[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
              USE AND EFFECT OF UNILATERAL TRADE SANCTIONS

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 23, 1997

                               __________

                             Serial 105-60

                               __________

         Printed for the use of the Committee on Ways and Means


                                


                      U.S. GOVERNMENT PRINTING OFFICE
 54-892 CC                   WASHINGTON : 1997
------------------------------------------------------------------------------
                   For sale by the U.S. Government Printing Office
 Superintendent of Documents, Congressional Sales Office, Washington, DC 20402



                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

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

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Trade

                  PHILIP M. CRANE, Illinois, Chairman

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


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



                            C O N T E N T S

                               __________

                                                                   Page

Advisories announcing the hearing................................     2

                               WITNESSES

U.S. Department of State, Hon. Stuart E. Eizenstat, Under 
  Secretary of State for Economic, Business, and Agricultural 
  Affairs........................................................    29

                                 ______

American Farm Bureau Federation, Charles Kruse...................    64
Boeing Co., Richard R. Albrecht..................................    56
Elliott, Kimberly Ann, Institute For International Economics.....   107
European-American Business Council, Willard M. Berry.............    67
Forum for International Policy, Hon. Brent Scowcroft.............    82
Hamilton, Hon. Lee H., a Representative in Congress from the 
  State of Indiana...............................................    10
Kolbe, Hon. Jim, a Representative in Congress from the State of 
  Arizona........................................................    16
National Association of Manufacturers, Marino Marcich............   111
National Foreign Trade Council, Inc., Frank D. Kittredge.........    60
Missouri Farm Bureau, Charles Kruse,.............................    64
Ros-Lehtinen, Hon. Ileana, a Representative in Congress from the 
  State of Florida...............................................    19
USA*ENGAGE:
    Richard R. Albrecht..........................................    56
    Frank D. Kittredge...........................................    60
USA Rice Federation, Matthew Massaua.............................   115
U.S.-Cuba Trade and Economic Council, Inc., John S. Kavulich II..    71
Yeutter, Hon. Clayton K., Hogan & Hartson........................    44

                       SUBMISSIONS FOR THE RECORD

O'Quinn, Robert P., Heritage Foundation, statement...............   119
Ramstad, Hon. Jim, a Representative in Congress from the State of 
  Minnesota......................................................   121
U.S. Association of Former Members of Congress, Hon. James W. 
  Symington, statement and attachment............................   122
Wallop, Hon. Malcolm, Arlington, VA, statement...................   131


              USE AND EFFECT OF UNILATERAL TRADE SANCTIONS

                              ----------                              


                       THURSDAY, OCTOBER 23, 1997

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 11:12 a.m., in 
room 1100, Longworth House Office Building, Hon. Philip M. 
Crane (Chairman of the Subcommittee) presiding.
    [The advisories announcing the hearing follow:]

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

FOR IMMEDIATE RELEASE                           CONTACT: (202) 225-1721
September 9, 1997
No. TR-15

                     Crane Announces Hearing on the
              Use and Effect of Unilateral Trade Sanctions

    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on the use and effect of unilateral 
trade sanctions. The hearing will take place on Tuesday, September 23, 
1997, in the main Committee hearing room, 1100 Longworth House Office 
Building, beginning at 10:00 a.m.
      

BACKGROUND:

      
    A number of U.S. laws and executive actions authorize unilateral 
economic or trade sanctions on other countries or entities for a 
variety of purposes, including human rights, anti-terrorism, nuclear 
non-proliferation, political stability, anti-narcotics, worker rights, 
and environmental protection. Some examples of Presidential authorities 
to impose such sanctions include the International Emergency Economic 
Powers Act (IEEPA), the Narcotics Control Act, and the International 
Security and Development Cooperation Act of 1985.
      
    During the 104th Congress, several unilateral trade sanctions or 
measures that limit the ability of a company to trade with a particular 
country were enacted. For example, the Iran and Libya Sanctions Act of 
1996 mandates sanctions against foreign investment in the petroleum 
sectors of Iran and Libya as well as exports of weapons, oil equipment, 
and aviation equipment to Libya. These sanctions include a prohibition 
on government procurement, denial of Export-Import bank loans, denial 
of export licenses, and import sanctions under IEEPA. In addition, the 
Cuban Liberty and Democratic Solidarity Act (Helms-Burton or the 
Libertad Act) strengthened U.S. trade sanctions against Cuba. In the 
105th Congress, pending legislation includes H.R. 2431, the ``Freedom 
from Religious Persecution Act of 1997.''
      
    A recent study by the National Association of Manufacturers (NAM) 
estimates that from 1993 through 1996, 61 U.S. laws and executive 
actions were enacted authorizing unilateral economic sanctions for 
foreign policy purposes, specifically targeting 35 countries. The 
sanctioned countries, NAM reports, represent 2.3 billion potential 
customers (42 percent of the world's population) and $790 billion worth 
of export markets (19 percent of the world's total).
      
    In announcing the hearing, Chairman Crane stated: ``I have long 
been concerned about the growing tendency to resort to unilateral trade 
sanctions to enforce foreign policy or other non-trade goals. Before we 
impose sanctions, we should think long and hard about the effect of 
such sanctions on the U.S. economy and our businesses, workers, and 
consumers. There is little evidence that these sanctions have changed 
the behavior of the targeted government. Instead, the use of sanctions 
has translated into billions of dollars of lost opportunities here. I 
believe that the better policy is to pursue our goals with our trading 
partners through multilateral efforts in an attempt to achieve 
consensus.''
      

FOCUS OF THE HEARING:

      
    The focus of the hearing is to examine the use of unilateral trade 
sanctions by the United States, including both legislative and 
executive action. The Subcommittee will also assess the impact of such 
sanctions on the U.S. economy, businesses, workers, and consumers, as 
well as whether recent trade sanctions have achieved their original 
goals. Finally, the Subcommittee will examine what strategy should 
govern the resort to economic sanctions to ensure that they actually 
advance U.S. interests.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Traci Altman or Bradley Schreiber at (202) 225-1721 no later than the 
close of business, Monday, September 15, 1997. The telephone request 
should be followed by a formal written request to A.L. Singleton, Chief 
of Staff, Committee on Ways and Means, U.S. House of Representatives, 
1102 Longworth House Office Building, Washington, D.C. 20515. The staff 
of the Subcommittee on Trade will notify by telephone those scheduled 
to appear as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee on Trade staff at (202) 225-6649.
      
    In view of the limited time available to hear witnesses, the 
Subcommittee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing. All persons requesting to be heard, whether they are scheduled 
for oral testimony or not, will be notified as soon as possible after 
the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies of their 
prepared statement and an IBM compatible 3.5-inch diskette in ASCII DOS 
Text or WordPerfect 5.1 format, for review by Members prior to the 
hearing. Testimony should arrive at the Subcommittee on Trade office, 
room 1104 Longworth House Office Building, no later than Friday, 
September 19, 1997. Failure to do so may result in the witness being 
denied the opportunity to testify in person.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit at least six (6) 
single-space legal-size copies of their statement, along with an IBM 
compatible 3.5-inch diskette in ASCII DOS Text or WordPerfect 5.1 
format only, with their name, address, and hearing date noted on a 
label, by the close of business, Tuesday, October 6, 1997, to A.L. 
Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of 
Representatives, 1102 Longworth House Office Building, Washington, D.C. 
20515. If those filing written statements wish to have their statements 
distributed to the press and interested public at the hearing, they may 
deliver 200 additional copies for this purpose to the Subcommittee on 
Trade office, room 1104 Longworth House Office Building, at least one 
hour before the hearing begins.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be typed in single space on legal-size paper and may not exceed a total 
of 10 pages including attachments. At the same time written statements 
are submitted to the Committee, witnesses are now requested to submit 
their statements on an IBM compatible 3.5-inch diskette in ASCII DOS or 
WordPerfect 5.1 format. Witnesses are advised that the Committee will 
rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, full address, a telephone number where the witness or the 
designated representative may be reached and a topical outline or 
summary of the comments and recommendations in the full statement. This 
supplemental sheet will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
      

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

                                


ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

FOR IMMEDIATE RELEASE                         CONTACT: (202) 225-6649
September 22, 1997
No. TR-15-Revised

               Change in Date for Subcommittee Hearing on
            the Use and Effect of Unilateral Trade Sanctions

                      Tuesday, September 23, 1997

    Congressman Philip M. Crane (R-IL), Chairman of the Subcommittee on 
Trade of the Committee on Ways and Means, today announced that the 
Subcommittee hearing on the use and effect of unilateral trade 
sanctions, previously scheduled for Tuesday, September 23, 1997, at 
10:00 a.m., in the main Committee hearing room, 1100 Longworth House 
Office Building, will now be held on Tuesday, October 21, 1997.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit at least six (6) 
single-space legal-size copies of their statement, along with an IBM 
compatible 3.5-inch diskette in ASCII DOS Text or WordPerfect 5.1 
format only, with their name, address, and hearing date noted on a 
label, by the close of business, Tuesday, October 6, 1997, to A.L. 
Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of 
Representatives, 1102 Longworth House Office Building, Washington, D.C. 
20515. If those filing written statements wish to have their statements 
distributed to the press and interested public at the hearing, they may 
deliver 200 additional copies for this purpose to the Subcommittee on 
Trade office, room 1104 Longworth House Office Building, at least one 
hour before the hearing begins.
      
