U.S. maintains unilateral economic sanctions of one kind or 
another against over seventy countries.
    And in virtually all meaningful instances, those actions 
failed to alter materially the target countries' objectionable 
behavior. Instead, erstwhile ``allies'' castigate U.S. foreign 
policy, while the regimes we target gain support and U.S. 
businesses and their workers bear the burden of market 
opportunities lost to Asian and/or European competitors, whose 
own countries have chosen not to embark on similar unilateral 
courses of action. Various studies have indicated that 
unilateral sanctions have cost the American economy between $15 
billion and $20 billion a year in lost export sales, and up to 
250,000 export-related jobs. And this may be an understatement, 
as it is often difficult to quantify additional business 
opportunities that were lost because they were never pursued in 
the face of unilateral sanctions.
    Moreover, unilateral economic sanctions imposed by the 
United States often extract horrific costs when measured by the 
adverse effects on the quality of life of the most vulnerable 
citizens in targeted countries. The embargo against Cuba is a 
case in point: despite a nearly four-decades-long embargo 
against that country, Castro is not only still well-established 
as head of state, but we maintain restrictions on the sale of 
food and medicine to that country that we don't maintain 
against much worse regimes, such as Iraq and North Korea.
    Other major industrial countries that find themselves 
targeted by U.S. sanctions are not sitting still for them. The 
European Union has made clear on several occasions that it will 
not remain idle in the event sanctions are imposed on its 
companies that do business in or with Cuba, Iran and Libya.
    In November 1997, Russia's huge natural gas consortium 
Gazprom--which controls 40 percent of the world's natural gas--
cancelled a $750 million Eximbank deal that would have 
permitted U.S. equipment producers to supply a $2 billion 
Gazprom gas field development project. Gazprom took this action 
because U.S. policy objected to the fact that the project is in 
Iran. Yet, participating French, Russian and Malaysian 
companies faced no similar constraints, and U.S. sanctions 
policy will do nothing to stop the project.
    The continuing unilateral U.S. embargo of Cuba--which was 
codified and expanded with the 1996 enactment of the Helms-
Burton legislation--has not only failed to weaken that 
country's Communist regime, it has actually permitted that 
regime to obtain quasi-martyr status by permitting its subjects 
to focus on an external enemy, namely, the United States. With 
the enactment of Helms-Burton, the Cuba embargo has mutated 
into a secondary boycott of a variety of Canadian, European and 
other interests -some of whose governments have actually passed 
laws blocking their citizens from complying with this U.S. law 
in their countries.
    In south Asia, the U.S. threat and subsequent application 
of automatic, non-discretionary sanctions failed to deter 
either India or Pakistan from taking nuclear proliferation 
steps each regarded as indispensable to its national security. 
Worse, without flexibility and discretion, the U.S. government 
found itself in a very weak position to engage the two states 
in order to stabilize one of the most dangerous conflicts on 
earth.
    Opposition to U.S. sanctions policies is not limited to 
business leaders, policy analysts and technocrats. During his 
1998 trip to Cuba, Pope John Paul II made very clear his 
humanitarian opposition to the U.S. embargo against that 
nation. Similarly, with respect to China, the Dalai Lama has 
spoken on several occasions of his preference for engagement as 
opposed to efforts to isolate that country. And prior to his 
1998 visit to the United States, South Korean President Kim Dae 
Jung called for a relaxation of the multilateral embargo 
against North Korea, on the grounds that those sanctions have 
extracted major costs from the North Korean people without 
achieving significant changes in their government.
        State and Local Economic Sanctions Are Unconstitutional
    As problematic as federally-imposed unilateral sanctions 
are, they are by no means the only problems with which we must 
come to grips.
    Increasingly, state and local governments are seeking to 
express their displeasure at developments in other countries by 
punishing dozens of them--and their industries and companies--
for a variety of human rights, labor, environmental and other 
policies and practices. Dozens of state and local measures are 
either on the books or awaiting action which, among other 
things, would restrict local and state procurement from and/or 
investment in companies doing business with targeted countries.
    On April 30, 1998 the National Foreign Trade Council 
(NFTC), an association representing some 550 companies with 
substantial international interests, filed a lawsuit 
challenging the constitutionality of a Massachusetts law 
prohibiting state agencies and authorities from contracting 
with companies that do business in Burma. Doing business is 
defined very broadly and would, for example, include U.S. 
subsidiaries of foreign parents. This means, for example, that 
a U.S. subsidiary of a Japanese parent could be subject to 
sanctions--even if the U.S. subsidiary had no connection to 
Burma--if the Japanese parent was doing business in Burma, as 
allowed under Japanese law.
    The NFTC's challenge to the ``Massachusetts Burma law,'' as 
it has come to be known, was based on three principles:
    1.  Responsibility for the conduct rests with the federal 
government, and should rest as such, as it is the entire United 
States that is targeted for criticism or retaliation by other 
countries as a consequence of foreign policy actions taken by 
states.
    2.  The Massachusetts Burma Law also violates the Foreign 
Commerce Clause of the United States Constitution, which 
prohibits state laws that discriminate against foreign 
commerce, burden foreign commerce, or impede the federal 
government's ability to ``speak with one voice when regulating 
commercial relations with foreign governments.''
    3.  The Massachusetts Burma law conflicts with and 
undermines more limited and responsible federal efforts to 
bring about desired changes in Burma's repressive internal 
policies. Significantly, those federal efforts include a 
commitment to work with other countries in the region, as well 
as trading partners, to achieve the desired changes.
    The U.S. Chamber views the proliferation of such state and 
local initiatives around the country with alarm. For this 
reason, we were pleased to endorse the NFTC effort via amici 
curiae briefs we filed in July 1998 and again in March 1999. On 
November 4, 1998, the U.S. District Court for Massachusetts 
agreed with the NFTC and the Chamber and struck down the 
Massachusetts law. Application of a patchwork quilt of often 
inconsistent sub-federal sanctions on top of our already flawed 
federal regime--which will prompt numerous, as yet undefinable 
and hostile foreign reactions--threatens to do incalculable 
additional harm to our national interests.
              Recommended Changes In U.S. Sanctions Policy
    U.S. economic sanctions policy is in clear need of 
substantial revision. The failure of the automatic sanctions we 
imposed on India and Pakistan in the wake of their nuclear 
tests is but one indicator of this need. The current system 
simply cannot work. Accordingly, to begin coming to terms with 
the global realities of the 1990s and beyond, we should refrain 
from using unilateral economic sanctions other than to counter 
direct threats to the national security of the United States. 
There is no evidence that such sanctions have achieved their 
stated objectives. The U.S. experience is that the only 
measurable consequences of unilateral economic sanctions have 
been harmful to American businesses and their workers. Congress 
and the Administration should also enact legislation and take 
other actions as needed to:
    Mandate the application of a series of ``cost-benefit'' 
measurements and evaluations that must be considered prior to 
implementation of economic sanctions. U.S. laws currently 
require that we consider the environmental impact of a wide 
variety of economic projects and initiatives. U.S. law 
identifies preservation of endangered species, maintenance of 
clean air and water and other objectives as of such importance 
that other activities should be placed on hold if they might 
run counter to these objectives. Yet we maintain almost no 
comparable standards for protecting our national interests from 
potentially unwise foreign policy actions. It makes no sense 
for us to assign lower priority to vital U.S. international 
interests than we do to our domestic environmental interests. 
Accordingly, we should establish and enforce a series of 
criteria that require consideration of costs and benefits 
before sanctions are imposed. Such criteria should include: (a) 
will the sanctions work; (b) what are the resultant economic 
costs to U.S. industry and agriculture; (c) will the sanctions 
result in a serious backlash against other U.S. humanitarian, 
security, and foreign policy objectives; and (d) have other 
policy alternatives such as multilateral initiatives or 
diplomacy, been tried and failed? Bipartisan legislation 
introduced by Chairman Phil Crane, the ``Enhancement of Trade, 
Security, and Human Rights through Sanctions Reform Act'' (H.R. 
1244), and similar legislation (S. 757) introduced by Senator 
Richard Lugar, are models for achieving these objectives. 
Economic sanctions activity that should be subject to Crane-
Lugar criteria includes, but is not necessarily limited to: (a) 
prohibitions or restrictions on export or import trade with 
target countries; (b) prohibitions on investment or other types 
of participation in target countries; (c) denial of access to 
the benefits of trade and investment development programs, such 
as Eximbank, OPIC, the Trade and Development Agency or other 
trade agencies identified in the annual National Export 
Strategy report; (d) opposition to World Bank, International 
Monetary Fund and other multilateral assistance programs in 
target countries; (e) secondary boycotts or other penalties 
against third countries which permit their nationals to do 
business in U.S.-targeted countries; (f) government application 
of ``codes of conduct'' to U.S. company behavior; and (g) 
unilateral prohibitions or restrictions on U.S. travel by 
nationals of targeted countries or third countries doing 
business with targeted countries.
    Make China's ``Normal Trade Relations'' (NTR) status 
permanent. Termination of Normal Trade Relations (previously 
known as ``Most-Favored-Nation'' or MFN status) with China 
would amount to a draconian economic sanction against the 
world's largest nation and one of its fastest growing 
economies. U.S. tariffs on imported Chinese products would 
skyrocket and Chinese retaliation would be certain and severe. 
Our Asian and European competitors would fill in the vacuum 
left by American business and we would forfeit countless 
opportunities for leaving an American imprint on the 
development of China's rapidly evolving society. Congress did 
the right thing last summer when it recognized ``Most-Favored-
Nation'' status as normal trade treatment which we provide 
virtually to every trading nation. Revised U.S. laws reflect 
this changed designation. Still, the annual NTR renewal process 
itself casts a continuing pall over China-U.S. commercial 
relations--without regard to the actual outcome. Pending China-
U.S. deals are in effect held up or suspended for weeks before 
each annual China vote until it can be confirmed that the vote 
will be ``positive.'' It is time to enact such legislation as 
may be necessary to make permanent that status.
    Lift the embargo on Cuba. The ``Cuban Democracy Act'' 
(incorporated into Public Law 102-484) and the ``Cuban Liberty 
and Democratic Solidarity (LIBERTAD) Act of 1995'' (Public Law 
104-114) should be repealed. Both statutes are notable for 
their isolating effects on U.S. foreign policy and continuing 
failure to weaken the Castro regime. The latter, more severe 
statute, often referred to as the ``Helms-Burton'' law, 
codifies and goes beyond the three-decades-old unilateral U.S. 
embargo of Cuba. However, it has failed to weaken Castro's 
regime as intended. But its extraterritorial provisions 
providing for lawsuits and entry restrictions against 
foreigners doing certain business in Cuba have undermined U.S. 
interests and reputations in Canada, Europe and elsewhere. As 
noted above, both Canada and Europe have enacted blocking 
statutes which prohibit compliance with the Helms-Burton law in 
their countries.
    Repeal section 211 of the fiscal year 1999 supplemental 
appropriations law (Public Law 105-277). Enacted on October 21, 
1998, this provision prevents enterprises that operate ``in 
connection with'' property confiscated by the Cuban government 
from registering a trademark in the U.S. or from pursuing any 
enforcement of its trademark or trade name by way of treaty 
rights, registration rights or common law rights--regardless of 
whether the prior owners of such marks maintained them in the 
United States in conformity with this country's laws. This 
provision prevents U.S. courts from enforcing the referenced 
Cuban enterprises' common law rights against false advertising, 
trademark or trade name violations, inaccurate product 
descriptions, etc. Therefore, with respect to Cuba, U.S. courts 
are now prevented from enforcing treaty rights established 
under the 1931 Inter-American Convention on Trademarks, to 
which both the U.S. and Cuba are signatories. As a result, and 
under public international law, Cuba is now relieved of its 
1931 treaty obligations to recognize U.S. marks registered in 
Cuba. Dozens of U.S. companies have been therefore identified 
as registrants of such marks and, as such, are in danger of 
losing intellectual property protections to which they were 
entitled under the 1931 Convention. Section 211's implications 
extend to non-U.S. firms as well. On April 13, Judge Shira 
Scheindlin of the U.S. District Court for the Southern District 
of New York ruled that Section 211 prevented her recognizing a 
Cuban-French joint venture's right to a trade name they 
contended was being misused by a Bermudan company defendant.
    Lift restrictions on the sale of food, medicine and medical 
supplies, medical instruments, and medical equipment. As noted 
above, U.S. unilateral economic sanctions do not work, and are 
often even injurious to U.S. national interests. But such 
sanctions are especially pernicious when they harm women, 
children and other particularly vulnerable citizens of another 
country, without achieving the objectives we are seeking. There 
can be no moral or practical basis for denying our fellow human 
beings the opportunity to purchase or receive donations of food 
and medicine in the absence of a clear and present danger from 
those persons to U.S. national security interests. There are 
several bills pending in Congress which would address this 
issue either in individual countries (e.g., Cuba) or worldwide 
and should receive favorable consideration.
    Repeal requirements for unilateral sanctions against Iran 
and Libya as contained in the ``Iran and Libya Sanctions Act'' 
(Public Law 104-472). Among other things, this law (often 
referred to by its acronym ILSA) directs the President to 
impose extraterritorial U.S. sanctions against foreign firms 
engaged above a certain financial threshold in the development 
of those countries' petroleum sectors. National security waiver 
authority is available. Nevertheless, like the Helms-Burton 
law, ILSA has unnecessarily and counterproductively irritated 
Europe-U.S. relations without achieving the results its 
advocates have sought. At the same time, ILSA has added to the 
pall of unreliability that U.S. firms operate under, through no 
fault of their own.
                               Conclusion
    As the twenty-first century approaches, global competition 
becomes more acute, and U.S. leadership becomes ever more 
critical, we as a nation must take stock of our mission, our 
capabilities and our limitations. Despite numerous conflicts 
and differences we share with other nations, the United States 
is still both the sole remaining superpower and an inspiration 
to billions of our fellow human beings. The fall of Communism 
demonstrates that the market-based American approach to 
prosperity is critical to our continuing status, power and 
influence. But leadership requires a willingness of others to 
follow. If we use our clout to engage other societies as they 
aspire to our freedoms and accomplishments, we can grow and 
lead indefinitely. But if we insist on adhering to a 
restrictive, isolationist model that has no relevance to the 
global community, other nations will look for other paths -
paths which may lead not only to tragic consequences for them, 
but diminished horizons for us as well.
    Going it alone no longer works, if it ever really did. As 
President Reagan was fond of repeating, we have a choice: lead, 
follow or get out of the way. Through engagement, we can lead. 
With unilateral sanctions, we encourage others to push us out 
of the way.

                                

    Chairman Crane. We have a full schedule today, and in the 
interest of time, I would ask our witnesses to limit their oral 
testimony to 5 minutes each. We will include your entire 
written statement as a part of the permanent record.
    Our first panel will consist of our colleagues, Congressman 
Cal Dooley of California, Congressman Adam Blumenauer of 
Oregon, and we will get Congressman George Nethercutt of 
Washington. He is testifying before another Committee right 
now. But he will join us later.
    And all of them have been working extensively on this issue 
and are cosponsors with me of H.R. 1244.
    And with that, I yield to you, Mr. Dooley.

    STATEMENT OF HON. CALVIN M. DOOLEY, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Dooley. Well, thank you, Mr. Crane and Mr. Levin. I am 
delighted to be joining you here today to testify in support of 
H.R. 1244. And I am pleased that we have been able to generate 
a broad, bipartisan base of support both in the House and the 
Senate for this legislation. And I think the reason we have 
been able to is because we actually put together a bill that is 
very simple, in that we are trying to improve the way that the 
U.S. Government makes decisions to impose unilateral sanctions 
and create a commonsense framework for the consideration of 
future unilateral sanctions policies.
    I won't go into the arguments for that. I think you have 
already made those, in terms of the cost to our economy, but I 
also think, just recently, in last year in Congress, we acted 
exempt agricultural products from sanctions imposed against 
India and Pakistan after both countries conducted unauthorized 
nuclear testing.
    I supported the legislation as did the overwhelming 
majority of our Congressional colleagues. And in a follow-up to 
that effort, just yesterday the Senate approved legislation 
that would exempt agriculture products from sanctions imposed 
on foreign nations. And about 2 months ago, the House 
Agriculture Committee unanimously approved similar legislation.
    And why have we moved to exempt agricultural products from 
imposed sanctions? One reason is, is that we clearly understand 
that when we impose unilateral sanctions, it is U.S. farmers 
and U.S. interests which are harmed by that. And it is 
impossible to accept that the interests of U.S. agriculture is 
being harmed by the imposition of unilateral sanctions, and not 
accept that any other interest and any other commodity that we 
are trying to export to a country that is subject to a 
unilateral sanctions is not also harming the interests of the 
businesses and the working men and women who are employed in 
the production of those products.
    Our legislation really builds from the basic sentiment that 
is embraced by our colleagues in this. It is not something in 
any way that I think will restrict the ability of the Congress 
to impose unilateral sanctions, but what it will do will ensure 
that Members of Congress and the Administration will make a 
more informed decision before they vote to impose unilateral 
economic sanctions.
    You know, we are simply asking the Administration and 
Congress to consider whether or not that the sanctions that we 
are going to impose will be effective, and also to consider 
what are going to be the costs to our domestic interests, 
including our economy.
    We are going to have the testimony of the Administration, 
and Mr. Eizenstat, Under Secretary of State, is going to be 
testifying. I want to commend the Administration for their 
cooperation in working with us to try to craft a piece of 
legislation which they will whole-heartedly support. And I am 
confident, at the end of the day we will get there.
    I would also like to point out that we have already tried 
to address their concerns by increasing the flexibility that 
this legislation will provide to the President. We are 
modifying that to provide at least a 45-day advance notice on 
contract--in contract, the provisions.
    And there has been some concern by the Administration that 
we need to have parallel disciplines between--for Congress as 
well as the executive branch. And I would say that we are 
trying to do that also, but I think we all have to recognize 
that the Constitution imposes some restrictions that can never 
be overcome. And, quite frankly, some of the concerns of the 
Administration that Congress always has the ability to amend 
legislation is true. And it is not something that this 
legislation or any other will be able to, you know, hold future 
Congresses to not have the authority which is vested in them by 
the Constitution.
    But we have tried, I think, to ensure that both Congress 
and the executive branch will have to maintain similar 
disciplines. And also, some of the concerns of the 
Administration as related to whether or not the process and the 
public comment period is going to send--give too much time for 
a nation that we are considering imposing a sanction on to 
respond.
    We are also, I think, interested in amending the 
legislation to ensure that the 45-day advance notice provision 
does not apply to asset forfeitures.
    So I think, as long as we maintain, I think, a very 
constructive dialog with the Administration, we will have the 
ability to put together a piece of legislation that will ensure 
that we have a unilateral economic sanctions policy that will 
be imposed when it can be effective, but will also do--will 
only be imposed with the Members of Congress having the full 
knowledge and understanding of what the impacts will be to the 
domestic interests of the United States.
    [The prepared statement follows:]

Statement of Hon. Calvin M. Dooley, a Representative in Congress from 
the State of California

    Chairman Crane, Ranking Member Rangel, and Members of the 
Committee, thank you for allowing me to testify in support of 
H.R. 1244, the Enhancement of Trade, Security and Human Rights 
through Sanctions Reform Act. I am pleased to join my 
colleagues, Chairman Crane and Phil Manzullo as the lead 
sponsors of this important legislation, and that the 
legislation has generated broad-based bipartisan support in 
both the House and the Senate.
    Our message is simple. H.R. 1244 is designed to improve the 
way the U.S. government makes decisions to impose unilateral 
sanctions and to create a commonsense framework for the 
consideration of future unilateral sanctions policy.
    In recent years the imposition of unilateral sanctions by 
the U.S. has exploded, with more than 75 nations currently 
subject to or threatened by U.S. sanctions. While unilateral 
economic sanctions have been used as foreign policy tools for 
many years, they have proven to be largely ineffective in 
achieving their intended goal.
    In fact, too often the U.S. imposition of unilateral 
sanctions has caused more harm to our economy than to the 
economy of the nation the sanctions were intended to punish. 
The imposition of unilateral sanctions costs between $15 and 
$19 billion annually in U.S. exports and more than 200,000 
high-wage jobs, causing serious damage to U.S. trade and 
competitiveness in international markets.
    Last year, Congress acted to exempt agricultural products 
from the sanctions imposed against India and Pakistan after 
both countries conducted unauthorized nuclear testing. I 
supported the legislation, as did the vast majority of our 
congressional colleagues. Yesterday, the Senate approved 
legislation that would exempt agricultural products from 
sanctions imposed on foreign nations. The House Agriculture 
Committee has approved similar legislation. And why have we 
moved to exempt agricultural products from imposed sanctions? 
One reason is because we don't want U.S. farmers to suffer 
adverse economic impacts by losing access to important foreign 
markets. Our legislation builds on the basic sentiment that has 
been embraced by an overwhelming majority of our colleagues 
with regards to agricultural products, and simply argues that 
before imposing unilateral sanctions, Members of Congress 
should have access to basic information, including the economic 
implications of unilateral sanctions for all sectors of our 
domestic economy.
    Under our sanctions reform legislation, before sanctions 
could be imposed by either the Congress or the President an 
analysis of the anticipated impact of sanctions to U.S. 
economic, foreign policy and humanitarian interests would be 
required. The Congressional Budget Office would also be 
required to analyze the economic impact that proposed sanctions 
would have on American workers, farmers and businesses.
    Our current sanctions policy is hurting U.S. 
competitiveness in the global marketplace and harming U.S. 
workers and businesses more than the country targeted by the 
sanctions. When Members of Congress and the Administration 
consider the imposition of unilateral sanctions, we need to 
have a sound decision-making process to ensure they have 
relevant economic data. Our legislation would create a type of 
cost-benefit analysis process to ensure that Congress and the 
Administration understand the impact and efficacy of proposed 
unilateral sanctions.
    The sanctions reform legislation would also establish an 
annual review of all existing sanctions and their effectiveness 
in addressing foreign policy goals, and would exclude food and 
medicine exports from future U.S. sanctions.
    Let me be clear. Our legislation would not eliminate the 
imposition of unilateral sanctions as a foreign policy tool. We 
agree that, in some cases, sanctions can be a useful foreign 
policy tool. All we would require under this legislation is for 
members of Congress to receive the information necessary to 
make an informed decision.
    We need a common sense approach to unilateral sanctions. 
The Enhancement of Trade, Security, and Human Rights through 
Sanctions Reform Act seeks to restore an appropriate balance to 
U.S. sanctions policy and to ensure that we apply a common 
sense framework when consider the imposition of future 
unilateral sanctions.
    Thank you again for allowing me to testify before you 
today. I look forward to working with members of this committee 
to advance this important legislation.

                                

    Chairman Crane. Thank you, Cal.
    And I apologize to you, Earl. I think I called you Adam. 
But Earl Blumenauer is our next witness to testify.

STATEMENT OF HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF OREGON

    Mr. Blumenauer. Thank you, Mr. Chairman. And I appreciate 
your leadership and the momentum that has been built on the 
Lugar-Hamilton legislation of the prior session. As Congressman 
Dooley mentions, there are more people moving forward.
    I think it is a realization that people have that 
difficulties, not unlike what we are having with the bombing 
campaign in the Balkans, blunt instruments of force often don't 
work as planned.
    Similarly, blunt instruments of unilateral sanctions often 
end up bruising ourselves more than those that we are trying to 
punish. And I applaud the Committee and the sponsors of this 
legislation for taking a step backward to reassess exactly what 
we are trying to accomplish.
    As the chairman mentioned, there is significant economic 
impact that is associated with these activities, and yet there 
is persuasive evidence over the last 20 years that only a 
fraction, perhaps one-fifth, of the sanctions initiatives that 
we have applied have come anywhere near reaching their intended 
goals.
    The examples that have been referenced here of what 
happened with India and Pakistan, the threat of sanctions did 
not deter the behavior that we were concerned about. And yet, 
instantly, after there was the threat of the sanctions being 
implied--being applied, we had the spectacle of the U.S. 
Congress rushing to reverse that pattern of behavior.
    The example of Cuba is often cited as perhaps one of the 
most stark examples of the failure of a sanctions policy, where 
there is evidence that despite over 40 years of sanction, that 
Fidel Castro, the object of our frustration, anger, and scorn, 
has, if anything, been strengthened by our opposition. 
Virtually everyone in the rest of the civilized world 
acknowledges that it is sort of a goofy policy.
    And many people in this Congress and in our government 
acknowledge that we have a policy that is sort of trapped in 
amber, not being able to move our objectives forward. Yet we 
are trapped, enmeshed in a pattern of established politics, 
ethnic and partisan activities, where we are the victim of our 
sanctions policy.
    We need to establish these facts before we apply sanctions. 
We want to know when we ought to apply them; we want to judge 
their impact; and we want to know when it is time to stop and 
declare victory or admit defeat.
    I have had the privilege of meeting with parliamentarians 
from other developed countries who have established very 
thoughtful approaches to allow their country to answer these 
fundamental questions, the same way that H.R. 1244 would allow 
us to do in this country.
    The discussion is important not just for the future of the 
American economy, but it is even more important for our 
foreign-policy objectives. The specter of our not being able to 
respond in a timely and thoughtful fashion consistent with our 
real-world objectives does not strengthen our foreign policy, 
it, indeed, weakens it.
    At a time when we are seeing the limited results of 
military action, we should do everything in our power to 
strengthen our other tools. We owe it to our armed forces, to 
our constituents, to ourselves to make sure we have the most 
effective foreign-policy tools available and that they are used 
in a thoughtful fashion.
    I believe there is no more important tool that we are going 
to discuss in this Congress than being able to revise and 
reform our sanctions policy. And I thing it may, indeed, set a 
pattern for what Congress should be doing in terms of a 
deliberate fashion that could have impacts in other areas of 
policy as well.
    I commend you for your leadership in having this hearing, 
hope that you are able to take rapid and effective--a positive 
action, and look forward to supporting you in any way that I 
can.
    [The prepared statement follows:]

Statement of Hon. Earl Blumenauer, a Representative in Congress from 
the State of Oregon

    As evidenced by the difficulties we are having with our 
bombing campaign in the Balkans, blunt instruments of force 
often don't work as planned.
    Similarly, the blunt instrument of unilateral sanctions 
often ends up bruising ourselves more than those we are trying 
to punish.
    It is time for us to take a step back and reassess our 
thinking about how we can apply our sanctions policy that can 
be more in tune with what actually happens in the world.
    As half the world's population is currently subject to some 
sort of sanction on the part of the United States, it is 
estimated that only one-fifth of the sanctions we have applied 
in the last 20 years achieved their intended goals.
    These actions carry a real economic price. Sanctions cost 
upwards of $20 billion per year in lost opportunities, which 
translates into a hundreds of thousands of lost American jobs 
in the export sector, often among the highest paying. Is this a 
price we want to pay to achieve our goals, and is it the best 
way to pay it?
    There is persuasive evidence that unilateral sanctions 
simply do not work. The threat of sanctions not only failed to 
deter the nuclear tests in India or Pakistan, but its failure 
would have severely punished wheat farmers in the Pacific 
Northwest if Congress had not acted quickly to grant a waiver 
authority to the President.
    The example of Cuba is perhaps one of the most abject 
failure of sanctions, where we have imposed them on a 
unilateral basis for more than 40 years. Despite this, Castro 
continues to thrive and, in fact, is perhaps strengthened by 
our opposition to his regime.
    We need to establish three facts before we apply sanctions: 
(1) when to apply them, (2) how to judge their impact, and (3) 
when to stop. I have met parliamentarians from other developed 
countries who have established very thoughtful approaches that 
allow their countries to answer these fundamental questions. 
The best way to guarantee these criteria are met in this 
country is to pass the sanctions reform bill that's before this 
committee.
    This discussion is important for the American economy, but 
it is even more important for our foreign policy objectives. A 
rational approach to sanctions will make our foreign policy 
much more effective in the long-run, while minimizing the 
impact on the American worker, consumer and taxpayer.
    At a time when we are seeing the results of military 
action, we should do everything in our power to strengthen our 
other tools. We owe it to our armed forces, our constituents, 
and ourselves to make sure that we have the most effective 
foreign policy tools available and that they are used in a 
thoughtful fashion.

                                

    Chairman Crane. Thank you very much, Earl.
    And now our final witness, George Nethercutt.

        STATEMENT OF HON. GEORGE R. NETHERCUTT, JR., A 
         REPRESENTATIVE IN CONGRESS FROM THE STATE OF 
                           WASHINGTON

    Mr. Nethercutt. Thank you very much, Mr. Chairman and 
Members of the Committee. I am delighted to be here with my 
colleagues to testify in support of H.R. 1244. I am happy to be 
a cosponsor of it. I think it is a fine piece of legislation. I 
hope this Committee will move on it very quickly.
    I am aware that H.R. 1244 looks ahead, and I think we must 
do that as we analyze the American sanctions policy as it 
relates to our trade policy. But I also think it is important 
to look back and see what we might do in the present tense to 
change our policy currently.
    I have introduced, Mr. Chairman, a bill called H.R. 212. It 
is the Freedom to Market Act. And I come from a region of the 
State of Washington that is critically dependent on exports for 
agriculture commodities and other products. And so what H.R. 
212 does is look to remove current unilateral sanctions with 
the hope that we can increase our exports of agriculture 
commodities. It also covers the distribution of medical 
supplies--food and medicine, essentially--to these countries on 
which we have placed unilateral sanctions.
    I think the cruelest thing we can do is not only to deny 
our farmers the opportunity to export, but we deny people who 
are on the other end of that export of food and medicine and 
the opportunity to benefit from the kinds of products that we 
can provide and the relationships that we can develop with 
these countries, even though we may disagree with these 
countries that are currently sanctioned in terms of their 
foreign policy objectives and their forms of government.
    But yet, I think it is a humanitarian effort if we can, as 
the chairman wants to do, lift these sanctions and increase 
commerce. I think it is good for our country and it has 
potential to be very productive and beneficial to these 
countries that we currently sanction in terms of exporting 
freedom.
    The bill that I have introduced, and these I think would be 
covered, certainly, by your measure as well, Mr. Chairman, 
cover the countries of Iran and Iraq, Libya, Sudan, North 
Korea, and Cuba. They aren't friends of ours, but I think that 
prohibiting the sale of food and medicine weakens these 
regimes--I should say it gives the potential to weaken these 
regimes--if they are exposed to the kinds of relationships that 
we might develop on the issue, within the limited issues of 
agriculture and medicine.
    Under Secretary Eizenstat, I believe, will testify here 
today or later, has said that the funds spent on agriculture 
commodities are not available for other less desirable uses. 
So, when the Clinton 
administration lifted sanctions on Sudan and Libya and Iran, I 
think that was a good signal. It still, I believe--provides 
impediments to the clear need to comprehensively lift 
sanctions, but it is a good start.
    And so I applaud the Administration for doing what it has 
done so far. With regard to the agriculture community and the 
consequences of sanctions, the evidence is clear that if we did 
lift sanctions on these countries on which we currently have 
sanctions, that would mean the possibility of a $6 billion 
market for our farmers, for our agriculture exports, to say 
nothing of the humanitarian potential that would come from 
dealing with these countries from the export of medical 
supplies.
    So I think your bill is a good one, Mr. Chairman, and I do 
have a statement for the record that I hope could be included 
in its entirety, but I am here to support you and will continue 
to urge that sanctions be lifted, and that we continue to study 
it, for it is bad policy.
    On the Appropriations Committee on which I serve, just last 
week on the agriculture bill, we had a very good debate in the 
full Committee of Appropriations on the agriculture bill on 
lifting sanctions. It was a narrowly-drawn measure, but 
Democrats and 
Republicans were both for and against for different reasons. It 
was a wonderful vote and a wonderful debate.
    And it failed 28-24, I'm sorry to say, but we will be back 
another day. And we will be back not only on supporting H.R. 
212 but supporting your measure, and every opportunity, I 
certainly intend to do so.
    So thank you for holding this hearing and for allowing me 
to testify with my very able colleagues.
    [The prepared statement follows:]

Statement of Hon. George R. Nethercutt, Jr., a Representative in 
Congress from the State of Washington

    Mr. Chairman, Members of the Committee, thank you for the 
opportunity to address the use and effect of unilateral trade 
sanctions. I appreciate the work you have done on H.R. 1244 
this year and I am pleased to be a cosponsor of that important 
legislation which will provide a clear mechanism for the 
consideration of future sanctions. But while that legislation 
looks forward to preventing future unintended consequences of 
sanctions, I believe that Congress has a responsibility to also 
correct the wrongs of our present sanction policy.
    I have introduced H.R. 212, the Freedom to Market Act, and 
it serves as an important complement to H.R. 1244. My 
legislation would look back to those sanctions that are 
particularly burdensome and indefensible--those on food and 
medicine--and prohibit all such unilateral sanctions, subject 
to a national security waiver from the President. This 
legislation merely allows our farmers to have equal access in 
markets where our allies have gladly replaced us as a supplier 
of food.
    H.R. 212 would lift sanctions on such countries as Iran, 
Iraq, Libya, Sudan, North Korea and Cuba. While these states 
may not be friends of the United States, we should discard the 
illusion that prohibiting the sale of food and medicine weakens 
these regimes in any way. As Undersecretary Eizenstat has said, 
funds spent on agricultural commodities are not available for 
other less desirable uses.
    I was pleased to see the Clinton Administration's tacit 
endorsement of such legislation in the recent dramatic shift in 
economic sanctions policy. The details are still being 
finalized, but some sales of food and medicine to Iran, Sudan 
and Libya will now be permitted. But even as this is a move 
forward, it is very slight progress, for the Office of Foreign 
Asset Control will still review sales to these states on a 
case-by-case basis. Agricultural exporters seeking to develop a 
long-term relationship will be hard pressed to do so if the 
bureaucracy of the Treasury Department must consider each and 
every sale.
    A recent CBO study on this issue concluded that sanctions 
have had a negligible effect on the overall U.S. economy. I 
question that conclusion but can testify to the fact that 
specific sectors of the economy feel very acutely the effects 
of sanctions. The agricultural community is particularly 
reliant on exports and smaller international markets mean lower 
prices for our producers.
    In 1996, the untapped agricultural market in unilaterally 
sanctioned states was worth more than $6 billion according to 
USDA, and the demand touches every U.S. agricultural sector, 
with a potential for sales of corn, rice, wheat, vegetable 
oils, meat products, sugar and milk. The enormous market 
potential was demonstrated following the recent Presidential 
decision on Iran sanctions, allowing an American exporter to 
bid on a $500 million sale of wheat and sugar. Similarly, last 
year, when the Congress passed legislation lifting sanctions on 
Pakistan, our wheat farmers were rewarded with a substantial 
sale. These markets are particularly significant when one looks 
at severely depressed prices throughout commodity markets. A 
week ago Congress approved an emergency spending measure for 
farmers, but I believe that simply expanding the available 
export market will help to make such aid less necessary.
    Beyond the immediate costs of lost sales due to sanctions 
are the opportunity costs. The President's Export Council 
concluded that unilateral sanctions create advantages for 
foreign competitors, magnify uncertainty about the availability 
of U.S. goods and raise questions about the reliability of our 
suppliers. Wheat farmers in my district are still feeling the 
consequences of the short-sighted grain embargo of the Soviet 
Union in 1980, as the U.S. has yet to reclaim the market share 
we once held. Our agricultural competitors are consistent in 
not sanctioning food and buyers seeking stable supplies are 
less likely to buy from the United States.
    I would also point to an important and little realized 
consequence of our sanctions policy. Single-desk exporters in 
Canada and Australia can presently take advantage of lessened 
competition brought by the removal of U.S. traders to charge 
higher-than-prevailing market rates. Competitors can then 
underbid the U.S. in other foreign markets, where the U.S. 
legally can try to compete. In effect, our sanctions policy 
denies our farmers access to both markets.
    It should not be the policy of the U.S. government to deny 
sales of food and medicine to any country. A growing 
recognition of the significant economic and humanitarian costs 
of our policy is leading Members to reevaluate such sanction. 
Last week, the House Appropriations Committee voted on an 
amendment to repeal such sanctions and this week the Senate 
Agriculture Committee passed a bill to the same effect. I 
appreciate the work and attention of the Members of this 
Subcommittee on this important issue and thank you for the 
opportunity to testify this morning.

