[Senate Hearing 107-501]
[From the U.S. Government Publishing Office]
S. Hrg. 107-501
REAUTHORIZATION OF THE
IRAN AND LIBYA SANCTIONS ACT
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
ON
REAUTHORIZATION OF THE IRAN AND LIBYA SANCTIONS ACT OF 1996
__________
JUNE 28, 2001
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
PAUL S. SARBANES, Maryland, Chairman
CHRISTOPHER J. DODD, Connecticut PHIL GRAMM, Texas
JOHN F. KERRY, Massachusetts RICHARD C. SHELBY, Alabama
TIM JOHNSON, South Dakota ROBERT F. BENNETT, Utah
JACK REED, Rhode Island WAYNE ALLARD, Colorado
CHARLES E. SCHUMER, New York MICHAEL B. ENZI, Wyoming
EVAN BAYH, Indiana CHUCK HAGEL, Nebraska
JOHN EDWARDS, North Carolina RICK SANTORUM, Pennsylvania
ZELL MILLER, Georgia JIM BUNNING, Kentucky
MIKE CRAPO, Idaho
DON NICKLES, Oklahoma
Steven B. Harris, Staff Director and Chief Counsel
Wayne A. Abernathy, Republican Staff Director
Martin J. Gruenberg, Senior Counsel
Rohit Kumar, Republican Deputy Chief Counsel
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
C O N T E N T S
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THURSDAY, JUNE 28, 2001
Page
Opening statement of Chairman Sarbanes........................... 1
Prepared statement........................................... 40
Opening statements, comments, or prepared statements of:
Senator Miller............................................... 2
Senator Schumer.............................................. 4
Prepared statement....................................... 41
Senator Hagel................................................ 11
Prepared statement....................................... 41
Senator Carper............................................... 14
Senator Corzine.............................................. 15
Senator Stabenow............................................. 17
Senator Enzi................................................. 44
Senator Bunning.............................................. 45
Senator Kennedy.............................................. 46
WITNESSES
Gordon Smith, a U.S. Senator from the State of Oregon............ 3
Prepared statement........................................... 45
E. Anthony Wayne, Assistant Secretary for Economic and Business
Affairs, Accompanied by: Ambassador James Larocco, Deputy
Assistant Secretary for Near Eastern Affairs, U.S. Department
of State....................................................... 6
Prepared statement........................................... 52
Stephanie Bernstein, Justice for Pan Am 103...................... 20
Prepared statement........................................... 53
Patrick Clawson, Director for Research, Washington Institute for
Near East Policy............................................... 24
Prepared statement........................................... 56
Bradley Gordon, Legislative Director, American Israel Public
Affairs
Committee...................................................... 26
Prepared statement........................................... 58
William Reinsch, President, National Foreign Trade Council....... 28
Prepared statement........................................... 62
William F. Martin, Chairman, Washington Policy & Analysis........ 31
Prepared statement........................................... 65
Additional Material Supplied for the Record
Prepared statement of Willard M. Berry, President, European-
American
Business Council............................................... 74
(iii)
REAUTHORIZATION OF THE
IRAN AND LIBYA SANCTIONS ACT
----------
THURSDAY, JUNE 28, 2001
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:45 a.m., in room SD-538 of the
Dirksen Senate Office Building, Senator Paul S. Sarbanes
(Chairman of the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES
Chairman Sarbanes. Let me call the Committee to order.
The Banking, Housing, and Urban Affairs Committee meets
this morning to hear testimony with respect to the reauthoriza-
tion of the Iran and Libya Sanctions Act, commonly known as
ILSA. This Act, which was passed by Congress in 1996, expires
on
August 5 of this year, therefore, we face an immediate
reauthorization question.
I would like to note for the record that there is strong
support in the Congress for the reauthorization. Seventy-seven
Senators have cosponsored such legislation, led by Senators
Schumer and Smith, who are to appear before us shortly. In the
House of Representatives, the International Relations Committee
on June 20, passed a 5 year reauthorization of ILSA, including
in it a strengthening of the Libyan component. That came out of
the Committee on a vote of 41 to 3.
ILSA was enacted in 1996, in response to Iran's support for
terrorism and its pursuit of weapons of mass destruction.
Concerning Libya, ILSA was enacted to compel the regime in
Tripoli to abide by all of the U.N. Security Council
Resolutions concerning the bombing of the Pan Am 103 flight.
ILSA requires the President to impose two out of a list of
six sanctions against foreign firms that invest in the energy
sectors of Iran and Libya, respectively. It should be noted
that under the terms of ILSA, its application would end to
Libya if the President of the United States determined that
Libya had fulfilled all U.N. Security Council Resolutions
relating to the bombing of Pan Am 103. For Iran, ILSA would
terminate if Iran ceases its efforts to acquire weapons of mass
destruction and is removed from the State Department's list of
state sponsors of terrorism. ILSA does contain a Presidential
waiver for U.S. national interest reasons or if the parent
country of a violating firm agrees to impose economic sanctions
on Iran.
Let me just briefly turn to each country.
The latest State Department report--``Patterns of Global
Terrorism''--states, and I quote the State Department now:
Iran remains the most active state sponsor of terrorism in
2000. Its Revolutionary Guard Corps and Ministry of
Intelligence and Security continue to be involved in the
planning and execution of terrorist acts and continue to
support a variety of groups that use terrorism to pursue their
goals.
Iran is also stepping up its efforts to acquire weapons of
mass destruction. The latest unclassified CIA report to
Congress on worldwide acquisition of weapons of mass
destruction notes:
Iran remains one of the most active countries seeking to
acquire weapons of mass destruction and advanced chemical
weapons technology from abroad. In doing so, Tehran is
attempting to develop an indigenous capability to produce
various types of weapons--chemical, biological, and nuclear--
and their delivery systems.
As for Libya, it has fulfilled only one aspect of the U.N.
Security Council Resolutions relating to the Pan Am 103
bombing--handing over suspects for trial. It has not fulfilled
the requirement to pay compensation for the families of the
victims, to accept responsibility for the actions of its
intelligence officers, and to fully renounce international
terrorism.
In fact, on April 19, President Bush stated, and I quote
him:
We have made it clear to the Libyans that sanctions will
remain until such time as they not only compensate for the
bombing of the aircraft, but also admit their guilt and express
remorse.
Because Iran and Libya have clearly not fulfilled the
requirements of the ILSA legislation, I think to terminate
these sanctions would send the wrong message, and therefore, I
support reauthorizing this legislation.
Just last week, indictments were handed down by our Justice
Department in the Khobar Towers bombing case, in which 19 of
our airmen in Saudi Arabia were killed in 1996. Attorney
General Ashcroft stated publicly at the time that Iranian
officials, ``I am now quoting the Attorney General: Inspired,
supported and supervised members of Saudi Hizballah, which
carried out the attack.''
We have delayed the hearing this morning, as I think
everyone knows, because there were votes on the floor of the
Senate. I hope that does not create any inconvenience.
We have, I think, a very good panel of witnesses that we
are going to be hearing from this morning. First, we are going
to hear from the two original cosponsors of the legislation,
our colleagues, Senators Schumer and Smith.
Then we will go to a panel that will include two witnesses
from the State Department. And then we will go to a second
panel, which includes a number of people from the private
sector that we are looking forward to hearing from.
With that, I will turn to my colleagues for their
statements.
Senator Miller, do you have an opening statement?
COMMENT OF SENATOR ZELL MILLER
Senator Miller. No, thank you, Mr. Chairman.
Chairman Sarbanes. All right. Senator Smith, I think I saw
you come in first, why do we not proceed in that order.
STATEMENT OF GORDON H. SMITH
A U.S. SENATOR FROM THE STATE OF OREGON
Senator Smith. Thank you, Mr. Chairman.
This bill truly may be one where, as our Nation pursues its
national interests, we may be running up against our national
values. And Senator Schumer and I are here to stand for the
proposition that we must not surrender our national values.
Mr. Chairman, I thank you for allowing me to testify before
the Senate Banking Committee regarding the reauthorization of
the Iran and Libya Sanctions Act, or ILSA. I am proud to be
here with my colleague from New York, Senator Schumer, who has
been a stalwart and outstanding advocate of ILSA and its
reauthorization.
Our legislation, as we are here before you today, has 76
co-
sponsors and we expect more to sign on now that the legislation
has been introduced. It is truly a bipartisan effort and we
hope to have the reauthorization signed into law before the
August 5 expiration date.
Iran continues to support international terrorism and is
developing weapons of mass destruction at an alarming rate.
Iran is the leading state sponsor of international terrorism in
the world.
Iran not only finances Hizballah, Islamic Jihad, and Hamas,
reportedly providing them $100 million a year, but also trains
them and supplies them with munitions. Further, we now hear
reports that Iran has moved on from proliferation to
proliferator, with exports of fuel and missile guidance systems
to export to other terrorist states.
Mr. Chairman, it is not in my statement, but as I read the
news, the rhetoric of the leaders of Iran, even of their
moderates, they speak in terms of the extermination of Israel,
of its elimination, removing it from the map, and that is
something that we cannot take as anything but deadly serious.
Also, Libya still refuses to abide by the United Nations
Security Council Resolutions regarding the bombing of Pan Am
103, which requires that Tripoli formally renounce terrorism,
accept responsibility for the actions of its government
officials, convicted of masterminding the bombing, provide
information about the bombing and pay appropriate compensation
to the families of the victims. Further, Libya is a prime
suspect of many past terrorist operations.
ILSA threatens the imposition of economic sanctions against
foreign entities investing in Iran and Libya's energy sectors.
It has been very effective. Of 55 major petroleum projects for
which Iran has sought foreign investment in the last 5 years,
only a half dozen or so have received any foreign investment,
and none have been
completed. Without such investment, Iran's oil production will
con-
tinue to decline, as will its ability to pay for its expensive
weapons
programs.
While I have never been a strong supporter of unilateral
sanctions as an effective diplomatic weapon, I do believe that
ILSA is an exception. ILSA works.
We can and must continue to send a signal to those
governments in the Middle East that sponsor terrorism that the
U.S. Government will do all it can to work against their goals
to prevent new holocausts and to stand by our allies, such as
Israel.
I hope that this Committee will swiftly and favorably
report out this legislation and that it will pass quickly on
the Senate floor. And I look forward to your questions.
Chairman Sarbanes. Thank you very much, Senator Smith.
Senator Schumer.
STATEMENT OF SENATOR CHARLES E. SCHUMER
Senator Schumer. Thank you, Mr. Chairman. I want to thank
you for holding this hearing and for granting Senator Smith and
me the opportunity to open this hearing. And I want to thank
Gordon Smith, who on every issue we have worked on is just a
terrific partner to work with. And I thank him for his true
leadership on this legislation.
I know we are beginning late here today, so I will try to
be brief.
I think that is all right because everyone on this
Committee is acquainted with what ILSA is all about, and 16 of
the 20 Members of this Committee signed as original cosponsors.
Senator Smith and I introduced the bill a few weeks ago with a
total of 77 original cosponsors. So, let me just say a few
words.
There has been movement on the part of the Administration
and some here in Congress to weaken ILSA by watering down its
provisions. Many of these people would do away with ILSA
altogether, but because of the enormous support in Congress for
the 5 year reauthorization, their strategy is to reduce the
extension of ILSA to 2 years and add new waiver provisions that
would effectively kill the bill.
I am here today to say that ILSA must be renewed fully
intact for a 5 year term. Over the past 5 years, Iran and Libya
have done nothing to show they would be welcomed into the
community of nations and benefit from better relationships with
the United States and our allies. Despite the election of the
so-called moderate President Khatami in 1997, Iran remains the
most active sponsor of terrorism and has been feverishly
seeking to develop weapons of mass destruction, as Senator
Smith has outlined.
Just last week, a Federal grand jury found that Iranian
government officials, quote, ``supported and directed'' the
Hizballah terrorists who blew up the Khobar Towers in Saudi
Arabia, killing 19 brave American servicemen. Iran proudly
supports Hamas, whose most recent claim to fame was sending a
suicide bomber into a crowded disco in Tel Aviv, killing 21
young Israelis and injuring dozens more.
These are not actions worthy of American concessions. I
agree completely with Gordon Smith. This is an issue of
morality. What would the world think when its greatest power
relaxes sanctions on a nation, two nations, that have shown
themselves to be so outside the family of nations, not simply
engaged in a dispute, not simply trying two sides to an
argument, but some of the most dastardly acts that we have
seen?
The bottom line is simple. If these nations are serious
about entering the community of nations and seeing their
economies benefit from global integration, they must change
their behavior. The argument that we should lift sanctions in
hopes that Iran and Libya might change their behavior is
backward reasoning, backward logic, backward morality. And so,
I would hope, Mr. Chairman, that we would continue ILSA.
I just want to say a few words about sanctions policy in
general.
I think it is understandable that the Administration would
want to review U.S. sanctions policy to make sure it is working
effectively. But ILSA is about the best we have. It is highly
flexible. It grants the President full waiver authority on a
case-by-case basis. It contains a menu of sanctions, ranging
from a slap on the wrist to more serious economic retaliation.
And its sunset provisions are profoundly reasonable.
If we are not going to maintain ILSA, then we are not going
to maintain any sanctions policy at all. And I think there are
a couple of reasons that we are the greatest country in the
world. One is our economic might, but another is that Statue of
Liberty that stands so proudly in the harbor of the city that I
come from, New York. It is a beacon of freedom. It is a beacon
of what is right.
We are known as a country who tries to do the right thing.
To simply cave in to economic pressure at this point in time, I
think, would not only hurt our relationships in the Middle
East. It would do some serious harm to the greatness of this
country. And so, I urge that ILSA be reauthorized.
Chairman Sarbanes. Thank you.
We thank both of you for your very strong statements. I
just have one sort of modification.
Jefferson, right back at the beginning of the Republic said
that--I am trying to paraphrase it now. I will get the actual
quote and put it in the record--but that staying true to our
national values actually served our national interest, that
that was encompassed within the concept of national interest
and therefore, we ought not to allow ourselves to fall into the
habit of thinking that somehow, they are contradictory to one
another. And I think it is important to think of it in this
context. I have no questions.
Senator Miller.
Senator Miller. No questions, Mr. Chairman. Thank you and
thank the witnesses.
Chairman Sarbanes. Thank you all very much and thank you
for the leadership you have taken on this issue.
We will now turn to our panel with our two representatives
from the State Department, Anthony Wayne, Assistant Secretary
for Economic and Business Affairs and Ambassador James Larocco,
who is the Deputy Assistant Secretary for Near East Affairs.
Presumably, gentlemen, you have worked out between
yourselves who is to go first.
Mr. Wayne. Yes. Thank you, Mr. Chairman. I think I will, if
it suits you, make an introductory statement and then we will
both take questions.
Chairman Sarbanes. I think it would be helpful if you
pulled the microphone closer.
Mr. Wayne. Sorry.
Chairman Sarbanes. You have to really speak right into it
in order to be heard.
STATEMENT OF E. ANTHONY WAYNE, ASSISTANT SECRETARY
FOR ECONOMIC AND BUSINESS AFFAIRS
ACCOMPANIED BY AMBASSADOR JAMES A. LAROCCO
DEPUTY ASSISTANT SECRETARY FOR NEAR EASTERN AFFAIRS
U.S. DEPARTMENT OF STATE
Mr. Wayne. Mr. Chairman, if it meets with your approval, I
would make a shortened introductory statement, submit a longer
statement for the record, and then we would both be available
to take your questions.
Chairman Sarbanes. Fine. And let me say, because I want to
put it in after the statements of Senators Schumer and Smith, I
have a statement from Senator Kennedy, who was not able to be
with us, but the statement and its attachments will be included
in full in the record.
Thank you.
Mr. Wayne, please go ahead.
Mr. Wayne. Thank you very much, Mr. Chairman. We are very
pleased to have the opportunity to appear before this Committee
today and to testify regarding S. 994, on the renewal of the
Iran and Libya Sanctions Act.
My name is Tony Wayne. I am the Assistant Secretary for
Economic and Business Affairs at the State Department. And I am
happy to be accompanied by Jim Larocco, who has just returned
from being our Ambassador in Kuwait and is currently serving as
the principal Deputy Assistant Secretary in our Near Eastern
Affairs Bureau. He is actually the Acting Assistant Secretary
today, as Bill Burns is with Secretary Powell in the Middle
East.
As you know, Mr. Chairman, the Administration supports the
renewal of ILSA, in its original form, but for 2 years, rather
than the 5 years proposed. We entirely share the concerns of
Congress, the concerns that you mentioned and that your two
colleagues mentioned, about the objectionable policies and
behaviors of Iran and Libya. Opposing those behaviors and those
policies and changing them is a top priority. We have
repeatedly condemned Iran's pursuit of weapons of mass
destruction and the missile delivery systems for them, and its
support of terrorism, including support for those using
violence to oppose peace in the Middle East. Although no
Iranian individual was charged in the recent indictments
related to the Khobar bombing, the investigation confirmed, as
you noted, our concerns about Iranian support for terrorism and
that those are well-founded.
As for Libya, it has not yet complied with the relevant
U.N. Security Council Resolutions and we are focused on
securing Libya's compliance with those Security Council
obligations, including the payment of appropriate compensation
and acceptance of responsibility of Libyan officials in
connection with the bombing of Pan Am Flight 103.
The Administration's decision to support a 2 year renewal
reflects no diminution in our concern about the objectionable
behavior of Iran and Libya. Our concerns in these areas
continue to be reflected in a wide variety of policies and
actions--their designation as state-sponsors of terrorism, our
continued efforts to bolster international cooperation to stop
terrorist activities.
We are also playing a leadership role in the multilateral,
nonproliferation area, in such regimes as the Missile
Technology Control Regime, the Nuclear Suppliers Group, the
Australia Group, and the Wassenaar Agreement, where we work in
close partnership with our European allies and other member
governments, to restrict the ability of countries such as Iran
and Libya to have access to the equipment, technology, and
materials necessary to develop weapons of mass destruction and
long-range missiles.
Rather, our support for a 2 year term reflects this
Administration's view that sanctions should be reviewed,
thought about, and debated at frequent intervals. Sanctions, as
you know, Mr. Chairman, are one set of tools that we have to
pursue our national interests and our important national
values. As we are working to counter such abhorrent practices
as proliferation and terrorism, we need to build effective
international cooperation. We need to regularly reevaluate our
sanctions tools, assessing how well they are working, whether
they should be altered or amended, whether they can be fine-
tuned, whether there are other instruments or approaches that
should be applied, whether there are unintended effects and how
to take those into account.
And this process of reevaluation affords a further
opportunity for all points of view to be heard as we look at
how best to pursue our national values and objectives. In sum,
we believe that regular reevaluation is essential to ensure
that we are attacking critical problems in the most effective
way.
Questions about effectiveness, impact, cost, and relevance
inevitably arise in connection with any sanctions regime. ILSA
is no exception, particularly since its approach is indirect.
It focuses on investment, in order to limit revenue, rather
than focusing directly on actions by Iran and Libya to procure
weapons of mass destruction or to support terrorism. It targets
petroleum-sector investors--many of them from friendly
countries whose cooperation we need in working toward
nonproliferation and counterterrorism goals--rather than
targeting parties who are engaged in inherently objectionable
behavior.
The Administration, Mr. Chairman, is embarking on an
overall review of sanctions policy that will include examining
the cost and effectiveness of our sanctions efforts--in
general, and with respect to specific sanctions laws, such as
ILSA.
For its part, the State Department believes that economic
sanctions laws should reflect several common sense principles.
They should allow the President sufficient flexibility to
modify or terminate sanctions as conditions change, or as he
sees fit in balancing other important U.S. interests. They must
be part of an integrated policy that considers other options
and weighs the costs and benefits of economic sanctions for the
range of U.S. interests. In general, sanctions should be
directly targeted at objectionable behavior by foreign
governments or entities that threaten our values or interests,
and should minimize the unintended harmful conse-
quences. Sanctions that are indirectly targeted are likely to
be
less effective and need to be weighed with particular care for
unintended effects. When sanctions are appropriate, it is far
preferable that they be employed through a multilateral
approach. We may, however, occasionally need to be prepared to
act unilaterally when necessary to defend important U.S. values
and interests. As we have said, in general, we believe that
sanctions should be reviewed periodically and relatively
frequently.
Finally, I want to stress that, whenever possible, any
decision to impose sanctions should be the product of
collaboration and consultation between the Administration and
Congress. Through a close dialogue, we can make sanctions more
rational, more coherent, and more effective in support of U.S.
foreign policy and national security interests.
We are grateful for this opportunity to appear before you
and we would be happy to respond to any of your questions.
Thank you.
Chairman Sarbanes. Thank you.
Ambassador Larocco, did you want to add anything?
Mr. Larocco. No, I have no additional remarks.
Chairman Sarbanes. I am a little puzzled by your references
to fine-tuning and flexibility, since the statute, as currently
written and as proposed for extension, provides quite a broad
waiver authority to the President, does it not?
Mr. Wayne. It does, Senator.
Chairman Sarbanes. I mean, the President can, by
determining that it is important and that it is a national
interest. It is not even a national security interest
determination. He can waive the application of the sanctions.
Is that right?
Mr. Wayne. Correct.
Chairman Sarbanes. What is the problem, then, with
extending it for another 5 years since the President has that
authority? Or let me put the question this way. If I accept
your argument that you need frequent and periodic review, with
which the Congress would involve itself, would it not be
reasonable in that circum-
stance to tighten up the waiver authority very significantly if
you are going to shorten the time period?
In other words, suppose we did a 2 year time period, but
eliminated the waiver authority? Then every 2 years, we would
have a chance to look at this thing. Meanwhile, the sanctions
would go into effect, so you get a shorter time period, but you
do not then have the same latitude to waive the sanctions.
Now, we have a longer time period, which we think serves
some other important purposes, but you do have this waiver.
What is your reaction to that?
Mr. Wayne. I think, as you pointed out in your introductory
statement just now, the waiver authority in this bill is broad.
And as I tried to talk about, we think there are several
different things that it is important to have in an approach to
sanctions in general and in this bill.
Chairman Sarbanes. Would you rather have a broad waiver
authority and a 5 year period or a very narrow or no waiver
authority at all and a 2 year period?
Mr. Wayne. Mr. Chairman, what I think we very much favor is
a 2 year period on this of the current bill without any
changes. I do not think there is a downside in that. What we
are very much proposing is that we all have the opportunity to
come together in 2 years and again look at the set of issues.
Chairman Sarbanes. Why would it not be an invitation to
Gaddafi to wait out the period and not pay the compensation?
Mr. Wayne. No, sir, I do not think it would be, because
there is no sign at all that we would not renew ILSA again in 2
years.
Chairman Sarbanes. Well, I do not know. I mean, here we are
trying to renew it and we thought the obvious thing to do would
be to take it out for another 5 year term. And you are here
telling us, no, just do it for 2 years. Then while you support
the legislation, most of your statement has been spent sort of
questioning the whole notion of sanctions.
Mr. Wayne. I am sorry, sir, if I was not clear in that or
if my statement conveyed a different impression than I intended
to.
What we are suggesting is that sanctions, an important tool
in our foreign policy, need to be used carefully and as are
other tools, need to be reviewed and discussed and debated on a
frequent basis, and that as we have looked back, sir, over the
past decade in the range of sanctions that have been used and
that we have undertaken, that one of the lessons that we think
we have drawn from that is that there should be a periodic and
frequent review of them for all sanctions, not just ILSA. But
in general, that this would be a good practice to have.
Chairman Sarbanes. Of course, the legislation as written
gives the President the opportunity to conduct that review at
any time and with considerably flexible authority, then, to act
upon it.
Well, I want to put one other question to you and then I
will yield to my colleagues. Is the Supreme Council for
National Security the Iranian decisionmaking body for
establishing major Iranian security policies?
Mr. Larocco. That is my understanding. It is very clear
that while President Khatami has the title of president, that
the true authority in the country for many decisions remains in
the hands of what we would consider to be the hard-line
conservatives.
Chairman Sarbanes. Is that exercised through the Supreme
Council for National Security? That is the decisionmaking body
for national security policies.
Mr. Larocco. That is my understanding.
Chairman Sarbanes. Now is President Khatami a member of the
Supreme Council for National Security?
Mr. Larocco. I would have to check that, sir. I do
apologize. I have only been here for one week and I would have
to look further into that.
Chairman Sarbanes. Well, for the record, it is my
understanding that he is a member of the council, as is the
supreme religious leader, the Ayatollah Khamene'i, and the
minister of intelligence and a number of others.
So, if that is the case, clearly, the president is not out
of the loop in these national security decisions. Would that be
correct?
Mr. Larocco. I was not suggesting that he is out of the
loop, sir.
Chairman Sarbanes. Senator Schumer.
Senator Schumer. Thank you, Senator.
I want to follow up on the last part of Senator Sarbanes'
question. I would just like to know, you know, we had a time
when we were trying to improve relations with concessions and
nice talk and everything about that. I think there was more
hope about Khatami a year or two ago than there is today.
I think you have seen a hardening of opinion because people
have seen nothing. And in fact, a large number of people I
speak to think Khatami is nothing more--this is not everybody.
But there is a group who think he is nothing more than a
puppet, a way of saying, hey, look. We have this guy who is not
as bad as the rest of us out there and he has no control over
anything.
When has this softening policy in whatever way ever
produced results with Iran, and what results are they?
Clearly, if we go to the Administration's recommendation,
it is going to look like an olive branch, a softening. And the
question is, when has softening worked in the past? Or why
isn't it equally or even more plausible to say, if they get the
feeling, being hard-line as they are, being as ideological as
they are, thinking that they have the message from God, as they
do, say, see, our tough nastiness is working. The west is
weakening. And if we act even nastier, maybe they will even
next time have a weaker bill.