    All other details for the hearing remain the same. See Subcommittee 
press release No. TR-15, dated September 9, 1997.)

                                

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

FOR IMMEDIATE RELEASE                            CONTACT: (202) 225-6649
October 14, 1997
No. TR-15-Revised-2

                      Change in Date and Time for
                  Subcommittee Hearing on the Use and
                  Effect of Unilateral Trade Sanctions

                       Tuesday, October 21, 1997

    Congressman Philip M. Crane (R-IL), Chairman of the Subcommittee on 
Trade of the Committee on Ways and Means, today announced that the 
Subcommittee hearing on the use and effect of unilateral trade 
sanctions, previously scheduled for Tuesday, October 21, 1997, at 10:00 
a.m., in the main Committee hearing room, 1100 Longworth House Office 
Building, will now be held on Thursday, October 23, 1997, at 11:00 a.m.
      
    Witnesses scheduled to present oral testimony are required to 
deliver their statements to the Subcommittee on Trade Office, 1104 
Longworth House Office Building, no later than 12:00 noon on Tuesday, 
October 21, 1997.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit at least six (6) 
single-space legal-size copies of their statement, along with an IBM 
compatible 3.5-inch diskette in ASCII DOS Text or WordPerfect 5.1 
format only, with their name, address, and hearing date noted on a 
label, by the close of business, Thursday, November 6, 1997, to A.L. 
Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of 
Representatives, 1102 Longworth House Office Building, Washington, D.C. 
20515. If those filing written statements wish to have their statements 
distributed to the press and interested public at the hearing, they may 
deliver 200 additional copies for this purpose to the Subcommittee on 
Trade office, room 1104 Longworth House Office Building, at least one 
hour before the hearing begins.
      
    All other details for the hearing remain the same. (See 
Subcommittee press release TR-15, dated September 9, 1997, and No. TR-
15-Revised, dated September 22, 1997.)
      

                                


    Chairman Crane [presiding]. Good morning, and welcome to 
this hearing of the Ways and Means Subcommittee on Trade. The 
focus of our hearing today is to examine the use of unilateral 
trade sanctions by the United States, including both 
legislative and executive action. We will assess the impact of 
such sanctions on the U.S. economy, businesses, workers and 
consumers, as well as whether recent trade sanctions have 
achieved their original goals. Finally, we will examine what 
strategy should govern the use of economic sanctions to ensure 
that they actually advance U.S. interests.
    I have long been concerned about the growing resort to 
unilateral trade sanctions to enforce foreign policy or other 
nontrade goals. Before we impose sanctions, we should think 
long and hard about the effect of such sanctions on the U.S. 
economy and our businesses, workers, and consumers. There is 
little evidence that these sanctions have changed the behavior 
of the targeted government. Instead, the use of sanctions has 
translated into billions of dollars of lost opportunities here.
    I believe that the better policy is to pursue our goals 
with our trading partners through multilateral fora in an 
attempt to achieve consensus. Accordingly, today together with 
my colleague Congressman Hamilton, I have introduced 
legislation that would provide a framework for consideration of 
unilateral trade sanctions by the legislative and executive 
branches. The bill would not prohibit the imposition of trade 
sanctions, but it would establish a more deliberative and 
disciplined approach to U.S. sanctions policy.
    Specifically, the bill would establish consultations 
between Congress and the executive branch, as well as 
consideration of alternatives to the use of sanctions. In 
addition, the bill would ensure that Congress and the 
administration have adequate information about the likely 
effectiveness and economic and humanitarian costs of a proposed 
sanction. The bill would provide for a detailed analysis of 
whether the proposed sanction is the best tool for achieving 
U.S. objectives. Finally, the bill would impose regular 
reporting and sunset requirements. I believe that such a 
framework would allow us to pause and examine the impact the 
sanctions would have before we rush into what may be a 
counterproductive effort.
    I now recognize our distinguished Ranking Minority Member, 
Mr. Matsui for any statement he would like to make.
    Mr. Matsui. Thank you very much, Mr. Chairman, for holding 
today's hearings on the use and effect of unilateral trade 
sanctions. This is a subject that deserves a thorough public 
airing. We need to take steps and evaluate objectively the 
results, both positive and negative, of our various past 
legislative and administrative actions that have resulted in 
the imposition of unilateral U.S. sanctions.
    It seems too often in recent years we have pursued 
unilateral sanction policies that have both failed to achieve 
the original goals sought by these policies, and have resulted 
in burdensome economic costs for U.S. business and workers. 
Indeed, a recent economic analysis has estimated that some $15 
to $19 billion in annual sales of U.S. exports have been lost 
because of unilateral sanctions currently in place in the 
United States. This has in turn resulted in the loss of some 
250,000 export jobs in this country.
    Perhaps the most important economic impact for unilateral 
sanctions, however, is the damage done to its reputation of the 
United States and to companies as reliable suppliers and the 
image of the United States as an evenhanded trading partner. 
Moreover, as we have seen in recent months, our unilateral 
sanction actions have created enormous tension and friction 
with some of our major trading partners.
    Having said this, however, let me be quick to acknowledge 
that there are many circumstances when it is entirely 
appropriate to pursue unilateral sanction strategies. A key for 
public policy makers, whether they be legislators or the 
President and his Cabinet, is to identify where circumstances 
warrant the use of such sanctions and what the costs to the 
U.S. interest is, and how best to structure such sanctions so 
as to minimize frictions with third countries.
    I look forward to hearing the testimony from today's 
witnesses of this important subject. At this point, I would 
like to yield to the Ranking Member of the Subcommittee, Mr. 
Rangel, who has some observations he would like to make.
    Mr. Rangel. Thank you, Mr. Matsui.
    Thank you, Mr. Chairman.
    I cannot talk against sanctions, having been one of the 
House leaders in organizing the sanctions against South Africa 
and having seen them succeed. The difference there of course 
was that we had multinational support against South Africa. The 
question really comes is whether or not sanctions by the United 
States unilaterally, without the support of trading countries, 
makes any sense at all.
    But when it gets to the point of Cuba and Helms-Burton, the 
arrogance displayed by the United States against a free trade 
world in violation of every moral but certainly international 
code that you can think of, has brought the wrath of trading 
nations down on us in a way that even our most sophisticated 
diplomats cannot explain. But it would seem to me that beyond 
the arrogance and the embarrassment, the question is, how can 
we get rid of that dictator that we have in Cuba. Every 
economic failure that they have, they blame on the embargo. 
Every time they have a storm, they blame it on the embargo. 
Every crisis, every epidemic, they blame on the embargo. The 
truth of the matter is, that I think that Fidel Castro is in 
office because they believe it's the embargo and not his lack 
of leadership or lack of sensitivity that is causing the pain 
and distress there.
    The Cuban people are our friends. The embargo has caused 
sickness, illness, death, malnutrition, and unemployment. 
That's on the people of Cuba. It would seem to me that we ought 
to think seriously about really getting rid of the dictatorship 
because the biggest threat to dictators, and the biggest 
support of democracy is free trade. Let our businessmen get in 
there. Sell them cars, beans, rice, chicken, agricultural 
products, dairy products. Let our students be able to go there 
and show what a great America we have. Let our reporters go 
there and exchange information. Let television be there to show 
what we're doing here and what they are doing there.
    If we think this type of thing can work where you have 1 
billion Chinese in China, if we think we can work at North 
Korea, North Vietnam, why in God's name can it not work on this 
small island 90 miles from our shore? Sanctions, in order to 
get small political pleasures in small geographic districts to 
determine who is going to get the electoral college votes, is 
not worth the price we're paying for it, not just in money and 
trade, but in the integrity of the trade policy of the United 
States of America.
    Thank you, Mr. Chairman.
    [The opening statement follows:]