                                

    Chairman Crane. Well, we thank you, George. And your 
written statement will be made a part of the permanent record.
    And I want to express appreciation to all of you. It's not 
a Democrat or Republican issue; it's what is in the best 
interest of this country. But it is also what is in the best 
interest of some of our trading partners.
    For example, who benefited from the sanctions against Fidel 
Castro? Fidel Castro.
    And we were the ones that got hurt by that, coupled with 
the working Cuban people. They are the ones who have paid the 
price for it. And I would hope that we would give more 
consideration before jumping to one of those immediate 
responses to rogues throughout the world.
    Let me ask you guys a question: Should the President have 
the flexibility to tailor sanctions to meet the intended goal, 
or do you think Congress should establish some clear guidelines 
on the sanctions to be imposed?
    This question is for all of you.
    Mr. Nethercutt. Well, let me start to say I think the 
Congress should establish a policy. And again, I will be a 
little self-serving in terms of H.R. 212. What we do is allow 
the President to re-
impose sanctions if sales of food and medicine are deemed a 
national security threat. I think that is the kind of 
flexibility we want to leave the President, but I think 
Congress should establish the policy.
    Chairman Crane. Cal.
    Mr. Dooley. I would just state that I think that we have, 
you know, struck an appropriate balance with giving the 
President the flexibility. The real question would be, you 
know, whether it is a national-security issue or national-
interest issue and what is the definition between those two to 
give the President the adequate authority.
    The administration has expressed some concerns in the past 
that under a national security that they might not have 
adequate flexibility. But I would almost, you know, ask the 
Administration, of any unilateral sanctions that were imposed 
by the Administration over the past 20 years, which one of 
those would not have fallen under the national-security 
exemption and waiver that we have included in the legislation.
    And it is from my assessment, none would have--all of them 
would have been under that waiver authority that is included in 
the legislation. But I know Senator Lugar has been interested. 
We have been communicating with the Administration. You know, 
there needs to be, you know, further consideration given to 
that. You know, I am willing to do it, but I also think we need 
to be honest with ourselves too and really look back from a 
historical perspective and see just when would we have 
handcuffed the Administration.
    Chairman Crane. Thank you, Cal. Earl.
    Mr. Blumenauer. My strong personal bias is that we ought to 
be dealing with broad guidelines. As much respect as I have for 
the institution, what I have seen is I do believe that the more 
surgical and precise efforts ought to be left to the 
Administration. We get in trouble in a whole host of ways when 
we try and go beyond our ability to have broad guidelines.
    And I come down firmly in terms of establishing the goals 
and direction, but not trying to go too far. I think we bite 
ourselves.
    Chairman Crane. Well, I couldn't agree with you more. I 
mean, imposing sanctions on the sale of military goods, that's 
one thing, but especially in the critical, basic areas, like 
food and medicine, those are essential. And you don't want to 
cut them off. And, ideally, you don't want to cut off more than 
that because there are opportunities for those folks as well as 
here. And you can't blame the people always for a tyrant's 
behavior.
    Mr. Levin.
    Mr. Levin. Well we are kind of re-starting the dialog. So 
let me if I might just make a couple of points, and then 
perhaps we should move on. We'll have plenty of time to talk 
about this back and forth.
    Two points. I agree very much we should re-examine our 
policies regarding sanctions, trade sanctions. Indeed, as Mr. 
Crane knows and others, I am in favor of looking at all of our 
trade policies in a fresh way. And I hope everybody will join 
in doing that and not limit it to the issue of trade sanctions.
    Second, I would urge that we not oversimplify this because 
I think if we do, there won't be a fruitful debate. It will 
kind of polarize people right at the beginning. In that regard, 
I would point to, for example. If this becomes an issue 
revolving around our policy vis-a-vis Cuba, I am not sure we 
will have a very illuminating discussion. I don't think you can 
look at our policies vis-a-vis Cuba only in terms of whether 
Fidel Castro is still there. I am sure that proponents of the 
sanctions would point to the fact that every other nation in 
Latin America is today a democracy.
    And I am not suggesting that flows strictly or perhaps even 
essentially from our policy vis-a-vis Cuba, but I just caution 
that I think there is a danger in just zeroing in on Cuba and 
oversimplifying and saying Cuba, Castro is still there, 
therefore we never should have imposed sanctions.
    I also think we need to take a balanced view as to the 
history of sanctions, including how they worked in relationship 
to South Africa, which became multilateral sanctions. But if it 
is going to become an argument whether sanctions ever work, I 
don't think it will be a particularly productive discussion.
    I do think we need a more comprehensive look at the whole 
history of imposition of sanctions, and look at their failures 
in many, many respects as well as in some cases where they may 
have worked.
    So, your testimony has helped to re-ignite this discussion, 
and I simply want to urge that we adopt an ability to take a 
fresh look at all of our trade policies, No. 1, and No. 2, we 
do avoid overstating or oversimplification because trade issues 
become so polarized usually. And I don't think this issue 
deserves that, it deserves better.
    Thank you, Mr. Chairman.
    Mr. Dooley. Mr. Chairman, if I may just briefly respond. 
Mr. Levin, I agree with you whole-heartedly, and I want to make 
sure that you appreciate the legislation that we are talking 
about today is only prospective and that we realize that that 
would be the appropriate focus now, at this time, to look in 
terms of how do we impose a new process that gives Congress 
more time to consider more information on the imposition of 
unilateral sanctions as we look forward.
    And we have thus not dealt with looking back at existing 
sanctions that are put in place. And, in large part, out of, 
you know, sensitivity to some of the, you know, considerations 
and the real strong convictions that many of our colleagues 
feel with Cuba and other countries that we have imposed 
sanctions on.
    Mr. Levin. Let me just say, I think the effect would be 
prospective, but inevitably we are going to look backward to 
judge what would be a good future policy. And I just think when 
we do that, for example, and I will finish, I think if the 
proposed legislation were in place, had been in place several 
decades ago, I am not sure our policy vis-a-vis Cuba would be 
any different.
    But I don't want to focus only on that. I am just 
suggesting that we take, indeed, a comprehensive look at this 
and not choose up sides automatically as too often happens on 
trade issues. We need a more broad, broader, a more 
comprehensive intelligent discussion.
    Chairman Crane. Well, let me add just a footnote. 
Multilateral sanctions can be, in fact, very effective. The 
question is the efficacy of imposing unilateral sanctions when 
the rest of the world is out there ready to fill that void.
    Mr. Levin. That is a problem, but sometimes multilateral 
sanctions follow unilateral sanctions. But I agree, unilateral 
sanctions have the thorniness that often other countries simply 
step into the vacuum that we have left. And that is surely a 
consideration.
    Chairman Crane. Ms. Dunn.
    Ms. Dunn. Thank you very much, Mr. Chairman. And it is 
great to welcome you gentlemen to this Committee. This hearing 
today is about something that has concerned a lot of us over 
the last few years. And Chairman Crane has been very helpful in 
convening people who have focused on this issue to try to 
explain some very complicated parts of this whole sanctions 
issue.
    I would like to ask Mr. Nethercutt, who is from my State of 
Washington and did such great work on that sanctions issue when 
something like a third of the wheat from our part of the 
country was precluded from being sold in Pakistan and India, 
when that unilateral was called by the President. In your 
written testimony, I want to just read something you have 
written and maybe ask you to expand on this. You say:

    I would also point to an important little realized 
consequence of our sanctions policy. Single-desk exporters in 
Canada and Australia are currently taking advantage of lessened 
competition brought by the removal of U.S. traders to charge 
higher than prevailing market rates, competitors can then 
underbid the United States in other foreign markets where the 
United States legally can try to compete. In effect, our 
sanctions policy denies our farmers access to both markets.

    And I wonder if you would take a minute or two and expand 
on this please.
    Mr. Nethercutt. Well, thank you for asking. That is true, 
especially if it is agriculture because you will have Canada, 
who can sell peas, for example, to Cuba, charging a higher 
price for peas than the market would bear, but they can sell 
peas to Cuba, for example, and our farmers cannot. And so 
therefore, they get a higher price back from Cuba for their 
peas and then when we bid on a sale of wheat, for example, in 
Pakistan, which we have had a wonderful relationship with over 
the years in terms of a reliable trading partner, they can 
underbid us there.
    So they make money in Cuba in order to underbid us on a 
commodity sale that we are competing with in a country that is 
not sanctioned. So we can't sell our peas to Cuba and compete 
there, and then we are competitively disadvantaged in Pakistan, 
for 
example, on another commodity.
    So it is a vicious cycle for our farmers, and they are 
terribly frustrated. They want to be able to market around the 
world agriculture products and be able to complete with other 
countries that are not sanctioned by their countries and their 
governments.
    Ms. Dunn. Thanks very much, Mr. Nethercutt.
    I wanted to ask all you gentlemen--right now, we are having 
a big debate over trade with the PRC, and we have had some 
problems lately. This has been a long and complicated 
relationship. Lots of rocks in the road.
    But many of us, and I am included in this, believe that we 
can de-couple the issues of trade, which is a business 
relationship, with the other problems that we might be having 
with that nation, like human rights violations and intellectual 
property piracy and the straits around island of Taipei for 
example, and the most recent bombing incident, and, obviously, 
the security risks.
    If we can de-couple trade from the rest of our relationship 
with China, why can't we also do that with a country like Cuba?
    Mr. Dooley. Well, I would, Ms. Dunn, suggest we should. Is 
that the policy, every time this country historically has 
engaged in a policy of economic engagement, which has 
facilitated the development of a particular economy, which has 
resulted in an increase in per-capita GDP that has, with almost 
without exception, been associated with greater personal 
freedoms, whether it be human rights, whether it be religious 
freedoms, and greater movement toward democracy in that 
country--and I think we see, time and time examples of that. 
And thus maintaining a policy of economic engagement with China 
is, I think, in the longer term interest of the United States 
in building a relationship that actually could have greater 
influence on the military threat that they might pose.
    And I would also suggest a policy similar--of that type of 
policy with Cuba would also manifest itself in greater progress 
toward human rights and greater democracy in Cuba.
    Mr. Blumenauer. I only hope that people can be able to 
separate those issues as you describe with China. I am not 
quite as sanguine, and I am actually very apprehensive about 
what is going to happen in this chamber in the next couple of 
months. But I agree with your assessment.
    Mr. Nethercutt. Let me just quickly add, and I agree 
basically with these witnesses' testimony. Cuba is a little 
different because China has some economic capability. I don't 
believe Cuba does. In other words, I don't know that we would 
want to grant Cuba as we do Pakistan, for example, some credits 
under our USDA, current USDA policy as it relates to 
agriculture because that is probably a very bad credit risk.
    And Cuba, to my knowledge, doesn't have much in the way of 
capital in order to buy peas from us particularly.
    So, notwithstanding the Canadian experience that I have 
mentioned, Cuba, it seems to me, is a little different in terms 
of their economic viability relative to China.
    But conceptually I think it is a very hard case to 
distinguish. The idea that Cuba is somehow different than the 
other countries on which, with which we would like to do 
business, which are sanctioned, then I think that de-coupling 
makes some sense.
    Mr. Levin. Let me just finish up, Mr. Chairman, if I may. 
Then what is the answer with Cuba, where all of us want to 
strangle a terrible dictator who has brought horrible burdens 
on his people since 1959? How do we move to end that regime? Do 
we move to end it? And, if so, what ought we to be doing if we 
were not using unilateral sanctions?
    Mr. Blumenauer. Well, I think time is our best ally there 
in terms of the aging of Mr. Castro and to the extent that it 
is personalized. But it just seems to me that we ought to be 
able to have the courage as a country to have the faith in the 
commercial relationship to be able to build on it.
    I just agree, identify with what Mr. Dooley said in terms 
of the force of the economic interaction has worked 
marvelously, and I would hope that we would have the courage as 
a country to try to advance it.
    Mr. Nethercutt. Let me just say, I think, perhaps, evidence 
that relief from sanctions would provide relief from the regime 
is the best evidence that we could have. As Earl says, we could 
wait and then deal with the next generation of leadership in 
Cuba, but to the extent that there is an opportunity to show 
that lifting sanctions and having some economic relationship 
would weaken Castro, then I think it is in our best interest to 
explore that opportunity.
    Mr. Dooley. I want to just add that, you know, the most 
potent weapon the United States has in expanding democracy 
throughout the world is not our military might, it is, in fact, 
our economic might. And lifting the unilateral sanctions we 
have on Cuba, you know, engaging them economically, I think is 
going to give far greater returns in terms of securing greater 
democracy in Cuba, greater personal freedoms for the citizens 
in Cuba.
    And historically, you cannot demonstrate hardly any example 
where this hasn't been true in the past. And I think we have a 
policy, foreign policy with Cuba, is wait until Castro dies, 
and I don't think that is the most responsible policy we should 
have as a country.
    Chairman Crane. Mr. Rangel.
    Mr. Rangel. Let me thank you, Mr. Chairman, for focusing on 
the effectiveness of unilateral trade sanctions. And I want to 
thank my colleagues for the attention they have given this 
controversial subject matter. I don't really see how we can 
determine what policy we would like to see in the future 
without reviewing existing and past policies, especially that 
as it relates to Cuba.
    If we are trying to correct and give guidance to our 
President, certainly we have to be able to focus on where we 
have a unilateral sanction that has been a total disaster and 
has not only not toppled a communist government but has brought 
us embarrassment throughout the entire international community, 
besides, of course, loss of revenue.
    It would seem to me, that as we review this, that we should 
be concerned about the health of children that are denied food 
or the sick that are denied medicine.
    And being a Korean veteran, I cannot for the life of me see 
how we can have more hatred for the dictator in Cuba than the 
North Koreans and the North Vietnam dictators, and, certainly, 
the brutality that has been displayed by the communist Chinese.
    I think that review of Cuba is long overdue, and they 
cannot possibly be considered a threat to our national 
security. And we have to be very sensitive about the emotional 
feelings of our colleagues always, but not at the expense of 
our national security.
    So I think it is good, Mr. Chairman, that you once again 
provided the leadership on this subject matter, and our 
colleagues would take the time to prepare testimony and 
participate. And I hope that this is just the beginning, not 
just in legislation but in trying to encourage this 
administration to change our policy toward Cuba.
    Thank you very much.
    Chairman Crane. Thank you, Mr. Rangel. And next is Mr. 
Becerra.
    Mr. Becerra. Mr. Chairman, thank you and thank my 
colleagues for taking the time to make some constructive 
statements on this issue. I think most of the questions I would 
have been interested in asking have been addressed. I will only 
make one additional comment.
    With regard to Cuba--such a dynamic issue--and it involves 
much more than just the politics or even the economics of these 
trade sanctions we have had on the country for quite some time. 
But it certainly is a case in point of why legislation as you 
posed probably carries a great deal of weight and may have some 
chance in the future of succeeding if we work it the right way.
    Certainly the issue of unilateral sanctions has to be 
addressed, and I would hope that we are able, as Mr. Levin 
said, to try to remove some of the clutter in the debate and 
focus on really the 
legitimate questions about how we use our economic leverage to 
try to pursue policies. And certainly among those questions 
will have to be how we try to engage other countries to try to 
join with us, if indeed we ever get to the point of believing 
sanctions of some sort can work.
    I think it is becoming very clear to most that multilateral 
sanctions can work. It also is becoming very clear that 
unilateral sanctions are very difficult to enforce and, 
certainly, when it is done at the expense of a lot of our own 
sectors of our society and economy, it ultimately damages us 
probably more than it does the country we are trying to 
sanction.
    So I appreciate all the comments that have been made by my 
colleagues, and, Mr. Chairman, I would yield back the time.
    Chairman Crane. Mr. Herger.
    Mr. Herger. Thank you, Mr. Chairman. I want to thank each 
of you, each of my colleagues, for your testimony, for the work 
that you are doing, which I think is very positive, very 
constructive. This is a debate that has to proceed here in this 
nation, and I want to lend my support to what you are doing 
and, again, commend you and thank you.
    Chairman Crane. And Mr. Neal.
    Mr. Neal. Just a quick comment: I had a chance to travel to 
Cuba with the Pope, and Mr. Rangel was there as well. I think 
that the argument that is being made by the panel, particularly 
by Mr. Dooley, is right on target.
    Chairman Crane. Well, let me express appreciation to all of 
you for your efforts. And we still have our work cut out for 
us, but continue down the path. We are headed in the right 
direction, and we are getting increasing support on a 
bipartisan basis constantly.
    So thank you, gentlemen. And you are now excused, and I 
would like to invite our next witness to the dais, the 
Honorable Stuart Eizenstat, Under Secretary of State for 
Economic Business and 
Agricultural Affairs at the U.S. Department of State.
    And notwithstanding the fact that we are temporarily 
adjourned over on the floor, we don't know exactly what the 
schedule holds. So if you could try and condense your verbal 
statement to in the neighborhood of 5 minutes, any printed 
statement will be made a part of the permanent record.
    Please proceed.

STATEMENT OF HON. STUART E. EIZENSTAT, UNDER SECRETARY OF STATE 
    FOR ECONOMIC, BUSINESS, AND AGRICULTURAL AFFAIRS, U.S. 
                      DEPARTMENT OF STATE

    Mr. Eizenstat. Thank you, Mr. Chairman, and I very much 
appreciate your holding this hearing and your leadership on 
this issue.
    Properly designed, implemented, and applied as a part of a 
coherent strategy, sanctions are a valuable tool for enforcing 
international norms and protecting our national interests. At 
the same time, they are a blunt instrument. They are not a 
panacea, and they are not cost-free as your own Congressional 
Budget Office recently reported.
    Indeed, used inappropriately, they can impede the 
attainment of our objective and come at a significant cost to 
business and agriculture, and to policy objectives of the 
United States. We believe that our use of sanctions should be 
governed by a number of common-sense principles.
    First is effectiveness. We should have a realistic 
expectation that the sanctions measures will help in achieving 
their desired result, that is, changing the conduct of the 
target country. Ineffective sanctions send a message of U.S. 
irrelevance, not U.S. resolve.
    Second, unilateral economic sanctions should not be a first 
resort. We should first aggressively pursue available 
diplomatic options to change the conduct of a country in 
question. We should turn to sanctions only after other options 
have failed.
    Third, sanctions are most effective when they have broad, 
multilateral support. The history of our use of unilateral 
sanctions shows that in the majority of cases, they failed to 
change the conduct of the target country or, at best, were a 
contributory but not necessarily decisive factor in securing 
the changes of behavior we seek.
    In contrast, multilateral sanctions exert more 
international pressure and do less damage to our own interests 
because other countries and companies from other countries are 
involved.
    Nonetheless, there will be instances when our diplomacy 
will not succeed and when we cannot build a multilateral regime 
and we must be prepared to act unilaterally.
    Fourth, flexibility of application is absolutely essential 
if we are to use sanctions effectively. When we do act, Mr. 
Chairman and Members of the Committee, unilaterally, we should 
do so with a cost-gain analysis, with making sure that 
effectiveness is likely.
    Flexibility is, again, absolutely essential. Congress and 
the executive branch share constitutional responsibility for 
shaping our trade and foreign policy, but it is the President 
who is responsible for day-to-day conduct of that policy. 
Sanctions legislation should therefore set forth broad 
objectives but allow flexibility to respond to changing and 
evolving situations, and give the President the necessary 
authority to tailor specific U.S. actions to meet our foreign 
policy objectives.
    Ultimately, only the President can weigh all the issues at 
stake and tailor our response to a specific situation.
    We support a single national-interest-waiver standard 
applicable to all future sanctions legislation, and Mr. 
President--Mr. Chairman, this is perhaps the single most 
important feature that we would insist on in any legislation.
    Our experience with the Glenn amendment sanctions, the 
Libertad Act, and the Iran-Libya Sanctions Act underscores the 
importance of flexibility in achieving the purposes of those 
Acts.
    For example, with Helms-Burton, the exercise of our title 
III waiver authority led the European Union to tie concrete 
improvement of its relations with Cuba to fundamental changes 
in respect to human rights and political freedoms there. And 
they have since spoken out much more forcefully in support of 
democracy and human rights.
    With these general principles in mind, we have suggested an 
approach to sanctions reform that we believe would be 
productive in achieving the improved discipline on the use of 
sanctions by Congress and the executive branch. Many of our 
views are close to those in H.R. 1244, but we have some 
important differences with those bills.
    We have proposed appropriate and flexible guidelines, many 
of which would be taken from the provisions of your bill, Mr. 
Chairman, to govern our use of discretionary executive-branch 
unilateral economic sanctions. The executive branch is willing 
to consider appropriate guidelines that would apply to future 
imposition of sanctions under IEEPA as well as discretionary 
sanctions under future sanctions laws passed by Congress.
    If I may now talk about some of the concerns we have. The 
Crane bill does not provide comparable constraints on Congress 
and the executive branch. Congress can always pass a change in 
its own rules or simply a law saying, notwithstanding any other 
provision of law, therefore, end any binding authority on 
itself. We believe there ought to be symmetry between what you 
yourself can impose on yourself and what you try to prescribe 
for the executive branch.
    We believe that flexibility accompanied by national-
interest waiver authority applicable to all future unilateral 
sanctions legislation is the single most essential element to 
make sanctions reform work. The President should be authorized 
to refrain from imposing or taking any action that would result 
in the imposition of any unilateral economic sanction and be 
authorized to suspend or terminate the application of such a 
sanction based on a national-interest determination.
    Now your bill, in contrast, does say that it should be the 
policy of Congress that they should provide such national-
interest waiver authority, but the bill we believe must go 
further and include a stand-alone provision allowing national-
interest waiver authority to apply to all future unilateral 
sanctions legislation unless Congress acts specifically to 
exclude it.
    We agree that Congress should also have a role to play in 
this decision. Thus we have suggested an advance notification 
requirement before a national-interest waiver authority is 
exercised by the President, and then the inclusion of an 
expedited procedure to allow Congress to pass legislation 
disapproving any waiver authority within a certain number of 
days.
    Many of the restrictions in H.R. 1244 are quite inflexible. 
It is critical for us that each procedural constraint in the 
bill should permit discretion beyond just procedural waiver 
authority. For example, the 45-day-notice provision, contract 
sanctity, sunset clause should all have discretion.
    An example, with 45-day-notice provision, is that if this 
was done publicly, it would provide the target country or 
entity warning that we were going to try to impose a sanction 
or freeze an asset, giving them time to restructure their 
business and remove their assets from the United States.
    So we would like to work with you to deal with these 
procedural hurdles, make them less inflexible, but critically, 
critically, critically, it is also important as title III of 
Helms-Burton has, as section 9(c) and 4(c) of ILSA have, that 
there be national-interest waiver authority on the sanction 
itself.
    Your bill would also prohibit restrictions on the export 
financing support of provision of medicine, medical equipment, 
medical supplies, food, or other agricultural commodities. In 
general, this is largely consistent with our April 28 
announcement; however, that announcement indicated, and we 
would hope your legislation would build in, a provision that 
would allow the President under compelling circumstances not to 
permit this waiver.
    For example, where the offending is using the import of 
food and medicine as an internal political tool, where the 
regime or its officials derive unjustified economic benefit, or 
where indeed we are engaged in armed conflict with that regime.
    Here too, the President must be given the flexibility to 
tailor and use sanctions, including those on food and medicine, 
as appropriate in any particular circumstance, although, again, 
as we announced on April 28, we have changed the presumption so 
that food and medicine should generally not be used as a tool 
for sanctions.
    We very much look forward to working with you, Mr. Chairman 
and Members of your Committee to craft an effective sanctions 
reform package in 1999. We likewise, as you and so many of your 
members have indicated, feel that it is time to look at this 
area and put more rationality into our unilateral sanctions 
regime.
    Thank you very much, Mr. Chairman, and thank you for your 
leadership.
    [The prepared statement follows:]

Statement of Hon. Stuart E. Eizenstat, Under Secretary of State for 
Economic, Business, and Agricultural Affairs, U.S. Department of State

    Mr. Chairman, I was pleased to see that Congress will again 
examine the issue of sanctions reform. As you know I have 
testified on this a number of times including before the Ways 
and Means Committee on October 23, 1997, the International 
Relations Committee on June 3, 1998, the Lott Bipartisan 
Working Group on Economic Sanctions on September 8, 1998 and, 
most recently, the Senate Agricultural Committee on May 11. 
Various pieces of legislation have already been introduced in 
both the House and Senate on several aspects of our use of 
sanctions, most notably the bills introduced by Congressman 
Crane and Senator Lugar.
    Our view is clear. Properly designed, implemented and 
applied as a part of a coherent strategy, sanctions--including 
economic sanctions--are a valuable tool for enforcing 
international norms and protecting our national interests. At 
the same time, sanctions are a blunt instrument. They are not a 
panacea nor are they cost free. Indeed, used inappropriately, 
they can impede the attainment of our objective and come at a 
significant cost to other U.S. policy objectives.
    As you know, Mr. Chairman, we believe that our use of 
sanctions should be governed by a number of common sense 
principles. I first spelled out these principles in testimony 
before the Ways and Means Trade Subcommittee in October, 1997.
    The first principle is a test in effectiveness. We should 
have a realistic expectation that the sanctions measures will 
help in achieving their desired result, changing the conduct of 
the target country. Ineffective sanctions do not send a message 
of U.S. resolve or U.S. commitment. Rather, they send a message 
of U.S. irrelevance.
    Second, unilateral economic sanctions should not be a first 
resort. We should first aggressively pursue all available 
diplomatic options. In general, we should turn to sanctions 
only after other options have failed or have been judged 
inadequate or inappropriate.
    Third, sanctions are most effective when they have broad 
multilateral support. The history of our use of unilateral 
sanctions shows that in the majority of cases they fail to 
change the conduct of the targeted country or, at best, are a 
contributory but probably not a decisive factor in securing the 
changes of behavior or policy that we seek. Multilateral 
sanctions in contrast maximize international pressure on the 
offending state.
    Nonetheless, if we are unsuccessful in building a 
multilateral regime, and important national interests or core 
values are at issue, we must be prepared to act unilaterally. 
To maintain its leadership role, the United States must 
sometimes act even though other nations are not compelled to do 
so.
    Fourth, flexibility of application is absolutely essential 
if we are to use sanctions effectively. The Congress and the 
Executive Branch share the responsibility for shaping our 
foreign policy, but the President is responsible for the day-
to-day conduct of that policy. Sanctions legislation should set 
forth broad objectives but allow flexibility to respond to 
constantly changing and evolving situations and give the 
President the necessary authority to tailor specific U.S. 
actions to meet our foreign policy objectives. Ultimately, only 
the President can weigh all the issues at stake at any given 
moment and tailor our response to a specific situation. We 
support a single national interest waiver standard applicable 
to all future sanctions legislation.
    Our experiences with the Glenn Amendment sanctions, the 
Libertad Act and the Iran-Libya Sanctions Act underscore the 
importance of flexibility to achieving the purposes of those 
acts.
    In the case of Helms-Burton, the exercise of Title III 
waiver authority led the EU to tie concrete improvement of its 
relations, specifically, the provision of development 
assistance, to fundamental changes in respect for human rights 
and fundamental freedoms in Cuba. The EU has spoken more 
forcefully in support of democracy and human rights.
    The prospect of an amendment to Title IV that would 
authorize a waiver led the EU to agree to negotiate new 
disciplines on limiting investment in illegally expropriated 
properties, including in Cuba. The Understanding we reached 
with the EU on May 18, 1998, will establish for the first time 
multilateral disciplines among major capital exporting 
countries to inhibit and deter investment in properties which 
have been expropriated in violation of international law. These 
restrictions will discourage illegal expropriations and chill 
investment in Cuba, warning investors to keep ``hands off.'' 
This result would not have been possible had we not been able 
to hold out the possibility of waiver authority for Title IV. 
We believe that our success in agreeing with the Europeans on 
property disciplines merits that authority. Unless Title IV is 
amended to provide a targeted waiver authority, these important 
new restrictions on investment in Cuba will never go into 
effect, nor will the worldwide ban on investing in illegally 
expropriated property.
    Similarly, the flexibility included in ILSA--the ability to 
decide whether to impose or waive sanctions--was central to our 
ability to advance the objectives of that law. In developing 
ILSA, Congress was motivated by its deep concern about the 
proliferation of weapons of mass destruction (WMD) and 
terrorism and expressed its deep concern about Iran. We used 
the Act's waiver authority to help consolidate the gains that 
we had made with the EU and Russia on strengthening 
international cooperation to oppose Iran's dangerous and 
objectionable behavior. It helped us avoid a major dispute with 
allies that would not have served the Act's objectives and 
would have heavily strained our cooperation with our allies 
across the board.
    With these general principles in mind, we have suggested an 
approach to sanctions reform that we believe would be 
productive in achieving improved discipline on the use of 
sanctions by both the Congress and the Executive Branch.
    While many of our views are close to those in H.R. 1244 
(the Enhancement of Trade, Security, and Human Rights through 
Sanctions Reform Act introduced by Representative Crane) and S. 
757 (the Sanctions Policy Reform Act introduced by Senator 
Lugar), we do have a number of important differences with those 
bills.
    We have proposed appropriate and flexible guidelines--many 
of which would be taken from the provisions of the Crane bill--
to govern our use of discretionary unilateral economic 
sanctions. The Executive Branch is willing to consider 
appropriate guidelines that would apply to future imposition of 
sanctions under IEEPA as well as discretionary sanctions under 
future sanctions laws passed by Congress.
    The Crane bill does not provide comparable constraints on 
the Congressional and Executive Branches of the government, 
notwithstanding its appearance to the contrary. However, 
Congress's ability to amend the legislation, change its own 
rules, or to pass future legislation that takes precedence over 
it, for example, through ``notwithstanding any other law'' 
language, makes it less likely the bill would serve as a 
practical constraint on Congress. The fundamental principle 
underlying our approach is one of symmetry between the two 
branches--Congress, in short, should be no more prescriptive of 
the Executive Branch than it is of itself.
    We believe that flexibility accompanied by national 
interest waiver authority applicable to all future unilateral 
sanctions legislation is the single most essential element if 
we want to make sanctions reform work. The President should be 
authorized to refrain from imposing, or taking any action that 
would result in the imposition of, any unilateral economic 
sanction, and be authorized to suspend or terminate the 
application of such a sanction based on a national interest 
determination.
    The Crane bill, in contrast, provides only that it is the 
sense of Congress that any future unilateral sanctions 
legislation ``should'' provide national interest waiver 
authority. We believe that the bill must go further and include 
a stand-alone national interest waiver authority that would 
apply to all future unilateral sanctions legislation unless the 
Congress acts specifically to exclude it.
    We agree that Congress should also have a role to play in 
this decision. Thus, we have suggested an advance notification 
requirement before a national interest waiver is exercised and 
the inclusion of expedited procedures to allow Congress to pass 
legislation disapproving the President's decision within a 
certain number of days.
    The bill would authorize the President to waive certain of 
its procedural constraints on Executive Branch use of sanctions 
(for example, requirement for 45 days advance notice in the 
Federal Register, prior consultation with the Congress, a 
public comment period, some of the reporting requirements) if 
he determines that it is in the national interest to do so. If 
so, the requirements would still have to be met within 60 days 
or the sanctions would automatically terminate even if the 
President had exercised the waiver.
    Other requirements, including contract sanctity 
requirements, provisions for narrow targeting, and restrictions 
on food and medicine, would be waivable only in the case of 
actual or imminent armed conflict involving the United States. 
Some provisions would not be waivable under any circumstances.
    Another section of the bill would provide ``national 
security'' waiver authority applicable to the so-called Glenn 
amendment to the Arms Export Control Act and certain provisions 
of the Foreign Assistance Act of 1961 and Export Import Bank 
Act of 1945.
    As we have stated generally about authority to waive 
sanctions, we have also stressed that any constraints agreed 
upon should also be subject to a standard national interest 
waiver authority.
    Let me turn now to the specific procedural and substantive 
restrictions the Crane bill would place on the Executive 
Branch, which apply both to the imposition of new sanctions 
under IEEPA and all future unilateral economic sanctions laws.
    Many of those restrictions, given appropriate flexibility 
of application, contain ideas which we would support in 
principle. If, however, they must be applied in an inflexible 
manner, they could prove unworkable and extremely onerous to 
administer by any President, Democrat or Republican.
    Let me cite just a few examples. The bill would require 45 
days notice in the Federal Register before the imposition of 
any new unilateral economic sanction under any provision of 
law, whether or not the President has any discretionary 
authority to impose that sanction. It also would require a 
period for public comment prior to the imposition of sanctions. 
While such advance notice may at times be useful in sending a 
strong diplomatic signal to a target country, at the same time 
it would provide that country ample advance warning to 
restructure its business and other economic relationships with 
third countries, or to take other steps (such as stockpiling of 
potentially embargoed goods) to enable it to blunt the impact 
of the potential sanctions. Although the bill attempts to 
address some of our specific concerns about the impact of this 
provision with respect to financial sanctions, it does not 
adequately address our other broader concerns.
    Establishing a presumption, where appropriate, in favor of 
advance public notice and the opportunity for public comment 
may indeed be a desirable goal. But requiring advance notice 
and an opportunity for public comment in all circumstances, or 
requiring the President to invoke a national interest waiver 
under circumstances when such advance notice would clearly be 
inappropriate is neither desirable nor workable.
    The Crane bill also lays out a series of substantive 
requirements for sanctions imposed by the Executive Branch. The 
first of these is an assessment of whether the proposed 
sanction is likely to achieve a specific objective within a 
stated period of time. We agree that sanctions should not be 
employed unless there is some reasonable expectation that they 
will be effective in achieving their purpose.
    Sanctions are only one of a mix of policy measures that are 
employed together, hopefully as part of a coherent strategy, to 
influence a target country. Even though a specific sanctions 
measure by itself may not cause a change in policy or behavior, 
it may be an important, even essential part of a broader policy 
mix. History clearly suggests that in the vast majority of 
cases, unilateral sanctions may be at most a contributory but 
probably not a decisive factor in securing the changes of 
behavior or policy that we seek. So it may be difficult to 
judge whether a sanctions measure by itself would be effective. 
At the same time, many of the reasons for which we impose 
sanctions--non-proliferation, environmental degradation, to 
combat drug trafficking, to combat terrorism, to encourage 
greater respect for human rights--are simply not time bound. As 
part of the principles on the use of economic sanctions that I 
laid out earlier, we clearly state that sanctions should be 
subjected to a test of effectiveness and that they should be 
imposed only when there is a reasonable expectation that they 
will contribute to the achievement of their goal.
    The Crane bill would also generally require that sanctions 
regimes provide for contract sanctity. Such a provision, while 
understandable, may also be similarly unworkable and 
counterproductive--for example, in dealing with front companies 
in the counter-narcotics area. When combined with the 
requirements for advance notice of intent to impose sanctions 
and an automatic sunset clause, they would simply encourage 
businesses and the target government to negotiate quick deals 
to get in under the wire and avoid the effect of sanctions. The 
President must have the flexibility not to provide for contract 
sanctity in a given situation if doing so would, for example, 
detract from the effectiveness of the sanctions.
    Sunset clauses tied to time rather than performance may 
also often not be appropriate. As I have already noted, many of 
the purposes for which we may impose sanctions are long term. 
We should not give the targets of sanctions the ability to wait 
us out by imposing time bound sanctions in every instance. We 
have suggested instead that the President could annually review 
on specific sanctions measures and, depending on his review of 
the continued effectiveness of such measures, determine whether 
certain of them should terminate.
    The Crane bill would prohibit restrictions on the export, 
financing, support or provisions of medicine, medical 
equipment, medical supplies, food or other agricultural 
commodities other than restrictions imposed in response to 
national security threats, where multilateral sanctions are in 
place, or where the United States is engaged in armed conflict.
    In general terms, that provision is largely consistent with 
the President's April 28 announcement that the Administration 
will generally exclude agricultural commodities and products, 
and medicines and medical equipment from future discretionary 
unilateral sanctions regimes, and will extend that same 
principle to existing regimes where we have the discretion to 
do so. The President went on to note, however, that there may 
be compelling circumstances where this would not be 
appropriate: for example, where the offending regime is using 
import of foods and medicines as an internal political tool, 
where a regime or its officials derive unjustified economic 
benefit from such imports, or where we or our allies are 
engaged in armed conflict. The President must be given the 
flexibility to tailor and use sanctions--including sanctions on 
food and medicine--as appropriate in any particular situation.
    In sum, if our policies are to be effective, we must work 
together--Administration, Congress, at the state and local 
level, as well as the business community, including NGOs--to 
see that our use of sanctions is appropriate, coherent, and 
designed to attract international support. We hope to work with 
key Congressmen and Senators to craft an effective sanctions 
reform package in 1999.
    Thank you.

                                