So just give me some logic as to why we should not be as
strong as we have been when to me at least I have seen no
change. It is not that Khatami is the new kid on the block any
more. In fact, you can argue that things have gotten worse.
Support for Hamas has gotten worse, the arrest of the 13 and
conviction of the 10 Jewish citizens that, for all practical
purposes seems as if it was done for their religion, their
nuclear program, everything.
Tell me where there has been some element. What makes the
Administration decide to do this? Is it that there is some
evidence in the past that when olive branches or little winks
were extended, that it produced results? Is it an attempt to
try it again even though it has not worked? Is there some
information you have that we do not?
Mr. Larocco. Senator, if I could first comment about the
Iranian situation. I think it is important to set that
framework.
To begin with, I think we have all seen, and we had great
hopes when the election of President Khatami took place, that
there would be some changes in policy.
But it has become very clear, even with his reelection now,
that while there has been broad-based support for reform, and
we are talking primarily because of demographics of the younger
population. They enfranchise their voters at the age of 15.
This support has not been translated into the kind of policies
that we believe serve our interests or, in many respects, the
interests of those same constituencies.
We have seen in the short-term, even now, continued
crackdown on dissidents and closing of newspapers, at the same
time as we have stated in our patterns of global terrorism, it
is very clear that there has been no diminution in terms of
their support for terrorism, and their active support for
terrorism, particularly directed at peace efforts. At the same
time they continue dogged pursuit of weapons of mass
destruction. So, I want to make that very clear.
If we are taking a look at the aspirations of the people,
we have to conclude that they are longer-term, but they are not
short-term.
And so, you are correct in the sense that the leadership of
that country continues to take them in a direction that does
not serve our interest.
Senator Schumer. Give me the logic as to why a weakening--
it will be perceived as a weakening--of ILSA would change any
of that. My guess is that if you talk to some of the young
people, the dissidents, privately, they probably say, keep the
heat on the Government as much as you could.
Mr. Wayne. Senator, I guess I would say to that that we do
not see a 2 year renewal versus a 5 year renewal as a
weakening. It is the same law that we support renewing. We
think it just makes sense to come together in 2 years and again
have a discussion.
Senator Schumer. We could do that anyway. We are open to
discussion. I am. I am sure all of my colleagues are, any time
of day. We could have a discussion any time we sit.
We could write in the 5 year that 2 years from now, there
shall be a little conclave and we shall discuss this and
reevaluate.
But clearly, it would be perceived as a weakening. Whether
you intend it to be or not, you certainly would admit that some
could make the plausible argument that it is a weakening. And
there are a lot better ways in my judgment of indicating that
we have to reevaluate based on, hopefully, some change in
action, without saying, let this expire in 2 years.
I still do not see the logic if, as Ambassador Larocco has
honestly and forthrightly stated, we have not seen any change
in policy.
Mr. Wayne. Senator, we believe, one, no diminution in our
concern, as Ambassador Larocco said. No change in our policy.
In fact, just yesterday, you may have noted we announced
some new steps taken under another law, the Iran
Nonproliferation Act, to sanction companies for certain
dealings with Iran.
Senator Schumer. Do you not think that some would perceive
it as such?
Mr. Wayne. Certainly some might perceive it as such. But we
are making very clear that that is not what it is. Our
convictions remain as firm as ever, that we need to respond
effectively to this objectionable behavior.
And we just think that coming back in 2 years, we would
have a good opportunity to see where we are and discuss it
again and discuss the range of issues.
Senator Schumer. Thank you, Mr. Chairman.
Chairman Sarbanes. Senator Hagel.
STATEMENT OF SENATOR CHUCK HAGEL
Senator Hagel. Mr. Chairman, thank you. I apologize for
being late. I have through my staff monitored this. This is a
very important issue.
I find myself much in the minority on this issue and
certainly do not agree with my friend and colleague from New
York on the issue. And I would first like to ask unanimous
consent that a statement and a speech be allowed to be included
in the record.
Chairman Sarbanes. It will be so included.
Senator Hagel. Thank you, Mr. Chairman.
Mr. Chairman, I would like to offer a couple of thoughts
and then a question within my timeframe.
It is my opinion that a face-value policy, which I consider
this policy to be--meaning that it is in face only. It is not
enforceable, has not been enforced. We have not pulled the
trigger on this. We have deferred the tough decisions--is not
the right way to do this. And I say that because if the focus
is on terrorism and proliferation and the interest of America
in the Middle East, the interest of Israel, the interest of our
friends and allies, the civilized world, then I find this
legislation, this law that we are looking at renewing, a bit
farcical.
What are we accomplishing? Senator Schumer has asked some
good questions. But I think the better questions are, what
results has ILSA produced? What clout do we have? What can we
do?
Symbolism is important. This is an imperfect world. Surely
there are forces within Iran that are moving in the right
direction.
It may take a generation. But I start with Israel's
position here as well.
Why is this in the best interest for this policy to
arbitrarily, unilaterally, needlessly make enemies for Israel
and the United States of this new generation of Iranians coming
up, born after 1979, which is a large, large percentage of that
population? And we are getting nothing for it.
Has terrorism stopped? Has proliferation stopped?
You might be able to enlighten us on that point. It seems
to me that we as a great power should be far more imaginative
here in finding a better way to do this than to just say, well,
let us wait just five more years and see how the world looks.
There are very little margins of error left in the world
today. And if you break this down even further into information
gathering, when we are shut out of a nation and trying to
figure out what is going on in that country, how does that
serve our interests, to be shut out? How does that serve our
geopolitical, strategic, and economic interests, to be shut
out? I do not see how that does.
I do not think you make the Middle East more stable. I do
not think you bring more security to Israel by this kind of
policy, which, again, unless you can tell me otherwise, has not
produced any results. The one time that I am aware of, the
South Pars decision that President Clinton gave a waiver to
Total, the rest of the issues we are studying, we are looking
at.
I am not aware of the fact that President Clinton pulled
the trigger on any of these issues. And in fact, if he did,
what would we get? We are alienating much of the Middle East.
We are alienating our friends and our allies. And I guess more
to the point, this is a multilateral effort.
We do not combat the twin scourges of terrorism and
proliferation unilaterally. It is impossible to do that.
So, I think the far wiser course of action for the
interests of this country and for Israel is to find a better
way to do this. And surely, we are capable of doing that. We
have a lot of smart people in Congress. We have a lot of smart
people on the outside. I think the President has surrounded
himself with some pretty smart people, starting with the two of
you, and Secretary Powell. It seems to me that we can figure
this out.
I want to go on record, I suspect in an unequivocal way, my
opposition to this. Again, I recognize that I may have two
votes with me and I may be exaggerating one. Nonetheless,
somebody has
to give another point of view here and I am incapable of being
that articulate, but I will try to continue to give another
view on
this issue.
Now with the time I have, if I have any left, the yellow
light is on. Maybe I will get a question in.
Let us take the question that my good friend from New York
asked. What results have there been? Give me an example, or as
many as you can, of what ILSA has produced in the way of
tangible evidence on how we have stopped terrorism and
proliferation.
Mr. Wayne. Thank you, Senator. Let me take a crack at that
first. As I think was evident in a number of the statements, it
is clear that Iran continues to support terrorism and it
continues to pursue the weapons of mass destruction and their
delivery systems. That speaks of itself. Those remain very,
very serious problems.
If you look at the effectiveness of ILSA, there are a
number of different measures. And I know some of the other
panelists will comment on this.
If we look at oil production, Iran has continued to be able
to meet or exceed its quota in OPEC.
If we look at the price of oil and the money that is been
received in that, I guess I would say another way, the price of
oil globally has been a much more powerful determinant of how
much money Iran takes in than probably any other factor.
When oil prices were low at $10 a barrel, their income
dropped. It is currently about $25 a barrel and their income
has soared.
We do believe that ILSA did have, and has had some
deterrent effect with those seeking to invest in Iran. The
exact weight of that is very hard to measure because Iran is
not an easy place to do business, even for those who are
willing to do business there.
I even read in the Financial Times yesterday an article
about current debates going on within Iran among different
power centers about whether to accept certain foreign oil deals
that have been put forward. There are just a lot of problems in
doing business there. So to weigh out the effects of deterrents
of ILSA and other factors is a hard thing to do and there can
be different analyses of that.
Using our dialogue about ILSA, we have regularly called our
opposition to investment in Iran to the attention of others.
When
we have press reports of companies that are going in there we
have regularly had a dialogue with the companies and with their
governments on that, expressed our opposition, expressed why we
oppose this.
We have during this period, I think, deepened our
cooperation with a number of our friends and allies in the
nonproliferation area and in the counterterrorism area because
they accept our goals and our objectives to change that
objectionable behavior. And we have made a number of steps
during the last 5 year period to improve those regimes.
Chairman Sarbanes. Thank you.
Senator Carper.
COMMENTS OF SENATOR THOMAS R. CARPER
Senator Carper. Thank you, Mr. Chairman. To our witnesses,
I would like to start out by saying that I apologize for
missing your statements. I have them and I will read them.
I have run for State-wide office 11 times in Delaware and
served in the Senate, the House, and as Governor. I have a real
interest in the political system in our State and in politics
and follow it rather closely in our country.
I am also intrigued by the political changing scene in
Israel and have been a student from afar and a visitor to the
country from time to time.
I am intrigued by what is going on politically in Iran and
followed the recent elections with some interest, and the
preceding elections with equal interest.
My recollection is that voter turn-out this last time was
down a bit, but those who seemed to be voting for reform were a
greater percentage than had previously occurred.
I hear what you are saying about Iran continuing to pursue
the development of weapons of mass destruction and supporting
terrorism, none of which we want or like.
Having said that, I know that there are substantial numbers
of people in Iran who want to change the status quo in their
country. And you may have said this in your testimony, but I
would just ask of you, what policy or policies do we pursue to
strengthen the hand of those in Iran who genuinely seek
reforms, who seek to lift the repression and to take a
different path? What policy or policies can we take to
strengthen their hand rather than to weaken it?
Mr. Larocco. Thank you very much. I think I would like to
start out by saying how much I appreciate your comments and
note that Secretary Powell, when he appeared in his
confirmation hearing, did note that Iran is indeed an important
country in the region
and to our interest, that it is undergoing profound change from
within. It is very, very clear that the aspirations,
particularly of
the younger people, are for reform, political and democratic
reform, and economic reform.
What we have been doing consistently is to speak out in
support of that reform and particularly for human rights, for
freedom of expression, for all the freedoms that we cherish. We
believe by doing that, they are getting a clear message. And
this we believe is extremely important in broadcasting the
messages to them.
So that is what I would like to offer to you on that.
But I think we need to be very clear on this: we believe
that our influence is in fact quite limited. This is a true
domestic reform effort. It is coming from within. It is
grassroots. It is not coming from the top. It is coming from
the bottom up. And so, our best influence is indeed to be
consistent in what we say and to support all those reforms and
further democratization, since we believe that this is a
longer-term process, as you noted yourself.
Senator Carper. Mr. Wayne, would you like to add anything
to that?
Mr. Wayne. I think I agree with Ambassador Larocco.
Senator Carper. I had the privilege of meeting with several
representatives of the Administration a couple of weeks ago to
discuss this issue at some length. And they were calling for an
extension of ILSA of 2 years rather than 5 years. And that
would apply to both Iran and to Libya. Is that correct?
[Mr. Wayne. Nods in the affirmative.]
Senator Carper. Does it make any sense to consider treating
the two separately, one the extension of the provisions of the
legislation for 2 years and the other for 5 years? Does that
make no sense at all? What are the problems with doing that?
Two years for Iran, five for Libya.
Mr. Wayne. Well, we would have to think about that,
Senator. Our position has been, as you correctly put it, that
we would favor a 2 year rollover of the law as it is.
Senator Carper. Okay. Mr. Ambassador.
Mr. Larocco. I think it is fair to say that our concerns
related to Iran are far different than our concerns related to
Libya and the situations are different. That is all I can say.
Senator Carper. You say the concerns are different. Can you
just elaborate on that a little bit?
Mr. Larocco. Yes. Our concerns with Iran as we know are
related to some of our most important national security
interests when it comes to development of weapons of mass
destruction and the development of the capability to deliver
those weapons of mass destruction to some of our most important
allies, including Israel, and our strategic interest in the
energy field that could be threatened by that.
At the same time, we have primarily a unilateral framework
which we try to work in consultations with our friends and
allies to prevent Iran from developing those weapons of mass
destruction in particular and to try to curb the terrorism.
In the case of Libya, we have a multilateral framework that
has been agreed upon and that we adhere to strictly. And we
believe to this point, while it has been very painful for the
families and it has been much too slow, it is something that we
and the international community has stuck with. It is a
different situation. But that is all I wanted to point out from
a policy point of view.
Chairman Sarbanes. Senator Corzine.
COMMENTS OF SENATOR JON S. CORZINE
Senator Corzine. Thank you, Mr. Chairman, for holding this
hearing. And I appreciate the folks who are testifying and
their insights on this, I believe, truly important issue.
I feel very strongly, both history and not only as it
relates to Iran and Libya, but in other instances, that
economic sanctions end up having influence.
I also understand that we cannot let the perfect be the
enemy of the good and therefore, I can identify with some of
the things that the Senator from Nebraska talked about. But I
believe that there is some influence that comes about by
diminished economic activity that flows from sanctions.
There has been profound changes, as you verbalized, within
Iran. Haven't these sanctions had some relevance to making that
a possibility? And is it not part and parcel of some of the
elements of change that are occurring, knowing that everything
has a balance sheet? There are pluses and minuses associated
with all. But are we not moving in a better direction than we
would otherwise be if we did not have these sanctions in place?
I feel very strongly that we should keep them in place by
my own understanding of those changes. But I would like to hear
the reason that these have not been effective as was suggested
by one of the Senators, relative to my own impression that they
have had a meaningful impact.
Mr. Wayne. Let me, if I could, Senator, take a first crack
at that.
First, it is important to remember that we have a whole
series of different kinds of sanctions in place with Iran, and
with Libya, also. In both cases, we have identified them as
state supporters of terrorism for a long time, which in and of
itself brings a number of sanctions with that.
So, I think that we would fully and totally agree that
sanctions are an important tool that we have. They have had an
effect, all the way from the very symbolic effect of signaling
that this is not acceptable behavior, to concrete effects in
specific areas.
Our nonproliferation sanctions and actions that have taken
in the multilateral arrangements have clearly cut off the
supply of technology and weapons and equipment, as have a
number of the other sanctions.
As I said in the case of ILSA, and you will hear, you will
get several different measurements of the effectiveness of
this, we do think that there has been a deterrent effect from
ILSA to add to the questioning that companies have had when
they have considered investing.
Chairman Sarbanes. There are some countries, significant
economic players, whose companies have not invested in Iran,
who otherwise might have been expected to do so. Is that not
the case?
Mr. Wayne. That is the case. But in all cases, when you are
talking about a hypothetical, it is a hard thing to measure.
I guess that is what I would say. We do think, that there
has been some deterrent effect. We know that we have had good
conversations with other governments and people about the bad
behavior, about why we believe that there should be no
investment in Iran's petroleum industry. The exact weighing of
that is a hard thing to do.
Senator Corzine. Without ILSA, I can be clear that, from my
own experience, the secondary implications of how one company
deals with another would not be an issue that was addressed at
all in those relationships and partnerships and joint ventures
if this Act were not in place. And so it has to, in practical
impact, have some flow-through to those relations.
Mr. Wayne. Yes. But I think it is also fair to note that it
also have effect with our friends and allies who consider this
to be a unilateral imposition of our preferences on them.
In the European Union, there is a European Union-wide rule
that forbids any company in the European Union from complying
with ILSA.
So, there are other tensions that come up as we seek to
implement this law, as we have been doing and will do if it is
renewed.
I do not know, Ambassador, if you want to add anything to
that.
[Mr. Larocco. Nods in the negative.]
Senator Schumer. Senator Stabenow.
COMMENTS OF SENATOR DEBBIE STABENOW
Senator Stabenow. Thank you, Mr. Chairman. I first want to
apologize for coming into the Committee late. All four of my
Committees have met this morning at the same time.
[Laughter.]
And so, I am seriously considering joining the discussion
on cloning in order to be able to achieve my assignments.
[Laughter.]
I wanted to be sure to be here, though, to indicate my
pleasure of being a cosponsor of this bill and the importance
of the reauthorization of the Iran and Libya Sanctions Act.
I would ask one question and I apologize if you have
already addressed this issue this morning. But I would like to
know your thoughts concerning lowering the threshold trigger
for Libya to coincide more with the trigger for sanctions with
Iran. If you could just speak for a moment regarding that, I
would appreciate it.
Mr. Wayne. Well, we favor a rollover of the bill without
any changes in it. We have in the case of Libya and Iran, in
both cases, since the bill has been in place for 5 years, there
is an understanding of those limits and of the rules and
regulations with our friends and allies.
In the case of Libya, as Ambassador Larocco mentioned
earlier, a great part of the effectiveness in dealing with
Libya has been the fact that there have been U.N. Security
Council Resolutions passed. And there has been an international
and multilateral consensus that exists and still exists in
urging Libya to do the right thing. There is a need to maintain
and even bolster that pressure, that international consensus.
We believe approving a renewal of the bill in its current
form would be the most propitious for maintaining that
international consensus.
Senator Stabenow. Mr. Ambassador, would you want to add
anything to that?
[Mr. Larocco. Nods in the negative.]
Senator Stabenow. Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you very much.
Senator Hagel, did you have anything else?
Senator Hagel. If I could take a minute or two, Mr.
Chairman, I would like to follow up on a couple of the points
that were made here. The response that you each have given to
some of the questions here about the results--and I have yet to
hear a tangible result of where you can point to that
proliferation, terrorism was stopped, oil is still running
rather well out of Iran. Show me something, rather than just
some reference, to, well, these are difficult, tangible kinds
of things to put on the record here.
Intelligence, for example. Do you think we know more about
Iran? Do you think we know enough about Iran? Do we know enough
about what Senator Carper was talking about in regard to what
is going on in Iran?
Maybe there is no reform effort going on. I think there is.
I think Senator Carper thinks there is. I think a number of
people think there is.
And with these sanctions and a continuation, how then do we
reinforce that reform effort? How do we by symbolism that I
have heard many times from the two of you gentlemen, how do we
through symbolism or any gesture give these people any hope?
What we do is continue to allow ourselves to be vilified--
and Israel--by these actions, and whose interest does that
serve? Certainly, the mullahs, who are in charge.
What no one is saying here, and we should be very clear
about this, is that Mr. Khatami is an Islamic Thomas Jefferson.
I do not think anybody believes that. I do not. I think I have
a pretty clear understanding of the real world. I have lived in
the real world.
And so, it is not a matter of being weak-kneed about our
foreign policy. But what I think we should focus on always in
foreign policy is what works, what is effective.
I am going to ask you each again, if you could give the
Committee some tangible evidence of where ILSA has produced
some real change. Has there been less oil pumped, for example,
in Iran?
Mr. Wayne. What I can say for sure is that they have
continued to meet their OPEC production quota during this
period of time.
Now, I am not an oil expert. I think you will hear from
some people who studied this on the next panel. Whether there
are differences between what might have been a projected
production and what the current production is, I am not expert
to say.
All I can really say is they have met their OPEC quotas
during that period.
Senator Hagel. Well, what does that mean? So, you are
crediting ILSA for not allowing to go beyond meeting the OPEC
projections?
Mr. Wayne. I think the effect of not having additional
investment, foreign investment, coming into their oil sector
has meant that they have not exploited new areas and they have
not maximized their production in existing areas. And I think
ILSA has had some effect in that.
The exact weight of ILSA versus the difficulty of doing
business in Iran, of having Iran manage this complex buy-back
procedures that they were doing----
Senator Hagel. But the fact is that when President Clinton
gave the waiver to Total, didn't that allow Total to put some
investment into Iran?
Mr. Wayne. It did.
Senator Hagel. Why are we touting ILSA as being effective?
Mr. Wayne. Well, I do know that none of the new projects,
even those that have started, have yet come on stream in this.
I believe even the one project, the South Pars project.
Senator Hagel. You give ILSA credit for that, even though
President Clinton gave the waiver, waived ILSA.
Mr. Wayne. I believe the deterrent effect of ILSA has had
an effect in that process.
Senator Hagel. I do not understand how, but Mr. Ambassador,
one of your people gave you a note. Maybe you have the answer.
[Laughter.]
Mr. Wayne. It was the one reminder that none of the
projects have come on line.
Senator Hagel. He works for you. Therefore, we do not have
an answer.
Mr. Larocco. If I could just add something, Senator.
Senator Hagel. Yes.
Mr. Larocco. Drawing from my own recent experience, having
been Ambassador to Kuwait the last 4 years and having spoken
with many businessmen who do business in Iraq, there are many
factors. And it would be very difficult to single out anything.
Frankly, one of the main reasons why there is not
investment in Iran is because they simply have a totally
ossified economic system that is not conducive to investment.
They are not part of the WTO. They do not have a rule of law in
commercial behavior that is recognized that is conducive to
investment.
That is a factor. I leave it to Tony and, as he said, that
perhaps ILSA is a factor as well.
But I think we need to keep in mind that it is going to be
very difficult to measure any one factor in terms of why Iran
does not have more investment than it has.
Senator Hagel. All the more reason just to go another 5
years blindly into the black hole of ILSA.
Thank you, Mr. Chairman.
Chairman Sarbanes. Well, we could continue for quite a
while, but we have another panel and I am anxious to get to
them, so I am going to close this out.
I want to make just a couple of observations in doing so.
One, the Jefferson quote that I was searching for at the outset
of the hearing, which some will recall is: ``The interests of a
Nation, when well understood, will be found to coincide with
their moral duties.''
I would like to make just two observations. You all may
submit something in writing if you choose to.
I think most observers would accept the proposition that
there would have been more investment from abroad in Iran's oil
industry without ILSA than there has been with ILSA.
Now, it is difficult to quantify that. I know of very few
people who would say that it has not had any impact, perhaps a
substantial impact. You can point to certain countries where
companies have not gone in, where they might otherwise have
been expected to do so. And I think it acts as a general
restraint. You do not quarrel with that, do you, Mr. Wayne?
[Mr. Wayne. Nods in the negative.]
Chairman Sarbanes. You shook your head. Why do you not say
no so we can get it on the record?
Mr. Wayne. No, Mr. Chairman.
Chairman Sarbanes. The other point is, there is all this
talk about reform in Iran, but I think there are a number of
observers who perceive that reform as directed toward domestic
issues and not toward international issues.
In other words, at least thus far, there doesn't seem to be
a reform that is addressed toward changing Iran's role in the
Middle East, its spoiler role in the Middle East, changing its
support
for terrorism outside, shifting markedly on weapons of mass de-
struction. I do not see anything that reflects that. Has not
the
focus of this, ``reform'' movement, been primarily on internal
domestic matters?
Mr. Larocco. Mr. Chairman, that is absolutely correct. From
what we have seen and observed, it is very clear that the
reform that is taking place is primarily for domestic political
rights and economic reform.
However, many people, I think even in the region, interpret
that as a move toward moderation. But to move to the next level
and say that this would necessarily have an impact on foreign
policy is something that would be very difficult to conclude,
which is why, for example, Secretary Powell said that, despite
our differences, we believe that we need not preclude greater
interaction with the Iranians to talk over these issues.
Chairman Sarbanes. Well, gentlemen, thank you very much. We
appreciate your testimony.
Mr. Wayne. Thank you, Mr. Chairman.
Mr. Larocco. Thank you.
Chairman Sarbanes. And now, we will move on to our
concluding panel. If they would come forward and take their
places at the table, we would appreciate that very much.
Ms. Bernstein, I know that you had to adjust your schedule
in order to be with us this morning and we very much appreciate
that. And I know you may have to depart, depending upon how
long this panel continues. So, I think we will lead off with
you. Ms. Bernstein is here representing the Justice for Pan Am
103 group.
STATEMENT OF STEPHANIE L. BERNSTEIN
JUSTICE FOR PAN AM 103
Ms. Bernstein. Thank you, Senator Sarbanes. It is
particularly gratifying to be here today since you are one of
my Senators and I thank you for your support, and for providing
me with this opportunity to testify before the Banking
Committee today.
I am here to support the extension of the Iran and Libya
Sanctions Act because my husband, Michael S. Bernstein, was one
of 270 people, including, as you know, 189 U.S. citizens,
murdered in the Lockerbie bombing. This savage crime was placed
squarely at the feet of the Libyan government on January 31 of
this year, when a high level Libyan intelligence operative was
convicted of 270 counts of murder.
My husband was a Federal employee. He was Assistant Deputy
Director of the Office of Special Investigations at the
Department of Justice. This office finds, denaturalizes, and
deports those who participated in Nazi atrocities during World
War II. Mike graduated with distinction and high honors from
the University of Michigan, and received his law degree from
the University of Chicago, where he was an Associate Editor of
the Law Review. He was 36 years old.
Mike was a valued member of the Criminal Division at the
Department of Justice, where he was given the Department's
Special Achievement Award in 1986. In a memo to Criminal
Division Employees after Mike's death, Assistant Attorney
General Edward S.G. Dennis wrote that after joining the
Department from the Washington firm of Covington and Burling,
Mike ``quickly established himself as an outstanding trial
lawyer whose persistent but low-key approach to his work won
him the respect and highest praise from both his colleagues and
his adversaries.'' Colleagues at the Justice Department wrote
in a memorial notice placed in The New York Times that Mike was
a ``lawyer's lawyer, whose clarity of purpose, intellectual
gifts, sound and ethical judgment, exceptional wit, and
boundless compassion and good will earned him a place of deep
affection and respect in the hearts of all who were privileged
to know him.''