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

    Mr. Chairman, I thank you for holding today's hearing on 
this important topic.
    As you know, I have long been interested in the 
effectiveness, or lack thereof, of using unilateral trade 
sanctions. I believe that there are probably some limited 
instances where unilateral trade sanctions are warranted.
    The imposition of unilateral sanctions in South Africa is a 
prime example of when it is appropriate to use such tools.... 
In that case, we and the rest of the world held fast to the 
belief that such sanctions were morally and universally needed 
to overcome the evils of apartheid. Unilateral sanctions were 
widely used by many countries as a way of removing the very 
linchpins of apartheid. Moral and humanitarian issues were at 
stake. World powers came together to enforce humanitarian and 
moral rights by using a single effective tool....trade embargo.
    Trade sanctions are sometimes useful and necessary in very 
limited situations. When used in appropriate circumstances, 
they can be most effective in reaching intended results. 
However, in the vast majority of instances where unilateral 
trade sanctions are applied, I believe that the intended 
objectives sought by the imposition of sanctions is both 
ambiguous and ineffective. Cuba, is a prime example of an 
instance where sanctions are simply not accomplishing the 
intended results.
    The application of trade sanctions in Cuba was originally 
intended to topple the communist government. It was never 
intended to harm women, children or the elderly. Unfortunately, 
the stated objective has not been met. Fidel Castro is alive 
and well and still in power, notwithstanding our best efforts 
to implement sanctions. What the unilateral sanctions have done 
is to harm the weakest and most vulnerable members of Cuba's 
society. Women, children and the elderly are the ones that are 
suffering from our trade sanction policies, not Fidel Castro.
    As a result of our trade embargo, the American Association 
for World Health Executive Summary entitled The Impact of the 
US Embargo on Health & Nutrition in Cuba, concluded that the 
embargo had seriously impacted the availability of proper 
nutrition, public water treatment supply systems, and the 
dissemination of medical information, medicines and equipment. 
Clearly, the unilateral trade policies of the US Government 
should not be continued where the evidence demonstrates that 
the most vulnerable members of society, rather than the 
communist government, are being impacted. Yet we persist in 
using this ineffective tool.
    I believe that there is a better way of bringing about 
political change in Cuba. Engagement, rather than utilization 
of an ineffective unilateral trade sanction, is the better 
approach. The use of economic sanctions in Cuba has many 
drawbacks. It is counterproductive and has resulted in the 
needless backlash of anti-American sentiment. Utilization of 
economic sanctions in Cuba has impaired our relationships with 
our allies, particularly when we threaten to boycott allies 
companies, which fail to honor our trade sanctions against 
Cuba. American corporate competitiveness has been diminished as 
a result of our insistence on economic sanctions.
    The negative fallout from the use of economic sanctions is 
quite lengthy. It begs the question, why would anyone use such 
measures when its clear that they are not working? We are 
hurting our corporate interests. We are risking anti-American 
sentiment and encouraging the wrath of our allies when we 
impose trade sanctions. Why in gods name do we persist?
    Let's all take a good dose of common sense and try a 
different approach. I would like to offer my legislation, HR 
1951, as a reasonable solution and alternative approach.
    This important legislation would relax restrictions on the 
shipment and sale to Cuba of food, medicine, medical supplies 
and equipment. My legislation is aimed at helping the most 
vulnerable members of Cuba. For once Mr. Chairman, let us be 
guilty of doing the right thing at the right time. I hope you 
will consider hold another hearing on Cuba later this year. I 
would be honored to work closely with you in this endeavor.
      

                                


    Chairman Crane. Thank you. Our first witnesses now will be 
three of our colleagues, Congressman Lee Hamilton of Indiana, 
Congressman Jim Kolbe of Arizona, and Congresswoman Ileana Ros-
Lehtinen of Florida. I would like to ask that you try and keep 
your oral presentations to 5 minutes, but any written 
statements will be made a part of the permanent record.
    You may proceed in that order.

STATEMENT OF HON. LEE H. HAMILTON, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF INDIANA

    Mr. Hamilton. Thank you very much, Mr. Chairman. I, along 
with you, am introducing today this bill with respect to 
unilateral sanctions. Most of my testimony will be on that 
point.
    Let me just indicate that I think my concern here about 
unilateral sanctions has developed in the past few years for 
several reasons. We're imposing these sanctions much more 
frequently. The President's Export Council noted that more than 
75 countries are now subject to or threatened by unilateral 
sanctions. We're using a wider variety of unilateral measures 
to target a wider range of foreign conduct. The Council counted 
21 specific sanctions covering 27 different target behaviors. 
We have adopted unilateral sanctions in the last 2 years that 
are extraterritorial in scope. So this is a tool that we're 
turning to more and more frequently as a policy, as a part of 
our tool kit, as it were, in the conduct of American foreign 
policy.
    I have a lot of concerns about these unilateral sanctions. 
I think they often cost us exports. They cost us jobs. They 
cost us profits. They cost us investment opportunities. I don't 
think we have entered into these sanction laws with a full 
understanding of the impact they will have on the wide range of 
American policy interests, both public and private.
    Unilateral sanctions might be worth their price in terms of 
exports and jobs and profits and all the rest if they succeeded 
in achieving their aims. But unilateral sanctions usually do 
not achieve their aims. I think the distinction Mr. Rangel drew 
is an important one, between multilateral sanctions on the one 
hand, and unilateral on the other.
    The most alarming aspect of U.S. sanctions policy to me is 
the very weak information base upon which these unilateral 
sanction decisions are typically made. We have dozens of laws 
today that give the President the power to impose unilateral 
sanctions. We don't give him any guidelines. We don't tell him 
to follow any principles. He can just apply them whenever he 
wants to, in effect. I'm not talking now about trade sanctions. 
I am talking about unilateral sanctions designed to achieve 
certain foreign policy interests.
    So the question is what do you do about it? What should be 
done about the increasing frequency and scope of the unilateral 
sanctions? A lot of things have to be done about it. We have to 
reinvigorate multilateral diplomacy. We have got to be 
sometimes more patient with our diplomats to see that they can 
accomplish their aims. We have to exercise I think greater 
discipline in the initiatives we take legislatively. But what I 
want to emphasize here today is that I think we need to improve 
the decisionmaking process on sanctions. Before the President 
acts, before the Congress acts, we ought to have inhand better 
information about the potential costs and benefits that these 
sanctions will involve.
    So Chairman Crane, Mr. Kolbe, and I, and others have 
introduced a bill to put into place a process which will ensure 
that we have the best information before we impose these 
sanctions. The bill would reform the process by which both 
Congress and the President adopt unilateral sanctions. We have 
in the bill a number of guidelines that apply both to the 
Congress and to the President. Those guidelines include, for 
example, a 2-year sunset, a waiver authority for the President, 
protecting the sanctity of existing contracts, making sure you 
target sanctions as narrowly as possible, and minimizing any 
interference with humanitarian efforts by nongovernmental 
organizations.
    We provide a procedure to be followed in this bill that 
requires a committee of primary jurisdiction to include a 
report on a sanctions bill, an analysis by the President of the 
bill's likely impact on U.S. policy interests, U.S. economic 
interests, and U.S. humanitarian interests. We require the 
President of course to make a report before he puts sanctions 
into place. I won't go into further detail on that.
    It is important for me to say before I conclude that there 
are a lot of things this bill does not do. It does not prevent 
the Congress or the President from imposing unilateral 
sanctions. It does not impact any sanctions that are currently 
in place. We're not trying to change existing law here at all. 
The bill imposes no limitations on the foreign countries or the 
conduct that can be targeted. The bill would have no impact on 
sanctions imposed under any multilateral agreement. It does not 
have an impact on restrictions or controls on the export of 
munitions. It doesn't impact Jackson-Vanik, resolutions of 
disapproval, after a presidential decision, for example, to 
maintain MFN, most-favored-nation, trade for China or any other 
country. The measure does not impact regulations or laws 
implementing trade agreements. We're not talking here about 
trade sanctions in any way. That's a whole separate set of very 
complex laws that you know a great deal about in this 
Subcommittee. So we don't impact all of these things.
    In sum, then, what you have here is a bill that seeks not a 
red light for sanctions, but rather a yellow light, a 
cautionary light that says in effect that before you take this 
step of putting unilateral sanctions into place, whether you're 
the President or the Congress, there are some things you ought 
to do. You ought to stop, you ought to be careful, you ought to 
look around, you ought to proceed with caution. You ought to 
have more information.
    I really don't see how people would oppose this bill, to be 
very blunt about it. Because to oppose it is to say that the 
Congress and the President cannot use and should not have 
additional information about sanctions. I think that's a 
position that neither we in the Congress nor the President 
should take.
    I urge your Subcommittee to consider this bill, Mr. 
Chairman. I thank you for the fact that you are cosponsoring it 
with me. I look forward to working with you toward the 
enactment of the bill. Thank you for permitting me to testify.
    [The prepared statement follows:]

Statement of Hon. Lee H. Hamilton, a Representative in Congress from 
the State of Indiana

    Mr. Chairman, thank you for inviting me to testify today. I 
appreciate the opportunity to participate in your deliberations 
on this important issue.
    For many years now, the Ways and Means Committee has had to 
take up controversial foreign policy sanctions that originated 
in the International Relations Committee. I knew it was only a 
matter of time before you called one of us in for questioning!
    Today, I want to highlight several concerns on unilateral 
sanctions that I believe merit attention by this subcommittee 
and by the Congress. I will then offer a couple of suggestions 
on how we can improve our policies.
    In that regard, Mr. Chairman, I will make a few remarks 
about the bill you and I plan to introduce later today.