    Chairman Crane. Thank you. And let me ask you a couple 
quick questions here. We are apparently going to be going back 
in earlier than anticipated.
    Mr. Rangel. I don't think so.
    Chairman Crane. You don't think so. Oh, OK. Insider trading 
information, Charlie?
    Undersecretary Eizenstat, if we are unsuccessful in 
building a multilateral regime, we must be prepared to act 
unilaterally. To maintain its leadership role, the United 
States must sometimes act even though other nations are not 
compelled to do so. They have never been compelled to do so, 
but that goes back to the imposition of unilateral sanctions, 
does it not?
    Mr. Eizenstat. Yes, sir. But there will be instances, for 
example, Burma is a case, the Sudan is a case, where we don't 
have broad-based unilateral sanctions, but where unilateral 
sanctions may state at least some moral interest.
    Burma is also a case where Mr. Levin's point, and that is 
sometimes they lead to other countries taking action. The 
European Union, for example, now has fairly broad-based 
sanctions with respect to Burma following our lead on 
unilateral sanctions.
    Now again, no one feels more strongly than I do the 
limitations of unilateral sanctions. We simply are saying there 
may be instances where all other avenues having been exhausted, 
they still might be used. But that is where your bill comes in. 
When we use unilateral sanctions, we ought to subject them to a 
filter. Let's balance costs and gains. Let's look at whether 
they are going to be effective.
    Let's not simply jump willy nilly into them.
    Chairman Crane. What criteria does the Administration use 
to determine the cost of unilateral sanctions it contemplates 
to the U.S. economy? And will unilateral sanctions lead to the 
desired changes in the behavior or policy of a targeted 
government?
    I mean, you cited the Burma case in an example, but do you 
think there ought to be time constraints imposed? And if people 
aren't getting on board and it is an extension of simply 
unilateral sanctions, they ought to be re-evaluated?
    Mr. Eizenstat. We think that there should be an annual 
review by the President of our sanctions to determine whether 
or not those in place are effective. And if they are not, then 
they shouldn't remain.
    At the same time, to put an arbitrary sunset clause saying 
that at the end of 1 or 2 years they automatically remove 
sanctions is also not a good idea. The reason being, that sends 
a message to the target country or entity, whether it be the 
Taliban or whomever, that there is a time limit on how long the 
sanctions will last.
    The key ought to be effectiveness. Are the sanctions still 
effective. And we would support the requirement for an annual 
review to look at those sanctions and make a report to the 
Congress on whether or not they are still effective and, if 
not, then they should expire.
    Chairman Crane. Well, except, that it seems to me that you 
could very hastily renew a period of sanctions against a 
country if you thought it was working.
    Mr. Eizenstat. If necessary, but I think that you would 
lose an awful lot of traction in your foreign policy if you put 
sanctions on and off. Again, rather than having an arbitrary 
deadline, our feeling is, it is better for Congress to suggest 
to the executive branch, and the requirement for an annual 
review, and to report to you whether or not that sanction 
remains effective.
    Chairman Crane. And did I understand you correctly when you 
were talking about food and medicine, that permitting the 
export of food and medicine, if the recipient country is 
dispensing it, is inappropriate?
    Mr. Eizenstat. We spent well over a year looking at the 
issue of food and medicine. And the President's April 28 
decision is the result of that. In short, what we are saying is 
by and large, except for really compelling circumstances, like 
we are in war with the country, that using food and medicine as 
a tool of a sanction is counterproductive, in two respects.
    First, it hurts our own agricultural interests and our own 
companies. Second, it gives the target country the opportunity 
to suggest that the United States is hurting the average 
citizen in that country rather than the regime. And, indeed, 
food and medicine often--one would be hard-pressed to find a 
dictator in any country who can't get a good meal on his table.
    It's the citizens of the country who are most disadvantaged 
by having food and medicine deprived from them. So that is why 
the president has changed the presumption. Our presumption is 
that food and medicine should not be used as a foreign-policy 
tool. Starvation is not a legitimate foreign-policy tool 
except, again, under the most compelling circumstances.
    Chairman Crane. Compelling? Starving people?
    Mr. Eizenstat. Yes. For example, if we are at war with the 
country, or if there is evidence that the food or medicine is 
being 
diverted for illicit or illegal purposes. But again, generally, 
it should not be subject to sanction.
    Chairman Crane. All righty. Mr. Levin.
    Mr. Levin. Thank you. And thank you for your testimony. Let 
me just ask you to try to summarize what you feel are the key 
issues here because you have been a leader, as I read it and as 
I remember it in stimulating some further thought on these 
issues within the Administration.
    And I think you are in favor, are you not, of trying to 
further 
rationalize our approach to this issue, to try to develop some 
guidelines? I mean, that is an accurate description, right, of 
where you come from?
    So, I mean, you have credibility to try to help us focus on 
what the issues are--the three or four basic issues--so we 
don't get caught up in all the details. For example, you talked 
about, and I did earlier, about unilateral sanctions. And I 
detect some difference here. I think our sanction policy, vis-
a-vis Iraq, started as unilateral, did it not? I don't remember 
all the details.
    But tell us what you, from your perspective, what are the 
three or four key questions that we need to confront and work 
out together within this Committee and with the Administration.
    Mr. Eizenstat. Thank you. I will be very precise about it. 
First of all, start with the principle of symmetry and comity 
between the branches, that what Congress imposes on itself to 
restrain its own actions with respect to sanctions should 
mirror those on the executive branch. And because you can 
always, regardless of a general sanctions bill, have a bill 
tomorrow passing a new sanction that says notwithstanding any 
other provision of law, we are going to impose sanctions for 
religious persecution, for child abuse, whatever.
    So give the President the same flexibility. Second, there 
are in H.R. 1244, a number of procedural hurdles before the 
President can exact a sanction, 45-day notice in the Federal 
Register for example, reporting requirements. What we are 
saying here is give the President maximum flexibility, because 
there may be instances in which, not just having to waive each 
one of those, which is very difficult and comes at a political 
cost, allow the President the discretion to determine whether 
that kind of notice is reasonable.
    It would be unreasonable to say, in every instance, you 
have to give 45 days advance notice to the country you are 
going to sanction, because one of the sanctions freezes might 
be freezing assets. And that allows them to remove their 
assets.
    So give the President on the procedural hurdles maximum 
flexibility.
    Third, we do agree with what I would say is the heart of 
the Crane bill, the heart of the Lugar bill, and that is the 
concept of a cost-gain analysis. Now, you can't put this into a 
computer and come out with a one-to-one ratio. How do you 
measure the benefit of preventing a proliferation of a product? 
How do you deal with the benefit of protecting human rights?
    But, nevertheless, there should be some real effort to look 
at the economic costs and measure those against the benefit.
    And then last, and most important, there must be a stand-
alone provision in the bill, in this generic reform bill, that 
says that for every future sanctions bill, the President should 
have national-
interest-waiver authority to waive that sanction if he feels it 
is necessary. That is what was done with title III of Helms-
Burton. We have that authority.
    That is what is done with section 4(c) and 9(c) of ILSA. We 
use that authority, in 9(c). And we used it to lever positive 
things that advance the benefit of the bill. Without that, we 
are in a straightjacket, and we cannot tolerate it.
    Now, we built in to our suggestion that Congress could have 
the opportunity to override that waiver authority on an 
expedited basis, subject to constitutional limitations.
    Those are really the four items. And, again, to narrow it 
even to just two, give us flexibility on the procedural 
guidelines and give us stand-alone national-interest-waiver 
authority for any future sanctions bill.
    Mr. Levin. Thank you.
    Chairman Crane. I failed to ask you one other question that 
I would like to bring up before I yield. Later today we are 
going to hear from a witness on the issue of imports of gum 
arabic from Sudan, which are currently banned as a result of 
U.S. sanctions. And sanctions were applied to this product even 
though Sudan controls 90 percent of the world market.
    And to date, there has been no identifiable consequence of 
the sanctions on the Sudanese regime. Is this not a classic 
example of the failure of unilateral trade sanctions and the 
consequences they can have on U.S. firms and workers?
    Mr. Eizenstat. Mr. Chairman, we granted last year a 1-year 
waiver on the gum arabic sanction because of the impact on a 
few important U.S. companies and indicated to them we hoped 
that they would use that 1-year period to see if they could 
find alternative sources. That 1-year period is now coming to 
an end, and we are now in an interagency review and an internal 
look within the State Department as to what to do with respect 
to the future on that. We have come to no decision yet, but we 
know that this is something we have to address, and we are 
looking at the issue from all perspectives.
    Chairman Crane. Well, we can get you the testimony of the 
witness later on, on one of our panels on the issue from his 
perspective as a utilizer of gum arabic.
    Mr. Eizenstat. It is certainly timely, and it is something 
again we are looking at, at this very moment.
    Chairman Crane. Mr. Rangel.
    Mr. Rangel. Thank you for your long interest in this area. 
How does our policy with Cuba fit into the policy that you 
stated in not using food and medicine as a weapon when there is 
no war?
    Mr. Eizenstat. We have done a number of things with respect 
to Cuba to try to make sure that the regime, not the Cuban 
people, were the targets of our sanction. For example, the 
President now twice has encouraged greater remittances from 
Cuban-Americans to their families. And, indeed, on January 5 
permitted any American citizen, including yourself or me, to 
provide a remittance to a Cuban family.
    Mr. Rangel. Let me interrupt. I am talking about the 
sanction against the sale of food and medicine to Cuba.
    Mr. Eizenstat. Yes, sir.
    Mr. Rangel. I know, I know what has been done, but I really 
am concerned about the prohibition of people selling food and 
medicine to Cuba. And I thought you were saying that this was 
against U.S. policy.
    Mr. Eizenstat. With respect to the sale of food, this was 
governed by the President's decision of January 5, in which he 
indicated that sales could be made if they were sold to non-
governmental entities. And the difference, if I may, between 
the decision on January 5 with respect to Cuba, and the April 
28 decision with respect to food and medicine, is the 
following.
    The President's decision on April 28 applied to commercial 
sales of agricultural commodities and products, medicines, and 
equipment where the Administration has authority to act. And we 
are defining what is a food. But it specifically did not refer 
to agricultural inputs, such as tools, farm, and equipment.
    In contrast, the President's January 5 announcement with 
respect to Cuba did include agricultural inputs. It is in that 
sense different from the April 28 measure.
    Mr. Rangel. Mr. Secretary, can we sell chickens, beans, 
food products and medicines to the Cuban people?
    Mr. Eizenstat. Only if it goes to private entities.
    Mr. Rangel. That is a restriction on the commercial sale of 
foods to a country that we are not at war with.
    Mr. Eizenstat. That is correct. It is correct that it is a 
restriction on a sale. We, by the January 5 decision, expanded 
the allowance of sales so that it can go to private entities, 
but only to private entities.
    Mr. Rangel. But food is being used as a weapon.
    Mr. Eizenstat. There is clearly a limitation on the sale to 
any governmental entity in Cuba. That is correct.
    Mr. Rangel. And we are not at war with Cuba.
    Mr. Eizenstat. We are not at war with Cuba.
    Mr. Rangel. And medicine, the same rules apply. There is a 
restriction on the sale of medicine to Cuba.
    Mr. Eizenstat. There are limitations on the sale of 
medicine, although hundreds of millions of dollars of medicines 
have been distributed to Cuba.
    Mr. Houghton. Would the gentleman yield?
    Mr. Rangel. No. Not at this point.
    But are you aware of the fact that drugs are going into 
Cuba from South America? And a lot of it is coming into the 
United States. A lot of it is being dropped into Cuba. Some of 
it is being dropped near Cuba. And that the U.S. Government is 
restricted from giving any assistance to Cuba while other 
governments are attempting to assist them.
    And because of the sanctions, we have a prohibition from 
providing assistance to that government and preventing the 
international trafficking of drugs in and around Cuba.
    Mr. Eizenstat. I will answer that question specifically, 
but permit me just to mention on your previous question one 
other fact. And that is, humanitarian donations of medicine or 
medical equipment to non-governmental organizations in Cuba, 
like CARITAS, for example, the Catholic Church-based 
organization, don't require any induced monitoring. And last 
year alone, we licensed almost a hundred million dollars in 
humanitarian donations of medicine and medical equipment.
    Mr. Rangel. Mr. Secretary, are we restricting the sale of 
medicine to this government?
    Mr. Eizenstat. Yes, sir.
    Mr. Rangel. And are we restricting the sale of food to this 
government?
    Mr. Eizenstat. Yes, we are.
    Mr. Rangel. And this is because of our policy, our foreign 
policy as it relates to the government of Cuba.
    Mr. Eizenstat. Absolutely.
    Mr. Rangel. All right.
    Mr. Eizenstat. With respect to drugs and drug interdiction. 
There is some cooperation. I don't deal with this issue 
specifically, but my understanding is that there are some 
limitations on our cooperation but that there is a degree of 
cooperation with respect to drug interdictions with Cuba.
    Mr. Rangel. Well, I met yesterday with Tom Constantine. He 
didn't know about it. I have been reading that General 
McCaffrey has been asking to be able to give some assistance in 
this, and he has been rebuffed.
    Who, what agency--the Cuban desk doesn't know about this. 
This is a very, very serious issue. The Cuban government has 
unofficially been requesting assistance, been anxious to go 
into treaties. I have discussed it with the Cuban officials. 
Europeans have gone into treaties with them to assist in 
stopping international trafficking of drugs.
    And I don't know of anything--I talk with Commissioner 
Kelly. He is in charge of Customs. I have talked with the Coast 
Guard officials. I don't know of any cooperation we have given 
to stop drugs from--Cuba being used as a place to interdict 
drugs.
    Mr. Eizenstat. Well, clearly we are precluded from giving 
any financial assistance, technical assistance, anything of 
that sort.
    I understand that there is some sharing of information.
    Mr. Rangel. Information?
    Mr. Eizenstat. Sir, I don't deal with drug interdiction. So 
I will be glad to try to get you the information. And you 
deserve an answer. It is an important question. But it is not 
an area in which----
    Mr. Rangel. Could you direct me to who might have this 
actual----
    Mr. Eizenstat. I will try to do so. And I will try to get 
you very specific information. It is a very important question, 
and you deserve to get a specific answer.
    Mr. Rangel. Do you think we should be cooperating with the 
Cuban government to stop the international trafficking of 
drugs?
    Mr. Eizenstat. I think it is important we cooperate with as 
many countries as we can, including Cuba, to stop drugs from 
coming into the United States. But I think it has to be bound 
by our overall policy with respect to Cuba, and that is where 
the balance has to come into play. But certainly drugs are 
extraordinarily dangerous, and anything we can do to cooperate 
we ought to try to do within the limits of our legal 
restrictions.
    Mr. Rangel. But the policy should be stronger than the 
damages done to the United States by the drugs that's coming in 
through Cuba.
    Mr. Eizenstat. Again, I don't deal with drug policy, but I 
will try to not only direct to who does but try to give you a 
much more specific answer in terms of drug interdiction. It is 
a legitimate question on a very important issue.
    I saw the article in the Post about this a couple of days 
ago. And it is something that deserves a specific response.
    Mr. Rangel. I would like to work with you on this.
    Mr. Eizenstat. I would like to work with you on this.
    Chairman Crane. The time of the gentleman has expired. Mr. 
Houghton.
    Mr. Houghton. Yes. Just very briefly. If you make the 
assumption that food and drugs are necessary, Mr. Secretary, 
are there any practical, viable non-governmental agencies or 
vehicles through which these products can be directed?
    Mr. Eizenstat. In Cuba, do you mean? Yes, sir, CARITAS.
    Mr. Houghton. Churches?
    Mr. Eizenstat. CARITAS is the Catholic Church's 
organization.
    Mr. Houghton. And if a private agency, a company wanted to 
contribute to that, that would be sufficiently large to be able 
to distribute medicine or food throughout the country?
    Mr. Eizenstat. They have a very good system of 
distribution. Yes.
    Chairman Crane. Mr. Becerra.
    Mr. Becerra. Thank you, Mr. Chairman. Secretary, thank you 
for being here. Congratulations on the appointment. I, too, 
would be very interested in some of the follow-up to the 
questions that were asked by Mr. Rangel. I won't belabor the 
point any, but I, too, would like to see how the Administration 
reconciles the differences in treatment, and to have a better 
understanding of how the Administration would try to support 
its differentiation of the various countries.
    So, Mr. Chairman, with that I will yield back.
    Chairman Crane. Mr. Neal.
    Mr. Neal. Thank you, Mr. Chairman. Mr. Eizenstat, let me 
see if I can get you to frame this in philosophic terms. How 
did we move, in your judgment, from perhaps Jimmy Carter's best 
moment, his focusing on the whole notion of human rights in the 
world, to such a patchwork of how we deal with these issues 
today?
    Mr. Eizenstat. Well, I don't think there is a patchwork. It 
think that human rights are and remain a central feature of our 
foreign policy. Our human rights reports are very specific, 
very detailed. We put a tremendous amount of effort into our 
human rights campaign.
    I think that President Carter certainly helped start that, 
but we like to feel that we are continuing in that direction. 
And, indeed, the actions that the President took on April 28 
with respect to food and medicine is a reflection of our 
feeling that human rights of average citizens should in general 
not be affected by restrictions in dealing with food and 
medicine.
    Mr. Neal. But my point I think, in a broader context, is 
this. We seem to have moved away from the Carter position on 
human rights to a policy that is based more upon the potential 
for economic reward. And I think most of us would say, as Mr. 
Rangel pointed out, that there are some inconsistencies along 
the way.
    And maybe you are not the one to answer the question. Maybe 
that should come from Madeline Albright. I have spoken to her 
about Cuba. And many of her positions on Cuba are, I think, 
intransigent. She doesn't seem to be interested in much 
movement at all.
    Mr. Eizenstat. Well, no, I think indeed that if the only 
factor were the economic factor, one would have no sanctions of 
any kind at all. So the moral judgment in foreign policy comes 
into account that there are instances, both with respect to 
unilateral and, particularly, with multilateral sanctions, 
which have a much better chance of being successful, in which, 
notwithstanding the economic loss to the country, it is 
important for the United States to take a moral stand. Burma, 
Sudan are examples. Iran, Iraq, Serbia. These are all examples 
of instances in which we have consciously made a decision that 
our moral and foreign-policy interests outweigh whatever 
economic gain there may be.
    Mr. Neal. All right. I vote for most-favored trade status 
with China. And the argument the Administration uses there is 
that it is economic contact that will in the end bring about 
democratic reform.
    Mr. Eizenstat. I believe that in many instances that is 
true, but there is a big difference, a huge difference between 
the government of China, what everyone thinks about it, and the 
government of rogue states like Iran or Iraq or Sudan, which 
are slaughtering and murdering their people.
    There is a very big difference. And so you have to take on 
a case-by-case basis--and this is why the legislation has to 
give flexibility. Clearly, and believe very strongly, that 
economic engagement with China has profoundly changed that 
country. And, indeed, if we could get a WTO Agreement along the 
lines of the April decisions, it would open up that society in 
remarkable ways to foreign penetration, to foreign ideas, the 
Internet, information, access to U.S. corporate values.
    But there are other regimes, Iraq, Iran, where that kind of 
engagement would not have that effect, it would indeed do what 
the Bush administration was criticized for doing with Iraq, and 
that is simply stoking a dictator's capacity to take actions 
which are contrary to our interests.
    And that is why it is very difficult to have a blanket 
policy. You literally have to look on a case-by-case basis.
    Mr. Neal. OK. Thanks, Mr. Chairman.
    Chairman Crane. Well, thank you, Mr. Secretary. We 
appreciate your participation in our hearing today, and we look 
forward to working with you continuously on this until we get a 
bill reported out.
    Mr. Eizenstat. Thank you. This is very important 
legislation, and I really do look forward to working with you 
to see if we can come together on it.
    Chairman Crane. Thank you so much. And now I would like to 
welcome our next visitor, who is someone that I get confused 
with when he is sitting there and not up here because Mr. 
Rangel, Charlie Rangel, was our--Charlie Rangel [laughter]--Sam 
Gibbons--Charlie too--but Sam Gibbons was our chairman of the 
Trade Subcommittee for a long time. And I had the privilege of 
working under him, and then he became chairman of the Full 
Committee, and he is probably the most solid, Grover Cleveland, 
free-market, free-trade Democrat that I have encountered in 
recent history.
    And I want to welcome you before the Committee, Sam, but 
unfortunately I have to make another meeting quickly. If they 
extend their questioning of you, I think I can get back here in 
time to throw a couple curve balls your way.
    But I look forward to also having the opportunity to see 
you again later today. And thank you for coming to testify. And 
if you will make your presentation now, then I will put Amo in 
charge here and start the questioning of you.
    Thank you, Sam.

STATEMENT OF HON. SAM M. GIBBONS, GIBBONS & COMPANY; AND FORMER 
                       MEMBER OF CONGRESS

    Mr. Gibbons. Thank you, Mr. Crane. Thank you, Mr. Chairman. 
I appreciate it.
    Let me say I am very pleased and very happy to be back here 
on this subject. I hope no one has taken the trouble to 
research my record on this. I will relieve you of that 
responsibility by saying--asking a mea culpa and realizing that 
I have made some mistakes in this area. Please forgive me.
    But upon reflection, I have never seen a unilateral trade 
sanction that was worth a hoot, that ever did any good except 
hurt Americans. And it is time we got rid of them.
    I sometimes used to think when I was chairman of the 
Committee that there must be a staffer over in the Foreign 
Affairs Committee who would scan the headlines and listen to 
the news reports every morning and come up with the latest 
atrocious act of some foreign concern. He had a form over 
there, or she had a form over there, just filled it out and 
filled in the name of the country and that afternoon we were 
voting on the House floor on another sanction.
    Early in this game, they were not very careful about how 
they drew the legislation, and they put trade sanctions in 
there to enforce their legislation. And I would get our staff 
to capture that legislation, drag it over to the Ways and Means 
Committee, bury it in my Subcommittee, and it would never see 
the light day.
    But, you know, after awhile, the Foreign Affairs Committee 
caught onto to what I was doing and they changed the way they 
drafted the legislation, and I couldn't use that anymore to get 
rid of these unilateral trade sanctions.
    I did spend quite some time working with sponsors of 
international trade sanctions, unilateral trade sanctions, to 
try to persuade them that they were impractical, but I was 
never able to succeed in that area. I was able to get them to 
modify some of their language through threats and persuasion, 
but frankly, in my estimation, there has never been a good 
unilateral trade sanction that I have ever seen.
    I first became acquainted with them back in 1935 or 1936, 
when the United States started its unilateral trade sanctions 
against Hitler and Mussolini and Tojo and all that bunch of 
hoodlums that were running the world then. They didn't do any 
good. They didn't need to buy any of our products. But there 
were lots of other people around the world that needed to buy 
our products that were affected by those.
    And I think that we actually encouraged Tojo and Hitler and 
Mussolini to expand their aggression because we had cutoff, 
through our neutrality acts and through our sanctions there, 
all hope of people in the free world from being able to buy the 
kind of materials that they needed to buy.
    I did note that one unilateral sanction worked during my 
teen-age, and that was the fact that we cutoff the supply of 
helium gas to Germany. So they substituted hydrogen for helium, 
and all of us who are of my age remember what happened over 
Lakehurst, New Jersey, when the Hindenburg exploded, fried a 
lot of Americans and great many Europeans up in the sky. And we 
saw their bodies being, falling to the Earth either jumping or 
falling out of the Hindenburg as it burned.
    So that one, at least, put an end to the transportation of 
passengers by lighter than aircraft. Nobody has ever built one 
of those things since that time.
    During modern times, though, they have not been effective, 
and perhaps they were somewhat effective after World War II, 
when we had a sort of monopoly on the supply of technological 
material. Everybody else had been bombed out of existence.
    But that technology advantage rapidly evaporated, and, 
frankly, I haven't seen one that has worked in my time.
    Now I am not being paid by anybody to come here today and 
talk against these things. I am one of the co-chairs of 
Americans for Humanitarian Trade With Cuba, but we are having 
an election right now, and I may not get re-elected. So I can't 
pretend to represent that organization there.
    But I want to tell you, I think our unilateral embargo on 
Cuba may have started off with some good intention and some 
good practical impact, but it has been in existence far too 
long and it has been a miserable, miserable failure. And we 
have done some real damage to Cuban children, infants, and to 
old people and dependent people by our embargo.
    I see the red light is on, and I will welcome any questions 
that you gentleman may have.
    Mr. Houghton [presiding]. Thanks very much, Sam. Wonderful 
to have you here.
    Mr. Levin.
    Mr. Levin. Well, maybe I will forego because I think we are 
going to have much of a chance to be visiting on this and, I 
hope, on other trade issues. Your continued presence here 
remains a source of pleasure as well as uplift for us.
    Mr. Gibbons. Thank you, Sander.
    Mr. Levin. And rather than trying to do this across this 
gap here, we will be visiting on other issues. As you know, we 
have an open-door policy for everybody, in your case, there is 
not even a door. So, we will be chatting on this. And there are 
other trade issues coming along, and we hope very much that you 
will have the time to give us the benefits of your experience 
and insights.
    Mr. Gibbons. May I say, you know, I got here a little early 
for this today and I looked over some of the testimony of 
others that are following me. There is a real interesting 
article in the--testimony in there by Mr. Bowe of Ellicott 
Machinery. I think you would be interested in it. You have 
always been interested in that kind of thing. And he lays out, 
you know, he is in the business of making dredging machinery up 
here in Baltimore, and he lays out by date and time and by 
amounts how much all these embargoes, these unilateral 
embargoes have cost in jobs, in sales to his company.
    Now, you know, we always talk in terms of agriculture. And 
that is an important part of our society, but here is a 
little--and they are not little, because anybody who 
manufactures dredges is not little--but here is a rather 
obscure part of the American economy, and he lays out. I would 
encourage you to read his statement because it will give you 
some real meat you can put your teeth into.
    Mr. Levin. And we are doing that.
    Mr. Gibbons. Mr. Ellicott. He is in the next panel, and he 
is the second witness.
    Mr. Levin. Thank you.
    Mr. Houghton. Mr. Rangel.
    Mr. Rangel. Thank you, Mr. Chairman. Welcome back, Sam. You 
are one of the members that didn't have to retire in order to 
say what you believed. And you have been outspoken over your 
years as a colleague, friend, and member.
    The sanctions on Cuba, do you believe that the politics of 
the Cuban, of the Floridian vote, especially that that relates 
to the Electoral College, has some impact on our foreign policy 
in Cuba.
    Mr. Gibbons. There's no doubt in my mind about that, Mr. 
Rangel. I have lived in Florida all my life. And Florida has 
had the reputation for a long time of being a swing State in 
the presidential vote. And so, candidates of both parties, 
Democrat and Republican, have come down to Florida to try to 
figure how to get just enough popular votes in order to get the 
huge electoral vote that's there.
    And that has influenced both Democrat and Republican 
candidates to come down there. And they find that the most 
eager to deal with them are the Cuban-Americans in Miami. And 
both the Democrats and Republicans have made, I think, 
unfortunate agreements with the Cuban-Americans in Miami about 
what they would do about the embargo if elected.
    That's been my experience. And it is--they have taken full 
advantage, as they are entitled to--of their ability to promise 
their vote to either candidate. It's a ridiculous thing, but 
that is the way the American system works.
    Mr. Rangel. Well, that has been my view, but that would 
really be saying that our foreign policy in Cuba is really 
based on our domestic political problems right here in the 
United States.
    Mr. Gibbons. Yes. It is a peculiarity of the Electoral 
College system and the fact that Florida is a swing state and 
the fact that you look for swing votes in Florida, and the most 
promising swing votes are right here in the Cuban-American 
community in Miami.
    Mr. Rangel. This group that you mentioned that you enjoy 
membership in, there are a humanitarian groups, and religious 
groups, but a large number of the members are actual business 
groups. Is that correct?
    Mr. Gibbons. That's correct. That's correct.
    Mr. Rangel. And they have been able to show the tremendous 
amount of moneys and jobs that have been lost to Americans as a 
result of this trade embargo against Cuba. Is that correct?
    Mr. Gibbons. That is correct. In all honesty, let me say, I 
have received campaign contributions from the Cuban-American 
groups in Miami. I don't know whether they want their money 
back or not, but, you know, they have been pretty generous. And 
they were well financed.
    Mr. Rangel. But, isn't it safe to say that not all Cuban-
Americans support the embargo against Cuba?
    Mr. Gibbons. Oh. Well, we have done some polling down 
there, and we find that the opposition to doing something 
positive about our relations with Cuba is very much an age-
related phenomenon now. There are some younger folks who feel 
very strongly about the policy and want to continue the current 
policy, but generally speaking it is an age-related thing.
    People my age, who lost a lot with the Castro takeover, are 
bound to be very strongly opposed to doing anything about it 
until they regain their property and get their just 
compensation for whatever losses they may have had.
    Mr. Rangel. But it seems to me that there are Cuban-
Americans our age that have become very successful 
entrepreneurs that are very anxious to do business in Cuba.
    Mr. Gibbons. Oh, they are hard-working folks, and they have 
done real well. Yes, they have.
    Mr. Rangel. But I mean, but they are restricted from doing 
business in Cuba, where they could be most successful.
    Mr. Gibbons. Well, they do a lot of business all throughout 
South America because of their being able to speak the Spanish 
language and knowing the culture very well. And they have done 
extremely well in this country, Mr. Rangel. They are good, hard 
workers. And you have to admire them for that.
    I have quite a few of them in my own old constituency that 
I have known over the long period of time. I have respect for 
them, whether they be in Miami or Tampa or wherever they may 
be.
    They are generally honest, hard-working folk, but they have 
had a tremendous impact upon American policy toward Cuba. And, 
frankly, I think American policy toward Cuba is just 
counterproductive, and it has been for quite some time.
    I would encourage Members of Congress to go to Cuba. You 
know, you all can go legally, where I cannot go legally 
anymore. I can get a license from the Treasury Department and 
go, and I have done that, but you don't have to do that. You 
all ought to go. I know you have been, and I know others have 
been. But the whole Congress should go down there and take a 
look at that place.
    I think it would be good for the American policymakers.
    Mr. Rangel. Does your group plan a visit to Cuba? What is 
the name of your group again?
    Mr. Gibbons. Americans for Humanitarian Trade With Cuba. We 
have----
    Mr. Rangel. Have they been to Cuba?
    Mr. Gibbons. Have they been to Cuba?
    Mr. Rangel. Yes, the group.
    Mr. Gibbons. Well, we didn't go as that organization. We 
went as American businesspeople. I went there, and we complied 
with all of the requirements that--you know, if you go in that 
kind of licensed group, you can't spend any money. Now let me 
say I had to violate restriction real fast because I didn't 
realize they had privatized the restrooms in the airport there.
    Well, that's enough said on that subject.
    Mr. Rangel. Well, I hope that you would visit with me soon 
and update me on the activities of this group that you are a 
member of so I can work more closely with them.
    Mr. Gibbons. Well, thank you.
    Mr. Rangel. Thank you, Mr. Chairman.
    Mr. Houghton. Thank you. Mr. Gibbons, I would like to just 
ask you a couple of questions. The first is, what sort of 
impact this has on our allies. I mean, if we are talking about 
Cuba. But also, I would like to talk about other countries. 
What are the alternatives?
    I mean, you have a country like Burma. I have this list 
here because there are approximately 75 countries that are 
either on the list with sanctions or threatened with sanctions. 
Only about 30 of those have actual sanctions against them. But 
Burma for narcotics, political repression, North Korea for an 
export we called terrorism, Republic of Serbia--what do you do 
about those, those countries?
    Mr. Gibbons. Well, we need better multilateral ways of 
dealing with them. I first think you need to look at who we are 
as Americans. You know, I am struck by the fact that we are 
only less then 5 percent, some 4-point-something percent, of 
the Earth's population now. We have control of a lot of the 
Earth's wealth, and we go around patting ourselves on the back 
that we are the only superpower left on Earth. I'm not sure we 
ought to be around bragging about that because too many people 
want to call our card on that.
    But we need better multilateral organizations in dealing 
with the pariahs that spring up from time to time and thrive in 
the political environment of their particular countries. There 
are times when you will want to express yourself, saying that 
we don't agree with this policy, and the Congress has most 
often responded by imposing unilateral sanctions.
    Now, frankly, Mr. Houghton, I have never seen the Congress 
in all the years that I spent here, sit down and weigh the 
impact of those unilateral sanctions. They usually come up so 
fast and so quickly that people are going to get hurt by these 
unilateral sanctions never have a chance to come to Congress 
and express their opposition to the sanctions.
    They may not even be aware of the fact that they are about 
to get whacked by the sanctions. And so, you know, Congress 
does need to back off, stop, look, and listen long enough 
before we do that, before we take any steps.
    So the legislation that is being proposed here is mainly 
stop, look, and listen legislation--stop, look, listen, and 
think, reason--what is the reasonable chance of our sanction 
being successful. But, essentially, the world needs to develop 
better multilateral means of dealing with these matters.
    The United Nations isn't much, but it is the best we have 
got. And we ought to try find ways that we can make the United 
Nations more effective in these sanctions. And we have got NATO 
over there. It's not the United Nations, and it is not a 
political body. It is a military body. But it is pretty 
effective.
    And, truthfully, the problem is that we as civilization 
just don't have the tools available to us to step in and take 
some meaningful action against the pariahs that have constantly 
haunted this world since history has been written.
    Mr. Houghton. So, in effect, as far as the function of the 
economy is concerned, goods and services, that you would think 
it would be business as usual with Serbia and with North Korea 
and Cambodia and places like Sudan.
    Mr. Gibbons. I don't think we ought to resign ourselves as 
business as usual. I really think we ought to try to find more 
effective ways of getting a world consensus on some of these 
problems.
    Mr. Houghton. And what might that be, Mr. Gibbons?
    Mr. Gibbons. I don't have the answer to that. I wish I were 
wise enough to have the answer to that. As I say, the United 
Nations is not much, but it is the best thing we have, and we 
ought to try to honestly go in there, pay up our back dues, and 
roll up our sleeves, and get to work in that organization and 
try to find ways of getting it to do the kind of things--or 
find a, create better institutions.
    Mr. Houghton. Just one more question. So if we paid our 
back dues and rolled up our sleeves and worked with the United 
Nations and sufficient number of people in the United Nations 
thought that maybe the only squeeze we could put, short of war, 
on some of these countries was a sanction policy, would you 
think that would be appropriate?
    Mr. Gibbons. Be better than what we do. At least, it 
wouldn't hurt us. The current system really hurts us. We are 
losing American jobs and maybe even families that we sacrifice 
without knowing who they are or really caring who they are when 
we slap on these unilateral embargoes.
    I remember in my own district. It was very directly 
affected by the Cuban embargo. In the city of Tampa, we perhaps 
lost as many as 10,000 jobs directly connected to the Cuban 
embargo when it was slapped on.
    Now, I probably would have supported and did support the 
Cuban embargo when it was first slapped on, but it has gone too 
far. I remember the first time I met Senator Moynihan, he was 
working down in the Kennedy White House, and when I got to 
complaining about how many jobs I had lost and how many people 
I had unemployed in my district, they sent Pat Moynihan up to 
work with me as a little freshman Congressman up here to try to 
find some to get those people back into work.
    We weren't very successful, but we tried. And I was really 
impressed with Senator Moynihan's sincerity and his ability at 
that time.
    I picked up something in Mr. Eizenstat's testimony about 
private agencies in Cuba. There are no private agencies in Cuba 
that Americans can deal with. CARITAS is a fine attempt, but 
the Catholic Church in Cuba is not like the Catholic Church in 
the United States. The Catholic Church in Cuba is extremely 
weak. It has not very many employees. It does not have many 
people that work as volunteers in their church effort.
    And, frankly, the folks in CARITAS will say we are just not 
capable of doing the Administration of all the food and 
medicine. We don't have the manpower or the womanpower to do 
it. We don't have the resources to do it. We are marginal, 
because the government is so hostile to us in our activities in 
Cuba. And we have our own political problems within Cuba 
ourselves, just pushing our belief, much less trying to push 
food and medicine and handle all the administrative 
difficulties of handling food and medicine for 11 million 
people.
    And, frankly, all these charitable contributions that Mr. 
Eizenstat has talked about, I can't see any evidence that they 
have gotten to the Cuban people.
    You ought to try to ship something to Cuba. You know, we 
have got an embargo. If any ship or plane travels from the 
United--travels to Cuba, they are quarantined for, the vessel 
is, for 6 months from even entering the United States after 
that. Well, nobody wants to dedicate a ship or an airplane to 
flying into Cuba because, gee whiz, it can't fly into or come 
into the most profitable market in the world.
    You can't ship anything from the United States to Cuba. If 
you want to ship anything from the United States to Cuba, you 
have got to go up to Canada and hope you can find a ship that 
comes through there, and make a charitable contribution and 
send it to Cuba.
    There is just no vessels traveling between the United 
States and Cuba, except yachts.
    Mr. Houghton. Sure.
    Mr. Gibbons. Now if you are a yachtsman and you want to 
race, you can, you can race to Cuba and, I don't know what the 
heck they do when they get down there----
    Chairman Crane. Well, I'm not a yachtsman; maybe Mr. Levin 
is. Are you a yachtsman? You're not, huh? [Laughter.]
    Mr. Gibbons. Well, there are a lot of them in Florida, I 
want to say. They are fine folk, and they race off to Cuba 
every year, and they promise the State Department and everybody 
else that they won't get off their boats while they are down 
there. But I don't think that there is anybody around to check 
up on them.
    The Cuban people don't care if they get off the boats.
    Mr. Houghton. Sam, thank you very much. I really--have you 
got any other questions. I really appreciate your being here. I 
feel strange looking down at you. I should be there looking up 
at you here. [Laughter.]
    Mr. Gibbons. Well, I understand how you feel, and let me 
say there are advantages on both sides of this. [Laughter.]
    Thank you.
    Mr. Houghton. Thanks so much. Really appreciate this.
    Now, the panel of Mr. Kinzer, Bowe, Mr. Christian, Mr. 
McMahon, and David Hamod, would you please come to the table 
here. Thank you very much.
    All right. Well, thank you very much. I am sorry I called 
Mrs. Christian ``Mr. Christian.'' I apologize for that.
    Well, anyway, Mr. Kinzer, would you begin your testimony.

  STATEMENT OF KEITH KINZER, PRESIDENT, IDAHO GRAIN PRODUCERS 
                  ASSOCIATION, GENESEE, IDAHO

    Mr. Kinzer. Yes, sir. Thank you. I would like to thank the 
Members of the Subcommittee on Trade for allowing me this honor 
to present this in front of you and to get off the tractor seat 
after about a month straight.
    Unilateral export sanctions unduly burden U.S. wheat 
producers. There is strong historical evidence that trade 
restrictions imposed by the U.S. Government adversely impact 
U.S. commodity exports. A sanction applied against an importing 
country immediately results in the loss of that market. But 
wheat producers have seen the ripple effect of these economic 
restrictions.
    The first associated impact is that competing exporters 
change their marketing practices to adjust to U.S. unilateral 
economic sanctions to the direct detriment of the United 
States. This is particularly true for Canada and Australia, who 
market their wheat through single-desk monopoly agencies.
    In addition, when the U.S. retreats from a world wheat 
market, it loses its reputation as a reliable supplier and 
hinders future efforts to rebuild lost market share. Moreover, 
sanctions on the export of agricultural commodities rarely 
result in changes in the behavior of the targeted country.
    Our competitors are quick to fill any need that the United 
States leaves unmet. It is the American farmer who feels the 
brunt of any negative impact caused by the use of unilateral 
export restrictions on agricultural goods.
    On April 28 of this year, the White House announced a shift 
in U.S. sanctions policy that will exempt food and medicine 
from existing and, possibly, future export restrictions. U.S. 
wheat producers strongly support this decision.
    This policy change immediately affects three countries, 
Iran, Libya, and Sudan. The inclusion of Iran is particularly 
significant in so far as Iran imports an average of 4.5 million 
metric tons of wheat per year. This demand is currently being 
met by our competitors in Canada and Australia. At other times, 
Argentina and the European Union have been significant wheat 
exporters to Iran.
    In other words, of the world's main wheat exporters, only 
the United States, the largest wheat exporter, was excluded. We 
urge the Administration to quickly develop and implement the 
necessary regulations that provide the flexibility and the 
facilitation to export U.S. wheat to these countries.
    The recent easing of sanctions does not apply to Cuba, 
North Korea, or Iraq, who are currently eligible to receive 
food, food assistance, and medicine from the United States 
through various other means. In the case of Cuba, U.S. wheat 
growers anxiously await the relaxation of congressional 
restrictions on the commercial sale of commodities to that 
country.
    We currently estimate that the elimination of sanctions and 
other restrictions would open 10 to 12 million metric tons of 
global wheat trade, previously off limits to the U.S. 
producers. This would have a significant boost to the U.S. 
farmer.
    We appreciate the chairman's work and leadership in 
introducing H.R. 1244, the Enhancement of Trade, Security, and 
Human Rights Through Sanctions Reform Act. We respectfully urge 
Congress to undertake comprehensive sanctions reform as 
embodied by H.R. 1244.
    The key provisions of the bill necessary for any meaningful 
attempt at sanctions reform include the establishment of clear 
policy goals, a comprehensive economic analysis of costs, a 
permanent Glenn amendment exemption for agriculture, the 
codification of a contract sanctity clause, and the inclusion 
of a sunset provision.
    I would like to emphasize the importance of Congress' 
effort last year to exempt export credit guarantees from the 
Glenn amendment restrictions. In marketing year 1997-98, 
Pakistan was the third largest export marketer for U.S. wheat, 
comprising--excuse me--10 percent of the total wheat exports. 
Congress' quick action on sanctions last year save an important 
wheat market for the United States.
    Finally, we want to reiterate our view that the Federal 
Agricultural Improvement and Reform Act of 1996 makes farmers 
even more dependent on the world market for their income. Since 
most of the world's consumers live beyond our borders, U.S. 
wheat producers are committed to seeking increased access to 
the world market.
    U.S. unilateral export sanctions coupled with high tariffs, 
unsubstantiated sanitary and phytosanitary restrictions, unfair 
practices of state trading enterprises, and continued high 
levels of European subsidies provide U.S. wheat farmers with 
yet another hurdle to overcome in competing for the world 
market share.
    The imposition of the U.S. unilateral export sanctions that 
limit our access to foreign markets is incompatible with the 
FAIR Act. It is time--in a time of low-commodity prices, 
greater competition for export sales, and the adverse impact of 
unilateral sanctions on farmers, we are pleased with the 
attention Congress has given to the long-term-sanctions-reform 
policy.
    We look forward to working with you and the other Members 
of the Committee to restore, maintain, and expand export 
markets for the U.S. wheat producers.
    And I would like to again thank you for this opportunity, 
and look forward to taking any questions.
    [The prepared statement follows:]

Statement of Keith Kinzer, President, Idaho Grain Producers 
Association, Genesee, Idaho

    Mr. Chairman, Members of the Subcommittee on Trade, my name 
is Keith Kinzer. I am President of the Idaho Grain Producers 
Association and a wheat producer from Genesee, Idaho. Before I 
begin my prepared remarks, I would like to thank the 
subcommittee for the opportunity to comment on a subject of 
immense importance to the nation's wheat producers.
    Unilateral export sanctions unduly burden U.S. wheat 
producers. There is strong historical evidence that trade 
restrictions imposed by the U.S. Government adversely impact 
U.S. commodity exports. A sanction applied against an importing 
country immediately results in the loss of that market, but 
wheat producers have seen the ripple effects of these economic 
restrictions. The first associated impact is that competing 
exporters change their marketing practices to adjust to U.S. 
unilateral economic sanctions--to the direct detriment of the 
U.S. This is particularly true for Canada and Australia who 
market their wheat through single-desk monopoly agencies. In 
addition, when the U.S. retreats from the world wheat market it 
loses its reputation as a reliable supplier and hinders future 
efforts to rebuild lost market share. Moreover, sanctions on 
the export of agricultural commodities rarely result in changes 
in the behavior of the targeted country. Our competitors are 
quick to fill any need that the United States leaves unmet due 
to the wide availability of agricultural commodities. It is the 
American farmer who feels the brunt of any negative impact 
caused by the use of unilateral export restrictions on 
agricultural goods.
    On April 28, 1999, the White House announced a shift in 
U.S. sanctions policy that will exempt food and medicine from 
existing and possibly future export restrictions. In the words 
of the President, ``. . . food should not be used as a tool of 
foreign policy, except under the most compelling 
circumstances.'' U.S. wheat producers strongly support this 
decision. This policy change immediately affects three 
countries: Iran, Libya, and Sudan. The inclusion of Iran is 
particularly significant insofar as it imports on average 4.5 
million metric tons of wheat per year. This demand is currently 
being met by our competitors in Canada and Australia. At other 
times Argentina and the European Union have been significant 
wheat exporters to Iran. In other words, of the world's main 
wheat exporters only the United States, the largest wheat 
exporter, was excluded. We urge the Administration to quickly 
develop and implement the necessary regulations that provide 
flexibility and to facilitate the export of U.S. wheat to these 
countries.
    The recent easing of sanctions does not apply to Cuba, 
North Korea, or Iraq who are currently eligible to receive 
food, food assistance and medicine from the United States 
through various other means. In the case of Cuba, U.S. wheat 
growers anxiously await the relaxation of congressional 
restrictions on the commercial sale of commodities to that 
country. We currently estimate that the elimination of 
sanctions and other restrictions, including licensing, for 
agricultural commodities, would open ten to twelve million 
metric tons of global wheat trade, previously off-limits to 
U.S. producers. This would provide a significant boost to U.S. 
farmers.
    In making the April 28 announcement, Under Secretary of 
State for Economics and Agricultural Affairs, Stuart Eizenstat, 
noted that this was a first step toward ``the goal of 
comprehensive sanctions reform by both Congress and the 
Executive Branch.'' We concur with this view and appreciate the 
Chairman's work and leadership on this issue in introducing, 
the `Enhancement of Trade, Security and Human Rights through 
Sanctions Reform Act (H.R. 1244).' We respectfully urge 
Congress to undertake comprehensive sanctions reform as 
embodied by H.R. 1244. The key provisions of the bill necessary 
for any meaningful attempt at sanctions reform include; the 
establishment of clear policy goals, a comprehensive economic 
analysis of costs, a permanent Glenn Amendment exemption for 
agriculture, the codification of a ``contract sanctity'' 
clause, and the inclusion of a ``sunset'' provision. I would 
like to emphasize the importance of Congress' effort last year 
to exempt export credit guarantees from the Glenn Amendment 
restrictions. In marketing year 1997/98, Pakistan was the third 
largest export market for U.S. wheat, comprising 10 percent of 
total wheat exports. Congress' quick action on sanctions last 
year saved an important wheat market for the United States.
    Finally, we want to reiterate our view that the Federal 
Agriculture Improvement and Reform Act of 1996 (FAIR) makes 
farmers even more dependent on the world market for their 
income. Since most of the world's consumers live beyond our 
borders, U.S. wheat producers are committed to seeking 
increased access to the world market. U.S. unilateral export 
sanctions, coupled with high tariffs, unsubstantiated sanitary 
and phytosanitary restrictions, unfair practices of state 
trading enterprises, and continued high levels of European 
subsidies, provide U.S. wheat farmers with yet another hurdle 
to overcome in competing for world market share. The imposition 
of U.S. unilateral export sanctions that limit our access to 
foreign markets is incompatible with the FAIR Act. In a time of 
low commodity prices, greater competition for export sales, and 
the adverse impact of unilateral sanctions on farmers, we are 
pleased with the attention Congress has given to long-term 
sanctions reform policy. We look forward to working with you 
and the other members of the committee to restore, maintain, 
and expand export markets for U.S. wheat producers.
    Thank you for the opportunity to appear today. I look 
forward to taking your questions at the appropriate time.