Mike chose to use his gifts in the service of his country
as an example for our children, who were ages 7 and 4 at the
time he was murdered. In a letter to my daughter, Sara,
Assistant Attorney General Edward Dennis wrote that her Dad,
``expressed his love for you, in part, through his work and his
efforts to build a better world through service to the public
good.''
I have told you a little about Mike because I think it is
important to convey the scale of the mayhem committed by the
government of Libya on December 21, 1988.
As The Lord Advocate of Scotland stated on January 31, in
his remarks to the Scottish Court prior to the sentencing of
the defendant, Abdel Basset al-Megrahi: ``More than 400 parents
lost a son or daughter, 45 parents lost their only child, 65
women were widowed, 11 men lost their wives. More than 140
children lost a parent and 7 children lost both parents.''
The Scottish Court wrote in its opinion that Megrahi was
acting under orders from the Libyan government: ``The clear
inference which we draw from this evidence is that the
conception, planning and execution of the plot which led to the
planting of the explosive device was of Libyan origin.''
Since the verdict, the Bush Administration has been firm in
its public insistence that Libya abide by the terms of the
United Nations Security Council Resolutions. These require that
Libya accept responsibility for the bombing, disclose all it
knows about the bombing, fully renounce international
terrorism, and pay appropriate compensation to the families.
In addition, the Administration has indicated that the
investigation into the Lockerbie bombing is still open. This
was conveyed to me and other family members in meetings held
over the last several months with Secretary of State Powell and
Attorney General Ashcroft.
Indeed, Secretary Powell stated that: ``However we resolve
this and however we move forward from this point on, we reserve
the right to continue to gather more evidence and to bring more
charges and new indictments. . . . So accepting responsibility
as a leader of a nation, and as a nation, does not excuse other
criminals who might come to the fore and be subject to
indictment.''
Unfortunately, pressures on the Administration from the oil
industry have revealed cracks in this resolve. Shortly after
the verdict, a draft report of Vice President Cheney's Energy
Task Force was leaked, and we learned that one of the options
under consideration was dropping the unilateral United States
sanctions against Libya. Although these sanctions predate the
Lockerbie bombing, the families felt that such a move would
send the wrong message to the Libyans. After protests from the
families and from our allies in the Congress, this was dropped
from the final report.
More recently, in arguing for a 2 year rather than a 5 year
extension of ILSA, a senior State Department official was
quoted in a Reuters article as saying that our Government has
begun to ``reassess'' Gaddafi: ``He is older and wiser and more
mellow in his old age. We have been fairly clear in documenting
the change.''
This new and mellow Gaddafi is news to me. I wish that the
unnamed senior official could have been present on March 16 of
this year at a conference on United States-Libya relations
after the Lockerbie trial sponsored by the Atlantic Council,
the Middle East Institute, and the Woodrow Wilson Center. I was
a speaker at the conference, along with Ambassador Dorda, the
Libyan Ambassador to the United Nations, who was allowed by the
State Department to travel to Washington for the day to
participate.
With the exception of myself and a Libyan expatriate, the
remarks of the other presenters were measured and extended a
hand to the government of Libya to rejoin the family of
civilized nations once the conditions stated in the U.N.
sanctions were met. Ambassador Dorda responded with a lengthy
tirade stating that the United States was responsible for many
of the bad things which have happened to Libya over the last
200 years, beginning with U.S. forces fighting the Barbary
pirates. He said that there was no evidence that Libya was
involved in the ``so-called'' Lockerbie bombing. In commenting
on the United States bombing of Libya in 1986 after the La
Belle Disco bombing by Libya, Dorda, who was slightly wounded
in the United States retaliation along with his son, asked:
``Who is the terrorist and who is the victim?''
Dorda said that the indictment of the two Libyans for the
Lockerbie bombing in 1992 was ``only political,'' and designed
to pressure the Security Council. He went on to say, however:
``Let's forget about the past.'' Dorda described the unilateral
United States sanctions as ``useless,'' stating that Libya can
get anything it wants from anywhere. He referred to allegations
that the Libyan government has been involved in terrorist
activity as ``so-called terrorism.'' He denied that his
government has ever trained, financed, or supported terrorists.
``We never supported terrorism.''
This tirade by Ambassador Dorda was no doubt fueled by
Libyan allies in the international community such as Nelson
Mandela, who helped arrange the agreement which persuaded
Gaddafi to turn the suspects over for trial. After the verdict,
Mandela accused the United States and Great Britain of having
``moved the goalposts'' on the issue of lifting the U.N.
sanctions: ``The condition that Gaddafi must accept
responsibility for Lockerbie is totally unacceptable. As
President for 5 years, I know that my intelligence services
many times did not inform me before they took action. Sometimes
I approved, sometimes I reprimanded them. Unless it is clear
that Gaddafi was involved in giving orders, it is unfair to act
on that basis.''
Unfortunately, the Libyans have been given succor by the
United States oil industry as well. In February of this year,
Archie Dunham, the Chairman and CEO of Conoco, said that he was
``very optimistic'' that the Bush Administration would lift the
unilateral sanctions against Libya, in part because of the
President and Vice President's ties to the industry.
International pressure, influence from the oil industry,
and the intransigence of the Libyan government all argue for a
5 year extension of ILSA. I am concerned that a 2 year
extension will send a message to the Libyans that we are not
serious about seeing that they live up to their obligations,
allowing them to run out the clock. It is important to add that
the impact of ILSA on Libya will end immediately if the
President determines that Libya has met the requirements of the
United Nations Security Council Resolutions dealing with the
Lockerbie bombing. It is up to the Libyans.
In addition, I urge this Committee to support two changes
in the existing law. First, I believe that we must close the
loophole which has permitted oil companies to add on to
contracts signed prior to enactment of ILSA. Second, we must
reduce the threshold for violation of the law from $40 million
of investment to $20 million, as is the case with Iran. These
changes in ILSA are supported by my group, Justice for Pan Am
103, as well as by Victims of Pan Am Flight 103, the largest
group of family members.
For 12\1/2\ years, the Lockerbie families and our allies in
Congress have kept pressure on three administrations to find
and hold accountable those who carried out the bombing of Pan-
Am 103. Our support in Congress has been bipartisan. Our
supporters understand that the bombing of Pan Am 103 was an
attack on the United States, and that we must show countries
like Libya that when they attack our civilians, they will not
enjoy the benefits of participating in the community of nations
which abide by the rule of law. Our supporters understand that
doing business with terrorists is not good business. Those who
have stood by us know that ``constructive engagement,'' or
whatever diplomatic terms are used to pretty up our dealings
with regimes which murder innocents around the world, will not
prevent future terrorist attacks, and will only expose our
naivete, and worse, our citizens, to further attacks.
The next several months will be critical. Megrahi's
attorneys have filed an appeal. There will be attempts by the
Libyans and their supporters to get the families to back off.
On February 13 of this year, a London-based attorney who has
advised the Libyans was quoted as follows: ``The more the
United States sticks to the original agreement that the aim of
the process was the surrender and trial of the two accused, the
more the Libyans will cooperate and compensate the families.''
The Lockerbie families do not seek justice as something for
which we bargain in the bazaar. The suggestion that the
families would trade the pursuit of justice for money is
cynical and dishonors the memories of our loved ones. A British
expert on Libya was quoted in the same article as follows:
``Gaddafi knows he is going to have to pay compensation. The
question is whether he can control the domestic agenda and curb
his own tongue over the next few months, and whether extremists
on the other side of the Atlantic among the families and their
supporters in Congress can be kept under control.''
I hope that you will join me and other Lockerbie family
members in showing the Libyans and their apologists that, when
it comes to pursuing justice, we will not be ``kept under
control.''
Thank you.
Chairman Sarbanes. Thank you for a very strong statement.
Mr. Clawson.
STATEMENT OF PATRICK CLAWSON
DIRECTOR FOR RESEARCH
THE WASHINGTON INSTITUTE FOR NEAR EAST POLICY
Mr. Clawson. Thank you.
Chairman Sarbanes. We will include everyone's full
statement in the record. And so, you can proceed on that
assumption as you make your comments.
Mr. Clawson. Thank you, Mr. Chairman. Thank you for having
me here today.
After the election of President Mohammed Khatami in 1997,
there was an expectation that the reformist tide would win out
over the hard-liners in Iran. So far, that has not been the
case. Despite some progress the reformers have made on the
domestic scene, little has changed in terms of those Iranian
policies that pose the greatest threat to U.S. interests and
allies.
The prospects are so poor that Khatami will do much to
change
Iranian policy during his second term. Indeed, what is striking
about Khatami's situation is how little he offers to address
Iran's most pressing problems, namely, the stagnant economy,
political repression, and security threats.
Washington has offered to reduce restrictions on Iran and
to resolve differences in a step-by-step process, so long as
the process is reciprocal rather than one-sided. To demonstrate
its continued interest in such a process, and to show its
support for the Iranian reform program, the United States
should take further steps to relax those sanctions which hit
the Iranian people as distinct from the Iranian government. As
with the effort to make the sanctions on Iraq smarter by
concentrating more on the regime and less on the people, so too
the sanctions on Iran could be changed to facilitate people-to-
people exchanges. In particular, the current rules forbid
transactions incidental to education and to nongovernmental
organization activities, with the practical effect of making
education and NGO activities very difficult. For example, the
rules allow Iranians to study at American universities, but
Iranians
have great difficulty taking the English language exam required
by American universities because payment for that exam is
considered a forbidden transaction. I would strongly urge that
Congress express to the Administration its desire to promote a
dialogue of civilizations with Iran by lifting the restrictions
on activities incidental to education and on people-to-people
exchanges conducted by American nonprofit organizations.
The United States should also continue its efforts to
encourage government-to-government dialogue with Iran. Iran has
refused
to talk with the United States, not vice-versa. Iran has the
only
government in the world which refuses to talk to the United
States. It is Iran which generates isolation, not the United
States. We have consistently called for dialogue, which Iran
consistently refuses.
At the same time as it pushes for diplomatic dialogue and
extends a hand of friendship to the Iranian people, the United
States should continue to press the Iranian government. In
particular, the U.S. Government should reduce the Iranian
government's income so long as Tehran uses extra money to
finance terrorism and purchase destabilizing weapons.
We cannot stop Iran's weapons of mass destruction programs,
but we can slow them greatly. And personally, I am optimistic
that some day there will come a change in Iran and that there
will be a new government which will not be interested in
pursuing those weapons programs, so that if we can slow them,
we will achieve ultimately success.
It is in this context that we should consider the renewal
of ILSA.
The Iranian government and every major oil industry
magazine in the United States have said that ILSA reduces
Iran's ability to attract investment in its oil and gas
industry.
Iran has privately announced $11 billion in foreign oil
deals. But that is hot air. Very few of those announced deals
are now proceeding. Indeed, yesterday's Financial Times
reported how one of the largest deals is at risk of unraveling.
And ILSA is a major reason that few such investments have
actually proceeded.
I am a frequent traveler to Japan, which is worried about
United States reactions to an investment that it is
considering.
To be sure, ILSA's impact is limited. Iran's oil income
depends much more on the price of oil than on ILSA. We can all
speculate about where the price of oil will go. No one has a
good record at making predictions, because none of us can tell
how OPEC politics will play out. Economic models have a
singularly bad record at forecasting oil prices, precisely
because oil prices are as much a matter of geopolitics as of
markets. One thing we can know for sure is that Iran has always
been the most hawkish member of OPEC, that is, arguing for the
highest possible price. The more powerful Iran is, the more
likely it will campaign for tight OPEC quotas that drive the
price up.
ILSA has reduced Iran's ability to export oil in order to
finance its arms programs, but at the same time ILSA has
exacerbated trade tensions with America's most important allies
including the European Union states. Most in Europe regard ILSA
as too intrusive on Europe's turf. I have never understood how
the United States and the European Union decide which issues
are sufficiently important that the two sides will risk a trade
war. Offhand, I would have said that bananas are less of a
threat to U.S. security and prosperity than are prospective
Iranian nuclear missiles. But with strong support from the
American business community, the U.S. Government has proposed
far-reaching sanctions against banana offenders, while Iranian
proliferation of terrorism has not been seen as rising to that
level of importance. I beg to differ. Indeed, I would be
prepared to accept Europe's silly banana trade rules if Europe
agreed to stop investing in Iranian oil and gas.
However, there is a real issue of how to use ILSA to press
Europe to be more helpful in containing Iran's destabilizing
behavior.
ILSA has already had a positive effect at promoting
multilateral cooperation against proliferation. Indeed, then-
Secretary of State Albright explained that the European Union's
accelerated cooperation about Iranian proliferation was the
reason why the United States granted a waiver to the ILSA
provisions regarding the South Pars project.
My preferred approach would be for the Administration to
make creative use of provisions already in ILSA for a country
waiver; that is, a waiver on all investment from a country, as
distinct from a waiver applying to only one project. The
Administration should interpret those provisions broadly to
allow consultations with the EU on measures that the EU may
take to reach our common objective of countering proliferation
and terrorism. For instance, it would be very useful if the EU
countries joined with the United States in applying pressure on
Russia, China and North Korea to stop the proliferation of
dangerous nuclear and missile technologies to Iran.
In short, ILSA is a good law, and it provides the
flexibility to allow the Administration to conduct vigorous
diplomacy. ILSA will not stop Iranian or Libyan terrorism or
proliferation. It will not even stop all foreign investment in
their oil industries. But ILSA will reduce the income available
to those governments and therefore, put a crimp in some of
their most dangerous activities.
Chairman Sarbanes. Thank you very much.
The bell that just rang signaled that there is a vote on. I
think the most sensible thing to do is to take a brief recess
and I will go and vote and then I will return and we will hear
the balance of the testimony and have questions for the panel.
Now, Mrs. Bernstein, I understand you may have to go and if
that is the case, we quite understand and we very much
appreciate your coming today and we particularly appreciate
your very strong and focused statement.
The Committee stands in recess.
[Recess.]
Chairman Sarbanes. The Committee will resume.
Why don't we continue moving across the table. Mr. Gordon,
we will go to you.
STATEMENT OF BRADLEY GORDON
LEGISLATIVE DIRECTOR
AMERICAN ISRAEL PUBLIC AFFAIRS COMMITTEE
Mr. Gordon. Thank you, Mr. Chairman.
I want to thank you and the Committee for holding this
hearing on the renewal of the Iran and Libya Sanctions Act,
ILSA, and for inviting me to testify before you this morning.
The American Israel Public Affairs Committee strongly supports
the efforts led by Senators Smith and Schumer to extend ILSA
for another 5 year period.
I thought I would use my time to address some of the issues
that I have heard already this morning and respond to them.
There are roughly three general criticisms that people make
of ILSA, and Senator Hagel touched on a couple of them. One is
that unilateral sanctions do not work and ILSA in particular is
not working and that it only serves to isolate us.
I think it is important, first of all, for us to define
what we mean by ``work.'' I believe the point of ILSA is to
raise the costs and delay the time it takes Iran to get weapons
of mass destruction. Their petroleum production capability is
now only 60 percent of what it was during the Shah's time. They
are in desperate need of foreign investment in order to keep
oil production at its current level. If it does not receive
that investment, its production capability will continue to
decline. And so, although it may have been able to keep meeting
its OPEC allotments until now, in fact, their production
capability is declining. The CIA predicts that without that
foreign investment, Iran will become a net energy importer by
the end of this decade.
So, I would argue that in fact ILSA is working both to
deter that investment and that it is raising the costs and
delaying the time that it takes Iran to develop weapons of mass
destruction.
Second, I would argue that unilateral sanctions do
sometimes work. In the early 1980's, Argentina, Brazil, and
Chile all had nuclear weapons programs. We imposed unilateral
sanctions. We delayed the time it took to get them. And
political change occurred in all three countries and none of
them have nuclear weapons programs today.
The United States led, vis-a-vis South Africa, with
unilateral sanctions that ultimately led to multilateral
sanctions and change occurred there.
We imposed unilateral sanctions with China because of its
missile proliferation and it eventually, as a result of those
sanctions, signed up to the MTCR guidelines. So, in fact,
economic sanctions do sometimes work, even unilateral ones.
ILSA in particular is working, as we already noted this
morning, that it has deterred foreign investment, that it does
create uncertainty in the minds of investors. And as I look in
comparative terms, Qatar, over the last 5 years, a much smaller
country with a much smaller energy potential for development,
has received twice as much foreign investment than did Iran
over that same period of time.
And with respect to the fact that ILSA isolates us from our
allies, I would point to what the State Department said this
morning, that in fact, over the last 5 years that ILSA has been
law, we
have deepened our nonproliferation cooperation with our allies.
That is what the State Department asserted during this same
period of time.
Moreover, there are times in which American leadership is
absolutely vital. This new Administration has already
demonstrated this principle several times in its young life,
where it has differed from our allies on issues. I do not
believe the general notion that unilateral sanctions or that
ILSA is not working applies. In fact, ILSA is working.
The second kind of general criticism about ILSA is, my God,
it actually might work, and in so doing, would remove needed
energy supplies from the world.
And so, the logic of this argument is that we should allow
investment in Iran, thereby increasing our dependence on Iran's
oil and, by the way, help them get the wherewithal to afford
weapons of mass destruction. It is a curious logic.
Moreover, I would argue that the amount of proven petroleum
reserves in the world is around 1 trillion barrels. If you
removed Iran entirely from that, there would still be well over
900 billion barrels of proven oil reserves in the world.
Many, many countries with proven reserves are not under
sanctions. Venezuela has a proven reserve of 72 billion
barrels. Mexico, 28 billion barrels, Brazil and Argentina, 10
billion barrels. In the Caspian region, there are 20 to 35
billion barrels. In Africa, which desperately needs the
development, there are 25 billion barrels. China has 25 billion
barrels of proven reserves. And I have not even touched the
Middle East, where most countries who have oil potential are
not under U.S. sanctions.
And the third criticism that people make about ILSA, and we
heard it this morning, is that there is a reform effort in
Iran, and our sanctions legislation hurts our ability to deal
with moderates.
Well, it is an interesting argument. I would argue that if
one looks at the last election in Iran, there were over 800
candidates for president. The clerical Council of Guardians
which approves candidates, allowed 10 to run. The Iranian
people voted for the most moderate allowed to run, and that was
President Khatami.
But when you remove 98 percent of the political spectrum,
it is hard to argue that someone who might stand to the left of
that remaining 2 percent is a moderate. And he may be in favor
of some domestic liberalization, but he has given no indication
that he is at all in favor of moderation on the issues of
concern to the United States--with respect to weapons of mass
destruction, support of terrorism, and calling for the
destruction of Israel.
I do believe that the overwhelming majority of Iranians do
want political change in Iran, and that is precisely the point.
By maintaining our sanctions regime on ILSA, we give them the
fortitude to carry on that struggle, to produce political
change in Iran. We encourage their reform efforts.
Yes, the regime does vilify the United States and it does
vilify Israel. But the people who are pushing for change in
Iran are opposed to those people who are vilifying the United
States in Iran.
Over the last several years, we have tried to engage the
Iranians. It is they who have said, no, not us. I argue that in
fact we need to hold out hope to the people who are really
trying to produce change in Iran so that some day, we might
look forward to deepened relations with an Iran that is not
pursuing weapons of mass destruction, nor supporting terrorism.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you very much, Mr. Gordon.
Mr. Reinsch.
STATEMENT OF WILLIAM A. REINSCH
PRESIDENT, NATIONAL FOREIGN TRADE COUNCIL, INC.
VICE CHAIRMAN, USA*ENGAGE
Mr. Reinsch. Thank you, Mr. Chairman. Let me say it is a
pleasure for me to be able to call you Mr. Chairman.
Chairman Sarbanes. Well, it is always a pleasure for the
Committee to have a former staff person come back before us. We
are delighted to see you.
Mr. Reinsch. Thank you. I am glad to be back. I think I am
outnumbered on this one, but it is nice to be here, anyway.
The thought crossed my mind that it would be simpler,
rather than deliver my statement, to insert into the Committee
record the speech that Senator Hagel gave yesterday to the
American Iranian Council, which I thought was a far more
eloquent description of the situation than anything that I am
going to say.
I would ask, Mr. Chairman, if he has not inserted it
himself, that you include it in the record because I think it
is a very thoughtful statement on the subject.
Chairman Sarbanes. Actually, we did put it in. Senator
Hagel asked that we put it in.
Mr. Reinsch. Wonderful. Thank you.
The National Foreign Trade Council and USA*Engage, a broad-
based coalition of over 670 American companies and trade and
agricultural organizations that support sanctions reform, also
oppose ILSA extension.
We support ILSA's goals--``preventing proliferation of
weapons of mass destruction and the means to deliver them, and
acts of international terrorism''--and we support full
compliance by Libya with U.N. Security Council Resolutions
regarding Pan Am Flight 103. However, we believe ILSA has been
ineffective and counter-productive to American interests, and
it has no chance of achieving
its goals.
We support the Administration's thorough review of United
States policy toward Iran and Libya, and, if Congress is not
prepared simply to let ILSA expire, we would urge you to agree
to the Administration's request for a 2 year renewal to allow
time to conduct its review of sanctions policy.
Certainly, sanctions in this complex part of the world
should be reviewed more frequently than every 5 years, and we
believe that the statutory limit that is imposed by this act
serves as an action-forcing event that prompts and assures such
review, which might otherwise not take place.
At this point, 5 years after enactment, we believe any
objective review of the record will conclude that ILSA has not
achieved
its own objectives and that it has created collateral damage to
U.S.
interests.
The reality is, as several previous witnesses have said,
that it is the world price of oil that determines Iran and
Libya's income from oil and gas production, not United States
sanctions. And it is that rising price level that is
encouraging now exactly the investment ILSA sought to block.
Foreign investment in Iran or Libya's en-
ergy sector is increasing with total disregard for ILSA and in
full
confidence that this United States secondary boycott will never
be implemented.
Last March, the Congressional Research Service reported
that $10.5 billion worth of foreign investment has taken place
in Iran's oil and gas sector since 1997. Iran expects an
additional $1.5 billion to be invested in its petrochemical
sector this year. These investments are from France, Canada,
Italy, the Netherlands, the U.K., Japan and Norway--companies
from our closest allies and most
important trading partners, which have not joined our sanctions
nor have been deterred by the threat of ILSA.
Just last week, The Wall Street Journal reported that
British Petroleum, Royal Dutch Shell, Italy's ENI, France's
TotalFinaElf, and Spain's Cepsa were making $4 billion in new
investments.
The only success of our sanctions policy toward Iran and
Libya has been ceding those markets to our foreign competitors.
My written statement, Mr. Chairman, has some examples of
what the consequences of our policy have been that I will not
read now in the interest of time.
We believe that unilateral sanctions have not only failed
to achieve their stated purposes, but also we believe they
cannot achieve those purposes. To prolong their life may
provide the illusion of taking action and cause us to feel
better, but nothing more.
Equally important, if the benefits are ephemeral, the costs
are real. Unilateral sanctions are doing significant damage to
U.S. commercial prospects at a time of economic downturn and
energy shortage.
A recent study shows that if we were actually successful in
reducing Iran and Libya's oil production, it would have the
perverse consequence of raising world oil prices, increasing
revenues to the sanctioned countries, and costing United States
consumers over $150 billion.
More broadly, referring not only to ILSA, but also to the
executive orders that are in place, to the extent that U.S.
exports to these countries are prohibited, American workers and
farmers are damaged and U.S. consumer product manufacturers are
seriously compromised in their future competitiveness in those
markets.
Foreign affiliates of United States companies, where they
need parent company approval, are also excluded from Iran and
Libya. Yet, foreign affiliate sales are three times as large as
total United States exports--$2.4 trillion in 1998.
Some argue that ILSA has not worked because it has not been
tried. In fact, ILSA could not have worked. ILSA forces the
President either to implement sanctions that he knows will be
ineffective, or to waive the law.
That is what happened in 1998, when the Clinton
Administration waived ILSA sanctions on Russian, French, and
Malaysian companies. It took this action, among other reasons,
to prevent retaliation against U.S. firms and to avoid
provoking a trade war with the European Union, which regards
secondary boycotts such as ILSA as illegal under the World
Trade Organization.
It is also ironic that U.S. law prohibits American
companies from cooperating with secondary boycotts. Yet in the
case of ILSA, we are imposing one and insisting that our allies
comply with it, which can only undercut our efforts to weaken
the Arab boycott of Israel.
Implementation of ILSA today, just as the United States is
preparing for a new round of global trade talks in which EU
cooperation is crucial, would involve this country in another
bitter trade dispute with the European Union. The
reauthorization of ILSA for any period of time puts us at
serious odds with our major allies and threatens cooperative
action on a range of issues, including policy toward Iran and
Libya.
Nor does the inclusion of Presidential waiver authority
mitigate the negative impact of a reauthorized ILSA. If the Act
is waived, it becomes meaningless. If it is not waived, the
negative effects that I have cited in this testimony will be
exacerbated.
We are convinced that expanded private contact with Iran,
including business contact, will reinforce positive trends in
that country in the long-term.
But let me be very clear, Mr. Chairman. A Congressional
decision to let ILSA expire is not a concession to Iran or to
Libya. Renewing ILSA sends a decidedly negative message that
ignores any changes that have taken place since 1996 and sends
a powerful message to our European allies that we are
continuing a failed unilateral policy.
Allowing ILSA to expire would send the signal that I think
Senator Carper was talking about in his remarks and would clear
the way for a new policy based on current realities, one better
tailored to U.S. interests and policy objectives.
Acceding to the Administration's requests for a 2 year
extension will at least permit a sober reconsideration of
policies that will serve the U.S. national interest. We believe
the choice is clear.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you very much.
Mr. Martin.