                    Changing Character of Sanctions

    The United States needs economic sanctions in its foreign 
policy toolkit.
    We need to respond to many international problems. Economic 
sanctions can be an attractive policy option when military 
action is not warranted, and diplomacy seems to have failed. In 
some circumstances, the conduct of a particular country may be 
sufficiently abhorrent or dangerous that we will feel compelled 
to respond, regardless of whether other countries join us.
    Prior to 1980, several major laws authorized the imposition 
of economic sanctions for foreign policy purposes. Those laws 
tended to give the President considerable flexibility to decide 
when and how to impose sanctions. They also tended to target 
foreign conduct, rather than specific countries.
    During the past two decades, however, and especially since 
1990, U.S. sanctions policies have evolved substantially.
    First, we impose unilateral sanctions more frequently. In a 
report prepared earlier this year, the President's Export 
Council noted that more than 75 countries are now subject to, 
or threatened by, one or more unilateral U.S. sanctions.
    Second, we use a wider variety of unilateral measures to 
target a wider range of foreign conduct. The Export Council 
counted 21 specific sanctions covering 27 different target 
behaviors. We have also given the President less latitude in 
implementing sanctions.
    Third, during the past two years we have adopted unilateral 
sanctions that are extraterritorial in scope. In 1996, we 
departed from our longstanding policy of opposing secondary 
boycotts by enacting two laws that penalize foreign firms for 
activities in Cuba, Iran, and Libya. Meanwhile, roughly twenty 
states and localities have adopted laws prohibiting government 
commercial dealings with U.S. or foreign companies that do 
business with countries that have poor human rights records.
    Fourth, over the pahold in existing sanction statutes. None 
of these measures has made it to the President's desk. If any 
do, however, they will raise difficult questions about the 
roles of Congress and the President in the conduct of foreign 
policy.

                    Concerns on Unilateral Sanctions

    I have several concerns about the increasing frequency and 
scope of unilateral sanctions.
    First, unilateral measures often cost U.S. exports. The 
Institute for International Economics estimated earlier this 
year that restrictions imposed for foreign policy purposes are 
costing $15-19 billion in export sales annually.
    Perhaps the two most widely-cited examples of the 
costliness of unilateral sanctions are the 1979 decision to 
embargo grain sales to the former Soviet Union after its 
invasion of Afghanistan and the ban on U.S. participation in 
the construction of a Soviet gas pipeline to Europe in the 
early 1980s:
    --Despite our embargo, the Soviets were able to buy all the 
grain they needed from other countries, and they stayed in 
Afghanistan. The total cost to the United States? Four billion 
dollars--$2 billion in federal crop payments and $2 billion in 
lost foreign grain sales.
    --When U.S. firms were barred from the pipeline project, 
European contractors stepped in. U.S. firms lost hundreds of 
millions of dollars in sales and a big share of the European 
turbine market. Thousands of potential jobs were lost. Yet the 
pipeline was built anyway.
    Another example of the cost of unilateral sanctions 
recently came to my attention. I understand that the five 
countries currently under total U.S. trade embargoes--Iran, 
Iraq, Libya, Cuba, and North Korea--together account for 
roughly 11% of the world's wheat export market. This means that 
11% of the world wheat market is off-limits to U.S. farmers. 
But it doesn't mean those countries can't get wheat. If they 
have the cash, there are plenty of other countries willing to 
do business with them.
    My second concern is that our reputation for unilateral 
sanctions is costing potential export sales and foreign 
investment opportunities. Many executives I have spoken with 
over the past couple of years have told me that foreign firms 
and governments are increasingly steering clear of U.S. 
companies when making procurement decisions. They are concerned 
that deals with U.S. firms could be jeopardized by subsequent 
sanctions. I also understand that some European companies have 
begun to tell prospective customers that U.S. competitors can't 
be counted on because of U.S. sanctions policies.
    Third, exports lost to unilateral sanctions mean lost jobs. 
Fifteen to twenty billion dollars in export sales would support 
tens of thousands of American jobs.
    Fourth, unilateral sanctions, especially third-party 
measures like the Helms-Burton and Iran-Libya statutes, can 
harm important U.S. foreign policy interests.
    Both of these laws appear to have deterred some investment 
in their target countries, but at great cost:
    --Both laws have damaged relations with some of our closest 
friends, countries whose support we count on for many important 
foreign policy and trade initiatives.
    --The U.S.-EU dispute over Helms-Burton continues to pose a 
threat to the World Trade Organization. If ongoing U.S.-EU 
talks on an ``out of court settlement'' fail, the case may 
return to the WTO, where just about every scenario points to a 
weakening of the rules-based international trading system.
    --U.S. sanctions on the firms investing in the Iranian 
energy development project would also probably send us back to 
the WTO, and retaliation against U.S. exports or investment 
seems likely.
    --U.S. leadership on trade issues has also been weakened. 
Some of our closest friends have been talking about the need to 
rein-in U.S. policies. In OECD talks on the Multilateral 
Agreement on Investment, for example, the EU and Canada have 
pressed for provisions that would prohibit measures like Helms-
Burton and the Iran-Libya Sanctions Act.
    Fifth, in addition to antagonizing foreign governments, 
some of our state and local sanctions are raising difficult 
questions concerning the constitutional authority to conduct 
U.S. trade and foreign policy.
    All of us in Congress want to respect the legitimate moral 
concerns that are motivating state and local sanctions. We want 
to support local initiative and public involvement in foreign 
affairs.
    But it is one thing for state and local governments to 
express concern about foreign policy matters. It is quite 
another for them to take foreign policy actions that impact 
U.S. national interests, but that are not authorized by the one 
institution that is responsible for safeguarding and promoting 
those national interests: the federal government. U.S. national 
interests are not likely to be served by the emergence of 
distinct foreign and trade policies at the state and local 
level.

                Ineffectiveness of Unilateral Sanctions

    Unilateral sanctions might be worth their price in exports, 
jobs, and foreign policy interests if they succeeded in 
achieving their aims. They rarely do. In fact, they are 
sometimes counterproductive and harmful to the very people we 
are trying to help.
    A number of studies have concluded that sanctions, both 
unilateral and multilateral, have worked less than half the 
time since the early 1970s. One of the most thorough and 
credible of these studies, from the Institute for International 
Economics, found that unilateral and multilateral sanctions 
together have succeeded less than 20% of the time since 1990.
    Unilateral measures have been especially ineffective. 
Consider three prominent examples:
    --The U.S. trade embargo has failed to bring about a change 
of government in Cuba in more than 35 years.
    --U.S. non-proliferation sanctions did little to stop 
Pakistan's nuclear program.
    --After two years, a total U.S. trade embargo has had no 
apparent impact on the policies of Iran.
    Unilateral sanctions rarely work because the world economy 
has become too interdependent. When we deny a country access to 
our products or our markets, it has plenty of alternatives.
    Multilateral sanctions are a different story. They can be 
an effective foreign policy tool in certain circumstances. When 
we impose sanctions with other countries, the results can 
sometimes be impressive:
    --Multilateral sanctions hastened the end of apartheid in 
South Africa.
    --UN sanctions against Libya have sharply limited the 
Qadaffi government's military adventurism and terrorism.
    --Multilateral sanctions on Iraq have not toppled Saddam 
Hussein, but they have kept him and his military in a tight 
box.
    --UN sanctions helped restore democracy to Haiti and 
motivated Belgrade to pressure the Bosnian Serbs.
Weak Information Base

    One of the most alarming aspects of U.S. sanctions policy, 
in my view, is the weak information base upon which most 
unilateral sanction decisions are typically made.
    Several dozen U.S. laws authorize the President to impose 
sanctions of one kind or another. Few of these laws require the 
President to assess the foreign policy, humanitarian, or 
domestic economic impact of a proposed sanction--before or 
after it is imposed. There are few, if any, opportunities for 
public comment. This stands in marked contrast to our trade 
sanction and trade remedy laws, which often require an economic 
impact assessment and public comment before the President 
imposes any measures.
    Congress does not usually have before it a detailed 
assessment of new sanctions bills when it takes them up. We 
hold hearings and we debate proposals in mark-ups. But our 
review of sanctions is rarely systematic or comprehensive.