                                

    Mr. Houghton. Thank you, Mr. Kinzer.
    Mr. Bowe.

    STATEMENT OF PETER A. BOWE, PRESIDENT, ELLICOTT MACHINE 
 CORPORATION INTERNATIONAL, BALTIMORE, MARYLAND, AND DIRECTOR, 
             SMALL BUSINESS EXPORTERS' ASSOCIATION

    Mr. Bowe. Yes, sir, Mr. Houghton. My testimony is on behalf 
of the Small Business Exporters' Association and Ellicott 
International, a 100-year-old manufacturer. We have been 
exporting dredges for port construction ever since we built all 
of the dredges used in the original construction of the Panama 
Canal.
    Today, over half of our sales go to developing countries. 
We are still a small business with about 125 employees, 
including unionized steel workers. Our competitors are large, 
aggressive European companies actively supported by their 
governments.
    Even though we are a small company in a relatively small 
industry, we have been heavily affected by American trade 
sanctions. They cost us millions of dollars per year in sales, 
jobs, market share, lost investment in R and D, profits, and 
even tax revenue to State and local governments.
    To give you an idea how sanctions have affected our 
business, I would like to illustrate the issue with four 
anecdotal case studies.
    In the late 1970's Ellicott was working with a Finnish ship 
yard to supply dredges to the Soviet Union. The cooperation was 
based on using our technology and machinery. After President 
Carter embargoed exports of American grain because of the 
Soviet invasion of Afghanistan, the Soviets required the 
Finnish yard, who was the prime bidder, to get rid of us as an 
American supplier in retribution for the American embargo. The 
Finns quickly complied and bought from a European supplier 
instead.
    For 20 years after America's withdrawal from Vietnam in 
1975, we were legally unable to do business there. We had 
previously been the market share leader. During the embargo, 
our European competitors moved in. Even now, U.S. Government 
financing agencies are still not fully in place.
    For example, Ex-Im Bank is not open for medium-term 
financing on the same basis as the export credit agencies of 
our European competitors, Canada, Australia, and so forth. Our 
most recent lost sale only 4 months ago was for about $2 
million, where we lost even though we had a lower price but we 
could not offer comparable financing.
    India is another target market because of its major 
infrastructure investment needs. Last year, we signed a 
multimillion-dollar deal with an Indian company but subject to 
Ex-Im Bank financing. We received a cash downpayment, and the 
financing was in process, but the Indian government conducted 
its nuclear test. Our customer could not wait for Ex-Im Bank 
availability to be restored, so he canceled the order.
    The biggest market in the world today for dredging today is 
China. They need dredges for flood control and environmental 
cleanup, nothing sensitive from a security perspective. While 
America's relationship with China is currently controversial, 
none of our allies have been reluctant to promote their 
commercial technologies there.
    Our Dutch competitors developed significant market share 
there before President Nixon opened China to American business. 
The Dutch have since done hundreds of millions of dollars worth 
of business there. It is their most important customer.
    I had the privilege of attending Secretary Daley's trade 
mission to China just 2 months ago. The ministers we met said 
that American companies would sell more if Ex-Im Bank offered 
financing on the same terms as the Europeans and if OPIC was 
available.
    Just a month ago, our Dutch competitor, on their own trade 
mission, announced contracts for six dredges worth over $125 
million. The key to this deal was a Dutch government grant 
comparable to our AID, which is closed in China, which paid for 
as much as 45 percent of some of the dredges purchased.
    What makes American sanctions so ineffective and so harmful 
to American exporters is the extent to which they are 
unilateral. Our European competitors, our diplomatic and NATO 
allies, are aggressively pursuing, with official government 
support, the same markets we have determined are ineligible to 
American companies.
    Right now, the Dutch and Germans have grants for China, 
Vietnam, India, and Indonesia, just for dredging. When the U.S. 
Commerce Department wrote a report recently describing how the 
Europeans, Canadians, and Japanese promoted their exports to 
the environmental market in China, an important infrastructure 
industry, it took them over 88 pages to cover the breadth and 
depth of this report. This is an example of that.
    The spending is over $100 million per year.
    The Dutch foreign trade minister described her government's 
policy this way: Our work is to develop special advantageous 
arrangements with these developing countries in order to assure 
that Dutch companies have a place at the table. All of our 
ministries cooperate and work closely to maintain a coherent 
package of export promotion measures.
    This is the real world of foreign competition. It is not 
just between companies, but between countries. So unilateral 
sanctions amount to unilateral withdrawal and disarmament. The 
process of sanctions is inherently flawed except where U.S. 
industry enjoys an international monopoly where foreign 
substitutes are not available.
    However, I am not aware of many, if any, such American 
monopolies. It certainly does not apply to construction 
equipment. If there is no international monopoly, then 
sanctions are doomed to fail without multilateral action, which 
would bring our foreign competitors into the same sanctions 
regime.
    My conclusion is that while sanctions may make us feel good 
emotionally, they rationally ignore the significant negative 
consequences imposed on our manufacturing economy. Furthermore, 
they are completely ineffective, given the competitive world 
where our foreign customers have choices. And they are not 
reluctant to exercise their options, especially if we force 
them to do so.
    Thank you.
    [The prepared statement follows:]

Statement of Peter A. Bowe, President, Ellicott Machine Corporation 
International, Baltimore, Maryland, and Director, Small Business 
Exporters' Association

    My testimony is on behalf of the Small Business Exporters' 
Association and Ellicott Machine Corporation International, a 
100 year old manufacturer of dredging equipment. We have been 
exporting dredges for port construction, land reclamation, and 
mining ever since we supplied all of the dredges used in the 
original construction of the Panama Canal. Today over half of 
our sales come from exports, mostly to developing countries. We 
are a small business with over 125 employees and a plant in 
Baltimore with unionized Steelworkers. We are the U.S. leader 
in this market; our competitors are large, aggressive European 
companies actively supported by their governments. While we 
have the leading technologies in the field, none of these 
technologies are sensitive to our defense or national security 
concerns.
    Even though Ellicott is a small company in a relatively 
small industry, we have been, and continue to be, heavily 
affected by American trade sanctions. They cost us millions of 
dollars per year in lost sales, and dozens of jobs.
    To give you an idea how trade sanctions have affected our 
business, I'd like to illustrate the issue with five anecdotal 
case studies. American sanctions have cost us jobs, market 
share, lost investment in research and development, lost 
profits, and even tax revenue to state and federal governments.
    Case Study #1--Former Soviet Union: In the late 1970's 
Ellicott had been working hard for several years, together with 
a Finnish shipyard, to supply dredging equipment to the Soviets 
for port maintenance. The cooperation was based on using 
Ellicott technology and machinery. When we were close to 
securing a contract, President Carter embargoed exports of 
American grain and oil field equipment to the Soviet Union 
because of their invasion of Afghanistan. Virtually at the 
contract signing table the Soviets required the Finnish yard, 
who was the prime bidder, to get rid of its American supplier, 
i.e., Ellicott, in retribution for the American embargo. Rather 
than risk the loss of a sale, the Finns quickly complied and 
bought their equipment from a European supplier instead. The 
cost to us was a contract worth over $10 million in today's 
terms.
    Case Study #2--Vietnam: For 20 years after the America's 
withdrawal in 1975, we were legally unable to do business in 
Vietnam. We had previously been the market leader in South 
Vietnam. During the embargo period, our French and Dutch 
competitors moved in aggressively and established significant 
market share. Even now with the embargo lifted, the 
prerequisite US government financing agencies are still not 
fully in place. For example, Eximbank is not open for medium 
term equipment financing on the same basis as the export credit 
agencies of our European competitors, Canada, Australia, etc. 
Our most recent lost sale only four months ago, was for about 
$2 million, where we lost even though we had a lower price, but 
could not offer comparable financing.
    Case Study #3--India: India is another target market for 
our company because of its major transportation infrastructure 
investment needs. A few years ago we developed a toehold with 
an Indian contractor. Building on that relationship, last year 
we signed a multi-million dollar deal with the same Indian 
company for a construction contract it won. We received a firm 
order and a cash downpayment, all subject to Eximbank 
financing. While this financing was in process, the Indian 
government conducted its nuclear test. Our customer could not 
wait for Eximbank availability to be restored, and we lost the 
order which included the equivalent of ten Steelworkers' jobs 
plus significant spending on our vendor base such as 
Caterpillar and other industrial firms across the country.
    Case Study #4--Iran: While American commercial activities 
in Iran have been severely restricted, our European competitors 
have been active for port projects and waste water treatment 
plants. Our Iranian sources tell us our products would be 
competitive if they were available. Ironically it is our NATO 
allies who benefit from our unilateral action and self-
initiated harm.
    Case Study #5--China: The biggest market in the world today 
for dredging equipment is China. They need dredges for flood 
control, environmental clean-up, and ports--nothing sensitive 
from a security perspective. While America's relationship with 
China is currently controversial, none of our NATO allies have 
been reluctant to promote their commercial technologies in 
China for our industry and others. Our Dutch competitors 
developed substantial market share there before President Nixon 
opened China to American business. They have since done 
hundreds of millions of dollars in export business to China. It 
is now their most important customer. On the other hand, we 
still have post-Tiananmen Square sanctions affecting our 
ability to do business there, and Eximbank, which is still open 
in China, is not as aggressive as the credit agencies of our 
foreign competitors.
    I had the privilege of attending Secretary Daley's trade 
mission to China in March just two months ago. The ministers we 
met told our group that American companies would sell more if 
Eximbank offered financing on the same terms as the Europeans, 
and if OPIC was available. Just a month ago our Dutch 
competitor, on a trade mission of their own with a Dutch 
Minister, announced contracts for six dredges worth over $125 
million. The key to this deal was a heavily subsidized Dutch 
government grant, comparable to our AID (which is closed in 
China), paying for as much as 45 percent of some of the dredges 
purchased.
    The cost of these sanctions to Ellicott in some years can 
exceed $10 million in lost sales.
    What makes American sanctions so ineffective in achieving 
their desired intentions, and so harmful to American exporters 
is the extent to which they are unilateral. Our European 
competitors--our diplomatic and NATO allies--the Dutch and the 
Germans--and even the British in some cases--are aggressively 
pursuing with official government support many of the same 
markets we have determined are ineligible to American 
companies. They are spending tens of millions of dollars 
annually even on an industry as obscure as dredges. Right now 
the Dutch and Germans have a mixture of bi-lateral grants and 
ad hoc project grants for China, Vietnam, India, and Indonesia 
just for dredging equipment. When the U.S. Commerce Department 
recently wrote a report describing how the Europeans, 
Canadians, and Japanese governments promoted their exports to 
the environmental market in China--an important infrastructure 
industry--it took them over 88 pages to cover the breadth and 
depth of this support. The spending is over $100 million per 
year. The Dutch Foreign Trade Minister described her 
government's policy this way: [our work is to develop] 
``special advantageous arrangements with these [developing] 
countries in order to assure that Dutch companies have a place 
at the table . . . ; [all of our ministries] cooperate and work 
closely to maintain a coherent package of [export promotion] 
measures.'' This is the real world of foreign competition: it's 
not just between companies, but between countries, so that our 
unilateral sanctions amount to unilateral withdrawal and 
disarmament.
    The process of sanctions is inherently flawed and doomed to 
failure unless the US industry affected enjoys an international 
monopoly where foreign substitutes are not available. I am not 
aware of many, if any, such cases, where American companies 
enjoy such a monopoly. Certainly it is not true in my industry 
of construction equipment. If there is no international 
monopoly, then sanctions are doomed to fail in achieving their 
objectives without multilateral action which brings the 
governments of our foreign competitors into the same sanctions 
regime. As most of our sanctions have in fact been unilateral, 
they have been doubly doomed to failure.
    Not only are these sanctions ineffective in achieving their 
desired result of depriving the sanctioned country of specific 
technologies, but the party hurt is we ourselves. Our 
manufacturing labor, often union members, our vendors, our 
shareholders, and even the government suffer. Had we been able 
to export more, we would have more employees, spent more money 
on vendors, been more profitable, and paid more taxes.
    We have also lost market share, sometimes on a long term 
basis. Lost market share is not easily recovered. This is not a 
small issue when our exports are flat and our record trade 
deficit is likely to exceed $200 billion this year.
    My conclusion is that while sanctions may make us feel good 
emotionally, they irrationally ignore the significant negative 
consequences imposed on our manufacturing economy. Furthermore, 
they are completely ineffective in achieving their desired 
results on the sanctioned country, given the competitive world 
where our foreign customers have choices and are not reluctant 
to exercise their options especially if we force them to do so.

                                

    Mr. Houghton. Thanks very much.
    Ms. Christian.

  STATEMENT OF SHIRLEY CHRISTIAN, BUSINESS MANAGER, FRUTAROM 
                 INC., NORTH BERGEN, NEW JERSEY

    Ms. Christian. Thank you, Mr. Chairman and Members of the 
Subcommittee, for this opportunity to testify. I am pleased to 
testify today on behalf of Frutarom Incorporated in my capacity 
as business manager of Frutarom Gum Division. Frutarom is a 
leading processor and supplier of gum arabic.
    Mr. Houghton. Would you pull that microphone just a little 
bit closer to you? That would be great. Thank you.
    Ms. Christian. And we are one of only three processors in 
the United States. Gum arabic is an essential ingredient in a 
wide variety of products important to the United States 
economy.
    Prior to the imposition of the sanctions, Sudan was our 
principal source of supply for gum arabic. Since their 
imposition, the importation of Sudanese gum arabic is banned. 
America's unilateral sanctions against Sudan have not hurt 
Sudan economically. Sudan is free to trade with the rest of the 
world and does.
    Instead, the sanctions have been felt mainly by the U.S. 
gum arabic processors, who have been left without adequate 
alternative product sources. This has left us vulnerable to 
foreign competition at home and abroad and has left our 
customers and the U.S. consumer subject to the monopolistic 
practices of foreign processors.
    Current trade data, which we have included with our 
submission to the Subcommittee, demonstrate that the Khartoum 
government remains unaffected by the sanctions. Sudan has a 
ready market for gum arabic, particularly in France. Since the 
imposition of the U.S. sanctions, French gum arabic processors 
have doubled their imports from Sudan and have moved 
aggressively to gain market share in the United States and in 
our export markets.
    It appears that those who benefit the most from U.S. 
unilateral sanctions against Sudan are our foreign competitors. 
They benefit from the failure of their governments to support 
human rights and anti-terrorism policies of the United States.
    Those who lose are the parties our government should strive 
the most to protect and help.
    To understand the effect of unilateral sanctions against 
Sudan, to understand how unilateral sanctions have hurt our 
business and the business of our customers, you must first 
understand the importance of this product to the U.S. economy.
    Gum arabic is grown primarily in what is known as the gum 
belt in the southern Sahara Desert. About 80 percent of the 
world's gum arabic is produced in Sudan. The finest quality gum 
arabic comes from Sudan.
    Gum arabic is a remarkable substance. There is no adequate 
substitute for gum arabic. It is used in products purchased 
every day by U.S. consumers.
    In pharmaceuticals, gum arabic is used as a binder in 
tableting, in the flavor and beverage industries as a preferred 
emulsifier. Gum arabic is used to stabilize foam in the 
manufacture of soft drinks and beer, and to clarify wine. Also, 
it is widely used in cosmetics to stabilize lotions and creams. 
In lithography, it is used in the preparation of etching and 
plating solutions. In confections, it is primarily to retard 
sugar crystallization and emulsify fat. In foods, it is 
commonly used in meats, sauces, dressings, baked goods, 
candies, cheeses, ice creams, icings, and numerous other food 
products.
    Gum arabic is vital to the U.S. economy.
    The next largest source of gum arabic is from Chad. Chadian 
gum arabic is of much lesser quality than Sudanese gum, but 
because of the demand created by the unilateral sanctions, the 
price of the Chadian gum arabic is higher than world prices for 
the Sudanese product. Currently, we are paying about 40 to 50 
percent more for lesser quality Chadian gum than our European 
competitors are paying for the highly desirable Sudanese gum 
arabic.
    It is not unthinkable that our European competitors might 
be bidding up the price in order to drive American processors 
out of business. The other U.S. gum arabic processors have 
addressed this issue in their submission to the Subcommittee, 
and we urge you to carefully consider their statement.
    Recent cancellation of international orders placed with 
Frutarom as well as current trade data, already shows signs 
that the U.S. processors are losing international export 
markets to our French competitors. But much more threatening is 
the potential loss of the domestic market to France and other 
European competitors who have unfettered access to high-grade 
Sudanese gum arabic.
    French import data shows that French imports of gum arabic 
from Sudan have doubled since the sanctions were imposed, more 
than compensating Sudan for the direct loss of U.S. gum arabic 
trade. At the same time, French exports of gum arabic to the 
United States have reached a record high, replacing Sudan as 
the leading exporter of gum arabic to the United States.
    Because Chadian gum arabic is widely available from 
Frutarom and other U.S. processors, it seems unlikely that the 
sharp rise in French exports to the United States is due to a 
demand for a Chadian product. There can be no doubt that the 
French exports to the United States include high-quality 
Sudanese gum arabic, which has been sprayed, dried, and 
processed in France and exported to the States as a product of 
France.
    Thus the only differences in gum arabic available in the 
United States prior to and after the imposition of the 
sanctions, are that the French processors have replaced the 
U.S. processors and that the French are now in the position to 
control the price of the Sudanese processed product.
    We cannot match our European competitors in terms of price 
and quality in international markets. Examination of the United 
States and French trade data show a loss of export market share 
to the French in traditional U.S. export markets.
    Frutarom has just lost a long-time customer in Asia for 
reasons our customers describe as a product-quality issue. Our 
overseas customer of many years just broke his contract with us 
in favor of our French competitors who are marketing the 
Sudanese processed product at prices the U.S. processors are 
unable to offer for the Chadian product.
    All of the factors discussed today and all of the data 
submitted lead to two inevitable conclusions. As a direct 
result of the unilateral sanctions, United States has lost 
competitive position in the vital gum arabic trade both 
domestically and internationally. And the French have picked up 
the slack and thereby canceled the effect of the sanctions.
    It would have been just as effective to have sanctioned 
U.S. gum arabic processors directly and to have turned over the 
business to our European competitors because this is the 
unintended result of the unilateral sanctions as they affect 
our gum arabic business.
    We acknowledge that unilateral sanctions may be useful 
instruments of foreign policy when American interests are at 
stake and Americans are not unintentionally injured. But the 
Congress should not support the imposition of unilateral 
sanctions no matter how justifiable the provocation when the 
only parties damaged by the sanctions are Americans.
    Thank you very much for allowing me to appear.
    [The prepared statement follows:]

Statement of Shirley Christian, Business Manager, Frutarom, Inc., 
North Bergen, New Jersey

          Use and Effect of Unilateral Sanctions Against Sudan

    Thank you Mr. Chairman and Members of the Subcommittee for 
this opportunity to testify. My name is Shirley Christian. I am 
pleased to testify today on behalf of Frutarom, Inc. in my 
capacity as Business Manager of Frutarom Meer's gum division. 
Frutarom is a leading processor and supplier of gum arabic in 
the world, and one of only three processors in the United 
States. Gum arabic is an essential ingredient in a wide variety 
of products important to the United States economy. Prior to 
the imposition of the sanctions, Sudan was our principal source 
of supply for gum arabic. Since their imposition, the 
importation of Sudanese gum arabic is banned.
    America's unilateral sanctions against Sudan have not hurt 
Sudan economically. Sudan is free to trade with the rest of the 
world, and does. Instead, the sanctions have been felt mainly 
by United States gum arabic processors, who have been left 
without adequate alternative product sources. This has left us 
vulnerable to foreign competition in the United States and in 
international markets, and has left our customers and United 
States consumers subject to monopolistic practices of foreign 
processors.
    Current trade data, which we have included with our 
submission to the Subcommittee, indisputably demonstrate that 
the Khartoum government remains unaffected by the sanctions. 
Gum arabic is one of Sudan's major exports. Sudan has a ready 
market for gum arabic throughout Europe and particularly in 
France, where since the imposition of the U.S. sanctions French 
gum arabic processors have doubled their imports from Sudan and 
have moved aggressively to gain market share in the United 
States and in our export markets.
    It appears that those who benefit the most from United 
States unilateral sanctions against Sudan are our foreign 
competitors. They benefit from the failure of the United States 
government to first seek and enforce targeted and multilateral 
sanctions. They benefit from the failure of their governments 
to support human rights and antiterrorism policies of the 
United States. Those who lose are the parties our government 
should strive the most to protect and help.
    To understand the effect of unilateral sanctions against 
Sudan, to understand how unilateral sanctions have hurt our 
business and the business of our customers, you must understand 
the importance of this product to the United States economy. 
Gum arabic is a natural gummy exudate obtained by tapping the 
branches of the Acacia Senegal tree. It is grown primarily in 
what is known as the Gum Belt along the southern periphery of 
the Sahara Desert. Approximately 80 percent of the world's gum 
arabic is produced in Sudan. Much more important to our 
business, the finest quality gum arabic is found in Sudan.
    Gum arabic production begins with the Sudanese farmer who 
tends his very valuable trees throughout the year. At exactly 
the right time of year, determined by expertise acquired over 
many years, the farmer taps his trees. Gum exudes where the 
bark has been cut and three weeks later the first gum arabic 
collection is made. Millions of Sudanese men and women, of 
every ethnic background, rely on gum collection as a vital 
source of income.
    Gum arabic is a remarkable substance. It is used in 
products purchased every day by United States consumers. In 
pharmaceuticals, gum arabic is used as a binder in tableting. 
In cough syrups it is used as a demulcent. In the flavor and 
beverage industries it is a preferred emulsifier. Gum arabic is 
used to stabilize foam in the manufacture of soft drinks and 
beer and to clarify wine. As an emulsifier, gum arabic provides 
excellent shelf-life stability to oil-in-water emulsions and 
does not mask flavors with filmy texture or off-flavor on the 
tongue, features unmatched by synthetic additives. In 
cosmetics, it functions as a stabilizer in lotions and screens. 
Gum arabic increases the viscosity of cosmetics, imparts 
spreading properties, and gives a protective coating and smooth 
feel. In lithography, it is used in the preparation of etching 
and plating solutions, plate washes, and protective coatings 
for the plates in storage. In confections, it is used primarily 
to retard sugar crystallization and emulsify fat. It also is 
used as a glaze component in chewing gums, cough drops, and 
lozenges. In textiles, it is used as a fabric finish. In foods, 
it is commonly used in meats, sauces and dressings, baked 
goods, candy, cheeses, ice creams, icings and numerous other 
food products. The product is vital to the United States 
economy.
    No substitutes match gum arabic's extraordinary film-
foaming and emulsifying qualities. Users of gum arabic have 
encountered every form of disincentive to continue using this 
beleaguered product. Famine, drought, pestilence, wild price 
swings, shortages, and political crises have given the broadest 
opportunity for suppliers of competitive products to replace 
gum arabic. Synthetic imitators from modified starches and 
maltodextrins, and other products have been developed to take 
advantage of the vulnerability of supply of gum arabic, but 
these substitutes have failed to replace gum arabic in most 
pharmaceutical, food, and beverage products where taste, mouth 
feel, superior emulsification, low calorie value, high fiber 
content and extended product shelf-life are demanded by United 
States industries and consumers.
    In the early 1970's United States gum arabic consumption 
exceeded 33 million pounds per year. The famine in the gum belt 
of 1973-1975 resulted in a tripling of gum prices and gum 
arabic usage was cut nearly in half. Certain bulk usage 
applications in non-food products were permanently replaced. We 
believe that most applications where gum arabic was 
substitutable were successfully targeted during this period.
    Since the disastrous period of the 1970's, and the 
droughts, shortages, and price increases during the 1980's and 
1990's, gum arabic usage in the United States has not 
diminished. The volume has actually grown roughly in line with 
the growth of the product category served. Periodic displeasure 
with the challenges of supply have led to warnings of the 
product's demise, but its film-foaming and emulsifying 
qualities have necessitated its survival. The emphasis in 
recent years on the importance of ``natural'' and ``soluble 
fiber'' have further secured gum arabic's position in the 
United States market.
    The inability of certain industry sectors, such as the 
beverage, food and pharmaceutical industries, to secure high 
quality gum arabic would have an immediate and negative impact 
on the United States economy by lessening the quality of their 
products and reducing their sales. Competing imported products 
manufactured with gum arabic would gain a qualitative 
advantage, and thus would further damage United States 
producers.
    Gum arabic grown in Chad holds the best promise of 
replacing Sudanese gum arabic, but only in the future. Current 
crop yields in Chad are immature and of lesser quality than 
Sudanese gum arabic, with viscosity levels as much as ten times 
higher than the levels present in the Sudanese product. Much of 
the gum arabic we have purchased from Chad is of viscosity 
levels too high to be accepted by key industry sectors which we 
serve. The best method of achieving an appropriate viscosity 
level using Chadian gum arabic is by mixing the product with 
Chadian gum arabic containing lower viscosity levels, or 
blending the product with Sudanese gum arabic. Mixing and 
blending are both processes which add considerable costs and 
can drive up the price of the customer specified product. In 
some instances, even after costly mixing of the Chadian gum 
arabic, our customers have rejected orders, causing us to begin 
the expensive process again with a different batch of gum 
arabic. But quality is not the only issue affecting Frutarom's 
competitive position in United States and international 
markets.
    Because of the artificial demand created by the unilateral 
sanctions, and despite its lesser quality, the price of the 
Chadian gum arabic is higher than world prices for the Sudanese 
product. Currently, as a direct result of unilateral sanctions 
against Sudan, we are paying about 40 percent to 50 percent 
more for lower quality Chadian gum arabic than our European 
competitors are paying for the highly desirable Sudanese gum 
arabic. Other factors may be driving up the price of the 
Chadian gum arabic. It is not unthinkable that our European 
competitors might be bidding up the price in order to drive 
American processors out of business. The other United States 
gum arabic processors have addressed this issue in their 
submission to the Subcommittee, and we urge you to carefully 
consider their statement.
    Without authorization to import additional quantities of 
the Sudanese product, Frutarom and other United States 
processors will not be able to compete with our European 
counterparts in quality and price. Recent cancellation of 
international orders placed with Frutarom, as well as current 
trade data, already show signs that United States processors 
are losing international export markets to our French 
competitors. But much more threatening is the potential loss of 
the domestic market to France and other European competitors 
who have unfettered access to high grade Sudanese gum arabic.
    French import data show that French imports of gum arabic 
from Sudan have doubled since the sanctions were imposed, more 
than compensating Sudan for the direct loss of United States 
gum arabic trade. At the same time, French exports of gum 
arabic to the United States have reached a record high.
    Incredibly, in just one year French imports of gum arabic 
from Sudan jumped from 5,556 tons during 1997 to 10,701 tons 
during 1998. During the combined years of 1997 and 1998, French 
exports to the United States increased almost 60 percent over 
1996 exports. French import and export data for the first 
quarter of 1999 is not yet available to us, but United States 
import data for January and February of 1999 show that France 
has replaced Sudan as the leading exporter of gum arabic to the 
United States with a record 51 percent share of the U.S. import 
market, substantially up from the 23 percent share for the same 
period in 1998. (No significant increases were found in imports 
from the U.K.) And as expected, United States imports from Chad 
increased due to the sanctions, but only to a 45 percent share 
of U.S. imports. If the Chadian product were of suitable 
quality, this number would be much higher and the French share 
much lower.
    One concern we have with the sharp increase in French 
exports to the United States is that it coincides with the 
depletion of United States inventories of Sudanese gum arabic 
held by United States processors and other commercial sectors. 
French processors must be well aware that the United States 
government has not granted waivers for imports of Sudanese gum 
arabic for 1999 and beyond.
    The French trade data for 1998 show that 51 percent of its 
total gum arabic imports came from Sudan, and only about 28 
percent imported from Chad. Because Chadian gum arabic is 
widely available from Frutarom and other United States 
processors, it seems unlikely that the rise in French exports 
to the U.S. is due to a demand for a Chadian product processed 
in France. There can be no doubt that French exports to the 
United States include high quality Sudanese gum arabic which 
has been spray dried and processed in France and exported to 
the States as a product of France. Thus, the only differences 
resulting from the United States sanctions in gum arabic 
available prior to and after the November, 1997 Executive Order 
are that the French processors have replaced the U.S. 
processors and the French are now in the position to control 
the price of the Sudanese processed product.
    We cannot match our European competitors in terms of price 
and quality in international markets. Frutarom just lost a 
long-time customer in Asia for reasons our customer described 
as a product quality issue. Our overseas customer of many years 
just broke its contract with us in favor of our French 
competitors, who are marketing the Sudanese processed product 
at prices United States processors are unable to offer for the 
Chadian product.
    Frutarom's loss of international business is not isolated. 
Current trade data support the conclusion that this is a 
frequent occurrence. A close examination of United States and 
French trade data show a loss of export market share to the 
French in traditional United States export markets. The data 
show early signs of declines in exports to Mexico and certain 
South American countries such as Brazil, Colombia, Argentina, 
Chile, and Venezuela, with corresponding increases in French 
exports to these markets. For the combined years of 1997 and 
1998, French exports worldwide increased more than 40 percent. 
U.S. export data show that exports of gum arabic declined 
approximately 15 percent in 1998, from the previous year. Due 
to our diminished inventories of Sudanese gum arabic, the 
decline in United States exports of gum arabic will continue in 
1999 and become more pronounced by 2000 if the situation 
remains unchecked and relief is not granted.
    All of the factors discussed today and all of the data 
submitted lead to two inevitable conclusions. As a direct 
result of the unilateral sanctions, the United States has lost 
competitive position in the vital gum arabic trade, both 
domestically and internationally, and the French have picked up 
the slack and thereby canceled the effect of the sanctions. It 
would have been just as effective to have sanctioned U.S. gum 
arabic processors directly and to have turned over the business 
to our European competitors, because this is the unintended 
result of the unilateral sanctions as they affect our gum 
arabic business.
    We acknowledge that unilateral sanctions may be useful 
instruments of foreign policy when American interests are at 
stake and Americans are not unintentionally injured. But the 
Congress should not support the imposition of unilateral 
sanctions, no matter how justifiable the provocation, when the 
only parties damaged by the sanctions are Americans.
    Once again, I would like to thank the Chairman and the 
members of the Subcommittee for the privilege of appearing 
before you today. I look forward to your questions and will be 
happy to provide you with any additional information that your 
staff may need in further analyzing unilateral trade sanctions.

                                                                               United States Imports of Gum Arabic
                                                                                     [Quantity in Kilograms]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      1999 Jan/Feb              1998 Jan/Feb                  1998               1997 (Imposition of              1996
                                                               ------------------------------------------------------------------------------        Sanctions)        -------------------------
                                                                                                                                             --------------------------
                                                                  Imports       Share       Imports       Share       Imports       Share       Imports       Share       Imports       Share
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
France........................................................      754,758           51      709,451           23    5,325,605           34    4,479,040           40    3,190,359           32
Sudan.........................................................            0            0    2,097,000          68%    2,537,000          17%    3,564,140          33%    3,299,760          33%
Chad..........................................................      658,182        44.6%      157,600           5%    5,640,633          37%    2,425,189          22%    1,577,053        15.7%
UK............................................................       24,151         1.6%       24,326         .79%      244,171         1.6%      282,374         2.6%      323,999         3.2%
Nigeria.......................................................       20,000        1.35%       80,000        2.60%      569,442        3.72%      676,349         6.2%      639,486         6.4%
World.........................................................    1,473,591                 3,069,501                15,288,286                10,908,755                10,021,268
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Source: United States Department of Commerce, Census Bureau. Global Trade Database
** HTS No. 1301.20.0000

                                          French Imports of Gum Arabic
                                               [Quantity in Tons]
----------------------------------------------------------------------------------------------------------------
                                                   1998                    1997                    1996
                                         -----------------------------------------------------------------------
                                                      Share  [In              Share  [In              Share  [In
                                            Imports    percent]     Imports    percent]     Imports    percent]
----------------------------------------------------------------------------------------------------------------
Sudan...................................  10,701.900          51   5,556.000          33   5,344.100          40
Chad....................................   5,925.100          28   5,033.100          30   3,977.500          30
Nigeria.................................   1,577.100         7.5   2,301.800          14   1,119.900           8
United States...........................     391.100         1.9     335.300         2.0     206.000         1.5
World...................................  20,965.200              16,853.200               13,199.29
----------------------------------------------------------------------------------------------------------------
* Source: Global Trade Information Services
** HTS No. 1301.20.0000

                                              United States Exports
                                             [Quantity in Kilograms]
----------------------------------------------------------------------------------------------------------------
                                                     1999         1998                      1997
                                                --------------------------              (Imposition
                                                                               1998          of          1996
                                                   Jan/Feb      Jan/Feb                  Sanctions)
----------------------------------------------------------------------------------------------------------------
Mexico.........................................       14,646       22,725      182,438      129,270      208,979
Brazil.........................................            0            0       20,735      126,007      117,278
Argentina......................................          774          678       21,580       47,686       33,897
Colombia.......................................            0       16,896       51,414       54,126       71,571
Chile..........................................            0            0        4,465            0       27,837
Venezuela......................................            0        2,068        2,803       80,040       25,266
Philippines....................................            0       21,284       21,284       47,183      161,854
Japan..........................................        8,294        8,016       62,491      228,928      247,809
World..........................................      225,891      225,118    2,052,068    2,384,716    2,064,877
----------------------------------------------------------------------------------------------------------------
Source: United States Department of Commerce, Bureau of Census, Global Trade Database

[GRAPHIC] [TIFF OMITTED] T6565.001

                                

    Chairman Crane. [presiding] Thank you, Ms. Christian.
    Mr. McMahon.