STATEMENT OF WILLIAM F. MARTIN
CHAIRMAN, WASHINGTON POLICY & ANALYSIS
Mr. Martin. Thank you, Mr. Chairman. It is a pleasure to be
here today to speak on the issue that has come up quite a few
times today--the effect of sanctions on world oil markets.
I would like to make a stab at that, even though Mr.
Clawson correctly said that so often we have been poor in our
forecasting. I have been at this 25 years since being a modeler
at MIT and also served as U.S. Deputy Secretary of Energy.
We use a model which has been endorsed by the Senate Energy
and Natural Resources Committee and, in fact, we are using that
model to look at Senate and Administration energy policies at
the moment, and their impact. This model is called WPA Global.
It is very important in looking at oil markets to recognize
that, presently, we do have a relatively tight oil market. And
it is very interesting to note that even in the last 3 years,
the oil price has fluctuated, on the one hand, at $13 and up to
$40. The reason for this is that there is less flexibility in
the oil market than there has been in past years, due to a
number of reasons.
First, the ability of OPEC and non-OPEC countries to
provide surge capacity has been limited.
Second, demand is growing very rapidly, particularly
outside the United States and Europe, especially in China and
India.
And third, inventories of oil are very low. This is very
important to understand because oil prices are today, and
probably in the future, going to be set at the margin.
As we look out 6 years, and in this analysis, we looked out
to the year 2008, we looked at two cases. What would happen to
oil markets if sanctions were continued for Iran, Iraq and
Libya? And what would happen to the oil market if sanctions
were lifted? What would be, for example, the impact on American
energy security and prices to consumers, and what, indeed,
would be the revenue gains or subtractions to the sanctioned
governments?
If we were to lift sanctions in the next few years, almost
five million barrels a day of oil would be put on the world oil
market. Also, if we keep sanctions, five million barrels a day
would be left off.
If we keep sanctions, we estimate that the world oil price
will rise to $40 per barrel by 2008. This is in light of
growing world
demand. But we have also been rather optimistic about supply.
We, for example, assume the equivalent of 10 ANWAR's comes on
to the market. But even in this optimistic supply case, if we
keep sanctions, oil prices are likely to rise to the $40 range.
If, however, we lift sanctions and five million barrels a
day comes on to the world oil market, then we believe that oil
prices will remain in the mid-$20 range.
So the difference between with sanctions and without
sanctions is roughly $15 a barrel over the period. Now what
does this mean in practical terms?
Well, in practical terms, this means that we reward Iran,
Iraq and Libya with roughly $63 billion more in revenue by 2008
if we keep sanctions. At the same time, American consumers will
pay about 50 cents more per gallon of gasoline. The average
household will pay about $400 more per year to fuel its
vehicles, with these sanctions.
So, the bottom line, are sanctions effective, I am actually
saying that they can be made effective. And indeed, the more
effective sanctions are, the more we do not provide waivers to
multinational oil companies, the reality is the more effective
they are for also Iran, Iraq and Libya, because we are
rewarding them with higher income because by keeping five
million barrels a day off the market, we dramatically increase
their revenue.
Let me say that our analysis was done independently, but
there are other analyses which have recently been done which
come to the same conclusion.
I quote, for example, Ed Morse, a former editor of
Petroleum Intelligence Weekly, Amy Jaffe of Rice University,
and a recent study by the American Petroleum Institute.
The reality is that these sanctions, if effective, might
ultimately hurt our consumers and, indeed, help the sanctioned
countries.
I think this is certainly open to debate. All of our
assumptions are here and for inspection. But what it really
shows is that we need--I think the Administration's point that
they need perhaps more time to negotiate really truly effective
sanctions with the allies is very worthwhile.
If we are serious about weapons of mass destruction,
terrorism, and interference with the peace process, as I
believe many witnesses have pointed out today, then the extent
that this can be made a multilateral effort and not a
unilateral effort, we will actually have more impact.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you very much.
Do you favor a multilateral imposition of sanctions on
Iran?
Mr. Martin. What I would like to see, Mr. Chairman, is
something very similar to what we did in the early 1980's when
we had Siberian pipeline sanctions on the Soviet Union.
Like today, we were in as much of a row with our allies as
we were with the country that we were trying to target, which
was the Soviet Union, who had imposed martial law on Poland.
What we did with the allies is, after a terrible year of
going back and forth with the trade war, we decided that we
would do a series of studies with the allies to look at the
underlying issues of sanctions. How could they be made more
effective?
My recommendation for President Bush as he goes to the G-8
this year is to do precisely that--engage the allies in a
series of studies. What is the impact of sanctions on oil
markets? How can we make multilateral controls on militarily
useful technology stick when it comes to Iran, Iraq and Libya?
Maybe the Administration might even say, for a year, we
will not give a waiver. In other words, until these studies are
done, until we are satisfied there is a multilateral approach
to this, we are going to be tough and we are going to implement
ILSA.
Chairman Sarbanes. I take it that you favor objective
multilateral sanctions against Iran.
Mr. Martin. Again, I am not an expert on what Iran is doing
as these other experts are.
Chairman Sarbanes. All right.
Mr. Martin. But to the extent that it can be multilateral,
if these problems are as severe as people have stated,
absolutely.
Chairman Sarbanes. Mr. Reinsch, does the National Foreign
Trade Council favor lifting the trade and investment ban on
United States firms investing in Iran?
Mr. Reinsch. Yes, sir, we would because we do not support
unilateral sanctions. That is not on the table with respect to
this legislation, but yes.
Chairman Sarbanes. I just want to understand what your
position is and where you are coming from.
Mr. Reinsch. Yes. We believe that unilateral sanctions are
ineffective and that is one that is ineffective.
Chairman Sarbanes. Now if these sanctions are so
ineffective, why are Iran and Libya complaining about them so
strenuously? And why, as one of the witnesses testified, in all
the oil magazines, are there extensive stories about the impact
of these sanctions?
Now who wants to take a crack at that? Go ahead. Bill, I do
not want to cut you off.
If, as is asserted, they are just not working and do not
have any impact, why these complaints about them?
Mr. Reinsch. Well, I can see why the target countries are
always going to complain about these things. Because they
regard them as, from their point of view, unjustifiable
measures that they would complain about whether they were being
effective or not.
I am not surprised that they complain. I mean, I would
hardly expect them to welcome them. I thought that the
statements of the Libyan Ambassador that Mrs. Bernstein quoted
saying that the sanctions were not having an effect--we can get
whatever we want--that was a complaint about the sanctions, but
it was not a statement that they were having an impact on the
country. The truth of these things I think is probably
contained in some statements that were made in the dialogue
with the previous panel.
Making a decision to embark on an extensive oil investment
is not a small consideration. It is a multiyear project. There
are many aspects of it that create a high degree of risk, that
do not have anything to do with foreign policy or sanctions.
As you will notice from my comments, many of these
investments are from consortia, in which there are many
partners. Why someone invests or does not is often very
difficult to sort out.
What I believe is happening now, in part, I think, for the
reasons that Mr. Martin cited, is while immediately after the
enactment of ILSA there was some decline, or at least people
not going forward with investments in Iran and Libya because of
the uncertainty generated by the Act and also because of
economic conditions at that time, I think we have reached the
point in the last 4 or 5 months where that is fairly rapidly
changing.
The economic considerations, the price, make the
investments more favorable. The Iranians have begun to make
decisions about bids that they have solicited in the past and
have been sitting on. So many of these decisions, these things
that I think Mr. Clawson referred to, investments that have
been out there, but nobody has spent any money yet, are
beginning to move into the stage where money is going to be
spent because the Iranian government is starting to make
decisions. And then you have in just the last few weeks an
increasing number of European countries announcing that they
are going to go into the country.
So things are changing. And I think the record of
ineffectiveness, if you will, will be much more dramatic 3
months from now than it was 3 months ago.
Mr. Clawson. If I may make a comment, Mr. Chairman.
Chairman Sarbanes. Mr. Clawson.
Mr. Clawson. I would quite agree with Mr. Reinsch that the
reasons why one invests in a multibillion-dollar project are
many and complex.
What I find impressive is that the leaders of Iran and of
Libya blame the United States on a regular basis and blame ILSA
sanctions on a regular basis for preventing investment in their
country.
Now perhaps they are using the ILSA restrictions in part as
an excuse for their own shortcomings. Well, if I can get credit
for making the sun rise in the east, I am happy to claim it. It
makes me look much more powerful.
And if, indeed, the Iranian and Libyan leaders and the
Iranian and Libyan people believe that we are responsible for
the lack of investments in their country, all the better
because it means that they recognize that they are paying, or
they think that they are paying, a very high price for the kind
of terrorism and proliferation activities that they are engaged
in.
So, I would quite agree that there are many reasons why
they have had difficulty attracting investment, including their
own incompetence. And I happen to believe that that
incompetence will certainly continue.
But to the extent that we can claim credit for that, I
think that that makes U.S. foreign policy better off.
Chairman Sarbanes. Mr. Gordon.
Mr. Gordon. I would say two things. First is, yes, there
are a variety of factors that go into making that kind of
decision. But the uncertainty inherent in ILSA I think adds to
the complications when one wants to make those decisions.
Second, I would point to the fact that the State Department
itself indicated that during this period of time that ILSA has
been around, one, it has deterred investment and; two, it has
heightened our cooperation with our allies on nonproliferation
efforts.
I would further say that, to assert that by removing
sanctions, almost five million barrels of oil would be put on
the world market, assumes that there would be a full investment
in Iran, despite the problems that have been associated with
investment in Iran. And I guess I would argue, why not invest
elsewhere? If the petroleum can be found elsewhere, why invest
in Iran and Libya and Iraq when one could find significant
places elsewhere to invest that energy dollar?
Mr. Reinsch. May I follow up on one point he just made, Mr.
Chairman?
Chairman Sarbanes. Certainly.
Mr. Reinsch. Maybe I misheard what the State Department's
representative said, but I do not think they said that ILSA has
heightened our cooperation with the EU or the Europeans on
nonproliferation matters. I think they said that we have had an
extensive degree of cooperation with them on other
nonproliferation matters that has proceeded, nonetheless.
Mr. Gordon. I was referring to the point that ILSA in
effect would hurt us with our allies. In fact that has not been
the case because during that period of time when ILSA
supposedly was hurting us with our allies, we were deepening
our cooperation.
Mr. Reinsch. It has not been the case because we have not
implemented it and we waived the single case that came up.
Mr. Clawson. Quite the contrary. Secretary of State
Albright specifically said that the reason why she was waiving
ILSA on South Pars was because of accelerated cooperation on
these issues.
Now you may call the Secretary of State a liar, but that
was the reason which was cited by the Secretary of State in
explaining why the waiver was granted. It was precisely because
of that accelerated cooperation that a waiver was granted.
Chairman Sarbanes. Well, I think that is an important
point.
At the time that the Clinton Administration granted the
waiver, it followed on some extended negotiations led by Stuart
Eizenstat, who is, in my judgment, a very skillful negotiator,
with the EU to try to avoid a trade confrontation over ILSA in
the Helms-Burton Cuba sanctions law. You had both of those
outstanding.
And that agreement contributed to the decision by the
Clinton Administration to waive the ILSA sanctions on that
project that was determined to be a violation. The European
Union pledged to increase cooperation with the United States on
nonproliferation and on counterterrorism.
Now, we need to go back and check how carefully that has
been followed through on, but they were seeking to get
something back for it.
I am kind of interested. The New York Times on June 22,
which was not even a week ago, June 22 of this year, has this
headline: ``14 Indicted by United States in 1996 Saudi Blast.
Iran Link Is Cited. Bomb Killed 19 Airmen.'' Then the story
begins.
Attorney General John Ashcroft said at a news conference
that while the attack was carried out by the Saudis and a
Lebanese National, all members of the anti-American militant
group, Hizballah, he blamed unnamed officials in Iran for the
attack. Mr. Ashcroft said they inspired, supported, and
supervised members of Saudi's Hizballah.
Then later they say in this article: ``With dozens of
references to Iran, the indictment demonstrated that American
investigators were convinced that Iran was behind the attack.
But the indictment also seemed to be carefully worded to avoid
a direct accu-
sation against Iranian officials or the government in Tehran,
an
allegation that could have provoked demands in Congress for
military retaliation.
The White House has not considered such a step, a senior
administration official said.''
Now what do you think the United States should do about a
country that is engaged in this practice. Well, let me ask you,
first of all, do you dispute that they are embarked on a
program to obtain weapons of mass destruction? Does anyone at
the table dispute that?
Mr. Reinsch. No, I would not, based on my past experience.
Chairman Sarbanes. All right. Does anyone at the table
dispute that Iran is providing support for terrorism and
deserves to have been cited by the State Department in its
report? In fact, they say they were the leading----
Mr. Gordon. Leading sponsor, sir.
Chairman Sarbanes. The leading sponsor of terrorism. Does
anyone dispute that?
Mr. Gordon. No, sir.
Mr. Reinsch. No.
Chairman Sarbanes. All right. Now, you get this asserted
involvement in the bombing of the Khobar Towers in Saudi
Arabia. By all reports, they are doing their best to undermine
the Mideast peace process. Is it the view that we should simply
have a normal relationship with such a country?
Mr. Gordon. It is not our view, sir. We believe that we
should do everything we can to maintain the status of Iran as a
rogue regime and put it outside the family of nations until
they are prepared to make the necessary policy changes to
rejoin the family of nations. And in fact, by so doing, we
encourage the very forces in Iran who want that, who seek that
change.
Chairman Sarbanes. Mr. Martin, did you want to address
that?
Mr. Martin. I think you made it very clear. All I am saying
is, if we truly want to be effective in our approach to a
belligerent nation and, again, it must be done in a
multilateral sense. We need to work hard to get our allies with
us on this.
Chairman Sarbanes. That is not always possible. The others
may not join with us. What do we do then? Nothing?
This article suggests that there was some possibility of
using military action. We get some arguments here where people
do not want any economic action. I do not know. Do they want to
push us to military action or do they want to push us to doing
nothing? And how can you do nothing in the face of these kinds
of activities?
Let me ask you this question. What has Iran done over the
last few years that would lead us to think that they are
moderating and trying to reach some accommodation with the
United States?
Mr. Gordon. Absolutely nothing, sir.
Chairman Sarbanes. Does anyone have anything to cite in
that regard?
Mr. Reinsch. I would just say that I think that Ambassador
Larocco addressed that question better than I could. And his
answer, I think, was in two parts, that as far as the
Government is concerned, essentially what Brad just said--
nothing. There are, however, other forces of change in the
country that the State Department seems to think are
potentially favorable, moderating forces that are not yet
reflected in any Government change, but that our overall policy
ought to be to try to encourage the development of those
forces.
Chairman Sarbanes. Well, Mr. Clawson, I think, addressed
that in a very sophisticated way in his statement and I thought
he had some interesting suggestions as to how to encourage that
aspect or dimension of a potential relationship, much more on a
people-to-people basis and through the nongovernmental
organizations.
But that still leaves us with the question of how we deal
with the regime. If the regime has not changed, as you say, I
agree with Senator Schumer. I do not think you can come in here
and go to 2 years instead of 5 years and plausibly argue that
that does not represent an easing or some further accommodation
by the United States. Why would that not then be a victory for
the hard-liners who said, we did not do anything? We just hung
in there. And now the United States is partially bowing to us
and, you know, our policy sort of worked.
Plus, I would like someone at the table, if they have it,
to give me any evidence that shows that the so-called reform
movement in Iran, which may in fact have some validity as it
addresses domestic matters, how the society functions, the
degree of oppression, the amount of secularism versus religious
rule, sort of the openness of society in that sense, which I do
think is probably important to a lot of the young people in
which they place emphasis, I see no signs that that is
reflected in support for terrorism, obtaining these weapons of
mass destruction, playing the role of a regional power in terms
of upsetting the potential stability in the area.
Does anyone have any support for the proposition that this
so-called reform effort extends into that arena?
Mr. Reinsch. I do not, Mr. Chairman. But we are in touch
with some people who would be pleased to speak to that for the
record.
Mr. Gordon. As far as I can tell, Mr. Chairman, there are
not. And I am reminded of the debate that occurred in the
Senate in 1986, when the Senate was considering the South
African Sanctions Act on apartheid. The argument was made there
that by imposing unilateral sanctions, we were in fact hurting
the very people we wanted to help.
But the stronger argument was that those very people
themselves want American leadership on this effort, want us to
impose those sanctions, and it helped produce the change which
we have so welcomed in South Africa.
It seems to me that the same argument applies here. The
forces that could lead to change in Iran do not want to see
America appear to be weaker on Iran.
Mr. Reinsch. That argument would be more compelling if, as
in the case of South Africa, most of the rest of the world
joined in.
Mr. Gordon. It took American unilateral leadership to begin
with and then the rest of the world eventually did.
Mr. Reinsch. I think that is a fair point. And this is a
question that we discussed with one of Mr. Gordon's colleagues
in the House hearing, the question of the role of leadership
versus followership and at what point do you throw in the towel
and recognize futility? At what point do you continue on? I
think that is a fair question. You can argue in the case of
South Africa that American leadership made a difference.
Chairman Sarbanes. And is it your view that we are at the
point here at which you throw in the towel on Iran and Libya?
Mr. Reinsch. Well, looking at it, frankly, from my previous
experience in the nonproliferation area, with respect to places
where there is a multilateral consensus, which would be Iraq
via the U.N., and also Libya to a degree, and certainly up
until the trial with the U.N., there was a high degree of
multilateral cooperation and respect for those resolutions.
There is not and has not been in Europe the same degree of
cooperation on export controls, for example, with respect to
Iran, despite numerous American demarches over 20 years on that
subject.
I think, frankly, your recitation of the history of what
Stu did is quite correct. He reached an accommodation, I
assume, where we agreed to waive and they agreed to do certain
things that Secretary Albright alluded to.
That is one of the few examples of some success that we
had. I think, overall, you can argue that cases like ILSA
generally and most of the time, make the situation worse rather
than better.
Now if the incumbent Administration makes the same deal, or
indicates that it intends to administer this law the same way,
which I do not think they have said yet, but if they did, I
think that would ease some of the European concern about it.
But then it raises the question, if they are going to waive it
every time and if they are going to say that up front, why are
we passing it?
Chairman Sarbanes. The fact that it is there I think
clearly has been a deterrent to investment in the Iranian oil
industry.
If ILSA were not on the scene, had not been on the scene, I
think you would have had a much more significant effort to
invest in Iran and much further pressure for the United States
to join in the effort to invest in Iran. But it is clear that
some have been dissuaded from doing that.
Mr. Clawson. Mr. Chairman, also, I would propose that one
of the reasons to renew ILSA is precisely so that we can have a
new round of negotiations with the Europeans and get something
additional from them.
Chairman Sarbanes. Yes, I do not understand why it is a
problem to extend this for 5 years if the waiver authority of
the President stays as it is.
Mr. Gordon. We can negotiate and get something for it.
Chairman Sarbanes. He can waive it if it is determined that
it is necessary and he can use it as a weapon to negotiate an
answer. If you take it off the books, none of that is going to
be available to him. Now if you want to cut it to 1 year or 2
years, but no waiver, and then they come back to the Congress
every 1 or 2 years, and we are in the position of driving the
negotiations, that is a different approach. Does the Foreign
Trade Council want that?
Mr. Reinsch. We have actually had some discussions about
that, Mr. Chairman. We have, I think, some differences amongst
our members on that question.
I would say that is probably a little bit too Machiavellian
for us, in the sense that if you did that and did not waive it,
the trade war we would have with Europe would be so
significant, we would actually get rid of it faster than if we
continued on with the current practice of pretending that it
exists and then not enforcing it. But that is a little bit too
clever for us, Mr. Chairman. We would not advocate that.
Chairman Sarbanes. I am told that Iran has stepped up its
involvement in Hamas and Islamic Jihad over the last few
months. Does anyone at the table have any information on that?
Mr. Gordon. Yes, that is exactly correct, Mr. Chairman,
they have. They have increased funding. They have had
conferences with the leaders of Islamic Jihad and Hamas in
Tehran and in Beirut to coordinate and step up activity of
their terrorism.
Mr. Clawson. And I am sorry to report that it was the
chairman of the Iranian modulas, the leader in the Iranian
parliament of the reform movement who convened the session Mr.
Gordon is referring to in Tehran, at which Iran's leaders spoke
about the need to eliminate Israel and the number of prominent
Iranian moderates, including the President, Mr. Khatami, also
spoke about getting rid of the scourge of Israel in the region.
Chairman Sarbanes. Well, gentlemen, thank you very much. We
appreciate your coming and we appreciate your testimony, both
your oral testimony and the written statements, which will be
included in the record and, obviously, by perusing them, I know
a great deal of care and thought went into them and we
appreciate that very much.
The Committee stands adjourned.
[Whereupon, at 1:10 p.m., the Committee was adjourned.]
[Prepared statements and additional material supplied for
the record follow:]
PREPARED STATEMENT OF SENATOR PAUL S. SARBANES
The Banking Committee meets this morning to hear testimony on the
issue of reauthorization of the Iran and Libya Sanctions Act, commonly
known as ILSA. This Act, which was passed by Congress in 1996, expires
on August 5 of this year unless Congress reauthorizes it. I would like
to note for the record that there is strong support in the Congress for
a 5 year reauthorization, as 77 Senators have cosponsored such
legislation, led by Senators Chuck Schumer and Gordon Smith who appear
before us today. In the House of Representatives, the International
Relations Committee on June 20 passed a 5 year reauthorization of ILSA,
including a strengthening of the Libyan component of the legislation,
by a vote of 41 to 3.
ILSA was enacted in 1996 in response to Iran's support for
terrorism and its pursuit of WMD (weapons of mass destruction)--
policies that not only threaten the United States but our allies as
well. Concerning Libya, ILSA was enacted to compel the regime in
Tripoli to abide by all of the U.N. Security Council Resolutions
concerning the bombing of the Pan Am 103 flight.
ILSA requires the President of the United States to impose two out
of a list of six sanctions against foreign firms that invest more than
$20 million and $40 million in the energy sectors of Iran and Libya,
respectively. It should be noted that ILSA would end if the President
of the United States determines that Libya has fulfilled all U.N.
Security Council Resolutions relating to the bombing of Pan Am 103. For
Iran, ILSA would terminate if Iran ceases its efforts to acquire
weapons
of mass destruction and is removed from the State Department's list of
state sponsors of terrorism. ILSA also contains a Presidential waiver
for U.S. national interest reasons or if the parent country of a
violating firm agrees to impose economic sanctions on Iran.
Let me now turn to Iran. Iran's support for terrorism continues
unabated. Indeed, the latest State Department report, Patterns of
Global Terrorism, states: ``Iran remained the most active state sponsor
of terrorism in 2000. Its Revolutionary Guard Corps (IRGC) and Ministry
of Intelligence and Security (MOIS) continued to be involved in the
planning and execution of terrorist acts and continued to support a
variety of groups that use terrorism to pursue their goals.'' Iran is
also stepping up efforts to acquire WMD. The latest unclassified CIA
report to Congress on worldwide WMD acquisition notes that: ``Iran
remains one of the most active countries seeking to acquire WMD and ACW
(Advanced Chemical Weapons) technology from abroad. In doing so Tehran
is attempting to develop an indigenous capability to produce various
types of weapons--chemical, biological, and nuclear--and their delivery
systems.''
As for Libya, it has fulfilled only one aspect of the U.N. Security
Council Resolutions related to the Pan Am 103 bombing--handing over
suspects for trial. Libya has not fulfilled the requirement to pay
compensation for the families of the victims, to accept responsibility
for the actions of its intelligence officers and to fully renounce
international terrorism. I would like to point out that President Bush
on April 19 of this year stated: ``We have made it clear to the Libyans
that sanctions will remain until such time as they not only compensate
for the bombing of the aircraft but also admit their guilt and express
remorse.''
Because Iran and Libya have clearly not fulfilled the requirements
of the ILSA legislation, I think to terminate these sanctions would
send the wrong message.
Just last week, indictments were handed down by our Justice
Department in the Khobar Towers bombing case in which 19 of our airmen
in Saudi Arabia were killed in 1996. Although the Justice Department
did not indict Iran, Attorney General Ashcroft stated publicly that
Iranian officials ``inspired, supported and supervised members of Saudi
Hizbollah,'' which carried out the attack.
I would like now to introduce our distinguished group of witnesses.
In our first panel, our colleagues, Senator Chuck Schumer and Senator
Gordon Smith, will start off with their testimonies. Senator Schumer is
a Member of this Committee and Senator Smith is a Member of the Foreign
Relations Committee. Both are the original cosponsors of the ILSA
renewal legislation and are very knowledgeable about the issue. They
will be followed by two witnesses from the State Department, the
Honorable E. Anthony Wayne, Assistant Secretary of State for Economic
and Business Affairs, and Ambassador James Larocco, Acting Assistant
Secretary of State for Near Eastern Affairs, both of whom will present
the Administration's position.
In the second panel we will hear from Mrs. Stephanie Bernstein of
the Justice for Pan Am 103 group; Dr. Patrick Clawson, Director for
Research at The Washington Institute for Near East Policy; Mr. Bradley
Gordon, Legislative Director for the American Israel Public Affairs
Committee; Mr. William Reinsch, President of the National Foreign Trade
Council; and Mr. William Martin, Chairman of Washington Policy &
Analysis.
PREPARED STATEMENT OF SENATOR CHARLES E. SCHUMER
Thank you, Mr. Chairman: I want to thank you for holding these
hearings and for granting Senator Smith and me the opportunity to open
this hearing. And I want to thank Gordon Smith, who, on every issue we
have worked on, is just a terrific partner to work with. I thank him
for his true leadership on this legislation. I know we are beginning
late here today, so I will try to be brief I think that is all right,
because everyone on this Committee is acquainted with what ILSA is all
about, and 16 of the 20 Members of this Committee signed as original
cosponsors. Senator Smith and I introduced the bill a few weeks ago
with a total of 77 original cosponsors.