                               Proposals

    What should be done about the increasing frequency and 
scope of unilateral sanctions?
    First, we need to reinvigorate multilateral diplomacy. Many 
unilateral sanctions have been devised by members of Congress 
exasperated by the slow pace of diplomatic efforts to curb 
terrorism, human rights abuses, or proliferation. Our 
Presidents need to be more aggressive and creative in their 
diplomatic approaches to these problems.
    Second, Congress needs to be patient with diplomacy, and it 
needs to exercise greater discipline in its legislative 
initiatives. We have become very fond of sanctions. It is 
relatively easy for us to pass bills authorizing sanctions, but 
these bills often hand the President extremely difficult 
decisions on when to impose measures. We are taking the easy 
way out. A more constructive approach for Congress would be to 
work with the President to develop policy alternatives to 
unilateral sanctions and inducements for multilateral 
cooperation.
    Third, we need to take a close look at state and local 
sanctions. This Committee has considerable expertise here, and 
I would urge you to give this matter some attention. I 
recognize, however, that this issue may ultimately need to be 
addressed by the courts.

                         Sanctions Reform Bill

    Finally, we need to improve our decision-making on 
sanctions. Before they act, Congress and the President should 
both have in hand better information on the potential costs and 
benefits of unilateral sanctions proposals. And they should 
both proceed in a more deliberative and disciplined manner.
    As Chairman Crane noted in his opening statement, he and I 
have drafted a bill that seeks to accomplish these objectives. 
The bill would reform the process by which both Congress and 
the Executive Branch consider unilateral sanctions proposals. 
We plan to introduce this bill later today. Let me say a few 
words about what it would do.
    The bill defines a unilateral sanction as any restriction 
or condition on foreign economic activity that is imposed 
solely by the United States for reasons of foreign policy or 
national security.
    For both Congress and the Executive Branch, the bill sets 
out guidelines for future sanctions proposals and procedures 
for their consideration and implementation.
    The guidelines would be largely similar for both branches. 
We propose that sanctions bills approved by Congress and 
sanctions measures imposed by the President:
    --Contain a two-year sunset;
    --Provide waiver authority for the President;
    --Protect the sanctity of existing contracts;
    --Be targeted as narrowly as possible on those responsible 
for sanctionable conduct;
    --Minimize any interference with humanitarian work 
performed by non-governmental organizations; and
    --Include measures to address any costs incurred by U.S. 
agricultural interests, which are especially vulnerable to 
foreign retaliation.
    With the exception of this agriculture provision, all of 
the guidelines would be mandatory for the Executive Branch. But 
the President could waive several of them in the event of a 
national emergency.
    The bill's procedural reforms for Congress would require a 
committee of primary jurisdiction to include in its report on a 
sanctions bill an analysis by the President of the bill's 
likely impact on a range of U.S. foreign policy, economic, and 
humanitarian interests. The committee would also need to 
explain in its report why it did not adhere to any of the 
sanctions content guidelines.
    By invoking the Unfunded Federal Mandates Act of 1995, the 
bill would also require a report by the Congressional Budget 
Office on a sanctions bill's likely economic impact on the U.S. 
private sector. Under the terms of the Unfunded Mandates Act, 
the bill could not be considered on the House or Senate floor 
until the CBO analysis was completed and made public.
    With respect to the Executive Branch, the bill would 
require the President to report to Congress prior to 
implementation on the likely impact of a proposed measure on 
U.S. foreign policy, economic, and humanitarian interests. The 
President would also be required to consult with Congress and 
to provide opportunities for public comment. To provide time 
for this consultation, public comment, and reporting, a 
sanction could not be imposed--except in the event of a 
national emergency--until 60 days after the President had 
announced his intention to do so.
    It is also important to understand what our bill would not 
do:
    --The bill would not prevent Congress or the President from 
imposing unilateral sanctions.
    --The bill would not impact any sanctions currently in 
effect.
    --The bill's Executive Branch guidelines and procedural 
requirements would apply, however, to future sanctions imposed 
by the President pursuant to existing laws.
    --The bill would impose no limitations on the foreign 
countries or conduct that could be targeted by sanctions.
    --The bill would have no impact on any of the following 
kinds of measures--now or in the future:
     Sanctions imposed under any multilateral agreement 
to address a foreign policy or national security matter--
including proliferation, human rights, and terrorism.
     Restrictions or controls on the export of 
munitions.
     Resolutions disapproving a presidential decision 
to maintain MFN trade privileges for China or any other 
country.
     Measures imposed under U.S. laws and regulations 
implementing trade agreements, combating unfair foreign trade 
practices, and safeguarding the domestic market.
     Import restrictions designed to protect food 
safety or to prevent disruption of domestic agricultural 
markets.
     Measures to implement international environmental 
agreements.
     Import restrictions designed to protect public 
health and safety.
    This bill is not a red light for sanctions. It is a 
flashing yellow light. Its message is to take a careful look 
around and proceed with caution.
    I hope that members who have supported sanctions in the 
past--as I have--would be able to support this bill. To oppose 
a measure like this is to say that Congress and the President 
can't use and shouldn't have better information about 
sanctions. That is a position neither we nor the President 
should take. We need not fear information.
    This bill would require those who propose sanctions to work 
harder to justify their proposals. It would ensure that elected 
officials and the public are better informed about the 
potential consequences of a proposed measure. Sanctions that 
receive the kind of careful scrutiny this bill will require are 
bound to be more effective in achieving their aims and to cause 
less collateral damage to humanitarian and economic interests. 
And if they are less costly to the U.S. economy, they will be 
more likely to retain public support.
    Chairman Crane and I will welcome your thoughts on our bill 
in the coming weeks. We will also be grateful for your co-
sponsorship.
    Thank you.

                                


    Chairman Crane. Thank you, Mr. Hamilton.
    Mr. Kolbe.