STATEMENT OF HON. JOHN N. MCMAHON, MEMBER, BOARD OF DIRECTORS, 
  LOCKHEED-MARTIN-KHRUNICHEV-ENERGIA INTERNATIONAL, INC., ON 
   BEHALF OF LOCKHEED MARTIN CORPORATION; AND FORMER DEPUTY 
             DIRECTOR, CENTRAL INTELLIGENCE AGENCY

    Mr. McMahon. Thank you, Mr. Chairman. I appreciate the 
opportunity to appear here today and offer my views on 
unilateral trade sanctions, focusing in particular on the de 
facto use of such sanctions by failing to lift the current 
trade quota on the Russian proton vehicle.
    Since its inception in 1993, I have served as a member of 
the board of directors of Lockheed-Khrunichev-Energia 
International, the U.S.-Russian joint venture providing 
worldwide commercial satellite launch services using the proton 
launch vehicle system. In many cases, the United States has 
sought to respond to the challenges of post-cold war era with 
unilateral trade sanctions. However, the cost to the U.S. 
economy has been high.
    As you yourself said, Mr. Chairman, in your opening 
comments, around $15 to $20 billion a year. And we understand 
by some estimates, as many as 250,000 well-paying jobs.
    It would be one thing if these costs could be justified by 
an impressive string of victories for American security and 
foreign policy interests. Unfortunately, all the unilateral 
sanctions have achieved, as General Brent Scowcroft told this 
Committee last year, is, ``an unblemished record of failure.''
    But this should come as no surprise, given the underlying 
premise for unilateral sanctions that if the United States acts 
alone in denying exports, no other nation in the world will 
fill the breech. Common sense tells you otherwise.
    That is why I support H.R. 1244 and the efforts of those 
that have advocated its enactment. H.R. 1244 does not prohibit 
the use of unilateral sanctions, but requires a common-sense 
set of reforms that would impose greater discipline in the use 
of this instrument.
    The bill is based on the proposition that U.S. interests 
should be pursued through vigorous and effective diplomatic, 
political, commercial, strategic, and other forms of 
engagement.
    I agree.
    U.S. purchase of highly-enriched uranium and our pursuit of 
cooperative threat reduction through the far-sighted 
congressional efforts launched by Senators Nunn, Lugar, and 
Domenici are but two successful initiatives that have 
exemplified the possibilities.
    Another important success has resulted from our 
encouragement of the United States-Russian commercial space 
business ventures. These partnerships engage thousands of 
highly-skilled Russian aerospace engineers and scientists in 
commercial pursuits, thereby fulfilling cooperative threat 
reduction objectives.
    Moreover, because this is being done on a company-to-
company basis, there is no expenditure of public funds. And the 
opportunities to effect real change in the way business is 
carried out in Russia are significant.
    In the case of the Lockheed-Khrunichev-Energia venture, as 
an example, our partners, Khrunichev State Research Production 
Space Center and its subcontractors employ some 100,000 people 
in the production and launch of the proton system, which in 
turn generates economic activity supporting 1-million Russians.
    Moreover, Khrunichev has instituted a rigorous program of 
export control measures and is fully integrated into LKEI's 
market-oriented approach to the market and supply of commercial 
proton launch services.
    I believe that the two-track system strategy that the 
United States has pursued, vigorously opposing Russian entities 
that do proliferate while promoting commercial engagement with 
Russian entities to provide incentives for them to refrain from 
proliferating or doing business with proliferators is 
fundamentally sound. However, the two tracks are becoming 
tangled with one another.
    A policy of denying Russian entities not involved in 
proliferation activities the opportunity to provide commercial 
space-launch services will damage U.S. interests in the long 
term. In an era of shrinking defense budgets, preserving U.S. 
leadership in space depends on a robust commercial underpinning 
to the American aerospace industry.
    In conclusion, Mr. Chairman, I believe that both in the 
specific instance of the proton space launch quota and in the 
broader array of unilateral sanctions, we need a more reasoned, 
deliberative process to increase the odds that U.S. policies 
will achieve their desired results.
    Lifting the quota and adopting H.R. 1244 provide a strong 
foundation on which to build that kind of process.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of Hon. John N. McMahon, Member, Board of Directors, 
Lockheed-Martin-Khrunichev-Energia International, Inc., on behalf of 
Lockheed Martin Corporation, and former Deputy Director, Central 
Intelligence Agency

    Mr. Chairman, I appreciate the opportunity to appear here 
today and offer my observations on the issue of trade sanctions 
as a policy tool in general; and, in particular, on the current 
situation involving the de facto use of sanctions on a 
commercial space launch venture by failing to lift the current 
trade quota on the Russian Proton vehicle. By way of 
background, I served 34\1/2\ years with the CIA culminating in 
the position of Deputy Director of Central Intelligence. 
Following my government service, I was President and CEO of 
Lockheed Missiles & Space Company. Since its inception in 1993, 
I have served as a member of the Board of Directors of 
Lockheed-Khrunichev-Energia International, the United States-
Russian joint venture providing worldwide commercial satellite 
launch services using the Proton launch vehicle system. The 
views expressed in my testimony today are my own, but are the 
product of experience both in the public and private sectors in 
addressing the intersection of international trade policy and 
national security policy.
    I spent a good part of my government career addressing 
national security issues precipitated by the Cold War between 
the two major superpowers. I certainly would not wish to return 
to that era, when the specter of nuclear confrontation hung 
threateningly over Europe and Communist aggression posed a 
continuing challenge to American interests around the globe. In 
some ways, though, it was a simpler time. The world divided 
between East and West, communist and democratic, and our 
principal military, economic and diplomatic assets were 
marshaled to preserve our advantage through our alliances, 
beginning with NATO. The economic complement of NATO was the 
Coordinating Committee on East-West trade, or CoCom. CoCom 
members apprised each other of prospective product sales--and 
agreed to let any member government veto a sale to be made by 
another if that export were deemed to afford a military 
advantage to our communist adversaries.
    These measures worked because Americans were unified and 
our allies were unified on the nature of the threat we faced 
and the kinds of measures needed to combat it, including on the 
trade front. We succeeded by maintaining a multilateral export 
control system that preserved our technological advantage over 
the Warsaw Pact from the era of the Berlin Airlift to the fall 
of the Berlin Wall.
    While the end of the Cold War reduced the risk of East-West 
conflict, in many ways the dangers we face are no less 
worrisome than those we defeated--including the proliferation 
of weapons of mass destruction, the expanded activities of 
international terrorists like Usama bin Laden, the one-two 
punch of organized crime and narcotrafficking. It requires just 
as much determination and commitment on our part to counter 
these threats, but we must do so with less coherence and 
coordination among our allies. This is especially true now that 
CoCom has been dismantled, and there exists less consensus 
among the allies on who, precisely, the enemy is and how best 
to respond to the myriad threats we now face.
    In many cases the United States has sought to respond to 
the challenges of the post-Cold War era with unilateral trade 
sanctions. A January 1998 Congressional Research Service report 
cited 125 measures authorizing unilateral U.S. economic 
sanctions targeting 30 countries. The President's Export 
Council identified 73 countries subjected to some form of 
unilateral U.S. sanction as of January 1997. That year, the 
International Institute for Economics concluded that unilateral 
trade sanctions cost the U.S. economy $15 billion to $20 
billion a year, and that 250,000 jobs are lost from the well-
paying export sector of our economy.
    Some have questioned the significance of these costs. As a 
businessman I can tell you that these burdens are significant, 
not least because they tend to fall on the most dynamic and 
competitive parts of our economy--such as the high-tech export 
sector. Moreover, at issue is not simply a lost sale, but 
rather a lost market. America will simply be unable to maintain 
its global leadership in the cutting edge business sectors if 
we take vital markets off the table for American exporters.
    It would be one thing if these costs could be justified by 
an impressive string of victories for American security and 
foreign policy interests. Unfortunately, the opposite has been 
the case. As General Brent Scowcroft told this Committee last 
year, unilateral sanctions have achieved an ``unblemished 
record of failure.'' From the Soviet grain embargo of 1980 and 
the Soviet pipeline embargo of 1981 until the present, the most 
frequent result of unilateral U.S. sanctions has been to hurt 
the international economic competitiveness of the United States 
far more than the intended targets of the sanctions, all the 
while strengthening our rivals and competitors.
    These poor results should not be a surprise. The use of 
unilateral sanctions depends on a fatally flawed premise: that 
if the United States acts alone in denying exports, no other 
nation in the world will fill the breach. Common sense tells 
you that our foreign competitors are delighted to take away 
American markets whenever they can.
    I do not believe that we should outlaw unilateral 
sanctions. The United States must have the broadest array of 
foreign policy instruments at its disposal. There may be times 
when U.S. vital interests are at stake and require that 
American act alone. We must not shrink from that 
responsibility. We should, however, think through our 
objectives, and the means deployed to meet those objectives, 
before we act.
    That is why we support H.R. 1244. It does not prohibit the 
use of unilateral sanctions, but requires a common-sense set of 
reforms that would impose greater discipline in the use of this 
instrument. We agree that, before unilateral sanctions are 
imposed, the Congress and the President should assess their 
likely effectiveness, costs and benefits, and long-term 
implications for other U.S. humanitarian, security, and foreign 
policy interests. We should require an exploration of 
alternatives and of multilateral approaches.
    When unilateral sanctions are imposed, we believe that it 
is essential that some discipline is maintained to optimize 
their effectiveness, and avoid having them lapse into permanent 
sanctions to be applied year after year even if they do not 
work. To that end, we support the bill's proposal to grant the 
President sufficient authority to waive sanctions that have 
been imposed. Once sanctions have been applied, the target 
government may rationally conclude that it may as well continue 
its offending conduct, having paid the ``price of admission'' 
of incurring U.S. sanctions--if there is no prospect of a 
waiver.
    We also support the bill's provision protecting the 
sanctity of existing contracts, unless there is a threat to 
U.S. security. Without contract sanctity, American suppliers 
cannot provide the level of assurance needed to protect our 
ability to compete in the global marketplace. We also agree 
with the bill's sponsors that unilateral sanctions should 
sunset in two years unless re-authorized. It is simply unfair 
to continue to penalize Americans year after year without even 
requiring Congress and the Executive Branch to step up to the 
plate by explaining and taking responsibility for their 
actions, so that they may be held accountable to the 
electorate.
    Finally, we agree with the bill's premise that U.S. 
interests should be pursued through vigorous and effective 
diplomatic, political, commercial, strategic and other forms of 
engagement. I would like to address how we have done that in 
the area of combating the proliferation of weapons of mass 
destruction and their delivery systems.
    Faced with the end of the Cold War and the break-up of the 
Soviet Union, both the Bush and Clinton Administrations, as 
well as the Congress, fully recognized new and dangerous risks 
associated with the proliferation of nuclear, chemical, and 
biological weapons and the missiles that deliver them, as well 
as related materials and technologies. In response, both 
Administrations adopted a vigorous policy of opposing dangerous 
transfers, while promoting cooperative programs designed to 
provide commercial opportunities for Russia's vast military 
industrial potential, so that Moscow would see its self-
interest best served by cooperating with the United States 
rather than with rogue states. The cooperation between the 
United States and Russia on commercial space ventures is 
particularly noteworthy. In several ventures, Russian 
technology is being exported to American partners.
    The United States has opposed dangerous transfers through a 
variety of means, including direct diplomatic engagement with 
Russia and other nations, and through the use of export 
controls and interdiction of illicit commerce where possible. 
We have promoted cooperative programs through such efforts as 
the establishment of the International Science and Technology 
Center, through which Russian weapons scientists and engineers 
are supported in redirecting their talents toward peaceful 
endeavors.
    In the nuclear arena, the United States has purchased 
highly-enriched uranium, so that it can be diluted from 
weapons-grade to low-enriched uranium that can be used as 
commercial fuel for nuclear power stations. We have pursued 
cooperative threat reduction, through the far-sighted 
Congressional efforts launched by Senators Nunn, Lugar and 
Domenici.
    Turning to commercial space, we have encouraged industry-
to-industry partnerships in U.S.-Russian commercial space 
business ventures--like Lockheed-Khrunichev-Energia 
International (LKEI) which supplies commercial Proton launch 
vehicle services to the international satellite launch 
marketplace. These partnerships have made the world safer by 
engaging thousands of highly-skilled Russian aerospace 
engineers and scientists in commercial pursuits, thereby 
fulfilling cooperative threat reduction objectives. Moreover, 
because this is being done on a company-to-company basis, there 
is no expenditure of public funds and the opportunities to 
effect real change in the way business is carried out in 
Russia--to establish greater accountability and adherence to 
export control regimes--are significant. In the case of LKEI, 
as an example, our partner Khrunichev State Research and 
Production Space Center and its subcontractors employ some 
100,000 people in the production and launch of the Proton 
system, which in turn generates economic activity supporting 
one million Russians. Moreover, Khrunichev has instituted a 
rigorous program of export control measures and is fully 
integrated into LKEI's market-oriented approach to the 
marketing and supply of commercial Proton launch services.
    Indeed, these business ventures are far more effective than 
relying simply on jawboning and other diplomatic efforts to 
persuade Russia to steer clear of cooperation with rogue 
states. They create a vested interest for the Russians to 
conduct legitimate business in the international marketplace 
with us and others, instead of engaging in the black market of 
proliferation with those who would turn space and missile 
technology against American interests. By contrast, those 
Russian entities that have cooperated with the Iranian missile 
program have been subjected to Presidential sanction, and 
properly so.
    U.S.-Russian commercial space cooperation has been good for 
the Russian economy, but it has also promoted U.S. interests. 
U.S. military superiority, and therefore our national security, 
depends upon our dominance of space. It has taken more than a 
decade for American space launch to recover in the 
international marketplace from the Challenger disaster. U.S. 
partnership with Russia--like the LKEI business which offers 
one of the world's most powerful payload lift capabilities 
available today to launch commercial satellites into high earth 
orbit--has contributed to that recovery. Particularly as the 
Pentagon turns more and more to commercial suppliers of space 
technology and services, it is critical that we keep America's 
launch and satellite industries strong.
    I believe that the two-track strategy the United States has 
pursued--vigorously opposing Russian entities that do 
proliferate, while promoting commercial engagement with Russian 
entities to provide incentives for them to refrain from 
proliferating or doing business with proliferators--is 
fundamentally sound. Last summer, and earlier this year, the 
United States imposed sanctions against Russian entities found 
to be assisting others in the development of their ballistic 
missile capabilities. At the same time, to the best of our 
knowledge, the Russian entities that are participating with 
Lockheed Martin in commercial space ventures are not engaged in 
any proscribed activity. It is critical that we keep these 
incentives properly aligned.
    That is why I am troubled by reports that the two tracks 
are becoming tangled up with one another. Specifically, the 
effective extension of U.S. economic sanctions from Russian 
entities that are engaged in illicit commerce to those that are 
not, by blocking the latter from conducting legitimate launches 
of commercial payloads, is a serious mistake.
    There are two reasons why this is so. First, from a 
nonproliferation perspective, a policy of ``shooting the 
hostages'' will either be counterproductive, ineffective, or 
both. Second, such a policy will also damage long-term American 
interests. I will discuss each of these points in turn.
    From a nonproliferation perspective, the original premise 
of U.S. policy--that it is in our national interest to provide 
peaceful civil and commercial avenues for Russian military 
capabilities--remains valid. To the degree that we close off 
those avenues, and if the Russian government becomes 
complacent, we risk a counterproductive result: driving our 
would-be Russian partners straight into the arms of whatever 
rogue state will pay the freight for buying Russian missile 
technologies, equipment and know-how. Beyond its purely 
financial dimension, such an approach would reinforce those 
within the Russian Federation who believe that Moscow's long-
term strategic interest is better served not through 
partnership with the United States, but rather through 
leveraging their nation's diminishing economic and military 
strength through alliances with America's rivals. This could 
better position Russia to act as a potential spoiler in 
relation to U.S. interests, thereby enhancing Russia's ability 
to seek to extract concessions on critical issues.
    Moreover, in today's globalized economy, any U.S. effort to 
coerce better behavior through unilateral economic sanctions 
may prove to be ineffective. In the short run, if the United 
States blocks access to Russian launchers, customers for launch 
services--satellite builders and satellite telecommunications 
and information services providers--can and will go to Europe 
to buy another ride to space. Moreover, the Russian companies 
involved in these ventures with U.S. industry may find the lure 
of other partners irresistible. If that happens, U.S. 
``leverage'' will turn to dust in our hands. Since no other 
nation has export controls as strict as the United States, 
Russia would face fewer nonproliferation constraints let alone 
incentives to refrain from proliferation in any such 
transactions. In the long run, launch services customers may 
very well invest in European and other launch systems in order 
to assure their access to space, further diminishing U.S. 
ability to exert meaningful leverage through coercive use of 
launch quotas. And the business base for the U.S. satellite 
industry--which has long been the undisputed leader in cutting-
edge space-based information and communications technology--may 
erode as customers turn to our European and other foreign 
competitors that are not limited in their access to the full 
range of launch capability available in the marketplace.
    This prospect leads directly to my second concern. Denying 
Russian entities not involved in proliferation activity the 
opportunity to provide commercial space launch services will 
damage U.S. interests in the long-term. Such a policy sends a 
signal not just to Russia, but to the world. It tells every 
nation, telecommunications company and ministry, every 
satellite services provider, that the United States is an 
unreliable partner in commercial space business ventures. The 
long-term strategic damage this could inflict on our country 
cannot be overstated. American leadership in space is vital to 
this nation's economic future and, more importantly, to our 
ability to prevail in any future military conflict. In an era 
of shrinking defense budgets, preserving that leadership 
depends on a robust commercial underpinning to the American 
aerospace industry. Actions that tell customers of U.S. goods 
and services to shop elsewhere if they need a predictable, 
transparent environment in which to conduct their business play 
right into the hands of our already formidable foreign 
competitors. And the history of unilateral sanctions--as 
exemplified in the cases of the Soviet grain and pipeline 
embargoes of the early 1980s--demonstrates that markets, once 
lost, cannot easily be regained.
    This policy--of restricting compliant Russian launch 
suppliers from commercial satellite launch opportunities--also 
calls into question for key market participants the commitment 
of the U.S. to execute the agreed-upon terms of its bilateral 
launch trade agreements. The United States-Russia Commercial 
Launch Services Trade Agreement--and its key provisions, the 
quota on GEO/GTO launches and the pricing standard--was 
established to allow entry for Russian launch services 
providers into the international market without disruption to 
the market resulting from the availability of a large number of 
low-priced launch vehicles (i.e., ``dumping''). Through LKEI, 
this objective has been met. LKEI has facilitated the smooth 
transition of Proton vehicles into the market, ensured market 
pricing for commercial Proton launch services and accomplished 
the transition of our Russian partners to market-oriented, 
commercial business practices. Moreover, market demand is 
robust and far exceeds the forecasts on the basis of which the 
quota was put in place in 1993 and amended in 1996. Yet, 
despite the fact that the terms of the launch trade agreement 
have been fully complied with and the trade criteria for 
lifting the quota have been met--and, further, despite the fact 
that our Russian partners are not engaged in proliferation--the 
Administration refuses to execute the provisions of the 
agreement to lift the quota. In holding the quota hostage to 
the proliferation issue, under these circumstances, U.S. 
credibility to make and keep its trade-related commitments may 
be seriously compromised.
    We need to be clear-eyed and steady as we pursue America's 
long-term strategic objectives. We should continue to encourage 
Russian entities to cooperate with us in peaceful applications 
of space and missile technology. We should continue to press 
the Russian Federation to take all necessary steps to curtail 
any assistance that other Russian entities are providing to 
rogue states' missile programs. This should include working 
cooperatively with Moscow on such measures as enhancing its own 
export control system and, where necessary, impose sanctions 
against the offending entities as we have in the past. It also 
requires working with our allies to avoid falling into a trap 
where, in the name of nonproliferation, we end up with exactly 
the result we are trying to avoid and, in the process, push the 
United States to the sidelines of space, to our lasting 
disadvantage.
    In conclusion, Mr. Chairman, I believe that--both in the 
specific instance of the Proton space launch quota and in the 
broader array of unilateral sanctions that have been imposed or 
proposed to advance a variety of worthy American goals--we need 
a more reasoned, deliberative process to increase the chances 
that U.S. policies will achieve their desired results. The 
sanctions reform legislation before you provides a strong basis 
to begin to build that kind of process. Consistent with the 
intent of the legislation, lifting the quota on commercial 
Proton launch services now, by preserving the LKEI venture, 
will yield significant economic and national security benefits 
to the United States.
    Thank you.

                                

    Chairman Crane. Thank you.
    Mr. Hamod.

  STATEMENT OF DAVID A. HAMOD, U.S. REPRESENTATIVE, AMERICAN 
             BUSINESS COUNCIL OF THE GULF COUNTRIES

    Mr. Hamod. Thank you, Mr. Chairman, for the opportunity to 
testify today. The American Business Council of the Gulf 
Countries consists of the nine American chambers of commerce in 
the Gulf Cooperation Council nations, representing the more 
than 700 U.S. companies with operations in the region. This 
non-profit, non-partisan organization is composed primarily of 
small- and medium-size companies, and is widely recognized as 
the voice of American business in the Gulf region.
    And on a personal note, Mr. Chairman, we greatly appreciate 
the time you have spent with our doorknock delegations when 
they have come to visit Washington.
    Mr. Chairman, throughout much of the past decade, exports 
have served as the engine of growth for the U.S. economy. 
Increased globalization and widespread use of the Internet 
means that the international marketplace is literally in 
America's living rooms like at no other time in U.S. history.
    This also means that the U.S. Government's international 
trade policies are having more of an impact on local 
communities in the United States than ever before. America's 
reputation as the world's leading proponent of free and fair 
trade is on the line, as are the jobs of millions of Americans 
whose livelihoods now depend on global commerce.
    Over the years, the United States has increasingly resorted 
to the use of unilateral economic sanctions as a cure-all 
elixir. However, experience shows that elixirs and snake oils, 
no matter how elegantly they are packaged or how aggressively 
they are marketed, rarely achieve satisfactory results.
    From our perspective, as U.S. business leaders overseas, 
America's sanctions process is deeply flawed. From where we 
sit, these policies appear to be erratic, ineffectual, and 
based more on knee-jerk diplomacy than on a careful and 
realistic analysis of the likelihood of success and the 
economic costs and benefits to the United States.
    The imposition of unilateral economic sanctions may play 
well for certain audiences and constituencies within the United 
States, but it carries adverse circumstances for U.S. 
companies, American citizens, and the reputation of the United 
States around the world.
    Mr. Chairman, America's trade competitors are laughing all 
the way to the bank because unilateral U.S. sanctions eliminate 
the American competition. Here are just a few instances of lost 
business in Iran, for example, as a result of U.S. sanctions.
      Federal Express had to discontinue courier 
service to Iran while its non-American competitors tout the 
fact that they are able to serve the burgeoning Iranian market.
      Fuji film, produced by Japan, has replaced 
America's Kodak film in Iran, which had been a major and 
lucrative market for Kodak for decades.
      McDermott had to withdraw recently from a major 
fabrication tender, which its Korean competitor was then able 
to win at greatly inflated prices.
      American President Lines had to discontinue its 
extensive container service to Iran, where it was then replaced 
entirely by NYK of Japan and P&O of Europe.
    Unilateral sanctions also take their toll on Americans 
abroad because they apply directly to individual U.S. citizens. 
In the hard-nosed world of business, most foreign employers are 
not especially tolerant of unilateral U.S. policies, and the 
result is that American employees are being replaced by non-
Americans who can get the job done in sanctioned countries.
    Under virtually no circumstances, in the ABCGC's opinion, 
should expansive U.S. sanctions be applied directly to 
individual U.S. citizens. In most cases, these Americans abroad 
are merely trying to hold down a job and are not in a position 
to prevent foreign transactions by foreign companies.
    The significance of this Gordian knot goes far beyond the 
loss of jobs in the Gulf. European and Asian companies, which 
no longer need to worry about competing against U.S. companies 
in places like Iran, are winning very lucrative contracts there 
and using their large profit margins to subsidize their bids 
and operations elsewhere in the world.
    Looked at another way, U.S. companies are being penalized 
by America's sanctions not just once, but multiple times.
    This is a lose-lose situation that threatens U.S.-based 
jobs and American leadership around the world. From our 
perspective in the Gulf, ILSA is a toothless paper tiger. It 
frightens none of our trade competitors who routinely thumb 
their noses at the United States and who scoff at America's 
efforts to enforce extraterritorial laws. ILSA is unworkable, 
it is applied inconsistently, and it has failed to achieve even 
the most modest of successes.
    Mr. Chairman, the ABCGC strongly supports H.R. 1244. We 
believe that this type of legislation is long overdue, and we 
consider it an important first step in rationalizing and 
establishing workable guidelines for America's use of 
sanctions.
    In conclusion, Mr. Chairman, the imposition of unilateral 
economic sanctions is a blunt instrument that has often been 
used when a more strategic weapon in the arsenal of U.S. trade 
policy would have been more appropriate.
    The ABCGC believes that such ``big-stick diplomacy'' must 
be used very sparingly, and even then, it should be employed 
only in a measured, predictable, and targeted way.
    With this in mind, the ABCGC supports H.R. 1244 and this 
Subcommittee's efforts to rationalize America's sanctions 
process, enhance U.S. global competitiveness, and level the 
international playingfield for U.S. companies and American 
workers.
    Thank you, Mr. Chairman, for the opportunity to testify.
    [The prepared statement follows:]

Statement of David A. Hamod, U.S. Representative, American Business 
Council of the Gulf Countries

              Examining U.S. Unilateral Economic Sanctions

    Thank you, Mr. Chairman, for the opportunity to testify 
today. My name is David Hamod, and I serve as the U.S. 
Representative of the American Business Council of the Gulf 
Countries (ABCGC). The ABCGC consists of the nine American 
Chambers of Commerce in the Gulf Cooperation Council (GCC) 
nations of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the 
United Arab Emirates. Our organization, representing the more 
than 700 U.S. companies with operations in the region, is 
widely recognized as the voice of American business in the 
Gulf. Affiliated with the U.S. Chamber of Commerce, the ABCGC 
is a non-profit, non-partisan organization composed primarily 
of small and medium-sized enterprises (SMEs). ABCGC chapters 
are actively involved in the American communities throughout 
the GCC, where they serve as a resource to the public and 
private sectors and work with the U.S. Government to enhance 
America's business competitiveness overseas.

           *         *         *         *         *

    Mr. Chairman, throughout much of the past decade, exports 
have served as the engine of growth for the U.S. economy. As a 
result of these exports, millions of new jobs were created in 
the United States, and tens of thousands of American companies 
that once did business only in the USA are now selling U.S. 
goods and services in foreign markets. Increased globalization 
and widespread use of the Internet means that the international 
marketplace is literally in America's living rooms like at no 
other time in U.S. history.
    This also means that the U.S. Government's international 
trade policies are having more of an impact on local 
communities in the United States than ever before. America's 
reputation as the world's leading proponent of free and fair 
trade is on the line, as are the jobs of millions of Americans 
whose livelihoods now depend on global commerce. As a result of 
this deeper commitment to American business around the world, 
decisionmakers at both ends of Pennsylvania Avenue are looking 
more carefully at policies that will affect U.S. 
competitiveness in foreign markets for decades to come. It is 
in this spirit, Mr. Chairman, that you have called us together, 
and we are pleased to appear before your subcommittee this 
morning.

Unilateral Economic Sanctions: A Cure-All Elixir?

    In an effort to send a range of political messages and to 
encourage what the United States deems to be acceptable 
behavior, the United States has increasingly resorted to the 
use of unilateral economic sanctions. More than any other 
country in the world, the U.S. employs such sanctions as a 
foreign policy weapon, imposing unilateral economic sanctions 
on some countries for transgressions in such fields as 
narcotics, terrorism, human rights, religious rights, and the 
spread of chemical, biological, and nuclear weapons. The ABCGC 
supports many of these objectives, of course, but not through 
unilateral economic sanctions--which have consistently failed 
to accomplish their economic and political goals. Moreover, 
according to the President's Export Council, the direct cost of 
economic sanctions to the U.S. economy during the period 1993 
to 1996 amounted to $15-$19 billion in lost export sales per 
year and as many as 250,000 U.S. jobs annually.

Fighting Dictators and Despots

    Like most Americans, the thousands of members who make up 
the ABCGC oppose the world's dictators, despots, terrorists and 
drug dealers. We are against violations of fundamental human 
rights, and we have as strong a reaction as anyone to brutal 
regimes whose policies undermine the rule of law and fly in the 
face of basic decency. As U.S. citizens living and working 
overseas, we understand--perhaps better than even our families 
``back home'' in the States--the need to combat those leaders 
and nations that are actively working against the interests of 
our country. The ABCGC recognizes the importance of the United 
States leading the world not just economically, but ethically 
and morally as well.
    With this in mind, and in the context of sanctionable 
activities, the American Business Council of the Gulf 
Countries:
     Encourages U.S. initiatives for multilateral 
sanctions that address U.S. national security and foreign 
policy objectives, and which include America's key allies and 
trading partners;
     Supports U.S. controls on exports of certain 
weaponry and advanced & sensitive technology, and encourages 
U.S. prohibitions on support for and dealings with known drug 
dealers and terrorist organizations;
     Recognizes the right of the United States to 
curtail aid and to oppose other forms of government support for 
countries acting against U.S. interests; and
     Respects the right of the United States to deny 
access to our country, for national security and other 
legitimate reasons, for certain foreign individuals and 
government officials.
    In short, the ABCGC supports multilateral economic 
sanctions and U.S. Government actions that can realistically 
serve as an effective foreign policy tool for changing the 
behavior of oppressive and antagonistic regimes around the 
world. We cannot agree, however, with the broad unilateral 
economic sanctions regimes of the United States--whether 
imposed by statute or by executive order--that so often produce 
no more than a ``feel good'' domestic public relations effect.

Shortcomings of Unilateral Economic Sanctions

    From our perspective, as U.S. business leaders overseas, 
America's sanctions process is deeply flawed and out of 
control. From where we sit, these policies appear to be 
erratic, ineffectual, and based more on ``knee jerk diplomacy'' 
than on a careful and realistic analysis of the likelihood of 
success and the economic costs and benefits to the United 
States. Too often, such sanctions represent not a policy, but 
the absence of a policy--a reaction to frustration, or worse. 
The imposition of unilateral economic sanctions may play well 
for certain audiences and constituencies within the United 
States, but it carries adverse consequences for U.S. companies, 
American citizens, and the reputation of the United States 
around the world.
    Should America remain silent in the face of evil or 
injustice? Of course not. Quite to the contrary: the United 
States, as the world's economic engine and its only remaining 
Superpower, is uniquely positioned to sound the alarm. The real 
question is whether America's power will be frittered away on 
simplistic solutions for short-term political gains, or whether 
our nation's leaders will use this power wisely to achieve the 
desired results and to enhance America's clout and prestige.
    The ABCGC opposes unilateral economic sanctions because 
they are: (1) Ineffective; (2) Harmful to America's reputation; 
(3) Undermining U.S. economic interests; (4) Taking their toll 
on U.S. citizens. These four shortcomings are discussed below.
    (1) ``If It Don't Work, Don't Use It!''. Our direct 
experience, which is borne out by an increasing amount of 
professional, academic and governmental analysis, supports the 
conclusion that unilateral sanctions programs are not effective 
in changing the behavior of foreign governments. Because our 
trading partners do not join America's unilateral sanctions 
efforts, our prohibitions on trade and investment do not cut 
off the flow of goods and services to the target country. 
Further, they often allow the targeted government to rally 
domestic support by ``standing up'' to the Superpower and 
blaming domestic problems on U.S. actions. Finally, because 
U.S. businessmen and businesswomen are unable to communicate 
and develop personal relationships with their commercial 
counterparts in the targeted countries, these sanctions 
eliminate an important avenue for Americans to explain and 
justify U.S. positions to citizens of the targeted countries.
    (2) Harming America's Reputation and World Standing. 
America's use of broad unilateral economic sanctions programs 
is undermining our nation's moral authority and leadership 
position, earned over the past century at great human sacrifice 
and economic cost. Too often, the United States appears to act 
internationally in response to partisan or parochial 
considerations at home and without due regard for international 
opinion. In our headlong rush to impose unilateral economic 
sanctions, America has often been seen as maintaining a double 
standard. America's reputation for thoughtful, considered 
policies has suffered, too, when the United States has ignored 
the likely consequences of our country's actions.
    (3) Undermining U.S. Economic Interests. Our European and 
Asian allies welcome unilateral U.S. sanctions programs because 
these programs eliminate the American competition. In the Gulf 
region, the loss in sales of U.S. goods and services, which are 
readily available from America's international competitors, is 
obvious. As a result of unilateral U.S. sanctions imposed on 
Iran, for example:
     Federal Express had to discontinue courier service 
to Iran, while its non-American competitor, DHL, ran 
advertisements in the region touting the fact that it was able 
to serve Iran while its unnamed competitors could not;
     Fuji film, produced by Japan, has replaced 
America's Kodak film in Iran, which had been a major and 
lucrative market for Kodak for decades;
     McDermott had to withdraw recently from a major 
fabrication tender, which its Korean competitor was then able 
to win at greatly inflated prices;
     American President Lines had to discontinue its 
extensive container service to Iran, where it was then replaced 
entirely by NYK of Japan and P&O of Europe.
    The effects of unilateral economic sanctions extend far 
beyond the targeted countries. Dubai, for example, is an 
international entrepot, with American, European, and Asian 
goods being re-exported to numerous countries in the region, in 
Africa, and in the former Soviet Union. An American company 
exporting standardized goods or commodities to a Dubai trader 
cannot be certain whether its goods will be re-exported to a 
sanctioned country, such as Iran or Sudan, or to one of the 
many non-sanctioned countries with which most Dubai traders do 
business.
    Because of the risk of an inadvertent violation of U.S. 
sanctions regulations, some U.S. exporters simply decline to do 
business in the GCC nations. Moreover, because of the risk that 
a U.S. exporter might have to terminate a supply contract due 
to the imposition of unilateral U.S. sanctions, some Dubai 
traders are discouraged from marketing American products or 
doing regular business with American companies.
    (4) Taking Its Toll on U.S. Citizens. Most U.S. economic 
sanctions programs apply directly to individual U.S. citizens, 
regardless of their residence, job title, or the nationality of 
their employers. The regulations prohibit Americans from being 
involved in any way in a business transaction with a U.S.-
sanctioned country. The result is to encourage foreign 
companies to replace their expatriate American employees with 
non-American employees.
    For example, European, Asian, and Gulf-owned companies do 
business with Iran. U.S. citizen employees of these foreign 
companies violate U.S. law, according to the U.S. Treasury 
Department's Office of Foreign Assets Control (OFAC), if they 
participate in a meaningful way in any aspect of their 
employer's business transactions with Iran (or any other 
sanctioned country). According to OFAC, if a non-U.S. company 
in Dubai does business with Iran, any U.S. citizen employees of 
that foreign company should recuse themselves from any 
involvement in these transactions.
    Unfortunately, in the real world of business, most foreign 
employers are not especially tolerant of unilateral U.S. 
sanctions programs. If a U.S. citizen employee advises his non-
American boss that any paperwork or decisions relating to Iran 
must be passed to a different employee, or if he suggests that 
a new employee be hired to handle these issues, the response is 
usually simple--the American loses his job to another national. 
Most non-U.S. companies will neither decline Iranian business 
nor hire duplicative employees to accommodate a U.S. citizen 
who is trying to comply with a unilateral U.S. sanctions law 
applicable only to him. The American employee is faced with a 
difficult dilemma: lose his job, or violate OFAC's regulations 
(and OFAC does enforce these regulations against individual 
U.S. citizen employees of foreign companies).
    The significance of this Gordian knot goes far beyond the 
direct loss of jobs in the Gulf. The ABCGC encourages the 
hiring of U.S. citizens by local and international companies in 
the region because they generate jobs in the United States. 
American employees overseas have a history of buying American, 
selling American, specifying American, and creating 
opportunities for other American companies and workers. U.S. 
unilateral sanctions programs, by applying prohibitions 
directly to U.S. citizens employed outside the United States by 
non-American companies, defeats that effort to ``promote 
American'' without scoring any meaningful U.S. foreign policy 
or national security gains.

The Specter of Sanctions Proliferation

    In recent years, the ABCGC has grown increasingly concerned 
about the proliferation in the United States of unilateral 
economic sanctions initiatives, which are now being pursued by 
government officials at the State and local levels. Such 
unbridled, myopic policymaking damages America's credibility as 
the world's leading proponent of free and fair trade, and it 
prevents U.S. companies from doing business in foreign markets 
that want to purchase U.S. goods and services. In the end, this 
is a lose/lose situation that threatens U.S.-based jobs and 
American leadership around the world.
    Examples of this ``seat of the pants'' policymaking abound. 
For purposes of today's testimony, it will suffice to mention 
just two laws that affect U.S. business and American interests 
in our part of the world: the Iran and Libya Sanctions Act 
(ILSA) of 1996, and the International Religious Freedom Act 
(IRFA) of 1998.
    (1) Iran and Libya Sanctions Act (ILSA). ILSA (P.L. 104-
172), rushed through Congress with great fanfare in 1996, has 
proved to be a toothless paper tiger. It frightens none of our 
trade competitors, who routinely thumb their nose at the United 
States and who scoff at America's efforts to enforce 
extraterritorial laws. Nor has ILSA had any perceptible effect 
on political leaders in Iran and Libya, who continue to cut 
deals with foreign powers whose interests are diametrically 
opposed to those of the United States. And as ABCGC member 
companies like Conoco and Mobil can attest, ILSA continues to 
preclude U.S. businesses from securing major contracts that 
would create thousands of jobs in the United States.
    Since ILSA became U.S. law, ABCGC member companies have 
also noticed a disturbing ``piggyback'' phenomenon. Foreign 
companies, which no longer need to worry about competing 
against U.S. companies in Iran, are winning very lucrative 
contracts there. Once they have their foot in the door in Iran, 
these European and Asian companies are using their large profit 
margins there to subsidize operations elsewhere in the world. 
These subsidies are undercutting U.S. firms in other markets--
in the Gulf and beyond. In other words, U.S. companies are 
being penalized by ILSA not once, but multiple times, because 
of their inability to compete and win contracts in Iran.
    In short, Mr. Chairman, ILSA is a shambles. It is 
unworkable, it is applied inconsistently, and it has failed to 
achieve even the most modest of successes.
    (2) International Religious Freedom Act (IRFA). U.S. 
citizens working in the Gulf, like most Americans, support 
carefully thought out efforts to combat discrimination and 
persecution of all types--including those based upon one's 
religious beliefs. Freedom of religion is a hallmark of 
American culture and society, and it is something that each of 
us cherishes.
    Nevertheless, the ABCGC is concerned about how the 
International Religious Freedom Act (P.L. 105-292) will be 
applied in the months and years ahead. Telling other nations 
how to conduct their religious affairs is a tricky business, 
one that could blow up in America's face. The roots of this law 
can be traced to U.S. domestic politics, and the ABCGC remains 
concerned that IRFA could become a political tool that goes far 
beyond the laudatory purposes for which the law was written.
    The ABCGC wrote to Congress last year to express concern 
that implementing IRFA could:
    Jeopardize U.S. exports to the Gulf.--If used for political 
purposes, IRFA has the potential to threaten more than a 
quarter million U.S.-based jobs that are directly linked to 
U.S. exports of goods and services to the GCC. There is little 
doubt that Gulf countries, rather than succumbing to U.S. 
pressure over religious affairs, would shift market share away 
from American companies to our European and Asian competitors 
instead.
    Undermine the precarious Middle East peace process.--Gulf 
nations are expecting to be targeted by what they perceive as a 
highly politicized process for monitoring religious 
persecution. Under the circumstances, GCC states will be less 
inclined to follow America's lead on regional cooperation if 
they are being attacked on religious issues by the very same 
U.S. Government that is encouraging them to take bold steps 
toward peace.
    Threaten existing religious tolerance.--In the GCC nations 
today, Americans are free to practice the religion of their 
choice, provided that it does not offend local customs. If the 
United States puts pressure on the Gulf countries over 
religious issues that are widely regarded in the GCC as 
internal matters, it is very conceivable that there will be a 
negative reaction against current religious freedoms enjoyed by 
the American communities in the Gulf.
    Encourage religious extremism.--Unless properly 
implemented, IRFA may convince religious extremists throughout 
the world that the United States is attempting to serve its own 
particular religious preferences rather than the cause of 
religious freedom. This would be counter-productive, to say the 
least, and could lead to serious unintended consequences in the 
Gulf and elsewhere.
    Policymakers in Congress and the Clinton Administration 
worked hard last year to craft a compromise law that could be 
used to combat religious persecution. The ABCGC is counting on 
the U.S. Government to adhere to commitments made last year and 
to rein in any efforts to politicize this new law. Domestic 
jobs, American lives overseas, and U.S. interests around the 
world are on the line, and it would be a serious mistake to put 
these in jeopardy.

ABCGC's Position on H.R. 1244

    Mr. Chairman, the ABCGC strongly supports H.R. 1244, the 
``Enhancement of Trade, Security, and Human Rights through 
Sanctions Reform Act.'' We believe that this type of 
legislation is long overdue, and we consider it an important 
first step in rationalizing and establishing workable 
guidelines for America's use of sanctions.
    The ABCGC is a business organization, and we see the world 
through the prism of business. As such, we look upon H.R. 1244 
as a ``contract'' between America's public and private 
sectors--a pact that encourages U.S. commercial interests yet, 
at the same time, recognizes the role to be played by economic 
sanctions. As businessmen and businesswomen, we appreciate the 
cost / benefit features of the bill, the focus on developing a 
plan of action before leaping headlong into the fray, the 
commitment to contract sanctity, the need to provide 
appropriate justifications for sanctions activity, and the 
ability to give our country's ``CEO''--the President of the 
United States--the flexibility he needs to adjust policies to 
meet changing economic and political conditions.
    In our estimation, H.R. 1244 affects American business more 
than anyone else, and we appreciate the fact that this bill 
takes into consideration the needs and concerns of U.S. 
companies. H.R. 1244 adopts a no-nonsense, common sense 
approach to reforming the sanctions process, and we see this as 
a key step in providing policymakers with ``big picture'' 
information that will enable them to make better informed 
decisions affecting U.S. commercial interests worldwide.
    Perhaps our only regret, Mr. Chairman, is that H.R. 1244 
and its counterpart bill in the Senate, S. 757, envisage 
guidelines that are non-binding. The sooner that we can put 
``sharper teeth'' behind these proposed ground rules, the 
better.