So let me just say a few words. There has been movement on the part
of the Administration and some here in Congress to weaken ILSA by
watering down its provisions. Many of these people would do away with
ILSA altogether, but because of the enormous support in Congress for
the 5 year reauthorization, their strategy is to reduce the extension
of ILSA to 2 years and add new waiver provisions that would effectively
kill the bill.
I am here today to say that ILSA must be renewed fully intact for a
5 year term. Over the past 5 years, Iran and Libya have done nothing to
show they would be welcomed into the community of nations and benefit
from better relationships with the United States and our allies.
Despite the election of the so-called moderate President Khatami in
1997, Iran remains the most active sponsor of terrorism and has been
feverishly seeking to develop weapons of mass destruction, as Senator
Smith has outlined.
Just last week, a Federal grand jury found that Iranian government
officials, ``supported and directed'' the Hizbollah terrorists who blew
up the Khobar Towers in Saudi Arabia, killing 19 brave American
servicemen. And Iran proudly supports Hamas, whose most recent claim to
fame was sending a suicide bomber into a crowded disco in Tel Aviv,
killing 21 young Israelis and injuring dozens more.
These are not actions worthy of American concessions. I agree
completely with Gordon Smith. This is an issue of morality. What would
the world think when the world's greatest power relaxes sanctions on a
nation, two nations, that have shown themselves to be so outside the
family of nations, engaged in some of the most dastardly acts that we
have seen?
The bottom line is simple. If these nations are serious about
entering the community of nations and seeing their economies benefit from
global integration, they must change their behavior. The argument that we
should lift sanctions in hopes that Iran and Libya might change their
behavior is backward reasoning, backward logic, backward morality. And
so I would hope, Mr. Chairman, that we would continue ILSA.
I just want to say a few words about sanctions policy in general. I
think it is understandable that the Administration would want to review
U.S. sanctions policy to make sure it's working effectively. But ILSA
is about the best we have. It is highly flexible. It grants the
President full waiver authority on a case-by-case basis. It contains a
menu of sanctions, ranging from a slap on the wrist to more serious
economic retaliation. And its sunset provisions are profoundly
reasonable.
If we are not going to maintain ILSA, we are not going to maintain
any sanctions policy at all. And I think, you know, there are a couple
of reasons that we are in the greatest country in the world. One is our
economic might, but another is that Statue of Liberty that stands so
proudly in the harbor of the city I come from, New York. It is a beacon
of freedom. It is a beacon of what is right.
We are known as a country who tries to do the right thing. To
simply cave in to economic pressure at this point in time, I think,
would not only hurt our relationships in the Middle East, but also it
would do serious harm to the greatness of this country. And so I urge
that ILSA be renewed.
----------
PREPARED STATEMENT OF SENATOR CHUCK HAGEL
The greatest threats facing mankind today are those from the
increasing proliferation of weapons of mass destruction and the growing
scourge of terrorism. I fully agree with the objectives of the Iran and
Libya Sanctions Act (ILSA). Combating proliferation and terrorism must
remain at the forefront of our foreign policy. I do not agree, however,
with a ``face value'' policy that seeks to combat these twin scourges
unilaterally. ILSA cannot work. It has not worked. Right objectives but
wrong policy.
We fight proliferation and terrorism through coordinated
multilateral action, a strong intelligence capability, a strong
national defense, and a strong economy. We accomplish this through
engagement in the world, not isolation or unilateral action. We
accomplish this through leadership. ILSA embodies none of these
essential elements. ILSA does not directly sanction Iran or Libya--it
directly sanctions our allies and friends. It should be clear that this
is a policy that contradicts our end-game--stemming the tide of
proliferation and terrorism--by breaching the spirit of multilateralism
so necessary to achieve success.
Instead of stopping proliferation and terrorism, ILSA has
strengthened and encouraged the forces within Iran that are served by a
policy of continued hostility toward the United States. These forces
include radical Iranian clerics, Saddam Hussein, and radical Islamic
forces throughout the Middle East focused on the elimination of the
United States from the region, and the destruction of Israel. Israel
is served by far sighted and wise policies that help open the eyes of
the next gen-
eration of Iranians to the real possibilities for improving their
lives--hope, peace,
prosperity and stability. Israel's purposes are not served by polices
that needlessly alienate this group. ILSA sends Iran's youth, which
represents over 60 percent of its population, the very message Iran's
mullahs want them to hear--the United States is our enemy.
By discouraging a Western presence in Iran, we have also cut
ourselves off from a source of information on terrorism and
proliferation. We are left flailing for solutions to a problem we
cannot fully understand.
It is unlikely that we will ever pull the ILSA trigger, we never
have . . . another example of the fundamental flaws in this law. It is
unenforceable. The United States does not have legal jurisdiction over
the commercial activities of foreign firms in foreign markets. Imposing
unilateral sanctions that condition access to our financial markets on
foreign policy considerations is a very risky business.
A new relationship with Iran will require a change in attitude by
both countries. We should start with ILSA. ILSA should not be renewed.
It has no deterrent capability and is self-defeating for America. The
United States is surely capable of developing a more imaginative and
relevant policy toward Iran. We are a great Nation, and we should act
like one.
* * *
REMARKS BY SENATOR CHUCK HAGEL
To The American Iranian Council
June 27, 2001
The greatest threats facing mankind today are those from the
increasing proliferation of weapons of mass destruction. Nuclear,
biological and chemical weapons and their delivery vehicles are the
most heinous and destructive forces on earth.
Nations face the growing threat of terrorism--a threat that we have
often found ourselves ill-prepared and unequipped to handle. The brave
men and women of America's military and foreign service who have given
their lives ensuring our security--the names associated with the
tragedies at our embassies in Kenya and Tanzania, the Khobar Towers in
Saudi Arabia and the USS Cole in Yemen to name a few--are forever
burned in America's memory. All Americans are grateful for their
sacrifice and the sacrifice of their families.
Terrorism is the scourge of our time and the ultimate act of
cowards. Terrorism does not distinguish between combatants and
civilians, nor does it exclude children or the elderly . . . nor does
it care. We remember the terrorist act of Pan Am Flight 103. This was
the act of cowards. Libya must take full responsibility for the murder
of all 244 passengers, 15 crew, and 11 residents of Lockerbie,
Scotland.
To deal with this reality, we must develop policies that are
coherent, relevant and far-sighted to combat the dual threats of
proliferation and terrorism. It does not serve our interests if we
adopt policies that have only ``face value.'' It does not serve our
interests if we fail to consider the long-term consequences of our
actions by focusing on only the short-term.
Our goal is to stop proliferation and terrorism. We do this through
coordinated multilateral action, a strong intelligence capability, a
strong national defense and a strong economy. We accomplish this
through engagement in the world, not isolation. We accomplish this
through leadership. We do not accomplish this with policies that are
reactive and unimaginative. We do not accomplish it with unilateral
sanctions and specifically the Iran and Libya Sanctions Act (ILSA).
Congress will now be debating the relevance of unilateral sanctions
embedded in the Iran and Libya Sanctions Act passed in 1996. ILSA was
conceived as a unilateral action by the United States to tighten
sanctions on Iran. Its goal was to stem Iran's weapons of mass
destruction programs and support for terrorism, by crippling investment
in its petroleum sector. Since we could not convince our allies to join
us in isolating Iran, we threatened our allies with sanctions.
It is important to remember that ILSA does not directly sanction
Iran--it directly sanctions our allies and friends. It should be clear
that this is a policy that contradicts our end-game--stemming the tide
of proliferation and terrorism--by breaching the spirit of
multilateralism so necessary to achieve success. We need the support
and cooperation of our allies and friends. Stopping proliferation and
preventing terrorism will take a multilateral effort. We should not be
implementing policies that alienate the very allies and friends needed
to accomplish that goal . . . and do nothing to advance it.
ILSA compels the President to impose sanctions on foreign firms
engaging in substantial investment in the Iranian or Libyan petroleum
sectors. Some of these sanctions, like the procurement sanction against
U.S. Government contracts, could
violate our international obligations under the World Trade
Organization. Other
sanctions that would condition access to our financial markets threaten
our own
long-term interests much more than any firm or nation we might
sanction.
U.S. financial markets are the world's model for transparency,
consistency, and trustworthiness, attracting $200 billion a year in new
corporate bonds, $20 billion a year from the European Union alone.
Pursuing policies that would endanger this trust is a very risky
business.
If we begin to condition access to our financial markets on foreign
policy considerations, we also begin to generate doubt in those who may
choose to invest in the United States. We are not the only choice for
investors and source of capital. This would threaten not only our
continued economic growth, but also the continued success and expansion
of the global economy. Economic despair creates instability.
Instability is the breeding ground for terrorism. We must be ever
vigilant to this
reality. An unstable world is a dangerous and unpredictable world.
ILSA serves to isolate us. It isolates us from the forces of change
growing within Iran. Iran's reformist President Mohammad Khatami was
reelected on June 8 with a landside 77 percent of the vote, up from 69
percent in 1997. The Iranian public categorically rejected the slate of
nine far more conservative candidates. Within Iran, Khatami represents
the hope for reform and greater personal freedom--the direction the
vast majority of Iran's 70 million citizens want to move in. A
farsighted and realistic foreign policy would seek to encourage this
trend. ILSA does the opposite. ILSA strengthens the hand of the
hardline mullahs and leaves the reformers without any gesture of
support or encouragement. Symbolism is important.
President Khatami faces a powerful block of conservative clerics
who oppose loosening personal freedoms and moderating Iran's foreign
policy. This block is also served by any policy that shows the United
States to be the aggressive and implacable enemy of Iran. Obviously, we
must approach Iran with our eyes wide open. Khatami is no great friend
of the United States, or an Islamic Thomas Jefferson, but he does
represent change in Iran that coincides with our national interests. We
must encourage this trend with openness, not isolation.
Iran closed itself to the West after its 1979 revolution. It is now
beginning to open the door. Iran seeks trade and Western investment. It
seeks access to the West. If we have learned anything in the last
decade, it is that a policy of openness, encouraged by the United
States, will bring change, and sometimes even revolutionary change for
the better. I believe there is some evidence that there are forces for
change and reform in Iran.
By isolating ourselves from Iran we have also blinded ourselves to
the actions and intentions inside Iran. ILSA discourages a Western
presence in Iran. Combating proliferation and terrorism requires
information-gathering. The closer to the source, the better the
information. With ILSA, we have moved no closer to building the
groundwork for our own future presence in Iran. This is an important,
but often overlooked, consequence of this ill-considered law. By
cutting ourselves off from a source of information on terrorism and
proliferation, we have been left flailing for solutions to a problem we
cannot, by our very policies, fully understand.
ILSA has not stopped proliferation. ILSA has not stopped terrorism.
It has, however, strengthened and encouraged the forces within Iran
that are served by a policy of continued hostility toward the United
States.
The United States has appeared weak to these forces. Although
threatening sanctions, we have chosen not to use them. In 1998,
President Clinton chose to waive sanctions against French, Russian, and
Malaysian firms investing in a major petroleum development project, the
Iranian South Pars. Originally, this contract was going to an American
firm, Conoco. The President waived the sanctions against the foreign
firms investing in Iran, as provided for under ILSA, for reasons of
national interest.
The United States does not have legal jurisdiction over the
commercial activities of foreign firms in foreign markets. It is
unlikely that we will ever pull the ILSA trigger . . . another example
of how fundamentally flawed this law. More important, now that we have
deferred ILSA once, the commitment to use ILSA becomes increasingly
more difficult to make. Foreign firms know this--ILSA has lost its
credibility and thus lost its deterrent capability.
Can the United States impose sanctions under ILSA once we have
already chosen to defer them for a chosen few? Inconsistency is not the
mark of a great power.
The national security of the United States is not served by
isolating Iran. Iran's strategic importance in the region cannot be
underestimated.
Located at the intersection of Asia and the Middle East, and
bordering both the Caspian region and the Persian Gulf, there are few
areas of the world more
important to our long-term economic, strategic, geo-political and
energy security.
Iran affects and impacts our long-term Iraqi policy. Whether we like it
or not, Iran is a key player. We cannot isolate it from the very region
from which it belongs.
The United States will be better served in the long-term by
recognizing this and by designing policies that seek our common
interests and act on them. Implacable hostility between the United
States and Iran serves no one except radical Iranian clerics, Saddam
Hussein, and radical Islamic forces throughout the Middle East focused
on the elimination of the United States from the region, and the
destruction of Israel.
Sixty percent of Iran's 70 million citizens are under the age of
25. They are impressionable. They are looking for a better life--and
they have no memory of Iran's 1979 revolution. This is the group we
must seek to influence--before they come under the influence of Iran's
conservative clerics. Israel's purposes are not served by policies that
alienate this group. Israel is served by far sighted and wise policies
that help open the eyes of the next generation of Iranians to the real
possibilities for improving their lives--hope, peace, prosperity and
stability.
ILSA sends Iran's youth the very message that Iran's mullahs want
them to hear--the United States is our implacable enemy. Isolation and
hostility is a two-way street. The isolation we generate with ILSA
breeds hostility and instability in the region. This will not help
those seeking peace in the Middle East. The long-term security of
Israel depends on stability. Because of its destabilizing impact, I
believe ILSA threatens Israel's long-term security.
I fully agree with the objectives of ILSA. Combating proliferation
and terrorism must remain at the forefront of our foreign policy. I do,
however, disagree with a policy that seeks to combat these
unilaterally, and without focus. It cannot work. It has not worked. A
multilateral approach, not the unilateral sanctions embedded in ILSA,
resulted in the successful conviction of a Libyan intelligence agent
for the bombing of Pan Am 103.
Although United Nations sanctions have been suspended, the pressure
of world opinion remains. An end game is now in sight. The United
States and the world will continue to call on Libya to take
responsibility for its actions and compensate the victims' families.
We must learn from this success and design far-sighted multilateral
policies to combat terrorism and proliferation. These policies must
truly serve our national interests, and not simply short-term political
interests. The United States does not further its own interests by enacting
policies that alienate us from our friends and allies. A new relationship
will require a change in attitude by both the United States and Iran.
Official relations between the United States and Iran can only move
forward when both are ready to move forward. Any opening of the door by
the United States must be met by reciprocal action from Iran. But it still
serves our interests to have private channels of exchange and communication
as broad and as deep as possible. This is a beginning.
The United States will not win this war against terrorism and
proliferation until we take a clear headed look at the situation on the
ground and design policies that seek long-term stability in the region.
Changes in Iran's domestic politics demand changes in United States policy.
We should start with ILSA. ILSA should not be renewed. The United States
is surely capable of developing a more imaginative and relevant policy
toward Iran. We are a great Nation. We should act like a great Nation.
----------
PREPARED STATEMENT OF SENATOR MICHAEL B. ENZI
Thank you, Mr. Chairman for holding this hearing on the
reauthorization of the Iran and Libya Sanctions Act (ILSA).
I support the goals of ILSA. We want to prevent terrorist
organizations from carrying out their activities and we want to stop
the proliferation of weapons of mass destruction (WMD) technology. The
United States carries out these goals in various ways through the
multilateral regimes, organizations, and dialogue.
However, some of our laws, such as ILSA, take a unilateral approach
to dealing with these threats to our national security. This unilateral
approach has at times undermined cooperation with our allies relating
to the problems we are attempting to solve.
We must do more than just feel-good exercises. So far, no ILSA
sanctions have ever been levied against an entity and only one waiver
has ever been granted. We have a patchwork of laws that are dealing
with proliferation--ILSA, the Iran and Iraq Arms Nonproliferation Act
of 1992, and other laws such as the Nuclear Nonproliferation Act of
1978, the Nuclear Proliferation Prevention Act, and provisions in the
Export Administration Act, the Arms Export Control Act, and the Foreign
Assistance Act.
The Administration is requesting a 2 year, instead of a 5 year,
reauthorization. This allows a more frequent review of our sanctions
laws and takes into account the evolving circumstances and developments
with our allies and the countries with which we want to improve
behavior. Review is necessary because the threats are changing in this
complex and more globalized world. It is vital to examine these
policies to ensure that we properly target the undesirable behavior or
end-users instead of creating adverse consequences for the good actors
in the international business community. I encourage a review of all of
our sanctions statutes specifically relating to Iran to ensure a
simplified, effective, and common-sense approach to United States
sanctions policy.
I look forward to hearing the responses and testimony of the
witnesses. Thank you, Mr. Chairman.
----------
PREPARED STATEMENT OF SENATOR JIM BUNNING
Mr. Chairman, I would like to thank you for holding this hearing on
S. 994, the Iran and Libya Sanctions Act reauthorization.
I would also like to thank all of our witnesses for coming before
the Committee to testify.
I am proud to be a cosponsor of this legislation. It is important
that we enact this legislation and not let it expire.
I believe that we must show leadership to the rest of the world in
how we treat rogue states who do not behave like they want to be a part
of the community of nations. I realize that not every nation believes
in sanctions like we do.
And, I also realize other nations' businesses gain an advantage
over our businesses because of sanctions. However, I do not believe the
answer is to throw up our hands and do business as usual with any
nation, regardless of their human rights record, promotion of terrorism
or record of proliferation of weapons of mass destruction.
The answer is to encourage our friends and allies not to do
business with these nations, even if it means setting a lonely example.
The argument that ``other countries sell to them, why don't we''
does not hold a lot of water with me. Sometimes, it is more important
to stand on principle than to show a higher profit margin. America must
remain the shining city on a hill, whether the rest of the world likes
it or not.
I understand the Administration would rather have a 2 year
reauthorization. I will listen to their reasoning intently, but I do
believe the burden of proof is on the Administration to prove, to me at
least, why I should not support a 5 year extension. I would like to
commend my colleagues for their hard work on this bill. I look forward
to hearing the testimony of all of our witnesses.
Thank you Mr. Chairman.
----------
PREPARED STATEMENT OF GORDON SMITH
A U.S. SENATOR FROM THE STATE OF OREGON
Iran continues to support international terrorism and is developing
weapons of mass destruction at an alarming rate and Libya still refuses
to abide by U.N. Security Council Resolutions regarding the bombing of
Pan Am 103, said Smith. ``We can and must continue to send the signal
to those governments that sponsor terrorism that the U.S. Government
will do all it can to work against their goals.''
First enacted in 1995, ILSA imposes an array of economic sanctions
against foreign entities that invest in Iran and Libya's energy
sectors. The law, which will expire in August unless Congress
reauthorizes it, has proven very effective in preventing foreign
investment in Iran and Libya's oil production industry, thereby making
it more difficult for them to fund terrorism. Of the 55 major petroleum
development projects for which Iran has sought foreign investment in
the last 5 years, only a half dozen or so have received any foreign
investment, and none have been completed.
----------
PREPARED STATEMENT OF SENATOR EDWARD M. KENNEDY
A U.S. SENATOR FROM THE STATE OF MASSACHUSETTS
I strongly support S. 994, to extend the Iran and Libya Sanctions
Act for 5 years. Current United States law imposes economic sanctions
on foreign companies that invest in Libyan and Iranian oil, but those
sanctions expire on August 5. The need for the sanctions is as strong
today as when they were enacted in 1996, and they deserve to be
extended.
According to the State Department, Iran continues to be ``the most
active state sponsor of terrorism.'' Sanctions should continue on that
nation.
There is also a compelling foreign policy rationale for extending
sanctions on Libya. As a primary sponsor of this provision in current
law, I will focus my comments on Libya.
Easing sanctions on Libya by allowing the law to expire would have
a far-reaching negative effect on the battle against international
terrorism and the 12 year pursuit of justice for the 270 victims of the
bombing of Pan Am Flight 103.
Current law requires the President to impose at least two out of
six sanctions on foreign companies that invest more than $40 million in
1 year in Libya's energy sector. The President may waive the sanctions
on the ground that doing so is important to the U.S. national interest.
For Libya, the law terminates if the President determines that Libya
has fulfilled the requirements of all U.N. Resolutions relating to the
1988 bombing of Pan Am Flight 103. Those conditions, which were imposed
by the international community, require the Government of Libya to
accept responsibility for the actions of its intelligence officer,
disclose information about its involvement in the bombing, provide
appropriate compensation for the families of the victims of Pan Am
Flight 103, and fully renounce international terrorism.
President Bush has emphasized his support for these conditions. As
he stated on April 19, ``We have made it clear to the Libyans that
sanctions will remain until such time as they not only compensate for
the bombing of the aircraft, but also admit their guilt and express
remorse.'' Yet the government of Libya continues to refuse to meet the
conditions of the international community. Until it does, both the
United States and the international community should continue to impose
sanctions on the regime.
Despite the conventional wisdom that economic sanctions do not
work, they have been effective in the case of Libya. As a result of the
United Nations sanctions, the United States sanctions, and diplomatic
pressure, the Libyan government finally agreed in 1999 to a trial by a
Scottish court sitting in the Netherlands of two Libyans indicted for
the bombing. Last January 31, one of the defendants, a Libyan
intelligence agent, was convicted of murder for that atrocity.
The court's decision clearly implicated the Libyan government. The
conviction was a significant diplomatic and legal victory for the world
community, for our Nation, which was the real target of the terrorist
attack, and for the families of the victims of Pan Am Flight 103.
The Iran and Libya Sanctions Act is also intended to help level the
playing field for American companies, which have been prohibited from
investing in Libya by a Presidential Order issued by President Reagan in
1986. The statute enacted in 1996 imposed sanctions on foreign companies
that invest more than $40 million in any year in the Libyan energy sector.
The objective of the 1996 law is to create a disincentive for foreign
companies to invest in Libya and help ensure that American firms are not
disadvantaged by the United States sanctions. Since the sanctions on U.S.
firms will continue, it is essential to extend the sanctions on foreign
firms as well.
The Administration has indicated that it has no evidence of
violations of the law by foreign companies. But some foreign companies
are clearly poised to invest substantially in the Libyan petroleum
sector, in violation of the law. A German company, Wintershall, is
reportedly considering investing hundreds of millions of dollars in the
Libyan oil industry in violation of the law.
Allowing current law to lapse before the conditions specified by
the international community are met would give a green light to foreign
companies to invest in Libya, putting American companies at a clear
disadvantage. It would reward the leader of Libya, Colonel Qadhafi, for
his continuing refusal to comply with the U.N. Resolutions. It would
set an unwise precedent of disregard for U.N. Security Council
Resolutions. It would undermine our ongoing diplomatic efforts in the
Security Council to prevent the international sanctions from being
permanently lifted until Libya complies with the U.N. conditions. And
it would prematurely signal a warming in United States-Libyan
relations.
Our European allies would undoubtedly welcome the expiration of the
U.S. sanctions. European companies are eager to increase their
investments in Libya, but they do not want to be sanctioned by the
United States. They are ready to close the book on the bombing of Pan
Am Flight 103, and open a new chapter in relations with Libya.
But the pursuit of justice is not only for American citizens.
Citizens of 22 countries were murdered on Pan Am Flight 103, including
citizens of many of our allies. The current sanctions were enacted on
behalf of these citizens as well. Our Government should be actively
working to persuade European countries that it is premature to
rehabilitate Libya.
Some have proposed extending the law for 2 years, rather than 5
years as our bill proposes. I strongly support a 5 year extension. If
we reduce the time period, it only gives Colonel Qadhafi a strong
incentive to continue stonewalling--as he has done since the verdict
was announced last January--and wait until the law expires.
When the Banking Committee marks up the Senate version of the bill,
I hope two modifications to the Libya section made by the House
International Relations Committee will be included. The first would
reduce the threshold for a violation in Libya from $40 million to $20
million. Under current law, a foreign company can invest $40 million in
Libya before sanctions kick in, but it can only invest $20 million in
Iran. When the law was originally drafted, the threshold for both Iran
and Libya was $40 million. When it was reduced for Iran, it was not
reduced for Libya. It should have been. The threshold for a violation
should be $20 million for both Iran and Libya.
The other modification included in the House version of the bill
would close a loophole in the law that allows oil companies to expand
upon contracts that were signed before the current law was enacted. A
number of companies which signed contracts before ILSA became law are
expanding their operations, such as by developing fields adjacent to
those in which they made their original investment, and calling this
expansion a part of the original contract. The law should cover
modifications to existing contracts and agreements. Even if the
original contract predates ILSA, subsequent investments that expand
operations should be treated as a new contract. This point should be
clarified in the law, and the Administration should aggressively seek
the information necessary to enforce it.
Bob Monetti, the President of the largest organization representing
the families--the Victims of Pan Am Flight 103--has written letters
asking the Congress to make these modifications to existing law and to
oppose efforts to shorten the duration of the law from 5 years to 2
years. I am submitting copies of his letters for the record along with
my testimony.
Extending the law that requires sanctions on foreign companies that
invest in Libya for another 5 years is in both the security interest of
the United States and the security interest of the international
community. Profits in Libya should not come at the expense of progress
against international terrorism and justice for the families of the
victims of Pan Am Flight 103.
I commend the Banking Committee for reviewing this law, which I
hope will be extended swiftly.
PREPARED STATEMENT OF E. ANTHONY WAYNE
Assistant Secretary for Economic and Business Affairs
Accompanied By: Ambassador James Larocco
Acting Assistant Secretary for Near Eastern Affairs
U.S. Department of State
June 28, 2001
Mr. Chairman, we are very pleased to have the opportunity to appear
before this Committee today, and to testify on S. 994 regarding renewal
of the Iran and Libya Sanctions Act (ILSA).
I am Tony Wayne, Assistant Secretary of State for Economic and
Business Affairs. I am happy to be accompanied by Jim Larocco who has
just returned from a tour as Ambassador to Kuwait to become the
Principal Deputy Assistant Secretary in the Near East Bureau. Jim is
Acting Assistant Secretary at the moment, while Assistant Secretary
Bill Burns is traveling with Secretary Powell.