STATEMENT OF HON. JIM KOLBE, A REPRESENTATIVE IN CONGRESS FROM 
                      THE STATE OF ARIZONA

    Mr. Kolbe. Thank you very much, Mr. Chairman, for this 
opportunity to testify once again before this Subcommittee. I 
seem to have become a regular here. I want to commend you and 
Representative Hamilton for the work on this extraordinarily 
important issue.
    Mr. Chairman, over the past several years, we've seen what 
I think is a disturbing trend in the foreign policy of the 
United States. It's the explosive growth of unilateral 
sanctions. In recent years, the U.S. Congress and the 
administration have seemed to be far more willing to employ 
unilateral economic sanctions to achieve rather nebulous 
foreign policy goals. In just this year in Congress, we have 
seen a number of bills or amendments introduced which are 
designed to unilaterally sanction specific countries. Mr. 
Rangel was right when he talked about the difference between 
South Africa and some of these others, where in South Africa, 
it was multilateral. I am talking here about the unilateral 
sanctions that are only supported by the United States.
    The kind of bills I am talking about that are in Congress 
now, would sanction Nigeria, Turkey, and Indonesia for human 
rights abuses. You have another one which would withdraw 
foreign assistance from Mexico and Colombia for failure to 
cooperate in international antinarcotics efforts, and another 
bill which would sanction a number of countries ranging from 
China to Vietnam to Saudi Arabia, for failure to stop religious 
persecution.
    Now I'm not saying these are not legitimate foreign policy 
issues or legitimate goals for us to pursue. I am questioning 
the efficacy of the method that is being used. Foreign policy 
101 tells us that one-sized solutions doesn't fit everyone. 
These are complex issues that we're dealing with. They require 
careful forethought before action, not knee-jerk unilateralism.
    Nor am I saying that economic sanctions should never be 
imposed. They can be an effective tool of foreign policy, 
particularly in international trade policy when applied 
selectively and multilaterally, and I would underscore the word 
multilaterally. But we must remember they are just a tool. They 
are not the ultimate solution. They should be used judiciously 
with due consideration given to their long-term impact.
    Let me just give you one example, the drug certification 
exercise that we go through every year. Each year under the 
Foreign Assistance Act, the President is required to submit a 
list of drug producing and transit countries which he has 
certified as fully cooperative with the United States in 
helping to control narcotic interdiction. If the President 
fails to certify that a country is cooperative, then the 
country is deemed decertified, and it becomes ineligible for 
U.S. aid and other benefits. But it also tends to do something 
else to the decertified country. It paints it as a pariah 
state, hopefully with an eye toward embarrassing the government 
into being more cooperative with the United States. If Congress 
disagrees with the President's certification of a particular 
country, a resolution of disapproval can be introduced which if 
passed, overturns the President's decision.
    The whole purpose of the statute is to encourage countries 
to cooperate with us in stopping narcotics trafficking. Does it 
work? No. It hasn't come even close to working. Countries 
subject to the review resent the judgmental and unilateral 
nature of our certification process. Rather than increasing 
cooperation, it creates a political backlash against the United 
States, a backlash which often hampers the prospects for 
progress in other areas.
    When we threaten to impose unilateral sanctions on friendly 
countries such as Mexico, one with which we have a good 
relationship in other areas, we are jeopardizing cooperation on 
all of those other issues. We share a 2,000 mile border with 
Mexico. It's our third largest trading partner. Because of 
these realities, the United States needs Mexican cooperation on 
a number of issues, from illegal immigration to cross-border 
pollution. Decertification of Mexico is not likely to help 
solve the drug problem. But one thing is certain, it certainly 
is going to poison our bilateral relations and hamper 
cooperation on a number of important bilateral issues.
    So the problem is real, and it's growing. Unilateral 
sanctions are becoming an increasingly popular tool of foreign 
policy, despite their limited utility. I think it's time that 
we in Congress applied the brakes. In this session of Congress, 
I introduced legislation to establish a bipartisan commission 
to take a hard look at our certification process to see if it's 
meeting our intended objectives. Now today, I am pleased to be 
an original cosponsor of this legislation which you, Mr. 
Chairman and Mr. Hamilton, are introducing, along with Senator 
Lugar over in the other body.
    The bill requires, as Mr. Hamilton has pointed out, that 
Congress take into account the economic costs of the proposed 
sanction, and weigh it against its potential effectiveness 
before the sanction is imposed. It's just a common sense 
approach to it. Only if there is a good possibility the 
sanctions would succeed should it become law.
    So, Mr. Chairman, I think it's clear the United States 
can't retreat from the world stage or the world economy or our 
leadership role there. I also think it's becoming increasingly 
obvious that unilateral sanctions are a poor tool of foreign 
policy. There needs to be a recognition in Congress that 
unilateralism has limits and that we need to give greater 
deference to multilateral approaches. For in the end, world 
engagement and multilateralism do not reduce America's 
influence, but extend it. They do not reduce the respect for 
America's power, they enhance it. Thank you.
    [The prepared statement follows:]

Statement of Hon. Jim Kolbe, a Representative in Congress from the 
State of Arizona

    Thank you very much for the opportunity to testify today. I 
would like to commend Chairman Crane and Representative 
Hamilton for their work on this very important issue.

                           A Growing Problem

    Mr. Chairman, over the past several years we've witnessed a 
disturbing trend in our foreign policy. And that is the 
explosive growth of unilateral sanctions. In recent years the 
U.S. Congress seems to be far more willing to employ unilateral 
economic sanctions to achieve rather nebulous foreign policy 
goals. Just this year we've seen a number of bills or 
amendments introduced which are designed to unilaterally 
sanction specific countries.
    These include bills which would sanction Nigeria, Turkey, 
and Indonesia for human rights abuses, which would withdraw 
foreign assistance from Mexico and Colombia for failure to 
cooperate in international anti-narcotics efforts, and one bill 
which would sanction any number of countries from China, to 
Vietnam, to Saudi Arabia for failure to stop religious 
persecution.
    Now, I am not saying that these are not legitimate foreign 
policy issues. I am just questioning the efficacy of the 
methods. Foreign policy 101 tells us that one size solutions do 
not fit all. These are complex issues we are dealing with. They 
require careful forethought before action, not knee-jerk 
unilateralism.
    Nor am I saying that economic sanctions should never be 
imposed. They can be an effective tool of foreign policy, 
particularly in international trade policy and when applied 
selectively and multilaterally. But we must remember they are 
just a tool, not the ultimate solution. They should be used 
judiciously with due consideration given to their long-term 
impact.

                               An Example

    Let's just take one example--our annual drug certification 
exercise. Each year, under the Foreign Assistance Act, the 
President is required to submit a list of drug producing and 
transit countries that he has certified as fully cooperative 
with the United States in controlling drugs. If the President 
fails to certify that a country is cooperative, then that 
country is ``decertified'' and it becomes ineligible for U.S. 
foreign aid and other economic and trade benefits. It also 
tends to paint the ``decertified country'' as something of a 
pariah state, hopefully, embarrassing the government into being 
more cooperative with the United States. If Congress disagrees 
with the President's certification of a particular country, a 
resolution of disapproval can be introduced which, if passed, 
overturns the President's decision.
    The whole purpose of this statute is to encourage countries 
to cooperate with the United States in stopping narcotics 
trafficking. Does it work? No! Not even close. Countries 
subject to review resent the judgmental, unilateral nature of 
our certification process. Rather than increasing cooperation, 
it creates a political backlash against the United States, a 
backlash which often hampers the prospects for progress.
    When we threaten to impose unilateral sanctions on friendly 
countries such as Mexico we are jeopardizing cooperation on a 
large number of issues. We share a 2,000 mile border with 
Mexico. Mexico is our third largest trading partner. Because of 
these realities, the United States needs Mexican cooperation on 
a number of issues from illegal immigration to cross-border 
pollution. Decertification of Mexico is not likely to help 
solve the drug problem. But one thing is certain: it would 
definitely poison our bilateral relations and hamper 
cooperation on a number of important bilateral issues.

                          A Suggested Solution

    The problem is real and growing. Unilateral sanctions are 
becoming an increasingly popular tool of foreign policy despite 
their limited utility. I think it is time we in Congress 
applied the brakes. This Congress, I introduced legislation to 
establish a high level bipartisan commission to take a hard 
look at our certification process to see if it is meeting our 
intended objectives. I am also pleased to be an original 
cosponsor of bipartisan legislation which will be introduced 
later today by myself, Representative Crane, Representative 
Hamilton and Senator Lugar. This bill will require Congress to 
take into account the economic cost of the proposed sanction 
and weigh it against its potential effectiveness before 
sanctions are imposed. Only if there is a good possibility that 
the sanctions would succeed should it become law.

                               Conclusion

    I think it is clear that the United States cannot retreat 
from the world stage or the world economy. I also think it is 
becoming increasingly obvious that unilateral sanctions are a 
poor tool of foreign policy. There needs to be a recognition in 
Congress that unilateralism has limits and that we need to give 
greater deference to multilateral approaches. For in the end, 
world engagement and multilateralism do not reduce America's 
influence; but extend it. They do not reduce respect for 
America's power. They enhance it.
    Thank you.
      

                                


    Chairman Crane. Thank you, Mr. Kolbe.
    Ileana.