Conclusions

    The imposition of unilateral economic sanctions is a 
``blunt instrument'' that has often been used when a more 
strategic weapon would have been more appropriate. The ABCGC 
believes that such ``big stick'' diplomacy must be used very 
sparingly, and even then it should be employed only in a 
measured, predictable, and targeted way.
    If engagement and dialogue are deemed to be ineffective, 
then the United States should pursue multilateral sanctions, 
restrictions on U.S. and multilateral government aid and, if 
appropriate, restrictions on sales of specific products that 
are being used against American will or interests. The 
objectives of the sanctions must be clearly stated, but not 
necessarily in the form of public ultimatums.
    The ABCGC believes that unilateral economic sanctions 
should only be employed as a weapon of last resort in the 
arsenal of U.S. foreign policy. Only in extreme situations, 
after all other options have failed, should the U.S. Government 
impose such broad prohibitions--and only if positive results 
can realistically be achieved. Under virtually no circumstances 
should expansive U.S. sanctions be applied directly to 
individual U.S. citizens, who in most cases are merely trying 
to hold down a job and are not in a position to prevent foreign 
transactions by foreign companies.
    With this in mind, the ABCGC supports H.R. 1244 and this 
subcommittee's efforts to rationalize America's sanctions 
process, enhance U.S. global competitiveness, and level the 
international playing field for U.S. companies and American 
workers.
    Thank you, Mr. Chairman, for the opportunity to testify 
today. I would be pleased to answer any questions raised by you 
or other members of this subcommittee.

                                

    Chairman Crane. Thank you, Mr. Hamod.
    There are many folks, especially colleagues, that insist 
that there are situations in which economic leverage can be an 
appropriate tool in foreign policy. Can any of you folks cite 
an instance where such leverage has been effective?
    Mr. Hamod. I can't speak for the other American chambers of 
commerce. I do believe that our policy in South Africa made a 
difference, but that wasn't unilateral economic sanctions, that 
was multilateral sanctions. And in our experience, the 
unilateral sanctions do not work.
    Chairman Crane. Well, that, frankly, has been my conviction 
all along. I am not opposed to sanctions, but unilateral 
sanctions are, to me, just absolute stupidity, especially in 
the kind of world economy, global economy we live in today 
where all these alternatives are out there and bidding and 
salivating over a chance to replace us.
    And just as you mentioned with Kodak versus Fuji, it is 
this sort of thing where we shoot ourselves in the foot, it 
seems to me. And while that may be politically effective when 
the bill comes up for a vote in selling it to your constituency 
back home, getting those things off the books is not easy. And 
most folks back home haven't the vaguest idea what the impact 
is to our economic interests.
    So we have a major educational effort on our hands.
    Mr. Kinzer, in your statement, you mentioned that our 
foreign competitors charge their marketing practices to adjust 
to U.S. unilateral economic sanctions, and in particular you 
cite Canada and Australia. Can you elaborate on that point?
    Mr. Kinzer. Well, sir, there is quite a bit of evidence, 
although it is very hard to gather because the State trading 
enterprises used in Canada and Australia are not transparent. 
So we don't get any of the information that we would love to 
see. But it is apparent to us just by how much wheat is being 
bought in Pakistan and Egypt and other countries that we do 
deal with, it looks suspiciously that the State trading 
enterprises in Australia and Canada, perhaps, charge more to 
countries like Iran that are, that have been under the trade 
sanctions and embargoes and what else.
    And then they can undercut us when we get to Pakistan and 
Egypt. And because of their ability to go over and act as 
salesmen, it may only be a dollar or two per ton, but then we 
look at what their growers are receiving afterward and their 
growers are receiving as much as our growers do if not more.
    So it looks very suspicious to us that they are predatory 
pricing us out of our markets.
    Chairman Crane. Ms. Christian, are you able to get the 
quantity and quality of gum arabic that your customers demand 
from sources other than Sudan?
    Ms. Christian. We can get Chadian gum; it is of a lesser 
quality. I have a problem with it. I have to blend Chadian. It 
comes in a very high viscosity; it comes in a range of about 
2,000 cps, and to make a good product, I need 200 cps. So I am 
constantly blending, and there is a lot of waste. And it has 
been a real problem.
    Chairman Crane. And is the quantity, though, available? 
Allthe quantity you----
    Ms. Christian. Yes, but I have to buy more in order to get 
what I need.
    Chairman Crane. What is the estimated increase in the cost 
of your product because of this? What percentage increase?
    Ms. Christian. It does not appear to seem like much, but it 
could be as much as 10 cents a pound, which could make or break 
me.
    Chairman Crane. Yes. If you are not able to obtain a waiver 
for gum arabic from the sanctions on Sudan, will you be able to 
maintain yourusiness operation?
    Ms. Christian. I am losing it constantly. I am absolutely 
losing my business. I have lost three major companies this 
year, and I don't see anything for the year 2000 and 2001. And 
they have told me that they cannot resist the price that the 
French are offering.
    Chairman Crane. Mr. McMahon, Lockheed Martin is involved in 
a high-tech joint venture with a Russian partner, how do you 
ensure that the Russians do not acquire technology they can use 
to bolster their own military capabilities and/or sell to rogue 
countries like Iran?
    Mr. McMahon. The beauty of our arrangement is that we have 
a firewall, so to speak, between the booster and the satellite. 
And what we are using is Russian technology for the booster, 
and the satellites that we acquire around the world for launch, 
or market around the world to launch, come and are integrated. 
And there is no getting into the satellite itself on the part 
of the Russians.
    In fact, we do find that we are the importers of Russian 
technology. In another joint venture we have with the Russians, 
we are using their RD-180, built by an Ergomash and going to 
use it in the EELV that the Department of Defense has us 
building. Boeing builds some, and we build some. So in that 
case, it is reverse technology. And this engine is the finest 
engine in the world.
    If I may, Mr. Chairman, go back to your original comment. 
We, in the Lockheed-Khrunichev venture are not under a 
unilateral sanction as stated, but in essence that is what we 
are living with now. We had a quota of 15 vehicles that we 
could market to geo-stationary orbit. We have now sold all of 
those. So we have not been able to sell another system in the 
last 8 months.
    And our quota expires with the launch this fall. So, in 
essence, we are under a unilateral sanction right now, and we 
are losing business to the French, particularly to the Ariane 
launch vehicle. So in essence, this quota that we are under 
right now is putting our joint venture out of business if we 
don't get it lifted.
    Chairman Crane. Mr. Hamod, what has been the experience of 
U.S. business in the Persian Gulf region since the enactment of 
the Iran-Libya Sanctions Act 3 years ago, and has the sanctions 
Act succeeded in deterring investment in Iran?
    Mr. Hamod. In our experience, Mr. Chairman, the real 
penalty is being used against American companies and American 
workers. We see no let off in international business going into 
those markets. But what we do see is that American business is 
losing out.
    You have heard us say it before, Mr. Chairman. From our 
perspective, Americans abroad equal U.S. exports equal U.S. 
jobs. And when you put Americans in overseas markets, they buy 
American, they sell American, they specify American, and they 
create opportunities for American companies.
    We are losing out under the current circumstances, and we 
hope that that might change.
    Chairman Crane. Thank you very much. Mr. Levin.
    Mr. Levin. Well, thank you for your testimony. It is 
illuminating. Just two quick points.
    I do think we have to be careful between, careful in 
distinguishing between the impact of sanctions and the absence 
of effective mechanisms to help exporters, like effective Ex-Im 
programs. Mr. Bowe, I think that part of your testimony relates 
to sanctions, but part of it also shows that this country needs 
to be very effective in supporting those who are competing with 
entities from other countries, where those countries have 
subsidization of financing mechanisms that it is hard for us to 
compete with.
    And then maybe the last comment, and this may be a good 
segue to our last panel, I think we have to ask ourselves 
whether if 1244 had been in effect, it would have been any 
difference in result as to Iran or Libya. And it may be, Mr. 
Hamod, that your testimony really gets down to the issue of 
whether unilateral sanctions should ever be available, because 
my guess is that 1244, especially as we have discussed some 
changes with the Administration but even internally, if it had 
been in effect I don't know that there would have been any 
different impact.
    So, we need to really ask ourselves whether there are 
occasions when the United States must act when nobody else is 
willing to. And don't try to answer it now. It is too difficult 
to do it in 2 minutes.
    I don't mean to throw an unfair question. But I think that 
question does really help to flush out what our basic attitude 
is: Are we really opposed to unilateral sanctions, period, or 
do we really favor their availability under restricted 
circumstances?
    But anyway, why don't we let the next panel discuss that. 
Thanks very much for your testimony.
    Chairman Crane. Let me express appreciation to all of you 
for participation and the information that you have provided to 
the Committee. And God willing, we will make progress 
beneficial to one and all.
    [Pause for next panel to come to table.]
    And we will proceed in the order in which I introduced you 
all. Dr. Weintraub, you are first.

STATEMENT OF SIDNEY WEINTRAUB, PH.D., WILLIAM E. SIMON CHAIR IN 
   POLITICAL ECONOMY, CENTER FOR STRATEGIC AND INTERNATIONAL 
                            STUDIES

    Mr. Weintraub. Mr. Chairman, thank you very much for having 
me here today, for holding these hearings. My institution--I am 
at the Center for Strategic and International Studies--
completed a study just recently. We had spent about a year and 
a half on the study. And there were three components to it, one 
of which was detailed case studies of five countries where we 
used unilateral sanctions. The five countries were Burma, Cuba, 
China, Iran, and Vietnam. I will give you some of the 
conclusions in a few moments.
    The second element was a study on alternatives to the use 
of unilateral economic sanctions. And the conclusion there was, 
as my full statement says, that almost all of them fail almost 
all of the time. That means that occasionally--if you want I 
can cite some specific cases--they have worked, but not many.
    And finally, a policy paper, which is called ``Altering 
U.S. Sanctions Policy.'' I have copies of these, and I have 
summaries.
    Let me make a point on a few key issues and summarize very 
quickly what we concluded in those studies and then what I 
believe personally.
    The policy report, and I personally, support the substance 
of H.R. 1244. That point is explicit in the policy paper that 
CSIS has produced. We do not oppose the imposition of 
unilateral economic sanctions in the conduct of U.S. foreign 
policy. We think there is a place for them at times; we think 
it is a limited place. And I will come back to that soon.
    I'll do it right now. Trying to deal with the very point 
that Mr. Levin raised toward the end of his comments about ILSA 
and what was done there. What we--our research--found is that 
when you use what I would like to abbreviate as CUES, 
Comprehensive Unilateral Economic Sanctions, we really could 
not find a single case where they achieved their stated 
foreign-policy objective.
    We found cases where cues hurt countries, and hurt a good 
many people, but if you define what the foreign policy 
objective was when the process started, we didn't find a single 
case of success.
    It may well be that occasionally when we start with 
unilateral sanctions, comprehensive ones, they mutate into 
multilateral ones. But I think you would be hard-pressed to 
find another example other than South Africa. That is the one 
that is always cited, because it is the only one that I think 
you can list.
    This means, therefore, that if we are going to impose 
unilateral economic sanctions, that they rarely should be 
comprehensive. They may have to be comprehensive when you are 
fighting a war, as in Iraq, but there we have support from 
other countries.
    In most cases, we have concluded there are alternatives 
that are superior and less costly than sanctions, particularly 
CUES, the comprehensive kind. That really means that continued 
engagement with offending states is better than cutting off 
practically all economic and political relations with them, 
which is really what comprehensive economic sanctions imply.
    I don't want to get sidetracked on Cuba because that gets 
too emotional--but I don't understand why we cutoff 
communications, tourism, the movement of people there, which is 
probably the best way you can get information about the United 
States to a country.
    The conclusion our study reached was that if we are going 
to use sanctions, we should come to this at the end of the day, 
as a last resort, not the first.
    Let me summarize in a sort of philosophical way, the main 
conclusions that we reached. One is that it really is that the 
United States frequently takes actions that it would not take 
if a cold-blooded analysis were done first, before imposing the 
sanctions. In the first book on case studies of comprehensive 
sanctions, we discovered the United States never once in 
advance made a complete assessment of what the effects would be 
either on the United States or on the country which was being 
sanctioned.
    The sanctions are imposed hurriedly and a lot of actions 
get taken that I don't think we would take in the light of 
clear, thoughtful analysis.
    Let me give you four or five examples of these and then I 
will quit.
    We know that economic sanctions, particularly the 
comprehensive type, hurt most the most downtrodden part of the 
population in the country where they are imposed. This was the 
Pope's point when he went to Cuba. In Haiti, the consequences 
of some of the things we did are hurting the poor in that 
country to this day.
    In other words, I assume the U.S. public doesn't favor 
punishing poor people in the target country, particularly in 
dictatorships, because they are already being punished. Yet 
that is the outcome in case after case.
    The second thing we do, which I don't think sensible people 
would do, if they thought it through, is to isolate the United 
States from its major allies. And that is what we do when we 
act extra-territorially. We cite in our report a United Nations 
General Assembly vote last October when only one country, 
Israel, supported the United States on the extra-territoriality 
issue. All of our other allies differed with us.
    You have heard over and over again from the previous panel 
that our sanctions punish individual businesses--U.S. 
producers--when we impose sanctions unilaterally. And I don't 
think the members of Congress want to do that, want to take 
action that punishes our own people.
    It would hardly be a policy of the United States to make 
our country look ineffective, and yet--if our conclusion is 
right, that comprehensive sanctions don't work, and only rarely 
do targeted sanctions work--that is exactly what we are doing.
    And finally, I don't think it would be a wise policy to 
subordinate all issues in any country to a single offense, and 
frequently that is what unilateral sanctions accomplish.
    I guess the conclusion we have reached is that before we 
take actions, we would hope our Congress and the Administration 
have carefully looked at the consequences of what they are 
doing, that they have looked in advance, in some careful way, 
what they are doing. That, I take it, is the objective of the 
proposed legislation.
    Thank you.
    [The prepared statement follows:]

Statement of Sidney Weintraub, Ph.D., William E. Simon, Chairman 
Political Economy, Center for Strategic International Studies

    The Center for Strategic and International Studies recently 
completed a three-part examination of the use of unilateral 
economic sanctions by the United States. The project, which 
took place over an 18-month period, produced three publications 
which the Center believes are pathbreaking because they examine 
the use and effects of unilateral sanctions from many 
perspectives. The three publications, which are available from 
CSIS, are the following:
     Ernest H. Preeg, Feeling Good or Doing Good with 
Sanctions: Unilateral Economic Sanctions and the U.S. National 
Interest. This book examines the use of unilateral sanctions by 
the United States in five countries--Burma (Myanmar), Cuba, 
China, Iran, and Vietnam--and quantifies the costs and benefits 
for the United States and the effects on the five target 
countries.
     Joseph J. Collins and Gabrielle D. Bowdoin, Beyond 
Unilateral Economic Sanctions: Better Alternatives for U.S. 
Foreign Policy. The conclusion of this study is best summarized 
by the first sentence in the executive summary: ``Nearly all 
unilateral sanctions fail nearly all of the time.
      Douglas Johnston and Sidney Weintraub, project 
coordinators, Altering U.S. Sanctions Policy: Final Report of 
the CSIS Project on Unilateral Economic Sanctions. This 
publication contains an analysis drawing on the other two 
components and sets forth the policy conclusions of the 
steering committee for the project which was made up of 
distinguished Americans from a variety of occupations. The 
policy recommendations in my testimony today draw on this 
consensus document.

                         Position on Key Issues

    I wish to make clear at the outset of my testimony where I 
stand on the key issues before this subcommittee:
    1. I support the substance of H.R. 1244, the ``Enhancement 
of Trade, Security, and Human Rights Through Sanctions Reform 
Act.'' This position of support is explicit in the CSIS policy 
paper cited above.
    2. I do not oppose the imposition of unilateral economic 
sanctions as a tool in the conduct of U.S. foreign policy, but 
instead am concerned that it is being used promiscuously and 
without adequate analysis of the effects on U.S. interests and 
on the target country.
    3. As a general proposition, the research done for the CSIS 
study convinces all of us who participated in it that narrow, 
carefully targeted measures are superior to comprehensive 
unilateral economic sanctions, or CUES, to use shorthand.
    4. In most cases, moreover, there are alternatives that are 
superior in their effectiveness and less costly than either 
CUES or narrower unilateral economic sanctions.
    5. This position can be phrased succinctly: Continued 
engagement with offending states is superior to cutting off 
practically all economic and political relations with them, 
which is what CUES imply. Engagement does not prevent the use 
of targeted sanctions when these are deemed appropriate, but 
not as a first resort.
    I intend in the remainder of this submission to the 
subcommittee to set forth the reasoning that leads to these 
conclusions. One way to do this is to demonstrate that U.S. 
sanctions measures often lead to outcomes that when dissected 
cold-bloodedly are contrary to the overall national interest. I 
will also add some additional policy recommendations that stem 
from the work done at CSIS.

                     Actions that Deny Common Sense

    The United States has instituted many sanctions that would 
not normally be supported by a majority of the U.S. public if 
the presentation were less in anger and more in terms of 
potential accomplishments.
     We know from experience that comprehensive 
economic sanctions inflict the greatest hardship on the poor 
and already downtrodden population in nations against which 
they are imposed. The pope made this point after his visit to 
Cuba in January 1998; this result is the central theme of a 
book by Elizabeth D. Gibbons, Sanctions in Haiti: Human Rights 
and Democracy Under Assault (CSIS, 1999). I assume that U.S. 
public opinion does not favor this outcome, especially when the 
principal foreign policy objective is not achieved. This point 
has now been recognized by the president in foreswearing the 
withholding of food and medicines when imposing sanctions.
     A policy which isolates the United States from its 
closest allies must surely be evaluated as counterproductive, 
yet this is exactly what the use of secondary boycotts has 
accomplished in Cuba. When the issue of extraterritoriality was 
subjected to a vote in the United Nations General Assembly on 
October 26, 1998, only one country--Israel--supported the 
United States.
     It is hard to justify punishing U.S. businesses 
for the benefit of foreign competitors, yet that is precisely 
what takes place in case after case when sanctions are imposed 
unilaterally. In such cases--which are the norm--the sanctions 
have clearly failed because the products or services prohibited 
to U.S. exporters are supplied by exporters from other 
countries.
     It can hardly be a goal of U.S. foreign policy to 
make the United States look ineffective, but that is precisely 
what is accomplished when sanctions fail to achieve their 
foreign-policy objective.
     Finally, it can hardly be wise to subordinate all 
foreign-policy objectives in a given country to a single 
offense--unless that offense is particularly grave. Yet, that 
exactly what occurs in many sanctions cases.
    The conclusion of the CSIS examination is that these 
outcomes are common, even as the main foreign policy objectives 
are not achieved. This is why I support H.R. 1244. This 
legislation would call for procedures to analyze the effects of 
sanctions on both the United States and the target country and 
provide the calm to determine whether the foreign-policy 
purpose is likely to be accomplished before the sanction is 
imposed. There are times when speed is essential and it is my 
understanding that the proposed legislation permits this when 
necessary.
    I wish to emphasize that the purpose of economic sanctions 
is not to punish a foreign population as an end in itself, but 
to bring about some change in a country's policy. Most U.S. 
sanctions are imposed against nondemocratic regimes and the 
majority of the population in these countries suffers enough in 
these circumstances without our adding to the burden.
    The Congressional Budget Office, in a report prepared 
recently (issued in March 1999) for the House International 
Relations Committee, concluded that the size and flexibility of 
the U.S. economy minimized the cost of unilateral sanctions for 
the economy as a whole, especially when the sanctions are 
imposed against countries with small economies. The CSIS 
publication, Altering U.S. Sanctions Policy, contains a 
conclusion similar in one respect but divergent in another: 
``The resulting costs of lost export sales and/or the inability 
to invest in any given case may be high to individual companies 
and specific industrial sectors but are generally modest when 
measured against the totality of the U.S. economy.'' (p. 6)
    My problem with the CBO report is that it largely ignores 
damage that can be done to specific companies. It fails also to 
take into account that the inability to participate early in 
some activities in sanctioned countries can build in a long-
term bias against U.S. suppliers, as occurred in the generation 
of atomic energy in China. And when U.S. companies are 
precluded from oil investment in Iran or the development of 
natural gas in Burma while competitors are not, alternative 
investments may not be readily available to the U.S. companies.

                         Policy Recommendations

    Many of the recommendations in the CSIS policy paper emerge 
logically from the foregoing discussion:
     When sanctions are imposed, the primary target 
should be the leaders responsible for the offensive action and 
not the general population.
     Essential foodstuffs and medicines should not be 
cut off.
     In order to avoid turning business over to foreign 
competitors, and to make the action more effective, 
multilateral rather than unilateral sanctions should be 
sought--although this is not easily accomplished.
     A careful assessment of the effects in the United 
States--including on particular businesses and communities--and 
in the target country should be made before sanctions are 
imposed. This is the essence of H.R.1244.
     Extraterritorial application of sanctions should 
be avoided.
     And foreign policy objectives, not domestic 
politics, should be paramount when sanctions are imposed.
    The overarching recommendation is that U.S. policy in the 
face of most grievances should be based on engagement and not 
isolation from the offending country. There may be grievances 
so severe where this would not apply, but these generally will 
be cases in which multilateral measures are possible, e.g., in 
the economic sanctions against Iraq. Engagement means that CUES 
should not be used, but does not preclude narrow or targeted 
sanctions.
    Additional policy suggestions include the following:
     More effective coordination is necessary between 
the executive and legislative branches in the consideration of 
sanctions measures.
     The use of carrots, or non-threatening actions, 
may be preferable to punishing measures in many circumstances.
     Better advance intelligence is essential so that 
assessment of the results of U.S. actions, whether positive or 
punitive, can proceed rapidly.
     Sanctions should be targeted as narrowly as 
possible so that compliance by the offending state can occur 
without undue loss of prestige.
     Punishment, when inflicted, should be proportional 
to the offense.
     Prefer the credible threat of sanctions to 
sanctions themselves.
     Finally, an effort should be made to take into 
account the reactions of U.S. allies before embarking on a path 
of sanctions.
    The subcommittee was kind enough to give me a voice in its 
proceedings and I welcome that. My colleagues who worked with 
me on the CSIS sanctions project and I are prepared to provide 
additional information.
    Thank you.

                                

    Mr. Houghton [presiding]. Thank you very much, Mr. 
Weintraub. You hold the--I'm sorry I wasn't here earlier. You 
hold the chair of a dear friend and a great citizen, Mr. Simon.
    Mr. Weintraub. Thank you very much.
    Mr. Houghton. A wonderful person.
    Now, Mr. Rogowsky.

     STATEMENT OF ROBERT A. ROGOWSKY, DIRECTOR, OFFICE OF 
    OPERATIONS, UNITED STATES INTERNATIONAL TRADE COMMISSION

    Mr. Rogowsky. I want to thank you for the opportunity to 
come and present the findings of the study on economic 
sanctions released by the International Trade Commission last 
year. Currently, as you know, we are examining the effect of 
sanctions imposed against India and Pakistan at the request of 
this Committee.
    In 1998, this Committee asked the Commission to provide an 
overview and discussion of current U.S. unilateral economic 
sanctions. The Committee specifically asked the Commission to 
describe U.S. unilateral economic sanctions currently in 
effect, to review recent literature on the economic effects of 
national-level economic sanctions, and to survey to the extent 
possible affected U.S. industries concerning the costs and 
effects of U.S. unilateral economic sanctions on such 
industries and their markets, and to propose a methodology to 
analyze the short- and long-term costs of U.S. unilateral 
sanctions and their impact on the U.S. economy.
    The approach the Commission took was to review all 
available databases, to catalog sanctions, to conduct a phone 
survey of over 500 U.S. companies, to elicit their views, and 
to review the literature for methods used to estimate the 
economic effects of these measures.
    In requesting this study, the Ways and Means Committee 
defined the term unilateral economic sanctions as meaning, 
``any unilateral restrictions or condition on economic activity 
with respect to a foreign country or foreign entity that is 
imposed by the United States for reasons of foreign policy or 
national security.''
    Using this definition, the Commission identified 42 
separate laws that either mandate particular actions or serve 
as the basis for discretionary actions by the executive branch. 
Under these laws, a total of 142 statutory provisions 
pertaining to unilateral economic sanctions were identified. 
Twenty-two percent of these measures concerned terrorism. Other 
sanctions concerned nuclear and other arms proliferation, 
national security, narcotics, expropriation, human rights, 
environmental protection, and communism.
    The Commission identified 27 State, county, and city laws 
imposing unilateral economic sanctions, most of which were 
against Burma, three against Nigeria, one each against Cuba and 
Tibet.
    There are several basic findings from our study which will 
sound very much like what you heard in previous panels.
    First, the large number of statutes provide for economic 
sanctions in various forms, makes it difficult for both public- 
and private-sector entities to catalog these sanctions. For 
example, differing definitions of the terms economic sanction 
make it difficult to compare the list of sanctions in our 
report to those compiled by others.
    Second, in addition to the sheer number of statutes 
providing for economic sanctions, the statutes themselves may 
be difficult to interpret or may vary in impact from year to 
year, sometimes simply because of a lapse of funding.
    Moreover, in some cases, there is a significant lag between 
the time a particular economic sanction is announced and the 
actual publication of the implementing regulations. This 
uncertainty can pose problems for private-sector compliance 
with sanctions, not to mention confusion for those attempting 
to examine the impact of these sanctions.
    The Commission identified a total of 29 countries subject 
to U.S. unilateral economic sanctions, of which seven were 
designated as terrorism-sponsoring countries, 11 for foreign-
policy or national-
security reasons, and 11 preventing certain imports from 
countries for environmental protection objectives.
    Both costs and benefits were reported. Some import-
sensitive U.S. businesses, especially in the agricultural 
sector, may experience higher prices, production, and 
employment with sanctions because competition is reduced.
    On the other hand, direct, quantifiable costs to U.S. 
businesses and the U.S. economy as a whole include lower U.S. 
exports and imports, reduced investment, and fewer export- and 
import-related jobs. Estimates of these costs based on data 
from early and the mid-nineties range from $5 billion to $20 
billion.
    Indirect effects are hard to quantify, such as reduced U.S. 
trade opportunities in global markets, loss of consumer and 
industrial consumer choice, less competitive U.S. businesses 
and a chilling effect on long-term commercial relationships if 
foreign partners are reluctant to do business with the United 
States.
    A variety of analytical methods may be used to assess the 
impact of these sanctions. The choice of approach is largely 
determined by the nature of the sanction, how long it has been 
in force, and the availability of data. Survey research is 
always critical in this type of study. If data permit, 
statistical analyses can be used to estimate the effects on 
bilateral trade.
    For a proposed sanction, one that is not in place yet, 
relatively sophisticated counterfactual simulation models can 
be used to estimate sector-specific and economy-wide effects.
    In the Commission's current study on sanctions against 
India and Pakistan, for example, surveys and a global 
simulation model will be used.
    I would be pleased to answer any questions you have about 
the study or, to some extent, about the study that is coming 
up.
    Thank you.
    [The prepared statement follows:]

Statement of Robert A. Rogowsky, Director, Office of Operations, United 
States International Trade Commission

    I want to thank you for the opportunity to present the 
findings of the study conducted by the U.S. International Trade 
Commission. As you know, on February 19, 1998, the Committee on 
Ways and Means, U.S. House of Representatives (the Committee), 
requested that the U.S. International Trade Commission (the 
Commission) provide an overview and discussion of current U.S. 
unilateral economic sanctions. The Committee requested that the 
Commission's report include (1) a description of U.S. 
unilateral economic sanctions currently in effect; (2) a review 
of recent literature on the economic effects of national-level 
economic sanctions; (3) a survey, to the extent possible, of 
affected U.S. industries concerning the costs and effects of 
U.S. unilateral economic sanctions on such industries and their 
markets; and (4) a proposed methodology to analyze in future 
studies the short-and long-term costs of U.S. unilateral 
sanctions and their impact on the U.S. economy.
    The Committee defined the term ``unilateral economic 
sanctions'' as meaning ``any unilateral restriction or 
condition on economic activity with respect to a foreign 
country or foreign entity that is imposed by the United States 
for reasons of foreign policy or national security.'' The 
Committee also set forth a list of trade measures to be 
excluded from the present report, such as multilateral 
sanctions and measures authorized by multilateral or bilateral 
trade agreements; measures imposed to remedy unfair trade 
practices, to remedy market disruption, or to respond to injury 
to a domestic industry; actions taken pursuant to the extension 
by the United States of most-favored-nation trading status; and 
measures imposed to protect domestic health or safety.
                      Approach of the USTIC Study
    The actions taken by the Commission to respond to the 
Committee's request were (1) compiling a list of U.S. 
unilateral economic sanctions based on a review of relevant 
legislation and reference to several existing lists of 
sanctions compiled by other experts or entities that have 
conducted research in this area; \1\ (2) conducting a telephone 
survey of nearly 500 U.S. companies and associations, and 
holding a public hearing to obtain private sector views on 
unilateral economic sanctions; (3) conducting a review of 
recent economic literature on the economic effects of national-
level economic sanctions; and (4) proposing likely 
methodologies to estimate the short-and long-term costs of 
sanctions.
---------------------------------------------------------------------------
    \1\ The three primary sources consulted were the President's Export 
Council, the Congressional Research Service (CRS) of the Library of 
Congress, and the National Association of Manufacturers. Each of these 
entities has compiled a list of U.S. economic sanctions using its own 
definition of the term ``economic sanction.''
---------------------------------------------------------------------------
               List of U.S. Unilateral Economic Sanctions
    The Commission identified 42 separate U.S. laws that 
authorize economic sanctions. These laws may mandate particular 
actions, or may serve as the basis of mandatory or 
discretionary actions by the Executive Branch. Under these 
laws, a total of 142 statutory provisions pertaining to 
unilateral economic sanctions were identified. Twenty percent 
of the measures concern terrorism. Other sanctions concern 
nuclear and other arms proliferation, national security, 
narcotics, expropriation, human rights, environmental 
protection, and communism.
    A summary of major U.S. unilateral economic sanctions 
(statutes as well as implementing regulations) is provided in 
table ES-1. The table lists and summarizes the sanctions, the 
reasons cited for the sanction, and the countries or entities 
to which each listed sanction applies.\2\ The table also 
indicates the sectors of economic activity--trade, aid, or 
finance--restricted by the sanctions. Some of the sanctions 
were implemented as recently as 1998 (for example, the Burmese 
and the Sudanese Sanctions Regulations and economic sanctions 
against India and Pakistan), while others have long been in 
effect (for example, the Trading With the Enemy Act of 1917 
continues to provide part of the statutory basis for current 
U.S. unilateral economic sanctions against Cuba and North 
Korea).
---------------------------------------------------------------------------
    \2\ More detailed information is provided in table 2-1 and in 
Appendix D.
---------------------------------------------------------------------------
    The Commission identified 27 State, county, and city laws 
imposing unilateral economic sanctions--22 directed against 
Burma, 3 against Nigeria, and 1 each against Cuba and Tibet. 
All of these measures involved selective purchasing, selective 
contracting, or selective investment restrictions that disallow 
procurement or contracts with, or investment in, any company 
that does business with or has investments in the targeted 
country. The Commission identified 14 additional proposed State 
and local measures, including two such pending measures against 
Burma for human rights violations, 10 pending against 
Switzerland for the possession of funds belonging to Holocaust 
victims, and two pending measures against any foreign financial 
institution determined to be in possession of funds belonging 
to Holocaust victims.
    The large number of statutes providing for economic 
sanctions present several challenges in working with sanctions 
and make it difficult for both public and private sector 
entities to catalog these sanctions. For example, differing 
definitions of the term ``economic sanctions'' make it 
difficult to compare the lists of sanctions in this report with 
lists of sanctions compiled by other sources. In addition to 
the sheer number of statutes providing for economic sanctions, 
the statutes themselves may be difficult to interpret, may be 
subject to varying interpretations, or may vary in impact from 
year to year because of lapses in funding. Moreover, in some 
cases there is a significant lag between the time a particular 
economic sanction is announced and the actual publication of 
the implementing regulations. These challenges pose significant 
problems for the private sector in complying with sanctions as 
well as for all who attempt to examine the impact of sanctions.

Countries Subject to U.S. Unilateral Economic Sanctions

    Cuba, Iran, Libya, North Korea, Syria, and Sudan are 
designated by the United States as terrorism-sponsoring 
countries and face the broadest range of U.S. unilateral 
economic sanctions. These countries are subject to U.S. 
restrictions or prohibitions on trade, aid, and financial 
transactions. U.S. economic sanctions against Iraq are pursuant 
to United Nations (UN) multilateral sanctions and thus are 
beyond the scope of this report as delineated in the request 
letter. However, Iraq is designated by the United States as a 
terrorism-sponsoring country, and would be subject to U.S. 
unilateral economic sanctions were UN sanctions not operative. 
All of the designated terrorism-sponsoring countries are 
relatively small markets for U.S. exports. Nevertheless, U.S. 
industries contacted during the Commission's telephone survey 
(especially oil and gas, infrastructure-related machinery, and 
construction services) identified lost exports to some of these 
countries because of U.S. unilateral economic sanctions.
    The Commission identified a total of 29 countries subject 
to U.S. unilateral economic sanctions. In addition to the 7 
designated terrorism-sponsoring countries, 11 other countries 
are subject to U.S. unilateral economic sanctions for foreign 
policy or national security reasons--Afghanistan, Burma, 
Cambodia, China, the Democratic Republic of the Congo, the 
Federal Republic of Yugoslavia (Serbia and Montenegro), India, 
Niger, Nigeria, Pakistan, and the Republic of Serbia. An 
additional 11 countries were identified as subject to U.S. 
unilateral economic sanctions that prohibit certain imports 
from these countries for environmental protection objectives.

Potential Impact of U.S. Unilateral Economic Sanctions

    The Commission was not requested to undertake a 
quantitative assessment of the effects of U.S. unilateral 
economic sanctions in this investigation, but nonetheless there 
are some estimates available on the impact of sanctions from 
the economic literature reviewed for this report. The 
Commission's telephone survey and public hearing also obtained 
input from the U.S. private sector on the effects of sanctions.
    Both costs and benefits were reported among the effects of 
U.S. unilateral economic sanctions. Costs to U.S. businesses 
and the U.S. economy as a whole include direct effects, which 
tend to be quantifiable, such as lower U.S. exports, lower U.S. 
imports, reduced investment, and fewer export-and import-
related jobs. In addition, economic sanctions also may have 
indirect effects that are harder to quantify, such as reduced 
U.S. trade opportunities in global markets, loss of consumer 
and industrial user choice, less competitive U.S. businesses, 
and a ``chilling effect'' on long-term commercial relationships 
as some foreign partners become reluctant to do business with 
U.S. companies. This is out of concern that U.S. companies are 
not reliable suppliers due to the threat of future U.S. 
unilateral economic sanctions, or that assets in possession of 
U.S. entities may be seized under future U.S. sanctions. This 
study did not attempt to examine political costs and benefits 
of U.S. unilateral economic sanctions.
    In terms of benefits, some import-sensitive U.S. businesses 
(especially in the agricultural sector, as discussed below) may 
experience higher production and employment while sanctions are 
in force because import restrictions imposed by sanctions may 
reduce the available supply of competing foreign products in 
the U.S. market, or otherwise affect the prices of such foreign 
goods.
Costs and Effects of U.S. Unilateral Economic Sanctions: U.S. Industry 
                              Perspectives
General Findings

    The Commission contacted 492 U.S. firms and professional or 
trade associations in a telephone survey to obtain their views 
and information on U.S. unilateral economic sanctions. The 
survey was not based on a statistical sampling due to the 
short-term nature of this report; nevertheless, an attempt was 
made to include firms of all sizes representing a wide cross-
section of manufacturing and service sectors. The selection of 
these firms relied on the judgement and expertise of USITC 
staff in specific manufacturing and service sectors. Consumer 
groups were not contacted, as Congress directed the Commission 
to focus on the effects of U.S. unilateral economic sanctions 
on U.S. industries. The Commission received a total of 174 
responses of varying depth and quality--an overall response 
rate of 35 percent. Respondents were asked to identify the 
effects of sanctions as ``minimal'' (0 to 5 percent effect), 
``modest'' (6 to 10 percent), or ``substantial'' (over 10 
percent).
    No responding firm indicated that it directly benefits from 
U.S. unilateral sanctions in terms of additional business, 
profits, or employment; however, some fresh vegetable producers 
in Florida expressed concerns about potential economic losses 
if U.S. unilateral economic sanctions against Cuba were to be 
lifted (see ``agriculture'' below). Energy producers, 
especially oil and gas, were reported as being the most 
adversely affected by U.S. unilateral economic sanctions (see 
``energy and chemicals'' below).
    Most other respondents indicated that the economic effects 
of U.S. unilateral economic sanctions are small because many of 
the countries targeted for sanctions are mainly low-income 
countries with relatively small markets. However, in May 1998, 
after the Commission's industry survey ended, the United States 
implemented economic sanctions against India and Pakistan 
following nuclear test explosions by those countries. Under 
these sanctions, the United States was statutorily required to 
prohibit economic and military aid as well as terminate 
financial assistance; the sanctions also required that the 
extension of agricultural export credit guarantees also be 
terminated for these two countries. As a result of concerns 
expressed by the U.S. agricultural sector, the United States 
amended the relevant sanctions statute to retroactively 
authorize the extension of agricultural export credits.
    Survey respondents stated that it was difficult for them to 
quantify the economic effects of sanctions. Particularly 
difficult to quantify were: (1) the business losses 
experienced, compared to the returns expected if sanctions had 
not been in place; (2) the effects of delayed entrance into a 
market because of sanctions; and (3) the business losses 
incurred because sanctions may cause U.S. firms to be perceived 
as unreliable suppliers, due to the threat of future U.S. 
unilateral economic sanctions. Many respondents stated that 
identification of, and compliance with, the large number of 
U.S. unilateral economic sanctions is difficult and expensive. 
They cited the large number of economic sanctions imposed by 
State and local governments as a further hindrance to their 
business operations--adding to the expense and the 
administrative complications of doing business abroad.