Let me say a word about my background. Much of it, I think, has
some relevance for ILSA. Before becoming Assistant Secretary for
Economic and Business Affairs about a year ago, I was Principal Deputy
Assistant Secretary in the European bureau--and ILSA certainly involves
and affects our European allies. In this capacity, I was closely
engaged in the discussions we had with the Europeans about cooperation
on nonproliferation and counterterrorism in 1997 and 1998, as our
decision process on the South Pars case moved forward. I also served in
our Counter-
terrorism office from 1989 to 1991 where I helped to build our
cooperation with
others against terrorism, including activities supported by the
governments of Iran and Libya. I thus have some perspective on that
vitally important issue and its connection with ILSA.
As you know, the Administration supports renewal of ILSA, in its
original form, but for 2 years, rather than the 5 proposed in S. 994.
We entirely share the concerns of Congress about the objectionable
policies and behavior of Iran and Libya. Opposing that behavior is a
top Administration priority. We have repeatedly condemned Iran's
pursuit of weapons of mass destruction (WMD) and missile delivery
systems and its support for terrorism, including support for groups
using violence to oppose Middle East peace. Although no Iranian
individual was charged in the recent indictments over the Khobar
bombing, the investigation confirmed that our concerns about Iranian
support for terrorism are well-founded. Libya has not yet complied with
the relevant U.N. Security Council Resolutions. We are focused on
securing Libya's compliance with its UNSC obligations, including
payment of appropriate compensation and acceptance of responsibility
for the actions of Libyan officials in connection with the bombing of
Pan Am 103.
The Administration's decision to support a 2 year renewal reflects
no diminution in our concern for the objectionable behavior of Iran and
Libya in the areas of terrorism and proliferation. Our concerns in
these areas continue to be reflected in a wide variety of policies and
actions we have adopted toward these countries, including their
designation as state-sponsors of terrorism, and in enforcement of the
sanctions and restrictions derived from that designation. Similar
concerns are reflected in other legislation passed by Congress, such as
last year's Iran Nonproliferation Act, the 1992 Iran and Iraq
Nonproliferation Act, and a number of other statutes. We have played,
and will continue to play, a leadership role in multilateral
nonproliferation regimes, such as the Missile Technology Control Regime
(MTCR), the Nuclear Suppliers Group, the Australia Group, and the
Wassenaar Arrangement, where we work in close partnership with our
European allies and other member governments, to restrict the access of
countries such as Iran and Libya to equipment, technology, and
materials necessary to develop WMD and long-range missiles.
Support for a 2 year term reflects this Administration's view that
sanctions should be reviewed, thought about, and debated at frequent
intervals. Sanctions are one set of tools among the many we deploy for
supporting important national objectives such as combating
proliferation and terrorism. We are working to counter these abhorrent
practices and to build a cohesive and effective international effort
against them. Given the enormous importance of these objectives, we
should regularly reevaluate our sanctions tools, assessing how well
they are working; whether they should be altered or amended; whether
they can be fine-tuned; whether there are other instruments or
approaches that should be applied; whether there are ancillary effects,
and how to take them into account. This process provides a further
occasion for all points of view to be heard. In sum, regular
reevaluation is essential to ensure that we are attacking critical
problems in the most effective way.
Questions about the effectiveness, impact, cost, and relevance
inevitably arise in connection with any sanctions regime. ILSA is no
exception, particularly since its approach is indirect: it focuses on
investment, in order to limit revenue, rather than focusing directly on
actions by Iran and Libya to procure weapons of mass destruction and
support terrorism; and it targets petroleum-sector investors--some of
them from friendly countries whose cooperation we need in working
toward our nonproliferation and counterterrorism goals--rather than
targeting parties who engage in inherently objectionable activity. We
are working to maintain and strengthen cooperation with friends and
allies to try to change objectionable aspects of Iranian and Libyan
behavior.
The Administration is embarking on an overall review of sanctions
policy that will include examining the cost and effectiveness of our
sanctions efforts--in general, and with respect to specific sanctions
laws, such as ILSA. The review will also examine ways to make the
administration of sanctions that affect U.S. business more efficient.
At the Secretary's direction, the Department is working with other
agencies to determine the extent to which economic sanctions laws
achieve their objectives, have appropriate reporting requirements, or
impede the President's ability to react to rapidly-changing
international developments.
At his confirmation hearing, Secretary Powell expressed concern
about the number of existing sanctions laws and regulations; there is
potential for overlap, inconsistency, and inappropriateness. He also
noted that there have been instances in which sanctions have been
useful. Carefully designed and prudently used, economic sanctions can
be a valuable foreign policy and national security tool.
For its part, the State Department believes that economic sanctions
laws should reflect common-sense principles. They should allow the
President sufficient flexibility to modify or to terminate sanctions as
conditions change or as he sees fit in balancing other important U.S.
interests. Sanctions must do more than provide psychological
satisfaction. They must be part of an integrated policy, that considers
other options and weighs the costs and benefits of economic sanctions
for the range of U.S. interests. In general, sanctions should directly
target the objectionable behavior by foreign governments or entities
that threatens our values or interests and should minimize unintended
harmful consequences. Sanctions that are indirectly targeted are likely
to be less effective and need to be weighed with particular care for
unintended effects. When sanctions are appropriate, it is far
preferable that they be employed through a multilateral approach.
Experience has shown that concerted multilateral efforts are almost
always more effective than unilateral ones, although we may
occasionally need to be prepared to act unilaterally when necessary to
defend important U.S. values and interests. As we have said, sanctions
should be reviewed periodically, and relatively frequently, to assess
their continued effectiveness and relevance, and make appropriate
adjustments.
Finally, I want to stress that whenever possible, the decision to
impose sanctions should be the product of collaboration and
consultation between the Administra-
tion and Congress. We look forward to working with you and your
colleagues on this important set of issues. Through a close dialogue,
we can make sanctions more rational, coherent and effective in support
of U.S. foreign policy and national security interests.
We are grateful to the Committee for the opportunity to appear, and
to make this statement. We would be happy to respond to any questions
you might have.
----------
PREPARED STATEMENT OF STEPHANIE L. BERNSTEIN
Justice for Pan Am 103
June 28, 2001
I would like to thank you, Senator Sarbanes, for the opportunity to
testify before the Banking Committee today on this most important
issue.
I am here today to support extension of the Iran and Libya
Sanctions Act because
my husband, Michael S. Bernstein, was one of 270 people, including 189
U.S. citizens, murdered in the Lockerbie bombing on December 21, 1988.
This savage crime was placed squarely at the feet of the Libyan
government on January 31 of this year, when a high level Libyan
intelligence operative was convicted of 270 counts of murder.
My husband was a Federal employee: he was the Assistant Deputy
Director of the Office of Special Investigations at the Department of
Justice. This office finds, denaturalizes, and deports those who
participated in Nazi atrocities during World War II. Mike graduated
with distinction and high honors from the University of Michigan, and
received his law degree from the University of Chicago, where he was an
Associate Editor of the Law Review. He was 36 years old.
Mike was a valued member of the Criminal Division at the Department
of Justice, where he was given the Department's Special Achievement
Award in 1986. In a memo to Criminal Division employees after Mike's
death, Assistant Attorney General Edward S.G. Dennis wrote that after
joining the Department from the Washington firm of Covington and
Burling, Mike ``quickly established himself as an outstanding trial
lawyer whose persistent but low-key approach to his work won him the
respect and highest praise from both his colleagues and his
adversaries.'' Colleagues at the Justice Department wrote in a memorial
notice placed in The New York Times that Mike was a ``lawyer's lawyer,
whose clarity of purpose, intellectual gifts, sound and ethical
judgment, exceptional wit, and boundless compassion and good will
earned him a place of deep affection and respect in the hearts of all
who were privileged to know him.''
Mike chose to use his gifts in the service of his country as an
example for our children, who were ages 7 and 4 at the time he was
murdered. In a letter to my daughter, Sara, Assistant Attorney General
Edward Dennis wrote that her Dad ``expressed his love for you, in part,
through his work and his efforts to build a better world through
service to the public good.''
I have told you a little about Mike because I think it is important
to convey the scale of the mayhem committed by the government of Libya
on December 21, 1988. As The Lord Advocate of Scotland stated on
January 31 during his remarks to the Scottish Court prior to the
sentencing of the defendant, Abdel Basso al-Megrahi:
More than 400 parents lost a son or daughter; 45 parents lost
their only child, 65 women were widowed; 11 men lost their
wives. More than 140 children lost a parent and 7 children lost
both parents.
The Scottish Court wrote in its opinion that Megrahi was acting
under orders from the Libyan government.
The clear inference which we draw from this evidence is that
the conception, planning and execution of the plot which lead
to the planting of the explosive device was of Libyan origin.
(p. 75)
Since the verdict, the Bush Administration has been firm in its
public insistence that Libya abide by the terms of the United Nations
Security Council Resolutions. These require that Libya accept
responsibility for the bombing, disclose all it knows about the
bombing, fully renounce international terrorism, and pay appropriate
compensation to the families.
In addition, the Administration has indicated that the
investigation into the Lockerbie bombing is still open. This was
conveyed to me and other family members in meetings held over the last
several months with Secretary of State Powell and Attorney General
Ashcroft. Indeed, Secretary Powell stated that:
However we resolve this and however we move forward from this
point on, we reserve the right to continue to gather more
evidence and to bring more charges and new indictments. So
accepting responsibility as a leader of a Nation, and as a
Nation, doesn't excuse other criminals who might come to the
fore and be Subject to indictment. (February 8, 2001)
Unfortunately, pressures on the Administration from the oil
industry have revealed cracks in this resolve. Shortly after the
verdict, a draft report of Vice President Cheney's Energy Task Force
was leaked, and we learned that one of the
options under consideration was dropping the unilateral United States
sanctions against Libya. Although these sanctions predate the Lockerbie
bombing, the families felt that such a move would send the wrong
message to the Libyans. After protests from the families and from our
allies in the Congress, this was dropped from the final report.
More recently, in arguing for a 2 year rather than a 5 year
extension of ILSA, a senior State Department official was quoted in a
Reuters article as saying that our Government has begun to ``reassess''
Gaddafi:
He's older and wiser and more mellow in his old age. We have
been fairly clear in documenting the change. (Reuters, 6/8/01)
This new and mellow Gaddafi is news to me. I wish that the unnamed
senior official could have been present on March 16 of this year at a
conference on United States-Libya relations after the Lockerbie trial
sponsored by the Atlantic Council, the Middle East Institute, and the
Woodrow Wilson Center. I was a speaker at the conference, along with
Ambassador Dorda, the Libyan Ambassador to the United Nations, who was
allowed by the State Department to travel to Washington for the day to
participate.
With the exception of myself and a Libyan expatriate, the remarks
of the other presenters were measured and extended a hand to the
government of Libya to rejoin the family of civilized nations once the
conditions stated in the U.N. sanctions were met. Ambassador Dorda
responded with a lengthy tirade stating that the United States was
responsible for many of the bad things which have happened to Libya
over the last 200 years, beginning with United States forces fighting
the Barbary pirates. He said that there was no evidence that Libya was
involved in the ``so-called'' Lockerbie bombing. In commenting on the
United States bombing of Libya in 1986 after the La Belle Disco bombing
by Libya, Dorda, who was slightly wounded in the United States
retaliation along with his son asked--``Who is the terrorist and who is
the victim?''
Dorda said that the indictment of the two Libyans for the Lockerbie
bombing in 1992 was ``only political,'' and designed to pressure the
Security Council. He went on to say, however: ``let's forget about the
past.'' Dorda described the unilateral United States sanctions as
``useless,'' stating that Libya can get anything it wants from
anywhere. He referred to allegations that the Libyan government has
been involved in terrorist activity as ``so-called terrorism.'' He
denied that his government has ever trained, financed, or supported
terrorists. ``We never supported terrorism.''
This tirade by Ambassador Dorda was no doubt fueled by Libyan
allies in the international community such as Nelson Mandela, who
helped arrange the agreement which persuaded Gaddafi to turn the
suspects over for trial. After the verdict, Mandela accused the United
States and Great Britain of having ``moved the goalposts'' on the issue
of lifting the U.N. sanctions.
The condition that Gaddafi must accept responsibility for
Lockerbie is totally unacceptable. As President for 5 years I
know that my intelligence services many times did not inform me
before they took action. Sometimes I approved, sometimes I
reprimanded them. Unless it is clear that Gaddafi was involved
in giving orders it is unfair to act on that basis. (The
Independent, 2/09/01)
Unfortunately, the Libyans have been given succor by the United
States. oil industry as well. In February of this year, Archie Dunham,
the Chairman and CEO of Conoco, said that he was ``very optimistic''
that the Bush Administration would lift the unilateral sanctions
against Libya, in part because of the President and Vice President's
ties to the industry.
International pressure, influence from the oil industry, and the
intransigence of the Libyan government all argue for a 5 year extension
of ILSA. I am concerned that a 2 year extension will send a message to
the Libyans that we are not serious about seeing that they live up to
their obligations, allowing them to run out the clock. It is important
to add that the impact of ILSA on Libya will end immediately if the
President determines that Libya has met the requirements of the United
Nations Security Council Resolutions dealing with the Lockerbie
bombing. It is up to the Libyans.
In addition, I urge this Committee to support two changes in the
existing law. First, I believe that we must close the loophole which
has permitted oil companies to add on to contracts signed prior to
enactment of ILSA. Second, we must reduce the threshold for violation
of the law from $40 million of investment to $20 million, as is the
case with Iran. These changes in ILSA are supported by my group,
Justice for Pan Am 103, as well as by Victims of Pan Am Flight 103, the
largest group of family members.
For 12\1/2\ years the Lockerbie families and our allies in Congress
have kept pressure on three administrations to find and hold
accountable those who carried out the bombing of Pan Am 103. Our
support in Congress has been bipartisan. Our supporters understand that
the bombing of Pan Am 103 was an attack on the United States, and that
we must show countries like Libya that when they attack our civilians
they will not enjoy the benefits of participating in the community of
nations which abide by the rule of law. Our supporters understand that
doing business with terrorists is not good business. Those who have
stood by us know that ``constructive engagement,'' or whatever
diplomatic terms are used to pretty up, our dealings with regimes which
murder innocents around the world, will not prevent future terrorist
attacks, and will only expose our naivete and worse, our citizens, to
further attacks.
The next several months will be critical. Megrahi's attorneys have
filed an appeal. There will be attempts by the Libyans and their
supporters to get the families to back off on February 13 of this year.
A London-based attorney who has advised the Libyans was quoted as
follows:
The more the United States sticks to the original agreement
that the aim of the process was the surrender and trial of the
two accused, the more the Libyans will cooperate and compensate
the families. (Reuters article, 2/13/01)
The Lockerbie families do not see justice as something for which we
bargain in the bazaar. The suggestion that the families would trade the
pursuit of justice for money is cynical and dishonors the memories of
our loved ones.
A British expert on Libya was quoted in the same article as
follows:
Gaddafi knows he is going to have to pay compensation. The
question is whether he can control the domestic agenda and curb
his own tongue over the next few months, and whether extremists
on the other side of the Atlantic among the families and their
supporters in Congress can be kept under control.
I hope that you will join me and other Lockerbie family members in
showing the Libyans and their apologists that, when it comes to
pursuing justice, we will not be ``kept under control.''
----------
PREPARED STATEMENT OF PATRICK CLAWSON
Director for Research
Washington Institute for Near East Policy
June 28, 2001
Renewing the Iran and Libya Sanctions Act (ILSA) is a good way to
keep up the pressure on Iran about its hardline actions. Renewal should
be accompanied by a hand of friendship extended to the Iranian people
in support of their campaign for reform.
The Political Context in Iran
Iran is one of the great political enigmas facing United States
policy. Tehran sponsors international terrorist groups, lends support
to the violent opposition to the Middle East peace process, and spends
scarce capital on developing long-range missiles and a nuclear weapons
program. At the same time, Iran has a political system that, outside
Israel and Turkey, may be the most animated, vigorous, and dynamic in
the region. After the election of President Mohammed Khatami in 1997,
there was an expectation that the reformist tide will win out over the
hardliners. So far, that has not been the case. Despite whatever
progress the reformists have made on the domestic scene, little has
changed in terms of those Iranian policies that pose the greatest
threat to U.S. interests and allies.
The prospects are poor that Khatami will do much to change Iranian
policy during his second term. Indeed, what is striking about Khatami's
situation is how little he offers to address Iran's most pressing
problems, namely, the stagnant economy, political repression, and
security threats.
Consider Iran's security situation. To the east is Taliban-
dominated Afghanistan, which is openly hostile to Iran and from which
emanates the opium and heroin to which two million Iranians are
addicted. To the west is Iraq, which sponsors the People's Mojahedeen
cult whose members carried out more than 20 armed attacks inside Iran
in the last year, including some deadly mortar attacks in Tehran. The
United States shares Iranian concerns about both Afghanistan and Iraq,
as well as the Armenian-Azerbaijani conflict that is right on Iran's
borders. But the Khatami government is locked in a needless
confrontational posture against America. Evidently, Khatami puts
ideological disdain for America and venom against Israel ahead of
Iran's state interests.
Overall, Khatami offers Iran little except an alternative to
something worse. Khatami is popular both with the Iranian people and
with the outside world because hardline opponents are truly dreadful.
The search for ``Iranian moderates'' has a long history, and there is
little reason to believe that Khatami will be any less hostile to the
United States than were the ``Iranian moderates'' of Iran-Contra days.
The Framework for U.S. Policy
So long as Iran continues to threaten regional stability by
pursuing weapons of mass destruction and the means to deliver them,
undermining the peace process--that is, arming Hizballah--and providing
support for international terrorists, the United States-Iranian
relations will be unfriendly or worse.
America's allies generally cooperate well on the most critical
issue here, namely, limiting supplies to Iran of major new arms and
dual-use technology. At the same time, the United States and its allies
differ on how best to press Iran to change its activities of concern.
The United States prefers an approach of containment; its
allies, one of engagement. The two approaches need not be opposites.
Indeed, the history of Western policy toward the Soviet Union shows how
they can be used together to good effect. The ``ostpolitik'' policy of
engaging the Soviets begun by German chancellor Willy Brandt in the
1970's did much to undermine the legitimacy of the Soviet system in the
eyes of its people, while the military buildup under President Ronald
Reagan--combined with the aid to the Afghan resistance--put the Soviet
Union under so much pressure that it cracked. That said, during the
cold war, the United States usually took the lead on the containment
policies and U.S. allies usually took the lead on promoting engagement.
That difference is likely to persist in dealing with the difficult
states of the Middle East, including Iran.
Washington has offered to reduce restrictions on Iran and resolve
differences in a step-by-step process, so long as the process is
reciprocal rather than one-sided. To demonstrate its continuing
interest in such a process and to show its support for the Iranian
reform program, the United States should take further steps to relax
those sanctions which hit the Iranian people as distinct from the
Iranian government. As with the effort to make the sanctions on Iraq
smarter by concentrating more on the regime and less on the people, so
too the sanctions on Iran could be changed to facilitate people-to-
people exchanges. In particular, the current rules forbid transactions
incidental to education and to nongovernmental organization (NGO)
activities, with the practical effect of making education and NGO
activities very difficult. For example, the rules allow Iranians to
study at American universities, but they must use subterfuges to pay
the American company that administers the English language test
required by American universities because direct payment is deemed an
impermissible transaction with Iran. Similarly, Iranians can come to
the United States for conferences, but NGO's cannot easily pay the
travel expenses of these Iranian visitors nor for the costs of
Americans going to Iran for conferences. I strongly urge that Congress
express to the Administration its desire to promote a dialogue of
civilizations with Iran by lifting the restrictions on activities
incidental to education and on people-to-people exchanges conducted by
American nonprofit
organizations--that is, those with 501.c.3 status under the tax code.
The United States should also continue with its efforts to
encourage government-to-government dialogue with Iran. Iran has refused
to talk with the United States, not vice versa. Iran has the only
government in the world which refuses to talk to the United States. It
is difficult to engage with Iran when Iran refuses to talk to
Washington. We can proclaim until we are blue in the face that Iran
would benefit from talking to Washington about issues of common concern
to the two countries, such as the Taliban or counternarcotics. But the
fact remains that Iran steadfastly refuses contact. At the same time as
it pushes for diplomatic dialogue and extends a hand of friendship to
the Iranian people, the United States will continue to press the
Iranian government. In particular, will want to reduce the Iranian
government's income, so long as Tehran uses extra money to finance
terrorism and purchase destabilizing weapons.
ILSA
ILSA reduces Iran's ability to attract investment in its oil and
gas industry--income which accrues directly to the Iranian government.
To be sure, ILSA's impact is limited; Iran's oil income depends much
more on the price of oil than on ILSA. We can all speculate about where
the price of oil will go; no one has a good record at making
predictions, because none of us can tell how OPEC politics will play
out. Economic models have a singularly bad record at forecasting oil
prices, precisely because oil prices are as much a matter of geo-
politics as of markets. One thing we know for sure is that Iran has
always been the most hawkish member of OPEC, that is, arguing for the
highest possible price. The more powerful Iran is, the more likely it
will campaign for tight OPEC quotas that drive the price up.
ILSA has reduced Iran's ability to export oil to finance its arms
programs, but it has exacerbated trade tensions with America's most
important allies including the European Union (EU) states. Most in
Europe regard ILSA as too intrusive on Europe's turf. I have never
understood how the United States and the EU decide which issues are
sufficiently important that the two sides will risk a trade war.
Offhand, I would have said that bananas are less of a threat to U.S.
security and prosperity than are prospective Iranian nuclear missiles.
But the United States and Europe have repeatedly gone toe to toe over
bananas. With strong support from the American business community, the
U.S. Government has imposed far-reaching sanctions against banana
offenders, while Iranian proliferation and terrorism has not been seen
as rising to that level of importance. I beg to differ; indeed, I would
be prepared to accept Europe's silly banana trade rules if Europe
agreed to stop investing in Iranian oil and gas.
However, there is a real issue of how to use ILSA to press Europe
to be more helpful in containing Iran's destabilizing behavior. My
preferred approach would be for the Administration to make more
creative use of the provisions in ILSA for a country waiver--that is, a
waiver on all investment from a country, as distinct from a waiver
applying to only one project. The Administration should interpret those
provisions broadly to allow consultations with the EU on measures the
EU may take to reach our common objective of countering proliferation
and terrorism. For instance, it would be very useful if the EU
countries joined with the United States in applying pressure on Russia,
China, and North Korea to stop the proliferation of dangerous nuclear
and missile technologies to Iran. So long as only the United States is
raising this matter, the Russians can dismiss the concerns as American
exaggerations. The Russian reaction might be quite different if it were
faced with concern from all the G-7 countries. And G-7 cooperation
might make a difference not only to governments but also to businesses.
If the EU, Japan, and Canada were to join with the United States in
ferreting out and sanctioning Russian, Chinese, and North Korean firms
that supply nuclear and missile technology to Iran, exporting such
dangerous technology to Iran might look more risky and less attractive.
It is worth considering making cooperation on these matters the basis
for exempting a country from ILSA restrictions.
In short, ILSA is a good law, and it provides the flexibility to
allow the Administration to conduct vigorous diplomacy. ILSA will not
stop Iranian or Libyan terrorism or proliferation; it will not even
stop all foreign investment in their oil industries. But ILSA will
reduce the income available to these governments and therefore put a
crimp in some of their most dangerous activities.
----------
PREPARED STATEMENT OF BRADLEY GORDON
Legislative Director
American Israel Public Affairs Committee
June 28, 2001
Thank you, Mr. Chairman. I want to thank the Subcommittee for
holding this hearing on the renewal of the Iran and Libya Sanctions Act
(ILSA) and for invit-
ing me to testify before you this afternoon. The American Israel Public
Affairs
Committee strongly supports the efforts led by Senators Gordon Smith
and Chuck
Schumer to extend ILSA for another 5 year period.
Five years ago, when Congress unanimously enacted ILSA, it did so
because Iran was the leading state sponsor of international terrorism,
because it opposed the Arab-Israeli peace process, and, indeed,
Israel's very right to exist, and because it was pursuing the
acquisition of weapons of mass destruction and the missiles to deliver
them. Libya, for its part, was under U.N. Security Council mandated
sanctions for its suspected role in the downing of Pan Am 103. Today, a
Libyan intelligence officer has been found guilty of murder for his
involvement in Pan Am 103 in the words of the court ``in furtherance of
the purposes of . . . Libyan Intelligence Services,'' yet Libya
continues to refuse to acknowledge its role and to pay compensation to
the families of the victims. Last week, 13 members of the Iranian
backed group Hizballah were indicted for the 1996 bombing of the Khobar
Towers. The indictment mentions Iran 35 times, yet Iran denies any
connection to the attack. And Iran's objectionable policies and
behavior have, if anything, gotten worse. In short, all of the factors
which led Congress to act initially remain true today, and both Iran
and Libya deserve to remain subject to the sanctions outlined in ILSA.
I want to divide my testimony today into three parts: outline what
Iran is doing today, to discuss the effectiveness of ILSA, and to look
at the consequences of allowing ILSA to expire.
Iran's Threatening Policies
Support for International Terrorism and Rejection of Israel's Right to
Exist
Let me start with Iran's state support for international terrorism.