  STATEMENT OF HON. ILEANA ROS-LEHTINEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Ms. Ros-Lehtinen. Thank you so much, Chairman Crane and the 
Members of your Subcommittee for the opportunity to address 
this important issue. I will first address the general issue of 
the sanctions, and then focus on the case of Cuba and the 
Helms-Burton law.
    The people of the target countries do benefit from 
sanctions because these sanctions help free them from 
enslavement and oppression. The global community benefits as 
well, as sanctions reaffirm our international norms. The 
American people benefit as sanctions are used to protect them 
from security threats. U.S. businesses do benefit in the 
present, as their interests are protected. U.S. businesses are 
also gaining for the future as sanctions help change conditions 
in these countries and help to create an environment that is 
more conducive for their investment.
    Attaching an economic cost to bad behavior acts as a 
disincentive. The economic costs of sanctions can directly 
improve the problem of dangerous behavior by a foreign 
government by limiting that government's capacity to engage in 
those offending practices. Such was the logic behind President 
Teddy Roosevelt's decision to discontinue the sale of American 
scrap metals and fuel oil to Japan. Since Japan was heavily 
dependent on imported fuel and metals, Roosevelt thought that 
an embargo of these goods could halt the Japanese war effort.
    Sanctions express commitment to norms of international 
conduct, to human rights, to nonaggression. Sanctions reinforce 
such norms by holding the aggressors accountable. Sanctions go 
beyond rhetoric and promises, converting policy into action. A 
1992 GAO, General Accounting Office, report strengthens this 
argument citing that such sanctions are effective by punishing 
violators and by deterring future violations by the threat of 
subsequent penalties.
    Sanctions also offer a more acceptable alternative to armed 
conflict or military invasion. As Woodrow Wilson once said, 
sanctions are ``an economic, peaceful, silent, and deadly 
tool.'' In the post-cold war era, as leaders are more focused 
on technological and economic successes, sanctions have the 
potential for even greater impact. Because of the trend toward 
economic integration and globalization of trade, sanctions are 
now an even more powerful tool. That is the reality understood 
not just by us in the United States, but by other countries 
such as Canada, which has used unilateral sanctions against the 
Abacha regime in Nigeria and has been working on a similar 
approach to Burma.
    Those who contend that engagement would be more successful 
than economic isolation in bringing about a positive change in 
these pariah states, they fail to see what the truth of the 
engagement has been: That there must be an openness that will 
allow benefits to flow broadly to the general population. As we 
know, this is not the case with the countries that the United 
States has imposed sanctions on. This is certainly not the case 
in Cuba under the Castro regime, which brings me to the 
Libertad Act or the Helms-Burton Act, which coincides with many 
of the principles of free trade and takes into account many of 
the factors that investors look at.
    Investors tend to be motivated by three things: That 
capital flows naturally to those places where conditions are 
most favorable; that transactions have a certain degree of 
protection and security; and third, the search for quick 
returns. In the absence of the first two, the last one becomes 
a moot point. For this reason, Euromoney ranks Cuba last on its 
list of the world's investment risks. Institutional Investor's 
1996 Credit Ratings ranks Cuba among the last out of 135 
countries.
    By contrast, the Libertad Act in working toward a 
transition to democracy in Cuba, toward respect for human 
rights, toward a free and independent judiciary, toward a 
market-driven economy, and because it establishes a framework 
for strict guidelines, would lead to the creation of a future 
environment conducive to free trade and economic growth, an 
environment where U.S. businesses will be able to prosper.
    Focusing on this last point, free trade does not work 
without private property. Yet private property rights and a 
separate private sector do not even exist in Cuba today. By 
contrast, the Libertad Act does protect private property 
rights.
    Another pivotal point linking free trade, United States 
business interests, and the Helms-Burton bill is that countries 
which are engaged in trade with the Castro regime in the 
absence of fundamental, concrete, verifiable economic and 
political change in Cuba sacrifice their image with the Cuban 
people for relatively little gain. For those present here and 
other United States entrepreneurs and members of the business 
community, I would like to underscore that the United States is 
benefiting by staying out of Cuba now. The statement that other 
countries are going to monopolize the Cuban market and that 
there will be no room for us when a transition comes is a myth.
    The Libertad Act, according to U.S. Interest Section 
officials is actually being used by foreign investors as an 
excuse to withdraw from bad business ventures. So it has been 
successful. It has already begun to bear fruit as companies are 
withdrawing from Cuba and deals involving United States 
confiscated property such as the Grupo Domos deal, are falling 
through. We would love to have our U.S. allies join with us in 
our efforts and have our sanctions be multilateral. But we can 
not sit idly by waiting for them to come around. The people of 
Cuba need our support. The United States is the only country 
that has stood up to the ruthless Cuban dictator, and has sent 
a clear message to the world that it considers the freedom of 
the Cuban people a higher priority. The United States must 
assume its leadership role, and sanctions are a powerful tool 
for precisely that purpose. They make sense from a moral, 
ethical, political, and commercial standpoint. Thank you so 
much.
    [The prepared statement follows:]

Statement of Hon. Ileana Ros-Lehtinen, a Representative in Congress 
from the State of Florida

    I would like to thank Chairman Crane and the Members of the 
Subcommittee on Trade of the Committee on Ways and Means for 
the opportunity to testify before you on the use and effect of 
trade sanctions. My statement will first, briefly address some 
of the general questions relating to the use of sanctions and 
will then focus on the case of Cuba and the Cuban Liberty and 
Democratic Solidarity Act.
    In a nutshell, the people of the target countries are 
gaining, as sanctions help free them from enslavement and 
oppression. The global community benefits as sanctions reaffirm 
international norms. The American people are gaining as 
sanctions are used to protect them from security threats. U.S. 
businesses are gaining in the present as their interests are 
protected. U.S. businesses are also gaining for the future as 
sanctions help change conditions in these countries and create 
an environment conducive to investment.
    Attaching an economic cost to bad behavior acts as a 
disincentive. The economic cost of sanctions can directly 
improve the problem of dangerous behavior by a foreign 
government, by limiting that government's capacity to engage in 
the offending practices. Such was the logic behind President 
Teddy Roosevelt's decision to discontinue the sale of American 
scrap metals and fuel oil to Japan. Since Japan was heavily 
dependent on imported fuel and metals, Roosevelt thought an 
embargo of those goods could halt the Japanese war effort.
    Sanctions express commitment to norms of international 
conduct, human rights, and nonaggression. Sanctions reinforce 
such norms by holding the aggressors accountable. Sanctions go 
beyond rhetoric and promises, and converts policy into action. 
A 1992 GAO report strengthens this argument citing that such 
sanctions are effective by punishing violators or by deterring 
potential violations by the threat of subsequent penalties.
    Sanctions also offer a more acceptable alternative to armed 
conflict or military intervention. As Woodrow Wilson once said: 
sanctions are ``an economic, peaceful, silent, and deadly 
tool.'' 
    In the post-Cold War era, as leaders are more focused on 
technological and economic success, sanctions have the 
potential for even greater impact. Because of the trend toward 
economic integration and globalization of trade, sanctions are 
now an even more powerful tool.
    This is a reality understood, not just by the U.S., but by 
other countries such as Canada who has used unilateral 
sanctions against the Abacha regime in Nigeria and has been 
working on a similar approach to Burma.
    There are those who contend that ``engagement'' would be 
more successful than economic isolation in bringing about 
positive change in pariah states. However, the primary 
criterion that must be met to use ``engagement'' is: there must 
be openness that will allow benefits to flow broadly to the 
general population. As we all know, this is not the case with 
the country's the U.S. has imposed sanctions on.
    This is certainly not the case in Cuba under the Castro 
regime... which brings me to the Libertad Act.
    The Libertad Act coincides with many of the principles of 
free trade and takes into account many of the factors investors 
look at. Investors tend to be motivated by three things: (1) 
capital knows no boundaries and flows naturally to those places 
where conditions are most favorable; (2) transactions concluded 
with sovereign governments have a certain degree of protection 
and security, as they are normally recognized by successor 
governments; and (3) the search for quick returns.
    In the absence of the first two, the last one becomes a 
moot point. For this reason, Euromoney magazine ranks Cuba last 
on its list of the world's investment risks. Institutional 
Investor's 1996 Credit Ratings ranked Cuba among the last out 
of 135 countries.
    By contrast, the Libertad Act, in working toward a 
transition to democracy in Cuba; toward respect for human 
rights; toward a free and independent judiciary; toward a 
market-driven economy; and because it establishes a framework 
of strict guidelines, would lead to the creation of a future 
environment conducive to free trade and economic growth; an 
environment where U.S. businesses will be able to prosper.
    Focusing on this last point, free trade does not work 
without private property. Yet, property rights and a separate 
private sector do not exist in Cuba today.
    By contrast, the Libertad Act protects property rights. It 
re-establishes the expectation of recovery or indemnification 
which is virtually lost when Europeans and others traffick in 
property confiscated from U.S. citizens. In doing so, the 
Libertad Act serves to counter the lawless exploitation of 
property which serves to poison the well for future trade and 
investment.
    Another pivotal point linking free trade, U.S. business 
interests, and the Libertad Act is that countries who are 
engaged in trade with the Castro regime--in the absence of 
fundamental, concrete, verifiable economic and political change 
in Cuba--sacrifice their image with the Cuban people for 
relatively little gain. They are resuscitating a regime that is 
not only brutal, ranked by the U.S. State Department as one of 
the worst human rights violators, but is also is the most 
powerful obstacle to market reform on the island.
    For those present here and for other U.S. entrepreneurs and 
members of the business community, I would like to underscore 
that: the U.S. is gaining by staying out of Cuba. The statement 
that other countries are going to monopolize the Cuban market 
and there will be no room for the U.S. when a transition comes 
is a myth.
    During discussions with U.S. Interest Section officials 
earlier this year, it was said that when a transition does take 
place, the Cuban people will hold a significant level of 
resentment toward those who helped prolong their oppression. 
Statements made to these U.S. officials in Cuba clearly 
indicate that American businesses enjoy the respect of much of 
the Cuban people, because American corporations are not 
perceived as capitalizing on the suffering and subjugation of 
the island's population. USINT officials have further said 
that: ``the Libertad Act is actually being used by foreign 
investors as an excuse to withdraw from bad business 
ventures.''
    In essence, the Libertad Act has already begun to bear 
fruit as companies are withdrawing from Cuba and deals 
involving confiscated U.S. property, such as the Grupo Domos 
deal, are falling through. It has forced the issue of property 
rights, generating multilateral negotiations on global 
investment disciplines, with an agreement expected by the U.S.-
EU summit in December. In addition, the Libertad Act and its 
predecessor, the Cuban Democracy Act, are credited with the 
growth of dissident and human rights groups on the island, and 
with germinating internal discontent against the regime.
    In the end, we would love to have U.S. allies join us in 
our efforts and have these sanctions be multilateral. But we 
cannot sit idly by waiting for them to come around. The people 
of Cuba need our support. Thus far, the U.S. is the only 
country that has stood up to the ruthless Cuban dictator and 
has sent a clear message to the world that it considers the 
freedom of the Cuban people a higher priority.
    The United States must assume its leadership role and 
sanctions are a powerful tool for precisely that purpose. They 
make sense from a moral, ethical, political, and commercial 
standpoint.
      