Sectoral Findings

    Agriculture. Overall, the costs and effects of U.S. 
unilateral economic sanctions were reported to be minimal both 
in terms of access to foreign markets and competition from 
imports. Some fresh vegetable producers in Florida expressed 
concerns about possible adverse effects on their businesses if 
Cuban products were allowed to re-enter the U.S. market. These 
firms believe that Cuban products would underprice Florida-
grown vegetables. U.S. cigar producers also expressed the 
concern that lifting the sanctions against Cuba could disrupt 
the U.S. cigar industry.
    Energy and chemicals. Respondents indicated that U.S. 
unilateral economic sanctions impede their ability to export to 
some markets. One large multinational chemical company reported 
that U.S. unilateral economic sanctions have harmed its 
reputation as a reliable supplier and caused a loss of 
international competitiveness in such markets as Iran, Sudan, 
and Cuba. That company also reported that the effects of 
sanctions can linger even after the sanctions are lifted, 
stating that its current market opportunities in Vietnam are 
limited because foreign competitors were able to secure most of 
that market during the period when U.S. companies were 
prohibited from doing business in Vietnam. One large 
multinational energy company reported that its operations in 
the Middle East, Vietnam, and Cuba have been adversely affected 
because of U.S. economic sanctions. In contrast, one large 
international pharmaceutical company reported a minimal impact 
on its operations as a result of U.S. sanctions.
    Minerals, metals, machinery, and miscellaneous 
manufactures. Most respondents reported that U.S. unilateral 
economic sanctions have a minimal to modest impact overall on 
their business operations, although several said that the 
effects could be significant with respect to certain business 
activities (such as infrastructure-related machinery and parts) 
and to certain countries, such as Sudan. Two companies 
estimated that sanctions caused aggregate lost exports valued 
at $250,000, and total lost export earnings plus follow-on 
sales and service of approximately $45 million. Some firms 
reported that they had some difficulty re-entering markets that 
had previously been prohibited by U.S. unilateral economic 
sanctions, and where re-entry was possible the firms incurred 
high costs for developing new distribution channels and 
marketing.
    Electronic technology and transportation. Respondents 
reported that economic sanctions most likely affected not more 
than 1 percent of total sales, or 5 percent of export earnings; 
however, several noted that such losses, especially foregone 
export sales, could be significant when accrued over several 
years. Several respondents reported the difficulties of re-
entering markets after sanctions are lifted, and noted that the 
costs of re-establishing distribution networks are especially 
high. One U.S. motor vehicle producer noted that State and 
local sanctions have particularly disruptive effects on 
business operations, because such economic sanctions affect 
procurement and divestiture of stock, are easier to enact, and 
have more immediate effects.
    Service industries. Respondents indicated that U.S. 
unilateral economic sanctions close off new market 
opportunities and increase the level of uncertainty for 
business operations. Construction firms reported being 
adversely affected when submitting bids for certain long-term 
infrastructure projects because the threat or potential threat 
of U.S. unilateral sanctions contributes to the perception that 
U.S. firms may be less reliable than their European or Japanese 
competitors. Major multinational financial service firms 
indicated that they are vulnerable to U.S. unilateral economic 
sanctions if their overseas affiliates are located in countries 
that are targets for sanctions. Moreover, investors may be 
reluctant to deposit funds in U.S. banks worldwide for fear of 
having their accounts monitored or frozen under U.S. sanctions. 
Telecommunications services firms also reported foregone 
business opportunities in such markets as Colombia, Cuba, Iran, 
and Libya as a result of U.S. unilateral economic sanctions.
                          review of literature
    Research that specifically examines the cost of sanctions 
to the sender or imposing country is relatively limited. Much 
of the academic economic literature treats economic sanctions 
as a theoretical problem. Game theory is a commonly used 
framework in which countries that impose economic sanctions 
(senders) and countries against which the sanctions are 
directed (targets) are treated as two opponents, each weighing 
the outcomes of various policy options in view of the strategy 
of the other. The studies that examined the costs of sanctions 
focused on the costs of sanctions to the target countries or 
estimated the degree of success of the sanctions in relation to 
the sender's stated policy goal or objective. These studies 
relate the degree of success to such factors as the costs of 
the sanctions to the sender and target countries, the size of 
the countries or trade flows involved, the objectives of the 
sanctions, the duration of the sanctions, the extent of 
international cooperation in implementing or enforcing the 
sanctions, and other factors.
               survey of methodologies and cost estimates
    Researchers have used a variety of approaches to evaluate 
the costs of sanctions to senders, leading to results on 
several different types of costs and a wide range of dollar 
estimates of these costs. The most readily available estimates 
of the sender costs of sanctions take the form of aggregate 
lost U.S. export sales to target countries due to all sanctions 
imposed by the United States. In this research, which covers 
all U.S. sanctions including multilateral sanctions, these 
estimates range from $5 billion to $20 billion in foregone 
export sales to the target countries for the early to mid-
1990s.\3\
---------------------------------------------------------------------------
    \3\ These estimates reflect sales to countries targeted by U.S. 
unilateral sanctions, and do not attempt to measure whether such sales 
were diverted to other markets or lost entirely.
---------------------------------------------------------------------------
    Other types of direct costs discussed in the literature 
include job losses, compliance costs, lost sales from 
intermediate suppliers for goods placed under sanctions, and 
lost follow-on sales and market share. In addition, business 
representatives have identified a number of indirect, less 
easily quantifiable costs, including damage to their reputation 
as reliable suppliers, lost opportunities for forming critical 
business relationships or participating in joint ventures and 
lost competitiveness as these opportunities are taken up by 
firms from other countries. Evaluating any of these costs for 
the United States from the imposition of U.S. unilateral 
sanctions is difficult, but estimating the indirect costs is 
especially challenging.
    Direct costs of sanctions, such as lost export sales, are 
typically estimated econometrically with a gravity model--that 
is, a model of bilateral trade flows that detects shortfalls in 
trade flows below what would be expected given the economic 
conditions prevailing among trade partners and provides means 
for estimating the role of sanctions in causing such 
shortfalls. Other approaches have also been used to estimate 
the costs generated by the imposition of sanctions. These 
approaches include partial equilibrium models, which can 
examine the impact of restrictions of proposed sanctions on the 
economic welfare of participants in the relevant markets, and 
general equilibrium models, which connect the restricted 
markets to a full representation of all markets in an economy. 
Multi-country variations connect several single-country general 
equilibrium models together through international trade flows.
    Industry surveys and questionnaires have been used to 
elicit from affected businesses the different types of costs 
they have experienced as a result of sanctions and the extent 
of these costs. Information obtained from surveys and 
questionnaires is especially valuable in assessing the indirect 
costs of economic sanctions. Case studies can also help 
identify the full spectrum of costs to senders of economic 
sanctions.

                          Methodology Proposal

    The request letter asks that the USITC propose a 
methodology to be used to analyze in future studies the short 
and long-term costs of U.S. unilateral sanctions to the U.S. 
economy. The request letter refers to draft legislation that 
would ask the USITC on a recurring basis to report on the costs 
of all actual and proposed U.S. unilateral economic sanctions, 
and to assess the impact these sanctions have on the 
reliability of the United States as a supplier of products, 
agricultural commodities, technology, and services, and on the 
international competitive position of U.S. industries, firms, 
workers, farmers, and communities.
    The analytical approaches used by the Commission to provide 
such an assessment of existing and/or proposed unilateral 
sanctions will need to address three basic concerns. First, the 
analysis should include both aggregate and sector-specific 
effects of the sanctions under review. Second, the analysis 
should provide measures of the costs of sanctions that, to the 
extent possible, can be provided on a consistent basis over 
time. Finally, the analysis should account for the total net 
costs of the sanctions, including both the direct, more easily 
quantified costs as well as the indirect costs that are 
difficult to quantify. The Commission's likely approach would 
be to jointly employ a variety of the methodologies described 
above to capture the effects of economic sanctions. In addition 
to economic methodologies, the Commission would seek industry 
and interested party views through hearings, questionnaires, 
and other survey forms.
    For example, partial equilibrium and gravity models have 
been used most often to assess the impact of economic 
sanctions. Partial equilibrium models can provide estimates of 
the direct costs of proposed sanctions borne by both producers 
and consumers. This type of model can be constructed to allow 
for varying degrees of imperfect competition, multiple 
suppliers, and multiple buyers. Moreover, such models can 
account for varying degrees of substitutability between 
tradeable products and can be used to assess the impact of 
different types of sanctions, such as export embargoes and 
restrictions on export financing. Given the abundance of 
information produced, the ability to account for the impact of 
policy changes on narrowly defined sectors, the limited data 
requirements and simplicity of operation, the partial 
equilibrium approach compares favorably in most cases to the 
use of a general equilibrium model. A general equilibrium 
approach would be a more likely choice for sanctions imposed on 
large trading partners (where the economy-wide effects of the 
sanctions may be significant) or on those who can influence the 
world prices of products in major, broadly-defined sectors such 
as oil.
    In order to evaluate the economic impact of U.S. unilateral 
sanctions on an ongoing basis, it will be valuable to have a 
modeling framework that captures more of the dynamic aspects of 
that impact. These aspects include the long-term costs, the 
impact on the international reputation of the United States as 
a reliable supplier of goods and technologies, and the impact 
on the international competitiveness of U.S. industries and 
firms. Gravity models fill this need in that they can be 
applied to test for persistence of the effects of sanctions 
after they have been removed. Such a test for persistence can 
help indicate how temporary loss of market share or supplier 
relationships may affect reputation for reliability or 
competitiveness in the long run. In addition, gravity modeling 
can help estimate the effects of sanctions on capital flows.
    Each of these methodologies has its own advantages and 
trade-offs, such as the initial data requirements for the 
analysis and the level of detail of the results. Depending on 
the specific request as well as the length of time available 
for analysis, partial or general equilibrium analysis or 
gravity models or a combination of these methodologies could be 
applied appropriately to estimate the direct costs such as lost 
export sales associated with economic sanctions. Industry input 
would be sought via surveys and questionnaires to obtain 
information on the indirect as well as the direct costs of 
sanctions. Integrating the analysis of estimates of direct and 
indirect costs from several appropriate methodologies, in 
conjunction with industry surveys, would provide a more 
comprehensive assessment and understanding of the short-and 
long term costs of sanctions on the U.S. economy.
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    Mr. Houghton. Thank you very much, Mr. Rogowsky.
    Mr. Farmer.

   STATEMENT OF RICHARD D. FARMER, PH.D., PRINCIPAL ANALYST, 
 NATURAL RESOURCES AND COMMERCE DIVISION, CONGRESSIONAL BUDGET 
                             OFFICE

    Mr. Farmer. Thank you. Mr. Chairman and Members of the 
Subcommittee, I am pleased to appear here today to report on 
CBO's recent study, the Domestic Costs of Sanctions on Foreign 
Commerce. The focus of CBO's research was the cost of sanctions 
on the national economy. Those are costs that net out losses 
and gains for different groups.
    I want to emphasize up front that the costs of sanctions to 
the United States, large or small, say little about the costs 
to the target country or the effectiveness of sanctions in 
deterring objectionable behavior. CBO's research and this 
testimony do not address questions of effectiveness. However, 
our work does note that such information, along with details on 
the costs and benefits of all policy options, including 
sanctions, would be relevant to any decision to impose 
sanctions.
    CBO's review of sanctions indicates that many of the 
Government's actions that look as though they would restrict 
foreign commerce do not actually add new restrictions. 
Considerable redundancies exist among current statutes and 
executive actions, and many statutes provide for presidential 
delays in enforcement, which the President takes advantage of.
    The economic effects of such actions are very indirect, 
depending largely on people's perceptions of what the 
government will do next and, hence, are difficult to assess. 
For actions that add new restrictions, CBO concludes that 
individual actions could have clear costs for the overall 
economy, but those costs are likely to be small.
    One reason for the small cost is that, to date, very little 
commerce is at stake. The common targets of sanctions are 
developing economies that individually account for very little 
U.S. trade.
    Three closely related factors also point to small costs. 
First, many of the U.S. actions are unilateral. They generally 
result in a smaller cost to the United States than do 
multilateral sanctions because unilateral actions are less 
effective in restricting overall economic activity, as we have 
heard today.
    Second, many of the U.S. actions restrict foreign 
assistance or export-promotion programs. Those restrictions 
result in smaller national costs than do sanctions that 
restrict free commerce. To the extent that such programs 
distort free trade, there is even a possibility of some small 
economic gains from those sanctions.
    And third, the main exports of developing countries (the 
common targets of sanctions) are raw materials and standard 
manufactured goods, many of which are widely available from 
other countries or domestically. Sanctions that narrowly target 
goods with such substitute sources of supply generally result 
in little cost.
    Support for the view that the cost of sanctions to date has 
been small comes from recent research by Gary Hufbauer and 
others at the Institute for International Economics. They found 
that the cost of all current sanctions is an annual loss of 
national income of only about $1 billion. That's about 0.01 
percent of the current national income of $7 trillion. That 
same study is also the source for the figure of nearly $20 
billion in lost export trade each year because of sanctions.
    CBO understands that at least two issues underlie the 
growing political concern about sanctions. First, to the 
individuals and businesses who bear the direct impact of 
sanctions, the losses can be significant, as we have heard here 
today. Other sectors of the economy may gain, but that fact is 
of little consolation to the losers.
    Second, regardless of their impact today, sanctions could 
become costly in the future. That could be true if their use 
expands or if they keep U.S. businesses out of fast-growing 
markets, especially markets where the United States would 
otherwise have a competitive advantage.
    In some cases, sanctions may threaten U.S. relationships 
with important trading partners who are not the direct targets 
of sanctions. The critics of sanctions also express concern 
about the long-lasting impact of past actions on the United 
States' reputation as a reliable supplier.
    To investigate the domestic cost of future actions, CBO 
made use of the results of past academic research to calculate 
how much economic welfare would drop for each dollar reduction 
in U.S. trade.
    In general, that research confirms that the lowest cost to 
the United States would be from unilateral actions against 
small developing economies. Because such actions are so common, 
the Hufbauer research on current sanctions provides a direct 
indication of their cost. His results suggest a loss in U.S. 
national income of 5 cents for each one dollar decrease in 
exports.
    The highest cost to the economy would come from sanctions 
imposed on a large industrialized country, especially if the 
sanctions initiated a worldwide round of trade reductions. 
However, those countries are rarely the targets of sanctions.
    This testimony necessarily provides a very brief overview 
of our work. I would be pleased to answer any questions you may 
have.
    Thank you.
    [The prepared statement follows:]

Statement of Richard D. Farmer, Ph.D., Principal Analyst, Natural 
Resources and Commerce Division, Congressional Budget Office

    Mr. Chairman and Members of the Subcommittee, I am pleased 
to appear here today to report on a study that the 
Congressional Budget Office (CBO) recently released titled The 
Domestic Costs of Sanctions on Foreign Commerce. The focus of 
CBO's research was the total cost to the U.S. economy of 
imposing sanctions on other countries. That total cost nets out 
losses and gains for different groups.
    The cost to the United States, large or small, of imposing 
sanctions says nothing about the cost to the target country, 
the effectiveness of sanctions in deterring objectionable 
behavior, or other benefits of such action. CBO's research--and 
this testimony--do not address questions of effectiveness. 
However, such information, along with details about the 
relative costs and benefits of all policy options open to the 
United States (economic, diplomatic, and military), would be 
relevant to any decision to impose sanctions.
    Not all actions by the U.S. government that call for 
restricting foreign commerce actually add new restrictions. For 
actions that do, CBO concludes, the sanctions may have costs 
for the overall U.S. economy--but those costs are likely to be 
very small. One reason is that the common targets of U.S. 
sanctions are developing economies that individually account 
for very little U.S. trade.
    Several other factors play a role in determining the 
national costs of individual sanctions.
     Unilateral sanctions (imposed by the United States 
alone) generally result in a smaller cost to the U.S. economy 
than multilateral sanctions (in which other nations join the 
United States), because unilateral actions are less effective 
in restricting economic activity.
     Sanctions that narrowly apply to imported goods 
for which substitute sources of supply exist or to exported 
goods for which substitute outlets exist, generally create a 
smaller cost than sanctions on goods without substitution 
opportunities.
     Sanctions that restrict foreign aid or export-
promotion programs generally result in a smaller cost than 
sanctions that restrict open commerce. Because those types of 
government support can distort trade, sanctions that restrict 
them may even produce small economic gains.

                        Concerns about sanctions

    Broadly, the term ``sanctions'' refers to actions that the 
government takes to restrict the flow of goods, services, or 
capital between the United States and another country in order 
to promote particular foreign policies or enhance national 
security. The ultimate goal of sanctions is to deter 
objectionable actions by raising the costs of those actions to 
other countries. But government restrictions on foreign 
commerce can also impose costs on U.S. businesses and 
consumers.
    Political interest in the domestic costs of sanctions 
appears to be growing, fueled by at least two concerns. First, 
the individual groups of consumers, workers, and business 
owners who bear the direct costs of U.S. sanctions often do not 
receive direct compensation for their losses. Other sectors of 
the economy may gain from changes in trade patterns produced by 
sanctions, but that fact is of little consolation to the 
losers. Second, although sanctions have only a small economic 
impact today, they could become more costly for the United 
States over time if their use expanded or if they kept U.S. 
businesses out of fast-growing markets--especially markets in 
which U.S. businesses would otherwise have a competitive 
advantage. In addition, they might harm the United States' 
relationships with important trading partners that were not the 
direct targets of sanctions.
    Last year, the Congressional Research Service identified 
more than 190 provisions of U.S. law that potentially restrict 
some aspect of foreign commerce for foreign policy reasons. Of 
those provisions, 102 pertain to restrictions on government 
foreign aid and trade-promotion programs, including 26 on 
defense-related aid. Another 49 pertain to restrictions on 
commercial exports, including 26 on defense-related sales. 
Those statutes place the most restrictions on commerce with 
seven countries: Cuba, Iran, Iraq, Libya, North Korea, Sudan, 
and Yugoslavia.
    Assessing the amount of trade that federal statutes affect 
is difficult for a number of reasons. First, considerable 
redundancies, such as multiple laws that call for the same 
restrictions, exist in sanctions policies. Second, limits on 
U.S. aid to one country may simply make more funds available 
for other countries. Third, many statutes provide for 
Presidential delays in enforcement. And fourth, sanctions may 
be coupled with other government actions that soften their 
domestic impact. Analyzing the effect of sanctions is further 
complicated by the fact that the domestic policies of the 
target countries play a large role in limiting their ability to 
trade competitively.

                   Costs to the Overall U.S. Economy

    To date, sanctions on foreign commerce have had only a 
small combined impact on the overall U.S. economy. A 1997 study 
by Gary Hufbauer and others at the Institute for International 
Economics looked at the effects of all current sanctions. It 
estimated that sanctions cost the United States about $1 
billion in national income and as much as $19 billion in 
merchandise exports each year. Those figures may seem large, 
but they are quite small compared with total national income of 
nearly $7 trillion in 1998 and total merchandise exports of 
nearly $700 billion--figures that indicate the high potential 
for replacing currently sanctioned trade.
    Those estimates, however, do not preclude the possibility 
that sanctions will pose a greater threat to the U.S. economy 
in the future. To estimate the domestic cost of future 
sanctions, CBO used the results of the Hufbauer study as well 
as several studies of the benefits produced by lowering 
barriers to trade. (In general, the benefits from opening trade 
would be symmetrical with the costs of closing it.) On the 
basis of those studies' findings, CBO calculated a set of 
ratios that relate a loss in economic welfare to each $1 
reduction in U.S. trade, depending on the size of the economy 
targeted by sanctions, the participation of other nations, and 
the time horizon. Those ratios could be used to estimate the 
total cost of a particular sanction by multiplying the 
appropriate ratio by the direct loss of trade attributable to 
that sanction.
    Those ratios support the idea--derived from economic 
theory--that the cost of unilateral U.S. sanctions on a 
particular economy is likely to be smaller than the cost of 
multilateral sanctions. And although the cost of both types of 
sanctions grows over time, that growth tends to be smaller for 
unilateral sanctions because opportunities for substitution 
(which are the key reason that unilateral actions are less 
effective) also grow over time. In terms of the size of the 
economy targeted, the cost will generally be:
     Small for small developing economies, which 
account for little U.S. trade now;
     Somewhat larger for big emerging economies, such 
as China, which are likely to account for an important share of 
U.S. trade in the future; and
     Largest for industrialized economies, which are 
highly integrated with the U.S. economy and already account for 
significant U.S. trade.
    The lowest cost to the overall economy would come from a 
unilateral sanction imposed on a small developing economy. 
Countries in that category--mainly ones in Latin America, 
Africa, Asia, and Eastern Europe--buy about 15 percent of U.S. 
exports in all. Current sanctions disproportionately target 
developing economies that individually account for a very small 
share of U.S. trade and that supply commodities that are widely 
available from other sources. Many of those sanctions represent 
unilateral actions by the United States. Thus, Hufbauer's 1997 
study, which examined the effect of current sanctions, provides 
an indication of the costs of unilateral sanctions on small 
developing economies. His results suggest a loss in U.S. 
national income of 5 cents for each $1 of decrease in exports 
because of sanctions.
    That figure may represent a ceiling on the actual cost of 
such sanctions. Hufbauer's results probably overstate the 
disruption of exports caused by current sanctions because they 
do not count the economic gains from increased exports to 
unsanctioned countries or account for other important factors 
that could explain the low volume of trade with sanctioned 
countries. For example, the domestic policies of nations such 
as Cuba contribute to their poor economic performance and 
limited export potential. Moreover, many U.S. actions against 
small economies limit only foreign assistance or trade in 
commodities (such as petroleum) for which substitutes are 
readily available. Those actions should cost the United States 
little if anything.
    The highest cost to the economy would come from sanctions 
imposed on a large industrialized economy. Countries in that 
category--including Western European nations, Canada, Japan, 
and Australia--account for about 60 percent of U.S. exports. To 
determine what sanctions on those countries might cost, CBO 
looked at studies of the gains from liberalizing trade by Mun 
Ho and Dale Jorgenson, Warwick McKibbin, Drusilla Brown and 
colleagues, and Gary Hufbauer and Kimberly Elliot, among 
others. Several of those studies modeled the effect of 
unilateral U.S. action to reduce trade barriers. Viewed from 
the opposite perspective, their results indicate that 
multilateral sanctions on trade with an industrialized country 
could lower U.S. income by 10 cents for each $1 loss of exports 
in the long term. (The same would be true for imports: a 10 
cent loss of income for each $1 loss of imports. The reason 
those numbers would be the same is that imports tend to move 
with exports, because the nation's current-account deficit 
depends on total investment and savings, which are not affected 
by minor changes in trade policy.)
    Other studies of large industrialized economies considered 
the effect of comprehensive worldwide initiatives to remove 
trade barriers. Their findings, when reversed, describe the 
consequences of the global contraction that could result from a 
unilateral action to raise trade barriers against a large 
industrialized economy and a reciprocal, retaliatory action by 
that country. That type of trade war could have an extreme 
cost, lowering national income by between 15 cents and 35 cents 
for each $1 decrease in U.S. exports (or imports) in the short 
term and between 45 cents and 85 cents in the long term.
    The income loss from cutting off trade with a big emerging 
economy, such as China, is likely to fall somewhere within that 
broad range (from 5 cents to 35 cents for each $1 of lost 
exports in the short term), depending on the nature of the 
sanction and the trade that is disrupted. For example, 
unilateral action restricting a few widely available imports to 
the United States would have a small cost at most; multilateral 
action affecting many specialized imports could have a large 
cost.

                     Costs to Particular Industries

    The direct costs of sanctions for individual U.S. 
industries would generally be much larger than the net cost to 
the overall economy. Whatever the size of those losses, they 
can be significant to the businesses, workers, and communities 
directly affected by them. Moreover, because the companies and 
employees who gain from redirected business as a result of 
sanctions do not compensate the companies and employers who 
lose, sanctions may seem unfair.
    Although they are largely offset at the national level, the 
direct losses to an industry can provide a useful indicator of 
the social costs of adjusting to trade sanctions. Besides the 
dollar amount of trade disrupted, those social costs would 
include the costs to workers of finding new employment or 
relocating and costs arising from the uncertainty that such 
changes bring.

                                

    Chairman Crane [presiding]. Thank you.
    Dr. Haass.

STATEMENT OF RICHARD N. HAASS, PH.D., DIRECTOR, FOREIGN POLICY 
                 STUDIES, BROOKINGS INSTITUTION

    Mr. Haass. Thank you, sir. With the Chair's permission, I 
will submit a statement for the record and just make a few 
comments.
    Chairman Crane. Without objection, so ordered.
    Mr. Haass. Thank you, sir. Let me address first the 
question of unilateral sanctions, and then if I might, say a 
few things about H.R. 1244.
    On unilateral sanctions, the intellectually honest point is 
that they always have an impact on the target, and from what I 
can tell, they always have some adverse economic impact on the 
target.
    The problem with them as a foreign policy tool is they also 
have an adverse economic impact on ourselves, which has to be 
factored in, and they have multiple impacts on the target, not 
always the ones that we intend.
    One therefore has to factor into any assessment of a 
particular unilateral sanction the overall impact on the target 
society from a humanitarian point of view, a political point of 
view, and a military point of view. In many cases, unilateral 
sanctions seem to reinforce the power of authoritarian regimes. 
They seem to provide an excuse for the regime's own economic 
incompetence. They seem to create humanitarian hardship.
    And in at least one instance, that of Pakistan, they seem 
to have stimulated the very activity we wanted to discourage, 
which was a greater emphasis on the development of nuclear 
weapons.
    My own tentative conclusion on the subject of unilateral 
sanctions is that on balance they are not an attractive 
foreign-policy instrument for the United States. I say 
``tentative'' because, at the Brookings Institution, we are in 
the midst of doing an overall assessment of the impact of 
American sanctions, and, indeed, we plan to publish in less 
than a year's time our own set of impact statements, which we 
would then make available to the Congress and the 
Administration and others as they assess the utility of this 
foreign-policy instrument.
    I realize that if one's enthusiasm for unilateral sanctions 
is finite, as mine is, it then creates certain policy questions 
or challenges. Clearly, getting other countries on board the 
sanctions train can be difficult. For the most part, I would 
discourage secondary sanctions, i.e., the sanctioning of those 
who won't join us in the original sanction.
    From what I can see, that tends to cause as many diplomatic 
problems as it resolves. Indeed, it tends to spread the area of 
disagreement to our friends and distracts attention away from 
the target.
    If one runs into resistance to join sanctions, one is 
obviously left with diplomacy. One is left with options of so-
called conditional engagement, to introduce incentives as well 
as penalties as a way of winning others on board. One has the 
option of watering down the sanctions. Or one has the option of 
turning to other foreign-policy tools, including military 
force.
    One tool that can actually help build some support for 
sanctions is compensation for other countries. One thing we 
learned during the gulf war experience is that a device that 
proved useful to rally such countries as Egypt and Turkey to 
the side of sanctions was to compensate them for the economic 
hardship they would bear because of the sanctions.
    And one of the things Congress may want to think about, and 
I realize this runs against the grain given the financial 
situation we always find ourselves in, is the creation of a 
dedicated account for the purpose of building support for 
American sanctions. This account would be made available to 
compensate countries who paid a real price for joining us in a 
sanction even though they were not in a position economically 
to sustain that price.
    Let me just say a few things about the proposed 
legislation. My bottom line is that I essentially support it. 
In particular, I find very positive the call for a narrow focus 
of sanctions, the emphasis placed on humanitarian exemptions, 
the provision for Presidential waivers on national-security 
grounds, and the emphasis on transparency, including reporting 
requirements by both the CBO and various agencies within the 
executive branch. I think all of that is to the good.
    And I would very much hope that you and your colleagues 
would be able to pass such legislation. Indeed, I would also 
hope that the Administration would come our foursquare in 
support to it.
    That said, let me just suggest four parts of the 
legislation that I would at least raise questions about. The 
first is the so-called sunset provision, the idea that 
sanctions would go away after 2 years unless they were 
specifically re-enacted. I have got three problems with that. 
One is a philosophical one. I have trouble with the idea that 
inaction leads to policy change. For a great power like the 
United States, reliability and consistency are terribly 
important. I just don't like the fact, here or anywhere else, 
that inaction by Congress or anyone else can trigger a policy 
change.
    Second, I do not think automatic sunset provisions are 
necessary given the waiver authorities that are written into 
the law. A waiver gives the President the option at any time, 
short of even the 2 years, to reduce or eliminate a sanction.
    Third, and as we have learned with China, having a 2-year 
or any arbitrary time limit guarantees a public debate just 
prior to expiration. And I am not sure it would always serve 
the purposes of American foreign policy to have a formal public 
debate about particular sanctions. I can imagine a situation 
where diplomacy or private efforts would be at a certain point 
where a public debate could actually work against some effort 
to bring about, say, behavioral change on the part of a target.
    So, again, I would question the desirability of writing 
into law a fixed requirement for the automatic elimination of 
sanctions after 2 years.
    Second, in order to build support among some of your 
colleagues who may be skeptical about this legislation, one 
idea that might be valuable is to offer Congress a means to 
challenge Presidential waivers. You have such a mechanism in 
other pieces of legislation. This could be accomplished using 
joint resolutions, which would then go to the President, who 
would then have the option of vetoing it. Congress would then 
have the option of overriding the veto. I think that would be 
consistent with Supreme Court decisions in this area. And 
again, if that were the price of passing this legislation, I 
would think it would be a price worth paying.
    Third, the legislation talks about compensation for those 
affected in the agricultural community by sanctions. I would 
simply raise the question, and I am not an expert here, about 
the possibility of extending compensation to others. They might 
be individual workers, individual firms, individual 
communities. But it is not clear to me that, for export 
sanctions, the costs should be borne so disproportionately by a 
few.
    Last, the legislation recommends the establishment of a 
sanctions review Committee in the executive branch that would 
oversee sanctions. I assume this review would occur both before 
sanctions were adopted and thereafter. That is a welcome idea; 
however, when I go down the list of executive branch officials 
who would be involved, one of the people conspicuously absent 
is the director of Central Intelligence. I would think the DCI 
is someone we would want to have at the head table since, 
obviously, intelligence-community assessments of the actual or 
likely impact of a sanction would be an important component of 
decisionmaking.
    Thank you.
    [The prepared statement follows:]

Statement of Richard N. Haass, Director, Foreign Policy Studies, 
Brookings Institution

    Mr. Chairman: Thank you for this opportunity to testify on 
the use and effect of unilateral economic sanctions and on H.R. 
1244, the ``Enhancement of Trade, Security, and Human Rights 
Through Sanctions Reform Act.''
    I will take these two related but separate matters in 
sequence. Unilateral sanctions always have some impact, both on 
the United States and on the target country. U.S. sanctions 
have clearly weakened the economy of Cuba, slowed investment in 
Libya and Iran, and hurt Pakistan, which, prior to sanctions, 
received substantial U.S. economic and military assistance.
    But it is also important to contemplate the side-effects of 
unilateral American sanctions. These consequences transcend 
lost American exports, profits and jobs. In the case of Cuba, 
U.S. sanctions may have made it easier for the Castro regime to 
maintain control over the Cuban economy and society. There and 
elsewhere (including Iran), American sanctions have been 
exploited as justifications for regime repression and excuses 
for regime incompetence. Sanctions may have had the perverse 
effect of weakening civilian rule in Pakistan and increasing 
its focus on nuclear weaponry.
    As a rule, unilateral sanctions tend to be little more than 
statements or expressions of opposition except in those 
instances in which the tie between the United States and the 
target is so extensive that the latter cannot adjust to an 
American cut-off. Over time, economic sanctions tend to lose 
their bite. In a global economy, unilateral sanctions tend to 
impose greater costs on American firms than on the target who 
can usually find substitute sources of supply and financing. 
The impact of such sanctions can be offset by factors beyond 
our control, as in the case of Iran where increases in the 
price of oil more than compensated for any penalty introduced 
as a result of U.S. policy. Iran is also a textbook example of 
how unilateral American sanctions can be little more than a 
windfall for European companies who otherwise would have 
difficulty competing.
    Even advocates of unilateral sanctions would admit that 
their impact is second best. The problem is that it is often 
extremely difficult to garner international support for 
particular sanctions. Prospects for succeeding in bringing 
others on board tend to reflect a range of factors, including 
commercial stakes, policy preferences, and the availability of 
funds to compensate lost revenues. Sanctions tend to work best 
when international political consensus exists and non-targeted 
countries who must bear an economic cost as a result of the 
sanctions are compensated. In most instances, other governments 
prefer no or minimal sanctions. Other countries tend to value 
commercial interaction more than the United States and are less 
willing to forfeit it voluntarily. In addition, the notion that 
economic interaction is desirable because it promotes more open 
political and economic systems is an argument that normally has 
more resonance in other capitals. Such thinking makes achieving 
multilateral support for sanctions less feasible than the 
United States tends to want. It usually takes something truly 
egregious--Saddam's invasion and occupation of Kuwait, Libya's 
support of terrorism such as at Lockerbie, the brazen rejection 
of Haiti's election results and associated widespread human 
rights abuses--to overcome this anti-sanctions bias. And even 
in the case of Iraq, generous compensation for affected states, 
such as Egypt and Turkey, was a prerequisite for them to 
sustain support for sanctions.
    Trying to compel others to join a sanctions effort by 
threatening secondary sanctions against those third parties 
unwilling to sanction the target can cause serious harm to a 
variety of U.S. foreign policy interests. This is what has 
happened with Cuba, Iran and Libya; in all three instances, 
sanctions now apply to overseas firms who violate the terms of 
U.S. legislation. This threat has had some deterrent effect on 
the willingness of certain individuals and firms to enter into 
proscribed business activities, but at a significant political 
price. It has increased anti-American sentiment, stimulated 
challenges that have the potential to jeopardize the future of 
the World Trade Organization, distracted attention away from 
the provocative behavior of the target governments, and made 
Europeans less likely to work with us in shaping policies to 
contend with post-Cold War challenges.
    Multilateral support for economic sanctions should normally 
constitute a prerequisite for their introduction by the United 
States. (This is especially true for export sanctions. If 
sanctions are considered desirable, the United States might 
want to give thought to import controls, which can distribute 
the cost of the sanction within the United States yet still 
send a message to the target.) Such support need not be 
simultaneous, but it should be all but certain and likely to 
follow with little delay. Unilateral sanctions should be 
avoided except in those circumstances when the United States is 
in a unique situation to derive leverage based on the economic 
relationship with the target. Implementing this guideline will 
require intense, often high-level diplomatic effort and even 
then may not succeed. If this is so, then the task for 
policymakers is to compare what can be achieved by weaker 
sanctions to an alternative policy course, including both the 
use of incentives linked to improved behavior on the part of 
the target and the application of military force.
    One instrument that can increase compliance is the 
provision of assistance to third parties in order to offset the 
economic cost of implementing sanctions. Arrangements to 
compensate countries whose support for the sanctions is central 
can thus be critical. This was the case with the Iraq 
sanctions; it is possible that sanctions against Haiti might 
have proved stronger had the Dominican Republic been more 
cooperative. Greater use should be made of Article 50 of the UN 
Charter, which sets forth a means by which third party states 
hurt by sanctions aimed at another state can approach the 
Security Council for redress. In addition, Congress might 
consider establishing a fund for this purpose within the U.S. 
foreign assistance budget. Given the current assistance budget, 
this money should be additional rather than come out of already 
underfunded aid accounts.
    A call for greater multilateralism is not identical to a 
requirement to seek UN Security Council backing. Indeed, the 
United States should be careful about bringing sanctions to the 
UN Security Council. Although UN endorsement can buttress 
international compliance and complicate the task of any party 
seeking to ease sanctions--Iraq comes to mind here--it can also 
place the United States in the difficult position of having to 
choose between continued compliance with a policy judged to be 
no longer desirable or acting unilaterally in defiance of the 
Security Council, a step the United States is understandably 
reluctant to take as it could create precedents easily abused 
by others
    Let me now turn to H.R. 1244. I want to say at the outset 
that I am sympathetic to H.R. 1244 and would welcome its 
passage. It would introduce much needed transparency and 
oversight into a process that has often lacked both.
    Several of the principles embraced by the legislation are 
worthy of specific mention and endorsement. Sanctions should be 
targeted as narrowly as possible on the entities involved in 
the activity that we oppose. As a rule, humanitarian trade 
ought to be exempted, again to limit the collateral damage of 
sanctions. Clarity of purpose is always desirable, as is giving 
the president the authority to adjust or waive sanctions in the 
interest of national security. Such flexibility is essential if 
the executive is to have the necessary flexibility to conduct 
foreign and defense policy and if sanctions are to contain exit 
strategies that can provide incentives to targets to change 
their ways. I would similarly welcome the many reporting 
requirements contained in the legislation for both the 
executive branch and the Congressional Budget Office at the 
time a sanction is initiated and at regular intervals 
thereafter; the more details contained in such reports the 
better.
    Let me end with a few questions and suggested modifications 
of the proposed legislation. I am uncomfortable with the 
``sunset'' provision that would terminate any unilateral 
sanction after two years except where Congress acts to 
reauthorize. This is reminiscent of War Powers, and here, like 
there, I think it wrong to place the burden on those who would 
continue policy. I also worry about regular high-profile 
debates that could make it more difficult to modify existing 
policy. I would instead put the emphasis on transparency and a 
requirement for serious reporting by the executive branch and 
congressional support agencies both prior to congressional 
action and at regular intervals thereafter. The proposed waiver 
authority also introduces needed flexibility into the policy 
process.
    Second, it is possible that the legislation's approach to 
waivers would prove too ``anti-sanction'' for some members. In 
order to increase prospects for passing reform legislation, it 
might be useful to introduce some mechanism by which Congress 
can challenge a waiver, possibly by joint resolution which, if 
vetoed by the President, could then be made to stand by an 
override.
    Third, it is not obvious why compensation should be limited 
to the agricultural sector. Why not consider extending to firms 
and workers in other realms?
    Fourth and last, I would add the DCI to the Sanctions 
Review Committee as intelligence community assessments are sure 
to be central to the debate over projected and actual effects.
    Thank you for this opportunity to appear before you and 
share my thoughts on this important set of policy issues. I 
look forward to any questions you might have.