The latest State Department Report on Patterns of Global Terrorism,
issued in April, again affirmed that, ``Iran remained the most active
state sponsor of terrorism in 2000.'' The Report goes on to say that,
``Iran provided increasing support [emphasis added] to numerous
terrorist groups, including the Lebanese Hizballah, HAMAS, and the
Palestine Islamic Jihad,'' the very groups responsible for the
countless terrorist attacks against innocent Israelis. The Report notes
that official Iranian agencies ``continue to be involved in the
planning and the execution of terrorist acts,'' that Iran's support for
Hizballah, HAMAS, and Islamic Jihad include ``funding, safehaven,
training, and weapons,'' and that this support ``continued at its
already high levels following the Israeli withdrawal from Lebanon in May
and during the intifadah in the fall.'' Moreover, in the words of the
Report, ``Iran continued to encourage Hizballah and the Palestinian groups
to coordinate their planning and to escalate [emphasis added] their
activities against Israel.''
Iran is now reportedly spending $100 million annually on these
groups. Iranian jetliners loaded with weaponry continue to land weekly
in Damascus, where their cargoes are unloaded and trucked to Hizballah
forces in southern Lebanon. Iran has recently begun supplying Hizballah
with long-range 240mm mortars capable of reaching Haifa and beyond.
Late last year, Iran announced the formation of the International
Anti-Zionist Movement, an eight-member alliance designed to undermine
the peace process. The head of the organization is Mohsen Rezaie, the
former head of the Iranian Revolutionary Guard and a close associate of
Iran's Supreme Leader, Ayatollah Khamene'i.
A statement sent by the new organization to the heads of all
Islamic states said, in part, ``We ask you, before the vast storm of
Islamic countries, to mobilize to destroy Israel and create problems
for those governments who defend it . . .'' Rezai said that, ``Iran
will continue its campaign against Zionism until Israel is completely
eradicated.''
In January, Iranian officials met in Beirut with representatives of
Hizballah, HAMAS, Islamic Jihad, and the Popular Front for the
Liberation of Palestine--
General Command to discuss ways to cooperate in attacks aimed at Israel
and United States targets. In April, Iran hosted a follow-up session in
Tehran with the leaders of these groups.
There are those who note a power struggle going on inside Iran
between hard-line clerics, led by Iran's Supreme Leader, Ayatollah
Khamene'i, and supposedly moderate clerics, led by President Khatami.
Whatever the reality of that struggle, it is clear that their
differences do not extend to Iran's support of international terrorism
nor to their opposition to Israel's very existence. Last December,
Ayatollah Khamene'i said that, ``Iran's stance has always been clear on
this ugly phenomenon (Israel). We have repeatedly said that this
cancerous tumor of a state should be removed from the region.'' In
February of this year, Khamene'i stated that, ``It is the mission of
the Islamic Republic of Iran to erase Israel from the map of the
region.''
And Iran's so-called ``moderate'' President Khatami last year
called Israel an ``illegal state.'' Last August he told a visiting
Yasir Arafat that the peace process was doomed to fail and that, ``All
of Palestine [emphasis added] must be liberated.'' On April 25, Khatami
said Israel ``is a parasite in the heart of the Muslim world.''
Iran's support for international terrorists goes beyond Israel,
however. The State Department Report noted that Iran continued funding,
training, and logistical
assistance to a variety of radical groups in the Persian Gulf, Africa,
Turkey, and
Central Asia.
A stark example of Iran's support for terrorism is its role in the
Khobar Towers bombing in 1996 that killed 19 Americans and wounded 372.
Attorney General John Ashcroft and FBI Director Louis Freeh announced
on June 21 the indictment of 13 members of the pro-Iranian group
Hizballah for the bombing. This indictment, which mentions Iran 35
times, describes the involvement of high Iranian government officials
in the terrorist attack. The indictment reports that an Iranian
military officer directed and paid the defendants to locate American
sites for a terrorist attack. The indictment states ``that the attack
was to serve Iran by driving the Americans out of the Gulf region.''
Iran's Pursuit of Weapons of Mass Destruction
The U.S. Government has repeatedly reported on Iran's efforts to
acquire weapons of mass destruction and the missiles to deliver them.
The CIA's annual proliferation report to Congress has noted Iran's
clandestine nuclear weapons program for a number of years. Russia is
rebuilding Iran's nuclear power reactor at Bushehr that was damaged
during the Iran-Iraq war. Iran, one of the world's richest countries in
both petroleum and natural gas has, of course, absolutely no need to
develop ``peaceful'' nuclear power; and yet it has agreed to pay the
Russians billions of dollars for just such a capability.
The Clinton Administration sanctioned a number of Russian entities
for their clandestine nuclear weapons cooperation with Iran, yet the
assistance continues. Just this past winter, the Clinton Administration
vigorously sought to dissuade Russia from providing Iran isotope
separation technology with which it could ultimately produce its own
weapons-grade nuclear material. It is as yet unclear whether that
transaction has been permanently shut down. China has also assisted
Iran's nuclear weapons program, and both these countries, in addition
to North Korea, have aided Iran's missile program.
A Defense Department study entitled, ``Proliferation: Threat and
Response,'' issued this past January stated that Iran is seeking the
full range of weapons of mass destruction: nuclear, chemical, and
biological weapons, and is expanding its missile program. Iran has
already flight tested the Shahab-3, a medium range ballistic missile
with a range of 900 miles--that is, a missile that can reach any point
in Israel, as well as hitting American forces in the region.
The study reported that Iran is eventually planning to develop
intercontinental ballistic missiles that could threaten Europe and the
United States directly. It added that ``Iran is striving to
indigenously produce ballistic missiles and become a supplier state.''
The report came to the not startling conclusion that were Iran to
possess nuclear and missile capabilities, it would likely lead to
increased intimidation of its Gulf neighbors and an increased
willingness to confront the United States. Both American and Israeli
intelligence are reported to believe that Iran could have such a
capability within the next decade. The timing could be considerably
shortened if Iran were to obtain the necessary fissile material from
abroad.
One can only imagine what the United States and our friends in the
region would confront were the clerical regime in Iran to obtain such
capabilities. Imagine a nuclear-armed Iran sitting astride the Persian
Gulf shipping lanes through which so much of the world's petroleum
resources flow. Imagine what Israel would confront. Imagine how much
more severe would be the dangers of Iranian-supported terrorist groups
emboldened by the Islamic Republics new weapons capabilities and the
likelihood of Iran sharing these weapons with these very same groups.
Clearly, Mr. Chairman, we believe the United States must do all it
can--for our own sake and for that of our allies--to prevent such
nightmare scenarios from becoming realities.
The Role of ILSA
Over the course of the last 5 years, both the executive branch and
the legislative branch of the U.S. Government have made concerted
efforts to do precisely that--prevent Iran from gaining such dangerous
capabilities. To demonstrate that direct American action was required
to stop weapons proliferation, Congress in 1996 overwhelmingly passed
the Iran and Libya Sanctions Act (ILSA), and last year enacted the Iran
Nonproliferation Act, again overwhelmingly. The Clinton Administration
made Russian transfers of dangerous technologies to Iran a very
important item on the agenda of our bilateral relations with Moscow and
engaged our allies to tighten their own nonproliferation controls. We
are pleased that the Bush Administration has pledged to maintain this
priority and take the necessary measures to address this serious
national security problem.
ILSA was designed to deter foreign investment in Iran's energy
sector. It was based on a few simple facts: (1) Virtually all Iran's
hard currency earnings are derived from its energy exports. It is this
revenue that provides Iran the wherewithal to pay for its programs to
acquire weapons of mass destruction and its support of terrorism. (2)
Since the fall of the Shah through 1995, the clerical regime of Iran
made no investments in its own petroleum and natural gas
infrastructure; as a result, its production capabilities have declined
by more than a third since 1979. At the same time, its population has
doubled, meaning that Iran's export earnings per capita have dropped to
about only one quarter of their level under the Shah.
Iran's oil fields are aging. Ninety percent of its oil comes from
its oldest onshore fields and their output is declining because they
have not been rehabilitated by expensive water separation and gas
reinjection. Senior Iranian officials have been warning since the mid-
nineties that output at some reservoirs is in sharp decline after years
of being pushed too hard.
If foreign investment could be prevented from reinvigorating this
crucial sector to Iran, then its production capabilities would continue
to decline, and with it, Iran's ability to continue its weapons
programs and its support for terrorism. Indeed, the CIA estimated in
1996 that ``unless Iran starts making massive investments in oil field
maintenance, it will become a net importer of oil by the year 2005.''
[Emphasis added.]
Not surprisingly, Iran has, since 1995, sought a great deal of
foreign investment. It has promoted over 50 foreign energy investment
opportunities. As of the end of the year 2000, only seven substantial
contracts had been secured, a success rate of 14 percent. These seven
projects have netted Iran less than $10 billion, less than $2 billion a
year and well below what Iran's own planners expected. Compare that to
tiny Qatar, with much fewer petroleum resources. During the same time
frame, Qatar received twice as much foreign investment--$18 billion--in
its energy sector.
Iran's own government has admitted that ILSA has been effective in
deterring investment. In an August 1998 report to the U.N., Iran stated
that ILSA had ``led to the disruption of the country's economic system,
. . . caused a decline in its gross national product, . . . [and]
weakened the country's ability to deal with its international lenders,
. . . which impeded credit transactions.'' Iran went on to report that
ILSA created difficulties in the petroleum and oil sector, such as
``reduction in international investment, delays in . . . oil projects,
cancellation of some tender contracts, technological shortcomings, and
increased negotiating expenses.'' President Khatami acknowledged in
1998 that U.S. sanctions had ``inflicted damage upon us.''
In short, Mr. Chairman, ILSA is an example of sanctions legislation
that has worked. There are those who will assert that foreign
investment in Iran is just about to really take off. Over the past 5
years, I have read about any number of imminent contracts about to be
signed. Most, however, never came to fruition. That is, no doubt, in
part true because of Iran's own problems in attracting foreign
investment. But it is also undoubtedly true because ILSA acts as a
further complication for foreign corporations trying to decide where to
invest in energy development.
Indeed, ILSA is a carefully balanced piece of legislation that is
narrowly and effectively targeted only at foreign energy investments in
Iran. The legislation provides our Government with the necessary tools
to stop or at least deter this investment. The menu of sanctions from
which the President must choose ranges from the minor--such as
prohibiting the Export-Import Bank from extending credit to sanctioned
entities--to the major--such as invoking an import ban on these foreign
entities. When Royal Dutch Shell, for example, with its hundreds of
gasoline service stations in the United States, has to decide whether
or not to invest in Iran, certainly ILSA requires consideration.
ILSA is a good example of how sanctions legislation should be done.
While addressing an issue of vital national security interest to the
United States, it does not tie the President's hands but indeed
provides great flexibility. If the President has determined that a
sanctionable action has occurred, he may, if he determines that it is
in the U.S. national interest, waive the application of sanctions. ILSA
also is narrowly targeted at foreign companies and does not in any way
restrict agricultural or medicinal trade between American companies and
Iran.
The point of ILSA is twofold: to raise the cost of Iran's dangerous
policies and to delay the time for it to acquire weapons of mass
destruction. And on that score I would argue ILSA has been very
successful. Unless Iran is able to somehow obtain fissile material, it
will have to master the entire nuclear fuel cycle in order to
indigenously produce weapons-grade material. That is a long and costly
endeavor. Raising the costs and delaying the timeline may allow for
real political change in Iran. As we have seen from Iran's continuing
efforts to seek weapons of mass destruction and support terrorism, ILSA
alone is not enough but it is a necessary policy tool of our Government
to delay Iranian success in these efforts as long as possible.
I have no doubt that the vast majority of Iranians would end
clerical rule if they had the opportunity to do so. One reason so-
called clerical ``moderates'' do so well in Iranian elections is that
they are the most moderate allowed to run. They are, nevertheless, part
of the clerical regime, and Iran has been experiencing considerable
civil unrest over the past year in opposition to the regime.
Unfortunately, we have seen no evidence whatsoever of any
``moderation'' in Iranian foreign or national security policy and the
changes at home have been minor and are reversible. Witness the nine
Iranian Jews that have been falsely charged and imprisoned; the closing
of Iranian dissident newspapers; and the arrest of dissident leaders.
In short, our hope must be that we are able to delay Iran's
acquisition of weapons of mass destruction long enough so that
political change may occur. That is one of the underlying objectives of
ILSA and it is based on historic experience elsewhere. In the early
1980's, Argentina, Brazil, and Chile all had nuclear weapons programs.
All were ruled by the military. The United States imposed restrictions
in nuclear commerce with the three. Today, all three are democracies,
and none of them have nuclear weapons programs. Delay allowed
eventually for political change and an end to a nuclear proliferation
threat.
If Congress does renew ILSA for another 5 years, as I hope it will,
it will send a new message to those now eagerly anticipating its
demise. It will reinvigorate the deterrent effect of ILSA, and do so
just at the start of a new Administration.
If ILSA Is Not Renewed
Put simply, were ILSA allowed to lapse, it would be broadly
interpreted by the Iranian regime, and others, as a weakening of
America's opposition to Iran's policies and programs that threaten our
vital interests. Iran has done nothing to warrant such a reward.
Indeed, even those who have argued these past years that Iranian
moderation was forthcoming have to admit that the Islamic Republic's
international behavior has deteriorated not improved. Its weapons
development program has accelerated; its financial and arms support for
terrorists has increased both quantitatively and qualitatively; and its
objections to an Israel-Arab peace process are as vociferous as ever.
Based on this record, we would not only fail to derive any benefit
from allowing ILSA to lapse, but also we would put our country and our
allies at even greater risk.
Over the past 3 years, the United States has made it clear to Iran
that we wished to improve relations. We took several unilateral steps
that were all rebuffed. We eased import restrictions on some Iranian
products; we provided greater ease of travel between Iran and the
United States and even encouraged Americans to visit; we sought to open
a dialogue with the Iranian regime--all to no avail. Hard-line clerics
shut down every initiative while continuing to pursue policies and
programs inimical to our interests.
But couldn't the lapsing of ILSA be seen as a gesture of support to
Iranian moderates? Quite the contrary. The expiration of ILSA would
provide Iran a potential windfall by allowing unfettered foreign
investment in its petroleum industry, thereby securing its petroleum
capabilities--and its ability to fund its weapons programs and support
of terrorism--indefinitely. It would secure the hard-liners in power.
And it would be seen by moderates hoping for political change in Iran
as a weakening of America's posture against the very regime they seek
to change.
Thus, Mr. Chairman, I strongly urge the Congress to renew the Iran
and Libya Sanctions Act. Iranian behavior demands it; ILSA has met the
test and proven its effectiveness over time; and its expiration now
would be a major, and totally undeserved, victory for the Islamic
Republic, leading to potentially disastrous consequences to vital
American national interests. We must, in short, remain vigilant and
steadfast.
----------
PREPARED STATEMENT OF WILLIAM A. REINSCH
President, National Foreign Trade Council, Inc.
Vice Chairman of USA*Engage
June 28, 2001
Mr. Chairman and Members of the Committee, I am William Reinsch,
President of the National Foreign Trade Council, an association of more
than 500 U.S. companies engaged in international trade and investment.
I am also appearing today as Vice Chairman of USA*Engage, a broad-based
coalition of over 670 American companies and trade and agricultural
organizations that support sanctions reform. My comments today will
focus primarily on the Iran and Libya Sanctions Act (ILSA), but will
also address the U.S. Executive Orders that impose unilateral sanctions
against Iran and Libya.
We support ILSA's goals--``preventing proliferation of weapons of
mass destruction and the means to deliver them and acts of
international terrorism''--and we support full compliance by Libya with
U.N. Security Council Resolutions regarding the destruction of Pan Am
Flight 103; however, we believe ILSA has not been effective in
achieving those goals but has, in fact, been counterproductive. Simply
maintaining it in place will not increase its prospects of success.
Instead, we urge Congress to work with the Administration as it
develops its policy toward Iran and Libya. We also urge Congress to
continue its review of the utility of using unilateral sanctions as an
instrument of foreign policy.
The bill that you have before you today, S. 994, would extend ILSA
for 5 more years. We are opposed to renewing these sanctions because
they have been inef-
fective, costly to American economic interests, and posed significant
diplomatic complications for the United States. The Bush Administration
has asked for a 2 year extension of ILSA to provide time for them to
conduct a thorough review of sanctions policy broadly and specific
sanctions laws, such as ILSA. Although we certainly prefer that ILSA
not be renewed for any length of time, we believe that the
Administration's request is preferable to a 5 year extension.
The theory of ILSA in 1996 was that the United States, acting
unilaterally, could deny Iran the capital it needed to develop its most
lucrative exports, oil and gas. That, in turn, was expected to reduce
resources available for development of weapons of mass destruction and
support for terrorism. In the case of Libya, the objective was
primarily to gain leverage for compliance with the U.N. resolutions on
the terrorist attack on Pan Am Flight 103. Significantly, ILSA was intended
to block foreign companies from making investments that the Executive Orders
of 1995 prevented U.S. companies from making--in other words to make
sanctions against Iran and Libya equitable with respect to investment.
Now, 5 years later, advocates of renewal argue that ILSA should be
extended because it has succeeded--that is, because it has successfully
deterred new foreign investment in Iran's energy sector. Any objective
review of the record will conclude that ILSA has failed in its key
objective of stopping major foreign investments in oil and gas
development.
Ironically, advocates of renewal also argue that this secondary
boycott must be renewed because, in effect, ILSA has failed--Iran is
still able to finance development of weapons of mass destruction and
terrorism. Either way, ILSA has been entirely ineffective and
counterproductive for U.S. interests.
That latter point is crucial, because we would hope the Committee
would view ILSA in light of our national interests. If it were
achieving our policy goals, we would be here testifying in support of
it. However, it is not advancing its stated purposes; it is creating
collateral diplomatic damage to U.S. interests for essentially symbolic
purposes. It has created precisely the situation it sought to avoid--
Iran and Libya are increasingly able to develop their oil and gas
reserves through foreign investments from which American firms are
excluded. In short, it does not meet a national interest test.
Having ILSA on the books strains U.S. diplomatic relations with its
allies because of their resentment of its secondary boycott. Further,
if ILSA waivers were not granted, the economic costs for U.S. firms
would increase because of retaliation by other countries. Finally,
ILSA's attempt to target the oil and gas production of two key energy-
producing countries runs counter to U.S. long-term energy security
requirements. United States and worldwide demand for oil and gas is
rising rapidly. The world has entered a dangerous period of energy
scarcity.
Under these circumstances, it is shortsighted to try to diminish
Iranian and Libyan energy production capabilities. In fact, a recent
study shows that if we were actually successful in reducing Iran and
Libya's oil production, it would have the perverse consequence of
raising world oil prices, increasing revenues to the sanctioned
countries and costing U.S. consumers over $150 billion.
Of course, it is the world price of oil and these countries'
ability to produce it that determines Iran and Libya's income from oil
and gas production, not United States sanctions. It is that rising
price level that is encouraging exactly the investment ILSA sought to
block. There is no evidence that ILSA can deter foreign investment in
Iran or Libya's energy sector. On the contrary, both Iran and Libya are
receiving significant capital investment in their oil and gas sectors.
Stark evidence of this is now coming to light. Last March, the
Congressional Research Service reported that $10.5 billion of foreign
investment has taken place in Iran's oil and gas sector since 1997.
Iran expects $1.5 billion to be invested in its petrochemical sector
this year. These investors are from France, Canada, Italy, the
Netherlands, the UK, Japan, and Norway--companies from our closest
allies and most important trading partners, which have not joined our
sanctions nor been deterred by the threat of ILSA.
On June 21 the Financial Times reported that the chairman of
British Petroleum announced plans to start ``some sizable'' business in
Iran, after delaying in the past in order not to ``unnecessarily upset
our U.S. interests.'' That same day, The Wall Street Journal reported
that four more large European oil companies were planning major
investments in Iran: a $1 billion deal by Italy's EniSpa, and $3
billion from various projects by Royal Dutch/Shell, France's
TotalFinaElf SA and Spain's Cepsa.
Exclusion of United States firms from Iran and ineffective
sanctions against foreign firms will not determine how Iran uses its
oil revenues. The desire of either Iran or Libya to support terrorism
or pursue development of weapons of mass destruction is a national
interest calculation, not a function of their oil and gas revenues.
These issues are important, but they require a more sophisticated and
targeted approach than ILSA, which is a very blunt instrument.
Mr. Chairman, unilateral sanctions have not only failed to achieve
their stated purposes, but also we believe they cannot achieve them. To
prolong their life may provide the illusion of taking action, but
nothing more. Equally important, if the benefits are ephemeral, the
costs are real. Unilateral sanctions are doing significant damage to
U.S. commercial prospects at a time of economic downturn and energy
shortage. If ILSA were to make Iranian and Libyan oil production less
efficient and thereby reduce their contribution to world oil supplies,
oil prices would increase. To the extent that U.S. exports to these
countries are prohibited, the American workers and farmers are damaged,
and U.S. consumer product manufacturers are seriously compromised in
their future competitiveness in those markets. Foreign affiliates of
U.S. companies, where they need parent company approval, are also
excluded from these countries; yet U.S. foreign affiliate sales are
three times as large as total U.S. exports ($2.4 trillion in 1998).
ILSA has not only failed to stop foreign investment in Iran's
energy development. It has also been a major irritant in our relations
with countries whose cooperation we need to conduct an effective policy
toward Iran and Libya. We know for a fact that foreign investment will
continue to flow into Iran and Libya's energy sectors, especially under
current world energy supply conditions. The question is whether we
continue our futile effort to prevent them.
Some argue that ILSA has not worked because it has not been tried.
In fact, ILSA could not have worked. ILSA forces the President either
to implement sanctions that he knows will be ineffective and
counterproductive or waive the law. That is what happened the one time
the President was called upon to use ILSA. In 1998, after three non-
U.S. oil companies had been awarded a multibillion dollar contract to
develop Iran's South Pars oil field, the Clinton Administration waived
ILSA sanctions on Russian, French, and Malaysian companies. It took
this action, among other reasons, to prevent retaliation against U.S.
firms and to avoid provoking a trade war with the European Union, which
regards secondary boycotts, such as ILSA, as illegal under the World
Trade Organization. It is also ironic that U.S. law prohibits American
companies from cooperating with secondary boycotts; yet in the case of
ILSA we are imposing one and insisting that are allies comply with it,
which can only undercut our efforts to weaken the Arab boycott of
Israel.
Implementation of ILSA today, just as the United States is
preparing for a new round of global trade talks in which EU cooperation
is crucial, would involve this country in another bitter trade dispute
with the EU. It is clear that implementation of ILSA, indeed the
reauthorization of ILSA, puts us at serious odds with our
major allies and threatens cooperative action on a range of issues,
including policy toward Iran and Libya. Nor does the inclusion of
Presidential waiver authority mitigate the negative impact of a
reauthorized ILSA. If the Act is waived, it becomes meaningless. If it is
not waived, the negative effects cited in this testimony will be
exacerbated.
There is no evidence that ILSA can deter foreign investment in Iran
or Libya's energy sector. Furthermore the rising price of oil insures
that Iran's oil revenues will increase, U.S. sanctions notwithstanding.
The only ``success'' of our sanctions policy toward Iran and Libya has
been ceding those markets to our foreign competitors. Let me cite a few
examples:
World oil prices are a powerful incentive to foreign oil firms
to invest in Libya and Iran, which are now ranked numbers one and
two for new petroleum exploration projects by 85 international oil
firms polled in March by a British research firm;
United States efforts to isolate Iran are creating distortions
in the development of the considerable petroleum resources of the
Caspian region and putting United States firms at a disadvantage
there;
Iran Air and Libyan Arab Air have reportedly signed contracts
worth several
billion dollars with Airbus;
In 1999 Caterpillar lost a major turbine contract in Turkey to
its European
competitors because of U.S. Government uncertainty over whether
ILSA sanctions applied.
As a result of the ILSA and the 1995 Executive Orders,
Caterpillar has been forced to cede its Iran market to Europe.
Hardest hit has been its subsidiary, Solar Turbines, Inc. in San
Diego, which lost its market to Novo Pignone in Italy.
Royal-Dutch Shell announced last month that it will begin
pumping oil in November from its $800 million investment in two
Iranian oil fields that will yield 190,000 barrels a day in 2
years;
Iran is the largest automotive market in the Middle East with
172,000 new motor vehicles being sold in 1999 and with vehicle
sales of 500,000 a year forecast by 2003. Iran's huge growth
potential as a market for vehicles will be met by European,
Japanese and Korean automakers;
Unilateral sanctions hurt American farmers, who are
effectively excluded from Iran's $2-3 billion agricultural market
by strict U.S. licensing and the strong EU relationships built up
before last year's legislation exempting food and medicine from
sanctions programs.
Mr. Chairman, the Bush Administration is currently conducting a
review of all United States unilateral sanctions policies, including
Iran and Libya. Iran has just reelected its reformist president by a
landslide majority. Most of the population has been born since the 1979
revolution. The ultimate direction of the country's policies is very
much in doubt. It would be unwise in the extreme for Congress to
continue sanctions or impose new ones on the heels of President
Khatami's victory and before the new U.S. Administration has developed
its policy.
In the case of Libya, the end of the Lockerbie trial offers an
opportunity to bring an end to a long period of confrontation in our
relations. While Libya must still fully comply with U.N. resolutions
requiring appropriate compensation to the victims' families and
acceptance of responsibility, the United States should encourage
positive trends in Libyan behavior. Passing a new version of ILSA will
have no impact on European and Asian investment in Libya but would
signal that the United States does not acknowledge the progress that
has been made.
We conclude, therefore, that United States sanctions on Iran have
not had their intended effect of changing Iranian behavior, that ILSA
in particular has not been effective in isolating Iran or Libya, but
that it has been very effective in isolating the United States from
these two countries and imposing significant economic costs on us. This
is the opposite of the ``smart sanctions'' policy that the Secretary of
State is trying to develop. The consequences in the case of Iran are
especially far reaching given the geographic and strategic importance
of the country.
We are convinced that expanded private contact with Iran, including
business contact, will reinforce positive trends in that country in the
long term. But let me be very clear. A decision by the Congress not to
renew ILSA is not a concession to Iran or to Libya. Renewing ILSA sends
a decidedly negative message that ignores changes that have taken place
since 1996 and sends a powerful message to our
European allies that we are continuing a failed unilateral policy.
Allowing ILSA to expire would clear the way for a new policy based on
current realities and better designed to U.S. interests and carefully
considered policy objectives. Acceding to the Administration's request
for a 2 year extension will at least permit a sober reconsideration of
policies that will serve the U.S. national interest. We believe the
choice is clear.
----------
PREPARED STATEMENT OF WILLIAM F. MARTIN
Chairman, Washington Policy & Analysis
June 28, 2001
Good morning. My name is William Martin. I am delighted to be here
today to testify on the reauthorization of the Iran and Libya Sanctions
Act of 1996.
I am an energy economist by training. I am the Chairman of the
Council on Foreign Relations Energy Security Group and the Chairman of
Washington Policy & Analysis, Inc., an international energy consulting
firm. I served as Deputy Secretary of Energy and Executive Secretary of
the National Security Council under President Reagan.
The purpose of my testimony today is to share with you the results
of a recent study conducted by my firm. It investigated the impact of
sanctions on current and future energy markets and the ensuing effects
on the American, and world economies. This study is consistent with the
Administration's National Energy Policy
recommendation that President Bush ``direct the Secretaries of State,
Treasury, and Commerce to launch a comprehensive review of U.S.
sanctions policy.''
While a comprehensive review requires inquiries into national
security, economic, energy, and foreign policy issues, WPA focused on
how sanctions affect energy supply, demand and pricing. Its inquiry
addressed four key areas:
1. What is the state of the global oil market? How well can
the world respond to rising demand or to supply disruptions?
2. What effects do maintaining sanctions against Iran, Iraq,
and Libya have on energy prices? What effect do rising prices
have on the world and on U.S. economies?
3. How do unilateral United States sanctions against Iran and
Libya affect their energy sectors?
4. How would lifting unilateral sanctions against Iran and
Libya and modifying multilateral sanctions against Iraq affect
the global energy balance and prices? Do sanctions
unintentionally provide Iran, Iraq, and Libya with higher
revenues than what they would earn in the absence of sanctions?
Findings and Recommendations
In our study, WPA used its global energy model to develop a base
case scenario for the future world oil market. It then created a second
case to model how changes in sanctions policies toward Iran, Iraq, and
Libya could affect the market. This comparative analysis led to the
following findings.
What is the state of the global oil market? How well can the world
respond to rising demand or to supply disruptions?
The global oil supply is a cause for concern. After decades of
whittling away at surplus production capacity to the point where it has
almost vanished, energy markets are so tightly balanced that they
threaten global economic growth. If there were even a short-lived
disruption of energy supplies, the oil market would have less
flexibility to respond than in earlier decades for several reasons:
Oil demand continues to grow steadily globally. Overall,
demand in developing, non-OECD countries is growing at a rate that
is 75 percent faster than in OECD countries; in the world's most
populous nations--China and India--demand is growing at a rate that
is 400 percent faster.
Many of the countries in which demand is growing the fastest
neither participate in International Energy Agency (IEA) agreements
nor hold strategic stocks.
Average commercial stock levels are low due to just-in-time
inventory management practices.
OPEC surplus capacity has dwindled from 11 million barrels per
day (mbd) in the mid-1980's (equal to 18 percent of global demand)
to about 3 mbd in 2001 (equal to 4 percent of global demand).
The world's oil producers, including both private companies
and state-controlled entities, are close to fully utilizing the
production capability they have to meet current global oil demand;
OPEC capacity utilization is now pushing toward the 95 percent
level.
New production capacity is growing at slower than historical
rates in Saudi Arabia and Kuwait, which control about 65 percent of
the world's spare capacity, due to more conservative policies and
domestic issues.
Given these conditions, the world now faces the tightest balance
between readily accessible supply and global oil demand that it has
experienced in many decades. As seen below, WPA expects global demand
to grow by 1-2 mbd per day over the next several years, despite
assumptions of a near-term economic slowdown and modest 2.5 percent
global average growth over the 2001-2008 study period. On the supply
side, WPA assumes aggressive growth in OPEC and non-OPEC production
growth when compared to growth rates over the last decade--a 20 percent
increase in OPEC's production growth rate and a 55 percent increase in
non-OPEC supply growth by 2004. [Refer to Annex A.]
Nevertheless, WPA forecasts shortfalls, even with steady increases
in global oil production under stable conditions and in the absence of
any major disruptive events. WPA recognizes that no actual shortfall
exists; in reality, the market always balances. The growing notional
gap suggests a greater likelihood of price increases because oil prices
are set at the margin of supply and demand; even a small surplus or
deficit can cause wide price swings. Thus, the already fragile world
and American economies remain vulnerable to oil prices rising from
today's high levels.
The diminished OPEC supply cushion also has troubling implications
for the ability of oil-consuming countries to weather major oil supply
disruptions, which have occurred roughly every 5 to 7 years since the
1970's. For the reasons discussed earlier, commercial stock release,
surge capacity and the International Energy Agency system--the three
key instruments the world relies on to respond to crises--could be less
effective than they have been previously.
What effects do maintaining sanctions against Iran, Iraq, and Libya
have on energy prices? What effect do rising prices have on the world
and U.S. economies?
United States sanctions against Iran and Libya are intended to
hinder investment in their energy sectors, but the sanctions do not
affect oil exports. Multilateral United Nations sanctions against Iraq
do limit exports and oil sector development. Recently proposed ``smart
sanctions'' against Iraq aim to limit the acquisition of dual-use
technologies. If implemented, they would permit increased Iraqi oil
exports. However, this additional amount is not sufficient to
dramatically alter the outlook for oil prices.
An environment in which sanctions are maintained could see steady
upward pressure on oil prices because they would rise as the notional
gap mentioned earlier expands. Historical evidence shows that oil
prices are set at the margin of supply and demand; even a small surplus
or deficit can cause wide oil price swings. According to the WPA Global
Energy Model, oil prices could rise to as much as $33 a barrel by 2003
and to nearly $40 per barrel by 2008 (prices in 2000 dollars).
WPA also evaluated a variety of alternative energy scenarios
involving conditions in the world oil market in 2003 and the effects of
plausible potential oil shocks. WPA concludes that supply shocks could
drive per barrel prices from $33 to nearly $40, or even higher in the
more severe scenarios. [Refer to Annex C.] These price spikes would
occur even if present response mechanisms were fully utilized. In
general, the more severe the shock scenario, the greater the degree of
oil market instability and the larger the magnitude of the price spike.
The International Monetary Fund (IMF) quantified the link between
oil price increases and economic growth in a December, 2000 research
paper. It estimated that every $5 increase in the price of crude oil
skims an average of 0.27 percent per year from the real global economic
growth rate for 3 consecutive years after the initial price spike
occurs. The effects are more pronounced for the United States, which
would experience a 0.37 percent average annual GDP decline during the
same period, according to the IMF. Therefore, WPA expects that U.S. GDP
will be at least 1 percent, or roughly $100 billion, lower in 2004 than
it would be without a notional supply gap. The economic effect would be
even more pronounced if there were unanticipated disruptions in oil
markets.
Sustained high petroleum prices take their toll on every sector of
the U.S. economy. Any significant change in the crude oil price drives
large retail price movements within the gasoline and home heating oil
markets, although refining and distribution issues also affect product
prices. If crude oil prices rise $10 a barrel to $35 in 2004, the
typical American household will spend an extra $400 annually to fuel
their cars; heating oil consumers will pay $50 a month more throughout
the winter to keep their homes warm; distribution of goods and services
will cost railroads and trucking companies an additional $10 billion
each year; and collectively, American farmers will spend $1 billion
more to fuel their tractors during the planting and harvesting seasons.
How do unilateral United States sanctions against Iran and Libya
affect their energy sectors?
How effective United States sanctions against Iran and Libya have
been in achieving their national security objectives is the subject of
much debate. Some analysts argue that foreign oil firms are ready to
disregard American sanctions and aggressively move forward with plans
to exploit some of the largest fields in Iran and Libya. Many of these
companies have the technological ability to quickly expand production
capacity without United States participation. In fact, Iran has signed
contracts worth more than $10 billion with foreign oil firms over the
past 5 years.
The situation is not that simple, however. U.S. sanctions and
Executive Orders prohibit American investment and hinder non-U.S.
companies' activities by creating political uncertainty surrounding
Washington's response to violations. Furthermore, the SEC recently
declared that it considers investments in sanctioned countries to
represent significant material risk for investors. The SEC requires
foreign businesses raising funds in U.S. capital markets to publicly
disclose their dealings with the sanctioned countries and file the
information electronically, making these companies more vulnerable to
scrutiny.
However, for the purposes of this study, WPA does not purport to
take a position on the merits or effectiveness of U.S. sanctions
policy. The only intent is to evaluate how future enforcement of
sanctions could impact the ability to bring adequate oil supplies to
market and alleviate higher energy prices over the short to long term.
Based on these considerations, WPA assumes only modest increases in
oil production from Iran and Iraq--400,000 barrels per day by 2004--
aided by investment from international oil companies, even if sanctions
are maintained. WPA expects Libyan production to remain at current
levels. By factoring these expectations into the Global Energy model,
WPA projects that much greater production levels are needed to relieve
the tight oil market situation and thus lower prices.
Over the past 18 months, high oil prices have bolstered
international oil firms' balance sheets, enabling the expansion of
exploration and production activities worldwide. Although capital
investment is occurring, the most promising and the lowest-cost
properties remain in countries under U.S. sanctions. Libya and Iran
were the two nations considered most attractive for new venture
activity in a survey of 85 international oil firms by UK-based
Robertson Research; Iraq came in eighth. Not surprisingly, Iraq, Iran,
and Libya have the second, third, and sixth largest remaining reserves,
according to U.S. Geological Survey figures.
Yet rather than immediately reinvesting portions of their profits
in exploration plays that carry more geologic risk, or in acreage that
will result in high production costs, major U.S. oil firms are buying
back their stock. They have announced some $10 billion in stock
repurchases in the past year, clearly signaling that share buybacks are
currently one of the best uses for available cash. If sanctions are
lifted, however, Iran and Libya could offer American petroleum
companies the opportunity to invest in some of the world's most
prolific, and easily accessible, reserves. Such investment
opportunities would perhaps present lucrative alternatives to stock
buybacks and bring more supply to the market.
How would lifting unilateral sanctions against Iran and Libya and
modifying multilateral sanctions against Iraq affect the global energy
balance and prices? Do sanctions unintentionally provide Iran, Iraq,
and Libya with higher revenues than what they would earn in the absence
of sanctions?
United States sanctions were imposed against Iran and Libya in 1996
when oil markets were in surplus and featured relatively low oil
prices. In addition, preparations were being made to reintroduce
significant volumes of Iraqi oil into an amply supplied market under
the United Nations' Oil-for-Aid Program. Iraq's production quickly
ramped up by more than 2 mbd from late 1996 to mid-1998. The oil market
has tightened substantially since then as global demand growth has
outpaced new supplies and driven oil prices higher.
If United States unilateral sanctions are removed and U.N.
multilateral sanctions are modified, WPA projects that oil output from
Iran, Iraq, and Libya combined could increase 3 mbd by 2004; as much as
5 mbd of new supply could be forthcoming from these three countries by
2008. Over the longer term, such supply expansions are large enough to
potentially reduce oil prices by some $12 a barrel in 2004 and by
roughly $16 a barrel in 2008, as illustrated below.
Furthermore, the supply expansion that is likely to result from
both lifting sanctions against Iran and Libya and modifying sanctions
against Iraq goes a long way toward closing the notional gap between
supply and demand. The additional supply would also provide a cushion
to help ease the effects of potential future oil shocks later in this
decade, as shown in the table below. [Refer to Annex B.]
Ironically, WPA's analysis reveals that U.S. sanctions may
unintentionally provide the targeted nations with greater oil revenues
than what they would earn in the absence of sanctions. In fact, lifting
sanctions could reduce the collective revenues accrued by Iran, Iraq,
and Libya--even as their production rises--because prices will drop
precipitously in a well-supplied market. The subsequent price declines
would actually cut their oil revenues by billions of dollars annually.
For example, in the table on the next page, WPA predicts a $35 a
barrel oil price in 2004 if sanctions are maintained and a $23 a barrel
oil price if sanctions are removed. With sanctions, WPA estimates Iran
would produce 3.8 mbd of oil and generate $133 million a day in
revenues (3.8 mbd $35 = $133 million). Without sanctions, WPA
projects that Iranian production could reach 5.0 mbd by 2004 and
revenues would fall to $115 million a day due to the lower oil price (5
mbd $23 = $115 million).
The figures work similarly for Iraq; WPA predicts slightly higher
revenues for Libya due to the increased production. Yet collective
daily revenues in 2004 would decline slightly over $27 million from
$287 million with sanctions to about $260 million without sanctions;
annual 2004 revenues would be nearly $10 billion lower ($27.1 million
365 days = $9.89 billion). If sanctions were lifted, Iran,
Iraq, and Libya's collective oil revenues for the 2002-2008 period
would be almost $63 billion lower.
Lifting sanctions would have both short- and long-term effects. The
announcement of sanctions removal could lead to a small, near-term
reduction in oil prices. It would positively signal the oil futures
market to erase any premium it holds due to concerns over a lack of
future oil supplies, which WPA believes could be approximately $0.50-$1
a barrel.
If sanctions are lifted, it is reasonable to expect changes in the
dynamics of OPEC production restraint and quota allocations within a
year or two. As more oil firms ink deals with the formerly sanctioned
countries, Saudi Arabia and Kuwait may seek production quota increases
to preemptively position themselves to boost their market shares before
more Iranian, Iraqi, and Libyan oil comes on stream. Such intra-OPEC
competition would likely push crude oil prices down by several dollars
per barrel. Most energy economists agree that a competitive environment
among OPEC members strongly diminishes the cartel's ability to exercise
supply restraint and therefore dilutes their influence on oil prices.
Over the medium- to long-term, crude prices will gradually trend
downward as global oil supplies expand with the lifting of sanctions.
As lower crude costs for refiners move through the distribution system
to retail outlets, prices for consumer products, including gasoline and
home heating oil, will experience comparable declines. Lower oil prices
should translate into average retail prices at the gasoline pump in the
area of $1.00-$1.50 a gallon compared to a $2.00-$2.50 a gallon range
that could occur if sanctions are maintained.
In conclusion, the National Energy Policy recommendation that
President Bush have the Secretaries of State, Treasury, and Commerce
initiate a comprehensive review of U.S. sanctions policy is extremely
timely and well advised. The tightness and inflexibility of the world
oil market make it both unprepared for the looming supply shortfalls
that WPA forecasts and especially vulnerable to major supply shocks.
To combat these distressing conditions, WPA suggests that the
unilateral sanctions on Iran and Libya, which were imposed when the
world oil market was in surplus, be reviewed with greater sensitivity
to global energy needs. Replacing the unilateral sanctions and
modifying the United Nations sanctions on Iraq would provide 3 mbd of
additional supply by 2004 and as much as 5 mbd of additional supply by
2008. These amounts would relieve increasing upward pressure on oil
prices and create a modest supply cushion to help alleviate price
spikes during any unforeseen oil supply disruptions.
It is also likely that Iran, Iraq, and Libya would earn less from
oil sales in the absence of sanctions than what they would receive in
the presence of ongoing sanctions. For example, WPA's analysis
indicates that their collective revenues would be almost $10 billion
lower in 2004 without sanctions than what they would realize with
sanctions. This surprising, counterintuitive finding, combined with the
upward pressure on oil prices to which sanctions contribute, argues
strongly for a reappraisal of sanctions and the consideration of
alternative approaches to achieve the Nation's energy and national
security goals.
Thank you for inviting me to speak here today. I look forward to
answering any questions that you may have.
PREPARED STATEMENT OF WILLARD M. BERRY
President, European-American Business Council
June 28, 2001
Introduction
Mr. Chairman and Members of the Committee, thank you very much for
the opportunity to provide written testimony on the proposed
reauthorization of the Iran and Libya Sanctions Act. I am Willard M.
Berry, President of the European-American Business Council, or EABC.
The Council is the one transatlantic organization that regularly
provides actionable information on policy developments and works with
officials in both the United States and Europe to secure a more open
trade and investment climate.
Comprised of over 80 United States and European Union companies,
EABC is the leading business association active on transatlantic trade,
tax and investment, and policy issues. The EABC is viewed as highly
substantive, unique in both its membership composition and in its
recognized role as an authoritative, highly credible and effective
voice on transatlantic policy issues. EABC's work includes providing a
forum for dialogue on transatlantic issues; preventing European Union-
United States disputes and roadblocks to desirable policy outcomes;
shaping quality
and workable issue strategies; and helping member companies achieve
business
objectives.
The EABC works to resolve transatlantic disputes as they arise and
to support the transatlantic trade and investment relationship, which
is of critical importance to American companies and consumers. A
healthy and effective transatlantic relationship is also critical to
move forward global trading and investment rules.
The Transatlantic Economic Relationship
The European Union and the United States are both global economic
powers. Their combined GDP is around 56 percent of the world total.
Forty percent of world trade is conducted between the United States and
the European Union. Clearly, any successful agenda of world trade
liberalization requires bilateral cooperation.
Looking closely at United States-European Union trade and
investment, we see a substantial economic relationship, which is
unmatched in its magnitude, is essentially balanced and is mutually
beneficial. If you add up the $552 billion in two-way trade between the
United States and the European Union in 1999, the cross investment of
more than $1 trillion, and the sales of United States and European
Union company affiliates in each other's market, we find an economic
relationship of more than $2 trillion. The United States is the
European Union's largest single trading partner and vice versa,
accounting for 20 percent of each other's trade in goods and 33 percent
in services. Forty percent of transatlantic trade in goods in
intracompany trade.
Trade and investment flows between the United States and Europe
provide real benefits for Americans and Europeans. More than seven
million U.S. jobs depend on European investment in the United States,
including 3.6 million Americans directly employed by European-owned
companies. United States investment in Europe has a similar employment
impact. One quarter of all United States exports go to Europe and those
exports support 1.6 million jobs in the United States.
Europe is the largest foreign investor in 43 of 50 United States
States and number two in the remaining seven. It is the number one or
two export market for 42 States. Just to cite one example, Mr.
Chairman, Europe is Maryland's number one export market and your State
sold $3.7 billion of goods to Europe last year alone. These exports
support 14,000 jobs (in Maryland). European investment accounts for
more than 64 percent, or about $6.8 billion, of the total foreign
investment in your State and direct investment from Europe supports
more than 73,000 jobs in Maryland. Senator Gramm, European direct
investments in Texas totaled more than $58.3 billion in 1998, the
largest amount of direct investment of all U.S. States, supporting
235,300 jobs. Merchandise exports to Europe alone support an estimated
77,100 jobs in Texas.
The Iran and Libya Sanctions Act
The EABC, like many other business groups, cannot support the
reauthorization of ILSA. We see this primarily in cost-benefit terms.
ILSA, since its inception in 1996, has failed to reach its goal to
change the behavior of the target regimes. The effectiveness of an
economic sanction should be measured not by the volume of business
activity deterred in Iran, but rather by improved behavior on part of
the target regime. There is no clear evidence that ILSA has
significantly improved the behavior of the target regimes. This, as a
matter of fact, was recently pointed out by House Middle East and South
Asia Subcommittee Chairman Gilman in a May 20 hearing on the
reauthorization of the ILSA legislation. ``It is regrettable that
Iranian behavior has not changed for the better,'' he said.
The fact that unilateral sanctions do not work is reflected in the
law's inability to stop foreign investment flows in the petroleum
sectors into Libya and Iran. The law requires the President to apply
two out of a possible seven sanctions to companies, United States or
foreign, that invest more than $40 million per year in the Libyan
petroleum sector and $20 million in the Iranian petroleum sector. Since
1997, Iran has received more than $10.5 billion in foreign investment.
At the same time, however, ILSA has imposed tangible costs on companies
and has had real negative consequences for U.S.-based firms as is shown
later in this testimony.
Cost of ILSA
In the case of ILSA, as in other sanction measures, supporters of
what is a laudable cause--stopping global terrorism--often do not
realize that economic sanctions involve considerable trade-offs. U.S.
sanction measures can have a significant negative impact on the U.S.
economy, your political constituencies and on the competitive position
of multinational companies which, in turn, contribute to the health of
your States' economies.
Negative effects of U.S. sanctions include fewer joint ventures
opportunities, a key aspect of global competitiveness, fewer U.S. jobs,
severed relationships with key suppliers, less investment outside the
United States--and we know that companies cannot really compete in
markets where they do not have a presence--and reduced U.S. exports.
There are ``costs'' for both United States and European-based
companies, although the ``costs'' are different for each. For United
States-based companies, the most commonly cited ``costs'' are fewer
joint venture opportunities and less investment outside the United
States. For European-based firms, which constitute an important element
in the economic base of most U.S. States, there will be less investment
in the United States and fewer opportunities to work in cooperative
ventures with United States-based firms. European-based companies are
often inclined to withdraw investment from the United States and
relocate to other, more congenial, markets.
In 1997, the EABC conducted a study to examine the effect of
sanctions on transatlantic corporations. This study was conducted after
the establishment of the ILSA regime, and is the only study to closely
examine the business impacts of particular sanctions measures and the
business responses to these measures. Among the firms we surveyed,
which include both United States and European companies, 76 percent
said that sanctions had had an effect on their worldwide operations and
62 percent said that their U.S. operations had been affected. Forty-
four percent of companies said they had had to forego a business
opportunity to comply with a sanction law and 81 percent had increased
costs, costs, which had not been budgeted in their business plans, to
cover routine compliance measures.
Sixty-six percent of our survey respondents say that ILSA has
negatively affected their operations. Joint ventures are particularly
sensitive to sanctions, and 37.8 percent of our respondents cited that
sanctions reduce the ability to participate in joint ventures. This is
manifest in employment cuts, and 33.6 percent of the surveyed companies
said that sanctions result in lost U.S. jobs. Besides the direct effect
of few joint ventures, and lower job growth, sanctions also affect
other business activity. For example, they sever supply relationships
(27.2 percent) and they reduce investment outside the United States
(26.2 percent). They result in fewer exports to Europe (24.2 percent),
less investment in the United States (23.8 percent), fewer U.S. imports
(13.2 percent), closures of U.S. operations (21.4 percent), and
reductions of operations outside of the United States (19.6 percent).
These costs have important ramifications when considering the
magnitude of the transatlantic commercial relationship. Nearly 7
million United States jobs are tied to European investment in the
United States, including 3.6 million Americans directly employed by
European-owned companies. European firms account for 62 percent of
United States jobs created by international investment. In fact, 12.5
percent of United States manufacturing jobs are supported by European
investment. United States exports to Europe support 1.6 million jobs.
In calculating the cost of United States unilateral sanctions, it
is important to keep in mind that European investment has been a real
engine of United States economic growth. It brings real benefits to
most of the U.S. States' economies. Foreign direct investment from
Europe increased by $245 billion, or 34 percent, in 2000, according to
U.S. Department of Commerce (DOC) data released in June 2001. The
growth followed a 37 percent increase in 1999 and a 39 percent increase
in 1998. European direct investment increased from $528.6 billion in
1998 to $929.7 billion last year.
The May 1998 European Union-United States Understanding
The United States and the European Union share a number of common
goals which both have recognized can only be achieved through close
cooperation. This cooperation is especially important in efforts to
strengthen respects for human rights, to promote nonproliferation,
fight terrorism, to address crises in troubled regions and much more.
The benefits and need of cooperation were set out in the New
Transatlantic Agenda (NTA) in December 1995 and incorporated into the
May 1998 package of agreements between the European Union and the
United States. These agreements were aimed at solving a serious dispute
over ILSA and the Helms-
Burton law, and at setting a course for joint action between Europe and
the United States for the future. The powerful impact of EU-U.S.
cooperation will be enormously reduced with the reauthorization of
ILSA. This action undercuts what was agreed in May 1998, as well as the
framework for partnership (NTA) signed less than 3 years earlier.
In May 1998, the United States and the EU agreed to certain
principles with respect to economic sanctions policy. In order to avoid
EU-initiated WTO action on ILSA and Helms-Burton and also to avoid the
implementation of the European blocking legislation, the United States
agreed to waive sanctions against EU-based firms. At the same time, the
two allies identified sanctions as one of several possible responses to
``unacceptable behaviour'' threatening peace, democracy and prosperity.
The May agreement states that the use of sanctions ``requires careful
consideration.'' It goes on to say that:
[Economic sanctions] would be used only when diplomatic and
political options have failed or when a problem is so serious
as to require more far-reaching action. In such circumstances,
the EU and United States will make a maximum effort to ensure
that economic sanctions are multilateral. They are likely to
have the strongest political and economic impact when applied
as widely as possible throughout the international community.
Multilateral actions also distribute the costs of sanctions on
the imposing parties more evenly. Whenever possible, effective
measures taken by the U.N. Security Council are the optimal
approach.
The two parties also agreed not to ``seek or propose'' and to
``resist the passage of new economic sanctions legislation'' involving
a secondary boycott to ensure the strength of the transatlantic
partnership.
This legislative proposal before you today challenges the
principles of the May 1998 agreement with respect to economic
sanctions. If passed it could bring into play many of the different
bilateral problems it diffused. Unilateral action does not promise a
positive change in the behavior of Iran but it clearly will diminish
the capacity of the United States to work jointly with the European
Union in addressing important human rights, nonproliferation,
international terrorism and other mutual concerns.
Thank you very much, Mr. Chairman, for the opportunity to express
our views. We would be happy to respond to any questions you or any
Member of the Committee may have.