                                

    Chairman Crane. Thank you, Dr. Haass.
    Dr. Haass, wouldn't you agree that experience has shown 
that it is extremely difficult to remove sanctions once they 
are in place, even if it becomes apparent that the sanctions 
aren't having the desired effect?
    Mr. Haass. Yes, sir.
    Chairman Crane. And second, shouldn't we have some 
procedure in place to review sanctions so that ineffective 
policies don't remain on the books for political rather than 
practical reasons?
    Mr. Haass. I agree. There are different types of reviews, 
some of which are in this legislation and that I would welcome. 
One is simply the intellectual review of sanctions every 6 
months or every year. It could be on an unclassified or 
classified basis, or both.
    The executive branch should be asked to do it, and I would 
think that you would want to turn to the various Congressional 
support agencies, whether it was CBO, CRS, or what have you, to 
assist you in that task. So clearly we want to have review.
    Second, having waivers in place allows you at any moment to 
adjust the sanction. You move away from a switch metaphor and 
you move toward a reostat metaphor. And I think that is exactly 
what we want to have. We want to have the ability to adjust 
sanctions to serve our foreign-policy interests, and I believe 
waivers would help get around what I took to be the thrust of 
your first question, sir, which is the problem of a sanction 
once it is in place. If you have waivers, that seems to be the 
best way to deal with an existing sanction if you decide that 
less would be preferable.
    Chairman Crane. Well, we have, as you know, the annual 
renewal of normal trade relations with China, and that is 
always a sticky battle. And it will be coming up again in 
another month or so.
    Dr. Farmer, the CBO study noted that the most common 
targets of U.S. unilateral sanctions are small, developing 
economies. Aren't these the same economies that hold the most 
potential for economic growth and where it is critical for U.S. 
firms to establish a base and market share for future U.S. 
economic growth?
    Mr. Farmer. We tried to note that there are fast-growing 
economies, and the likely costs of sanctions on those economies 
would be different from the costs of sanctions on the many 
smaller, stagnant economies.
    China, in particular, is a special case. So many of our 
exports to China look like those to other industrialized 
nations, whereas so many of our imports from China look like 
imports from other developing countries. So it would be very 
hard to assess the cost of sanctions against China. It is just 
a wide range of possibilities, some extreme.
    Chairman Crane. The CBO study concludes that unilateral 
U.S. sanctions generally result in a smaller cost to the U.S. 
economy than multilateral sanctions. Can you explain that?
    Mr. Farmer. It's actually just what we have heard today: 
unilateral sanctions are not effective in halting trading with 
the target nation. There are clear, significant costs to 
individual businesses, but the overall economy is hurt by 
restrictions on overall economic activity, and unilateral 
sanctions don't have that effect.
    There is kind of a dilemma in that unilateral sanctions are 
probably more costly for individual firms and multilateral 
sanctions less costly, whereas for the Nation as a whole, it is 
just the opposite.
    Chairman Crane. Mr. Levin.
    Mr. Levin. Oh, thank you. And thank you for your patience. 
Mr. Crane, I will try to spread the word. This has been helpful 
testimony. So let me just say briefly that Dr. Weintraub, I was 
talking with the staff, you will make available the three 
studies, will you, to make sure that we have them.
    And Mr. Farmer, you referenced to China. Our trade over the 
years, I think, with China will change and look more and more 
like industrialized nation imports to us, but that is not too 
relevant to what we are talking about today.
    So I will finish. Dr. Haass, like the others, your 
testimony is very helpful, and we will look forward to the 
Brookings studies. I think your analysis about sunset is very 
salient. I think it would be risky for a number of reasons that 
you have related.
    And I think, Mr. Chairman, as we look at this proposal, 
this legislation, that we should accelerate our discussions 
with the Administration, but also with various experts, or 
people who are close to experts, to see if we can handle the 
outstanding issues here. And I think, Dr. Haass, you have put 
your finger on several of them.
    So, anyway, this has been a useful hearing and, hopefully, 
it will stimulate some more discussion and so we can begin to 
move legislation.
    Thank you.
    Chairman Crane. Thank you. And I want to thank all of our 
panelists where today. We appreciate your input, and don't 
confine it just to appearing before the Committee. Having a 
steady flow of information from you is very valuable. So we 
express appreciation for your patience and for your 
presentations today and look forward to seeing you again soon.
    That concludes our hearing.
    [Whereupon, at 2:13 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

Statement of American Bar Association, Section of International Law and 
Practice

                             Recommendation
    Resolved, That the American Bar Association recommends that 
the United States adhere to the following principles in the 
adoption and maintenance of export controls and economic 
sanctions measures:
    First, to consult with, and seek the support and 
cooperation of, foreign governments sharing common objectives 
in devising and carrying out programs to constrain foreign 
trade and investment detrimental to shared U.S. national 
security and foreign policy objectives.
    Second, to refrain from the adoption or maintenance of 
extraterritorial foreign trade control measures that do not 
conform to jurisdictional principles of international law as 
generally accepted by the international community and crate the 
potential for conflicts with other nations, including:
     Controls on foreign trade transactions of foreign 
corporations, where those transactions have no jurisdictional 
relationship to the United States other than ownership 
interests of U.S. nations in the foreign corporations;
     Controls on foreign trade transactions have no 
jurisdictional relationship to the united States other than the 
U.S. origin of transaction products, content or technology; and
     Retaliatory trade sanctions on foreign parties by 
reason of their foreign trade transactions, where those 
transactions have no jurisdictional relationship to the United 
States and are not in violation of any U.S. law that conforms 
to jurisdictional principles of international law.

                                

Statement of American Farm Bureau Federation

    The American Farm Bureau represents over 4.8 million member 
families in the United States and Puerto Rico. Our members 
produce every commodity grown in America and depend on access 
to customers around the world for the sale of over one-third of 
our production. However, U.S. farmers and ranchers have been 
denied access to five export markets due to unilateral economic 
sanctions: Iran, Libya, Sudan, Cuba and North Korea.
    The future of American agriculture depends upon access to 
foreign markets. Especially today, with agricultural exports 
projected to decline more than $2 billion from 1997 levels due 
to the Asian financial crisis, any action such as an embargo or 
sanction does direct and long-term harm to farmers and the 
agricultural economy.
    Farm Bureau has longstanding policy opposing artificial 
trade constraints such as sanctions. We believe that opening 
trading systems around the world and open engagement with our 
trading partners are the most effective means of achieving 
international harmony and economic stability.
    Farm Bureau believes that all agricultural products should 
be exempt from embargoes and unilateral sanctions, except in 
the case of armed conflict. Should trade embargoes or 
restrictions be declared in case of armed conflict, the embargo 
or sanction should apply to all trade, technology and 
exchanges. An embargo should not be declared without the 
consent of Congress.
    Moreover, the threat of embargoes or other restrictions 
adversely affects markets and is an inappropriate tool in the 
implementation of foreign policy. If an embargo is enacted, 
farmers should be compensated by direct payments for any 
resulting loss.
    Finally, all export contracts calling for delivery of 
agricultural commodities or products within nine months of date 
of sale should never be interfered with by the U.S. government, 
except following an embargo consented to by Congress. This 
sanctity of contracts is essential to maintain the reputation 
of the United States as a reliable supplier.
    The cost to American farmers resulting from sanctions and 
embargoes is high. According to USDA, the Soviet grain embargo 
of the early 1980's cost the United States about $2.3 billion 
in lost farm exports and government compensation to American 
farmers.
    When the United States cut off sales of wheat to protest 
the Soviet invasion of Afghanistan, other suppliers--France, 
Canada, Australia and Argentina--stepped in. These countries 
expanded their sales to the Soviet Union, ensuring that U.S. 
sanctions had virtually no economic impact on the target 
country.
    Not only do unilateral sanctions inflict no economic damage 
on the target country, they often result in little change in 
the foreign policy actions of that nation. Our competitors in 
these markets rub their hands with glee when the United States 
imposes unilateral sanctions. They are quick to expand their 
sales and take over the U.S. share in these foreign markets. 
Moreover, U.S. producers are branded unreliable suppliers and 
lose access to important markets for decades to come. 
Unilateral sanctions on agricultural exports must end.
    In addition, unilateral sanctions are often 
counterproductive because target nations use images of 
suffering, innocent civilians to depict the United States as 
cruel and vindictive, thereby discouraging other nations from 
following suit.
    As you know, the Administration announced a recent policy 
change with respect to unilateral sanctions now in force for 
Iran, Libya and Sudan. Commercial sales of food, medicine and 
medical equipment are eligible for exemption from sanctions to 
these nations.
    We understand that the new policy will require exporters to 
obtain an export license covering a specific, already 
negotiated sale. Each export request will be reviewed on a 
case-by-case basis.
    This new policy does not signal automatic approval of 
agricultural sales. Moreover, the new policy does not 
completely resolve the issue of U.S. producers being viewed as 
unreliable suppliers, because, in theory, an agricultural sale 
could be denied. The Administration must grant approval to all 
agricultural sales in order to reverse the unreliable supplier 
image caused by unilateral sanctions.
    As you are well aware, the Congressional Budget Office 
(CBO) recently conducted a study on the economic impact of 
unilateral sanctions on the U.S. economy. The CBO concluded 
that such sanctions ``can be costly for individual U.S. 
businesses that lose out when markets adjust to accommodate new 
trade flows.'' The CBO also noted, however, that the overall 
cost of unilateral sanctions is negligible because the nation's 
total levels of trade and investment do not change as a result 
of sanctions.
    We believe that this study underestimated the significant 
impacts on a sector-by-sector basis, particularly the 
devastating decline in loss of exports for U.S. agriculture. As 
a result of unilateral sanctions, over 14 percent of our rice 
market, 10 percent of our wheat market, 5 percent of our 
vegetable oil market, 5 percent of our barley market and 4 
percent of our corn market have been taken off the table. This 
loss of market access is not ``negligible.'' Given today's low 
commodity prices and declining agricultural exports, we simply 
cannot afford to have our access to export markets cut off.
    It should be noted that when any type of sanction or 
embargo is imposed, either political or trade related, 
agriculture is the sector that is often the first to be hit in 
retaliation. To make matters worse, customers lost due to 
unilateral sanctions are very hard to win back. A case in point 
is the growth of soybean production in South America, primarily 
Brazil, as a result of embargoes in the 1970s and 1980s.
    Several Farm Bureau members recently participated in a 
trade exploratory mission to Cuba. It became very apparent on 
that trip that Castro regime has had an oppressive effect on 
the Cuban economy. It was also strikingly obvious, however, 
that U.S. sanctions on this tiny island have not had any impact 
in ending Castro's influence. U.S. unilateral sanctions on 
trade with Cuba have now been in effect for more than three 
decades with no tangible results. Meanwhile, leading 
agricultural economists predict that U.S. exports to Cuba could 
reach $1 billion annually if the sanctions were lifted. Cuban 
citizens are hungry for U.S. products and want to engage with 
Americans in trade. It is time that we lift unilateral 
sanctions on agricultural exports and stop making our producers 
pay the price.
    The United States has an unprecedented opportunity to 
promote its values throughout the world by peaceful engagement. 
Reaching out, not withdrawing behind sanctions or embargoes, is 
the best way to achieve change.

                                

Statement of Electronic Industries Alliance, Arlington, VA

              (The Use and Effect of Unilateral Sanctions)

                            i. introduction
    Thank you for the opportunity to provide testimony on the 
use and effect of unilateral sanctions. Representing the entire 
spectrum of companies involved in the manufacture of electronic 
components, parts, systems and equipment for communications, 
industrial, government and consumer uses, the Electronic 
Industries Alliance (EIA) is the premier alliance of trade 
associations for the U.S. electronics industry.
    EIA recognizes that a strong and vibrant high-tech industry 
is vital to the economic and national security of the United 
States. EIA is aware of the important role of sanctions as a 
tool of foreign policy. But we also recognize the severely 
limited effectiveness of unilateral sanctions, as well as the 
vital importance of a competitive and innovative technology 
sector to keep our economy strong and our armed forces a step 
ahead of any adversary.
                  ii. realities of the global economy
    With over 2000 member companies, accounting for 80 percent 
of the $550 billion electronics industry, EIA represents the 
most dynamic and competitive industry in the U.S. economy 
today--actually, in the world economy today. The companies we 
represent operate globally, they think and plan in global 
terms, and they face intense international competition. The 
fact is, the days when U.S. companies dominated the high-
technology industry are over. Similarly, the days when the 
domestic U.S. market could sustain the industry are also over: 
we cannot do business without trading extensively in the global 
economy. This is essential to keep in mind as we formulate 
public policy in this area.
    As any successful CEO will testify to, competing--indeed, 
surviving--in the global economy means exporting. The 
phenomenal success of the U.S. technology industry comes from 
its entreprenurialism, its aggressiveness, its willingness to 
compete--all those free market forces that drive innovation. In 
this kind of business environment, tapping new markets before 
the competition does is the key to success. In 1997, more than 
one-third of what the U.S. electronics industry produced was 
exported overseas, over $150 billion in goods. That means more 
than a third of the 1.8 million employees who work for U.S. 
electronics companies depend on exports for their jobs, and the 
percentage goes up every year. Too often, we fail to recognize 
the profound implications of these facts.
    We must also recognize that our high-tech companies are the 
engine of technological innovation and economic growth in the 
world today. The U.S. economy is the most competitive in the 
world due in no small part to the amazing advancements our 
companies have achieved. Technologies which, not long ago, had 
only military or limited civilian applications are now 
pervasive in our society, and the greater economic efficiency 
stemming from this diffusion of technology has been the driving 
force for the remarkable prosperity so many Americans are 
experiencing.
    The impact of unilateral sanctions on how this industry 
competes in the global economy is substantial. They hold us 
back from competing by forcing us to cede the playing field to 
our overseas competitors. In short, we agree that when 
sanctions are used properly, they can be a useful tool in 
pressuring or containing hostile regimes. But they are a tool 
to be used carefully and sparingly because of their severe 
negative impact on U.S. industry and their often-limited impact 
on the target country.
    iii. u.s. sanctions policy must reflect post-cold war realities
    EIA believes that U.S. sanctions policy must reflect the 
new commercial and political realities of the post-Cold War 
world. During the Cold War period, export restrictions on high-
tech products were based on the then-accurate premise that if 
you prevent U.S. companies from exporting technology to 
specified destinations, you will have denied that destination 
the use of that technology. But this premise no longer holds. 
Whereas U.S. industry once had a near-monopoly over the 
development and production of advanced technology products, 
today many countries produce the same, or even better, 
commercial technologies as U.S. manufacturers. Furthermore, the 
governments of our competitors do not impose the same 
restrictions on their export activities. When U.S. companies 
cannot sell abroad, our competitors are only to willing and 
able to fill the void.
    Today, the threats to our national interests are more 
diffuse than during the Cold War, coming from rogue terrorist 
cells or a few outlaw nations. With the collapse of the Soviet 
bloc, the multilateral consensus among our key allies regarding 
the source of new threats collapsed as well. That is the 
reality we are faced with as we consider unilateral sanctions. 
The exceptions are the regimes to control Weapons of Mass 
Destruction and the multilateral sanctions against so-called 
rouge states like North Korea and Iraq. In these circumstances, 
strong multilateral controls are more effective. However, 
stopping U.S. commercial exports of products and technology 
that are not restricted in the case of our competitors does 
nothing to protect our national security or advance our foreign 
policy.
    An export restriction is only as effective as its ability 
to limit a target country from obtaining the desired goods and 
technology. Only if the U.S is able to gain consensus from 
other countries to impose multilateral sanctions will they be 
effective. While we recognize that there may be instances where 
sanctions are needed in order to isolate a country for its 
undesirable activities, we recommend that they be imposed under 
strict time limitations combined with a review mechanism that 
evaluates their effectiveness.
    Besides their negative economic consequences and 
ineffectiveness at isolating problem countries, unilateral 
sanctions are not a sophisticated tool of foreign policy. 
Rather, they are usually a knee-jerk reaction to events 
overseas. Despite their record of failure, unilateral sanctions 
are too often employed as a foreign policy ``quick fix,'' 
imposed rather arbitrarily whenever we wish to express our 
disapproval with a country's actions of the moment.
    Unilateral sanctions have been viewed as a cost-free tool 
to demonstrate ``leadership'' or to ``send a message.'' 
Unfortunately, unilateral sanctions do have costs, including 
loss of marketshare and jobs for the U.S. economy, resentment 
among our allies, and depriving goods and opportunity from the 
ordinary citizens of the target country. While we are trying to 
display leadership, unilateral sanctions only highlight our 
inability to generate support among our allies. Meanwhile, the 
``message'' we are trying to send is usually either ignored or 
further antagonizes the target country. In fact, unilateral 
sanctions are more effective at impressing domestic 
constituencies within the United States, rather than promoting 
real change in the offending country's behavior.
    As bad as unilateral sanctions are, extraterritorial 
sanctions--penalties against a company which does business in a 
sanctioned country, but which is under the jurisdiction of a 
third country--are even worse. These extraterritorial sanctions 
prompt especially strong complaints from our allies, serving 
only to further emphasize the failure of U.S. diplomacy. In the 
process of isolating the target country with sanctions, we 
often end up isolating ourselves.
    It is for all these reasons that EIA enthusiastically 
supports the sanctions reform legislation sponsored by Chairman 
Crane. H.R. 1244 would do something we believe is long overdue: 
provide a rational procedural framework for considering future 
U.S. unilateral sanctions. Before imposing a sanction, both 
Congress and the President would be required to ask themselves 
a few essential, common-sense questions: Is the sanction likely 
to be effective? Does it have a clearly defined and realistic 
objective? What are the likely costs to U.S. industry? Will the 
sanctions undermine other foreign policy and humanitarian 
objectives? And finally, have other diplomatic efforts with our 
allies been initiated? We are also pleased with the bill's 
guidelines regarding waiver authority, contract sanctity, and 
the two year sunset provision.
       iv. information technology can advance our foreign policy
    While EIA is generally opposed to most unilateral 
sanctions, we recognize that they are likely to remain a 
popular tool in the U.S. foreign policy arsenal. Thus, we 
support efforts to minimize their arbitrary use, as H.R. 1244 
would require, as well as to allow greater flexibility in their 
use so as to develop more forward-
looking, sophisticated approaches to foreign policy problems. 
We put forward that one way to accomplish this is to use 
information technology to promote democratic ideals in closed 
societies.
    In most cases, unilateral sanctions are proposed and 
targeted against closed societies with repressive governments. 
However, these sanctions usually fail either to stop a 
country's aggressiveness towards its neighbors or ease 
repression of its people. Instead of isolating problem 
countries from outside influences and ideas, we believe that in 
some cases we might find more success doing exactly the 
opposite. We should be flooding these countries with a wide 
diversity of opinions, images, news, even movies, music, and 
fashion.
    Information technology, especially the Internet, has proven 
to be a powerful means of delivery for diverse ideas. One of 
the best examples of how outside ideas can gradually effect 
change within a repressive society is Iran. We would argue that 
the modest easing we are witnessing there has been caused more 
by the proliferation of satellite dishes and Internet 
connections among ordinary people than by the U.S. unilateral 
and extraterritorial sanctions. Indeed, the spread of 
information technology, such as computers, cell phones, fax 
machines, and supporting technology, can be among the most 
effective tools this country has to promote liberalization in 
the repressive countries we are concerned about most. We in the 
high-tech industry take pride in the fact that we produce the 
equipment that enables the free flow of information and ideas 
in this way, and we believe it should be U.S. policy to allow 
the use of this technology by repressed peoples. Therefore, we 
propose that the President should have the authority, where 
circumstances warrant, to allow exports of technology products 
and services which enable the free flow of information and 
promote democratic ideals around the world.
    In places where people are subjected to state-sponsored 
misinformation, we should aggressively promote outside sources 
of information--what their governments might consider 
``subversive'' influence but which their people are hungry for. 
We should have confidence in the power of our democratic ideals 
of openness and diversity to instigate change in authoritarian 
societies. While we should not provide repressive governments 
the tools to maintain their authority or threaten their 
neighbors militarily, we should provide the citizens of these 
countries the tools to gain a greater understanding of freedom 
and democracy.
                             v. conclusion
    We would like to make clear that we recognize the 
connection between democracy and economic opportunity. Our 
companies know that democracies are intrinsically more stable, 
have more informed, better educated workers, and have more 
reliable, transparent court systems and regulators than 
authoritarian regimes do. In short, democracy is good for 
business. By criticizing unilateral sanctions, it is not our 
intention to prop up the world's authoritarian regimes or lend 
moral support to dictators. It is true that business cares most 
about the bottom line, and the bottom line is that unilateral 
sanctions do not work.

                                

Statement of Willard M. Berry, President, European-American 
Business Council

    Mr. Chairman and Members of the Committee, thank you for 
the opportunity to provide this testimony. I am Willard Berry, 
President of the European-American Business Council. The 
Council is the one transatlantic business organization that 
regularly provides actionable information on policy 
developments and works with officials in both the US and Europe 
to secure a more open trade and investment climate. Our 85 
member companies include many of the largest US and European 
firms.
    As you will recall, I had the honor of testifying before 
this committee two years ago on this same subject of unilateral 
economic sanctions. To recap what I said then: experience shows 
that these measures have had almost no success in achieving 
their stated aims, namely changing the behavior of the target 
country. What these measures have instead done is seriously 
harm business and in doing so have eroded the competitiveness 
of US-based companies, cost Americans jobs, and strained 
relations between America and its closest allies.
    The EABC is pleased to note, however, a changing attitude 
in Congress toward the use of unilateral economic sanctions. 
Only a few years ago, it seemed that a new sanctions bill was 
being introduced every month. The current Congress, thankfully, 
has introduced far fewer unilateral sanctions bills. Instead, 
real momentum is building behind a comprehensive effort to 
reform the process that governs when and if unilateral 
sanctions are imposed.
    Others testifying will illustrate for you the large 
economic cost of unilateral sanctions. A recent Congressional 
Budget Office study estimated this cost at $19 billion 
annually. The CBO however went on to suggest that this cost is 
negligible as it represents such a small percentage of the 
total economy. I consider $19 billion in lost exports a serious 
blow, especially given what $19 billion in exports would do to 
help correct the US trade deficit. Furthermore, if the US is 
going to sacrifice existing and potential US jobs to apply 
unilateral sanctions, we should be sure to get our foreign 
policy ``bang for the buck.'' We must pursue effective policies 
and not trade American jobs for symbolic gestures.
    Not only does the CBO study in our view mischaracterize the 
cost of sanctions, it also does not measure the full economic 
impact of sanctions. Specifically, the study does not include 
the untold tens of billions of dollars in secondary costs of 
unilateral trade sanctions. These include the loss of joint 
venture opportunities (a critical element of global 
competitiveness), layoffs in the US by foreign investors, the 
loss of supply relationships, and a retraction in outbound 
investment.
    That is why EABC agrees that the US needs to put in place a 
process that will first look at whether or not a proposed 
economic sanction will have the desired foreign policy outcome 
and what other alternatives exist to sanctions before it is 
imposed. The EABC joins other groups testifying in 
wholeheartedly endorsing your legislation, Mr. Chairman, that 
would comprehensively reform the sanctions process. This 
important legislation nearly passed in the Senate last year, 
and we are optimistic that momentum is building up to pass it 
this year.
    While progress on sanctions reform at the national level is 
good news, I wish to bring the committee's attention to another 
area of concern to our members, namely the considerable 
economic damage done by state and local sanctions. Two years 
ago it seemed that states everywhere were taking the country's 
foreign policy into their own hands and imposing sanctions on 
companies doing business in Burma, Indonesia, or other nations. 
The EABC fully supports the federal government's leadership and 
interest in protecting human rights abroad. We strongly agree 
with the court ruling that struck down a Massachusetts select 
purchasing law on constitutional grounds, namely that states 
may not preempt the federal government in making the nation's 
foreign policy. As you know, Massachusetts appealed the 
decision.
    Although we are confident the appeals court will uphold the 
lower court ruling striking down the Massachusetts law, we are 
concerned that state and local lawmakers may look to other 
forms of sanctions, such as selective investment laws, in an 
attempt to skirt the Massachusetts ruling. EABC outreach to 
state and local lawmakers has found that many of them do not 
seem aware of the economic damage done to their states or of 
the constitutionality of such laws, which can lead to the 
expensive prospect of spending taxpayer dollars to defend 
unconstitutional laws.
    Unfortunately, there is an almost endless list of human 
rights issues that some interest groups feel can be addressed 
with state and local sanctions. Where and when will we draw the 
line? This is not a realm for state and local activity. It is 
easy for policymakers in subfederal governments to act on a 
perceived moral need to impose sanctions. But when they create 
a mess of our foreign policy, these officials are not faced 
with the negative repercussions nor do they have the 
responsibility of defending themselves in international fora. 
They do not have to deal with our allies, who are often hurt by 
US sanctions, and they do not have to answer to the 
international community for their violations of multilateral 
commitments and treaty obligations. The constituents of state 
lawmakers do pay the price, however, when investment dollars go 
elsewhere, when plants are relocated or shut down, when US 
companies are seen as unreliable partners, and when US exports 
are blocked in retaliation for the sanctions.
    It is for the Administration and you here in Congress to 
balance multiple foreign policy objectives, including nuclear 
nonproliferation, preventing terrorism, and promoting human 
rights. We can only achieve these objectives in concert with 
our allies. The US cannot strike multilateral deals to address 
these problems if states and localities undermine such deals by 
acting on their own. State and local officials should recognize 
that imposing sanctions has significant global effects. They 
should leave foreign policy to those with the responsibility, 
expertise, and constitutional authority to conduct it.
    That's why the EABC hopes that rulings in the Massachusetts 
case--and especially a possible Supreme Court ruling--will send 
a clear signal to state and local officials that sanctions are 
not a ``political freebie,'' and that foreign policy must be 
left to Washington. We very much welcome any effort here in 
Washington--both in the Administration and here on the Hill--to 
discourage states and localities from taking foreign policy 
into their own hands. The EABC hopes that in addition to 
reforming the sanctions process at the national level Congress 
will not forget the economic damage done by state and local 
sanctions.
    In conclusion, Mister Chairman and members of the 
committee, the EABC wishes again to thank you for this 
opportunity to submit written testimony. We also wish to 
express our sincere gratitude to you, Mr. Chairman, for once 
again championing free trade and leading the fight to bring 
moderation and thoughtfulness to the process by which the US 
considers using unilateral economic sanctions. We have come a 
long way in the last two years, but much work remains, and the 
EABC stands ready to help you in any way we can.

                                

Statement of Frutarom, Inc.

    Mr. Chairman and Members of the Subcommittee, in follow up 
to our testimony of May 27, 1999, we wish to offer a statement 
in support of H.R. 1244, Enhancement of Trade, Security, and 
Human Rights through Sanctions Reform Act.
    Providing a sensible framework to assess future unilateral 
sanctions policy is imperative to American business. If the 
sanctions against Sudan had been evaluated under the framework 
proposed in H.R. 1244, American gum arabic processors likely 
would not have been injured as they have been under the present 
structure. If an evaluation had been made under the criteria 
outlined in the bill, a determination would have been reached 
that there were no reliable sources of supply for gum arabic 
outside of Sudan and that American gum arabic processors would 
be directly harmed by such sanctions. If an appropriate 
methodology had been used, the sanctions against Sudan would 
have been targeted narrowly to hurt the Government of Khartoum, 
not American gum arabic processors and their families. As a 
result of current policy, the sanctions against Sudan have 
benefited Sudan economically and devastated the businesses of 
American gum arabic processors.
    We agree with Under Secretary Eizenstat that H.R. 1244 must 
include a stand-alone national interest waiver authority that 
would apply to all future unilateral sanctions legislation. At 
present, the bill provides only that it is the sense of 
Congress that any future unilateral sanctions legislation 
``should'' provide national interest waiver authority. The 
legislation must authorize the President to waive a sanction, 
or waive the applicability of a sanction on a specific industry 
sector, if it is in the national interest to do so.
    We continue to press the State Department with our pending 
license application to waive the Sudanese sanctions to permit 
badly needed imports of gum arabic, but no such waiver has been 
granted as of this date. We understand that the reluctance to 
grant our application reflects the strongly held views of some 
officials within the State Department that the United States 
must not fail to uphold human rights. We agree that human 
rights must be upheld in our own country and throughout the 
world. But unilateral sanctions, no matter how well intended, 
which hurt Americans without achieving stated policy goals, we 
believe, do not meet with the approval of this Committee.
    American companies will continue to lose competitive 
advantage to foreign competition in domestic and international 
markets unless you act now to reform our government's system 
for implementing unilateral sanctions. We look forward to the 
passage of H.R. 1244 by the House this year.

                                

                              Importers Service Corporation
                                            Jersey City, NJ
                                                       May 26, 1999
The Honorable Philip M. Crane,
Chairman, Trade Subcommittee
House Ways & Means Committee,
Washington, D.C.
    Dear Congressman Crane:

    We thank you and the staff of the Trade Subcommittee for 
this opportunity to provide our views regarding the present 
prohibition upon importing into the United States gum Arabic 
from Sudan. Importers Service Corporation is one of three 
companies in the United States that, prior to the November 1997 
embargo, imported raw gum Arabic from Sudan, processed it in 
the United States, and sold the processed gum to end users. As 
explained more fully below, the imposition of the Sudanese 
embargo has crippled our business, yet total exports from Sudan 
of gum Arabic have increased. Thus, as applied to gum Arabic, 
the embargo has had the effect of damaging U.S. companies 
without inflicting any corresponding damage upon the government 
of Sudan. We believe that, under these circumstances, the 
import ban applied to gum Arabic should be lifted.
                               Background
    On November 3, 1997, President Clinton issued an Executive 
Order blocking Sudanese government property in the United 
States and prohibiting U.S. commercial transactions with Sudan. 
In the accompanying letter to the United States Congress, 
President Clinton stated that, ``we intend to license only 
those activities that serve U.S. interest.'' Among those 
activities President Clinton cited was, ``the importation of 
products unavailable from other sources, such as gum Arabic.''
    Following the issuance of the November letter to Congress, 
Importers Service Corporation, supported by 13 industry 
associations representing the thousands of U.S. companies that 
use the product to manufacture items that U.S. consumers use 
every day, applied to the Department of the Treasury's Office 
of Foreign Assets Control (OFAC) for a license to continue to 
import the Sudanese product into the United States. Contrary to 
the assurances provided by the Clinton Administration to the 
U.S. Congress, OFAC declined to grant licenses to us beyond a 
one-time exemption for 1998. A second license application for 
1999 has been pending without a decision since December 1998. 
As explained below, any continued inability to import raw gum 
Arabic from Sudan will threaten the very existence of our small 
company as well as the reliability of the supply of gum Arabic 
to thousands of U.S. companies. However, it will have no 
negative impact on the government of Sudan.
                          What is Gum Arabic?
    Gum Arabic is a naturally occurring product that is exuded 
from the stems and branches of the acacia tree. It is a key 
ingredient in a variety of soft drinks, baking and 
confectionery items, dietary fiber products, lithography, 
cosmetics, pharmaceuticals and other industrial applications.
     In confectionery products, gum Arabic retards 
sugar crystallization and emulsifies fat to keep the candy 
uniform throughout the piece.
     In beverages, gum Arabic is the preferred 
emulsifier for citrus oil containing flavor emulsions, and has 
the ability to stabilize foam on beer and soft drinks.
     In pharmaceutical products, gum Arabic is used to 
bind medicines into uniform tablets or syrups.
     In cosmetics, gum Arabic imparts spreading 
properties and gives a protective coating and smooth feel.
     In dietary fiber products, gum Arabic is an ideal 
ingredient because of its low viscosity, bland flavor and high 
fiber content.
    Two critical facts need to be emphasized with respect to 
gum Arabic. First, for many of these products, there is no 
suitable alternative ingredient to the use of gum Arabic. Thus, 
an inability to obtain gum Arabic could have extremely 
disruptive effects on the United States economy. Second, for 
most applications, only a very small quantity of gum Arabic is 
used to obtain the desired quality or effect. Thus, the 
importance of gum Arabic to entire United States industries is 
belied by the small overall total of imports into the United 
States.
                      How is Gum Arabic Produced?
    Gum Arabic is harvested from wild acacia trees. Since 
precise climatic conditions (hot weather, poor soil, aridity) 
are necessary for the acacia trees to exude gum Arabic, efforts 
to date to cultivate the product in other regions of the world 
(including the U.S. and South America) have proven 
unsuccessful.
                       Where is Gum Arabic Found?
    Although quantities of grade one quality gum Arabic are 
found in countries such as Chad and Nigeria, Sudan's gum Arabic 
harvest accounts for more than 70 percent of the world's supply 
of this product on an annual basis (and almost 90 percent of 
the world's reliable supply). Currently, the only entity 
authorized to export gum Arabic from Sudan is the ``Gum Arabic 
Company,'' a trade coalition in which the Sudanese government 
owns a 30 percent interest.
        Why Must the United States Import Gum Arabic From Sudan?
    As noted above, for many applications, there is simply no 
substitute or alternative to gum Arabic. Thus, it is a 
necessary commodity for entire industries, including the 
pharmaceutical, beverage, flavoring, candy and printing 
industries. A study conducted by the U.S. Department of 
Commerce shortly after the embargo was imposed suggested that 
adequate supplies of gum Arabic could be obtained from sources 
other than Sudan. However, we believe that Commerce's analysis 
is inaccurate in several ways. First, the Tariff Schedule 
categorizes all gum Arabic under one tariff heading, making it 
impossible to distinguish between high-grade gum Arabic from 
Sudan and the low-grade gum utilized in different industry 
applications that is available from a number of other 
countries. Secondly, the Commerce analysis identifies European 
countries as originating countries, when they in fact are 
merely purchasing the Sudanese product and selling it to the 
United States in a finished form. Finally, the U.S. data shows 
a number of countries that have no natural source of the supply 
as originating countries. These countries are not gum Arabic 
growers, they are simply reselling the Sudanese product.
    In fact, the U.S. government's own numbers speak for 
themselves. According to the U.S. Census Bureau, in 1996, the 
United States demand for gum Arabic was 22 million pounds. 
Similar statistics show that the annual Chad crop is 13.2 
million pounds per year, and Nigeria's is 4.4 million pounds. 
Taken together, even if the U.S. manufacturers were able to 
purchase all of the Chad and Nigerian crop (i.e. if European 
competitors purchase no gum from Chad or Nigeria), the supply 
would still fall short by 4.4 million pounds. Given the current 
state of world production, there is simply no alternative to 
importing the Sudanese product.
    Is Gum Arabic an Important Sudanese Export to the United States?
    For many applications, there is no substitute for gum 
Arabic. It is therefore a very important product for the U.S. 
At the same time, because only small amounts of gum Arabic are 
necessary for most applications, total imports into the U.S. 
are small and the importance to Sudan of exports to the U.S. is 
small as well. On average, Sudan produces a total of 26,000 
metric tons of gum Arabic per year. The United States imports 
7,000 to 10,000 metric tons of the raw Sudanese product on an 
annual basis. A majority of the remaining product is sold to 
companies in France (the largest buyer) and England. In the 
years before the U.S. embargo was imposed, the price of the 
product ranged from $2,200/mt to $4,000/mt. U.S. purchases of 
gum Arabic from Sudan amounted to $5.6 million through November 
1997, $9 million in 1996 and $20 million in 1995.
        What Has been the Effect of The ``Gum Arabic'' Embargo?
    The Market for Grade 2 Gum. At the beginning of crop year 
1999 (crop years span from October to October), French-based 
gum Arabic manufacturers artificially increased the price that 
U.S.-based manufacturers have to pay for Chadian Grade 2 gum 
Arabic. First, they purchased a significant quantity of grade 2 
material through their long-established connections in the 
Chadian market. They then offered to purchase additional crude 
material at 25 percent over the current market price, and 
purchased a small amount of material at this price to 
legitimize their offer. This caused all Chadian farmers to 
expect a similar price. The final result was a 25 percent 
increase in the amount that U.S. manufacturers have had to pay 
for the Grade 2 material from Chad that we need to fulfill 
existing contracts with end users. In contrast, the French have 
been able to secure the balance of the material they require 
from Sudan at the world market price. Since U.S. firms cannot 
purchase Grade 2 raw material at the world price, the French 
have been able to undercut U.S. firms when bidding for 
contracts into the year 2000 and beyond.
    The difficulties arising from the artificially inflated 
price have been exacerbated by the fact that the Chadian Grade 
2 crop is now in very short supply. Given that a sapling 
requires 5 to 7 years before it may be tapped, it is unlikely 
that Chad will be able achieve a significant increase in the 
near future.
    The Market for Grade 1 Gum. Our French and English 
competitors have begun to use the U.S. embargo as a marketing 
tool and have begun to poach into the domestic Grade 1 gum 
Arabic market. Realizing that our Sudanese supply must be 
running low, the French have identified customers who 
specifically require Sudanese gum Arabic and have been able to 
convince these firms that U.S. manufacturers will no longer be 
a viable source of Sudanese material. They then have offered 
cut-rate pricing and have been able to make small inroads into 
a market that, prior to the embargo, had been dominated by U.S. 
manufacturers. The French have also told end users that the 
supplies held in the U.S. have deteriorated with the passage of 
time, claiming it is best to get fresh Sudanese material 
through Europe. Finally, they have questioned the origin of our 
raw materials, suggesting that we may not be getting them 
through legitimate channels.
    No Reduction in Total Exports From Sudan. The embargo of 
imports into the U.S. of gum Arabic from Sudan has had no 
effect on Sudan's total exports. This has been confirmed to us 
by the President of the Gum Arabic Company (``GAC'') and is 
corroborated by a letter from GAC (copy attached) summarizing 
exports of gum Arabic by the GAC in Sudan to various regions 
around the world for the periods 1996, 1997, 1998 and 1999 
(projected). Despite the imposition of the U.S. trade embargo 
in November 1997, total exports of gum Arabic from Sudan in 
1998 increased by 1,000 metric tons as compared to 1997.
    The Fall in Exports to the U.S. Has Been Replaced by 
Increased Exports to Europe. While total exports of gum Arabic 
from Sudan have been unaffected by the embargo, the recipients 
of this gum Arabic have shifted dramatically. The U.S. received 
7,100 metric tons of gum Arabic from Sudan in 1997, but 
received only 1,880 metric tons in 1998. In contrast, exports 
to Europe increased by more than 3,000 metric tons in the same 
period and are projected to increase by a further 2,000 metric 
tons in 1999. This information thus confirms that the 
unilateral U.S. trade embargo as it relates to gum Arabic has 
no impact whatsoever on Sudan. Rather, it damages U.S. 
companies while assisting their European competitors.
    The information submitted by the GAC is corroborated by 
trade statistics maintained by the European Union. We have 
summarized and attached relevant European trade statistics 
supplied to us by EUROSTAT. This information shows imports of 
gum Arabic from Sudan into France and the United Kingdom for 
1995, 1996, 1997 and 1998,\1\ as well as exports of gum Arabic 
to the U.S. from France and the U.K. for the same periods. As 
you will see, imports of gum Arabic from Sudan into the United 
Kingdom more than doubled in 1998, while imports into France 
increased by more than 80 percent. Exports to the United States 
have also begun to increase. Clearly, if we are unable to 
provide our customers with processed gum Arabic, our French and 
U.K. competitors will have the ability to quickly supply them.
---------------------------------------------------------------------------
    \1\ We obtained 1998 EUROSTAT data only for the period of January 
through July. Accordingly, the 1998 data shown on the attachment is an 
extrapolation from the trade data for the January through July period.
---------------------------------------------------------------------------
                               Conclusion
    On April 28, 1999, Under Secretary of State Stuart 
Eizenstat announced the Administration's new policy pursuant to 
which licenses will be granted authorizing the commercial sale 
of food, medicine and medical equipment to countries subject to 
a unilateral United States embargo such as Sudan, Iran and 
Libya. As explained by Under Secretary Eizenstat, the change in 
policy is consistent with the basic objectives of the 
Administration's overall sanctions reform effort: to ensure 
that unilateral economic sanctions are effective and that the 
costs to U.S. interests of imposing sanctions are minimized.
    Application of these same criteria lead inevitably to the 
conclusion that the ban on importing gum Arabic from Sudan 
should be lifted. The prohibition has had no impact on total 
Sudanese exports. Thus, as applied to gum Arabic, the Sudanese 
sanctions are completely ineffective. At the same time, they 
are imposing prohibitive costs upon United States companies, 
like ours, that have grown through years of hard work by 
importing raw gum Arabic from Sudan, processing it here in the 
United States, and selling it to end users. If unilateral U.S. 
economic sanctions have no impact upon the targeted government, 
but threaten to bankrupt U.S. companies and disrupt the United 
States economy, we submit that those particular sanctions 
should be reviewed and revised. It may be that unilateral 
economic sanctions can be justified where they achieve policy 
goals. In this particular case, however, the effect of the 
sanctions is the opposite of those intended. Companies like 
ours should be allowed access to Sudanese gum Arabic 
accordingly.
            Sincerely,
                                             Eric Berliner,
                                                          President

                      EUROPEAN TRADE IN GUM ARABIC
   (Extract and summary of European trade data obtained from EUROSTAT)
------------------------------------------------------------------------
             Imports of Gum Arabic from Sudan (Metric Tons)
-------------------------------------------------------------------------
                                                      France      U.K.
------------------------------------------------------------------------
1995..............................................      4,525      1,326
1996..............................................      5,344      1,028
1997..............................................      5,556      1,522
Jan-July 31, 1998.................................      5,864      1,944
1998 (Annualized).................................     10,053      3,333
Percentage increase 1997-1998.....................        81%       119%
------------------------------------------------------------------------

------------------------------------------------------------------------
             Exports of Gum Arabic to the U.S. (Metric Tons)
-------------------------------------------------------------------------
                                                      France      U.K.
------------------------------------------------------------------------
1995..............................................      2,570        741
1996..............................................      3,030        448
1997..............................................      4,390        738
Jan-July 31, 1998.................................      2,975        588
1998 (Annualized).................................      5,100      1,008
Percentage increase 1997-1998.....................        16%        37%
------------------------------------------------------------------------

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