                                


    Chairman Crane. Thank you. I was looking, Ileana, at your 
written statement. You were mentioning first of all that 
protection of property rights under the Libertad Act is 
certainly something we all universally embrace. But in the 
absence of multilateral agreements on the use of sanctions, 
hasn't there been profound violation of the property rights of 
individuals who fled Cuba that have been taken advantage of by 
other countries that have moved into acquire property there? I 
would hope that when Castro is gone, there would be 
indemnification assured.
    But if you don't have the multilateral agreements on how to 
impose the sanctions on rogue countries, does it not work 
contrary to what you are hoping to achieve?
    Ms. Ros-Lehtinen. That's an excellent question, Congressman 
Crane. That is something that certainly the gentleman behind 
me, Stuart Eizenstat, has been working on when he was in charge 
of the negotiations with our neighbors, Canada, Mexico, the 
European trading partners, to have them respect Helms-Burton, 
which our position is that it's not extraterritorial in nature. 
It respects private property rights of American citizens who 
were American citizens at the time of their confiscation. These 
are individuals who have already filed suit. There is a program 
here in the United States. They have done all the paperwork, 
and yet they have not been able to get any negotiations through 
with these companies.
    These foreign companies enjoy going to Cuba, taking over 
property because they have very little costs associated with 
them. Meanwhile, our U.S. taxpayer, our American property owner 
is out completely. He has no recourse in U.S. courts, and the 
only available recourse is through the Libertad Act.
    That is exactly why we passed the Helms-Burton legislation, 
to protect the private property rights of American citizens 
whose property was illegally confiscated, and they have no 
other recourse. There is nowhere for them to go. This gives 
them the opportunity to address their grievances in court. If 
they seek to do so, they can do the private negotiations with 
the person in the company that has taken over their property. 
That is something that we respect in the United States. That is 
something that those foreign governments respect in their own 
countries as well. They just want to get off easy in Cuba, take 
over somebody's else's property, and then suffer no 
consequences. That is precisely what the Libertad Act seeks to 
correct.
    We firmly believe that without these private property 
rights, without Helms-Burton, the private property rights of 
American citizens would not even be heard. In fact, that is 
what Helms-Burton does.
    Even though these foreign governments say that because of 
Helms-Burton, they cannot trade with Castro, Helms-Burton has 
nothing to do with that, with their trading. They can trade 
with whomever they want. They can do whatever deals they want. 
We are saying to them they cannot do it on a confiscated U.S. 
property that once belonged to an American citizen and which we 
contend still belongs to an American citizen.
    Chairman Crane. Thank you.
    Mr. Matsui.
    Mr. Matsui. I would like to thank Lee and Jim and Ileana 
for their testimony.
    Ileana, I would like to just ask you one question. With the 
exception of the United States, and putting Helms-Burton aside 
for 1 minute, there are no other countries that are really 
seeking breaking off relations with Cuba. Is that correct?
    Ms. Ros-Lehtinen. There are some countries that have 
sanctions imposed on other countries, but not on Cuba. For 
example, Canada, as I pointed out----
    Mr. Matsui. Right.
    Ms. Ros-Lehtinen [continuing]. Has a wonderful hypocritical 
policy because they believe very strongly for human rights in 
Burma. They are very much against the dictatorial regime in 
Nigeria. But when it comes to cheap vacations on the beaches of 
Cuba, they are willing to overlook all of those problems.
    Mr. Matsui. As a result, I wonder, you see given technology 
and given the needs of almost every market economy or even 
controlled economy now needing technology in order to continue 
to survive economically, we've seen it in Asia, we've seen it 
with Korea, we've seen it with Taiwan, certainly the Four 
Tigers and even China now in the southern part of China, 
because they need technology. That means that they have to have 
people going back and forth, and they have to have a kind of a 
free discussion.
    It would seem to me that if we want to move in a way to 
democratize Cuba or any country like Cuba, you almost have to 
have some kind of economic intercourse with that country. You 
almost have to have some kind of relationship with that 
country. I am wondering if what we're doing has really hampered 
that effort. I think Mr. Rangel has expressed it numerous 
times, but particularly today when he talked about Castro and 
his group using the embargo and using our sanctions as a way to 
keep himself in power. But even more importantly, it makes it 
very difficult for the Cubans to get outside information from 
us and move toward a more liberalized system in terms of both 
political and social.
    Perhaps you can respond to that because here it's been 
since what, the fifties, or some 40 or 50 years from the date 
we first began to cut off relations with Cuba. We are really 
not much better in terms of the United States-Cuban relations. 
So how are we going to overcome this? I know we can wait for 
Castro to die, but maybe something else might happen.
    Ms. Ros-Lehtinen. Well, I think we share the same goals. We 
would like for Cuba to be free. We differ on the approaches and 
how we get to that goal. But I know that Members of this 
Subcommittee, including Mr. Rangel, desire that and that is the 
wish of every free American citizen. But you have to have some 
kind of basis for that engagement to work as I have been 
pointing out. In Cuba there is no basis, there is no floor for 
these actions to take place, and to promote the kind of changes 
that we would all like to see take place.
    For example, when you talk about the free flow of 
information, that is the one monopoly that Castro loves to have 
in Cuba, where he jams signals for Radio and TV Marti, he 
monopolizes the press. There is no free press in Cuba. It is 
very difficult for people to have access to what is going on. 
We would love to have the press go back and forth, but Castro 
only allows CNN. You have got to look at the CNN reports on 
Cuba and you will find out after 1 month of seeing their 
reports, why it is that Castro only allows CNN to cover.
    Mr. Matsui. But you see, if we had a group of our 
businesspeople, if we had workers there, if we had scientists 
go there, you can't prevent them from talking and discussing 
things. So it just seems to me that over time it would--it 
wouldn't be done over night, but over time it would have a very 
very positive effect. It would create kind of free thinking----
    Ms. Ros-Lehtinen. If we would have just heard this 6\1/2\-
hour rambling speech of Fidel Castro recently, and he says it 
time and time again. He could not be more open and honest about 
saying there will be no reforms in Cuba. He says socialism or 
death. He has been saying it for 38 years and just reiterated 
it just 3 weeks ago at the Cuban Communist Party Congress. 
There is one-party system there. He controls it all.
    When you talk about the embargo, the embargo that we would 
like to be lifted is the embargo that Fidel Castro has on the 
Cuban people, where they cannot express ideas freely, where 
they cannot freely worship their god, where they cannot say 
anything because they have these watchdog committees that 
violate their human rights each and every day. What happens to 
a free exchange of ideas in Cuba? The dissidents are in jail. 
The real dissidents and the real opposition is in jail.
    So it is very difficult in a closed police state for us to 
have this Pollyanna view that if we sell them Bic pens, then 
Castro will have elections on Tuesday. We wish that that would 
be true, but it is not going to happen. Castro himself says 
that it will not happen. He can not be any clearer about what 
he wants for the Cuban people. Foreign investment just goes 
into his pockets.
    We build hotels there, hotels that by law that Cuban people 
can not enter. We build beautiful swimming pools that by law 
the Cuban people can not swim in, and restaurants that the 
Cuban people can not enter. Foreign investment goes to Castro's 
pocket. It does not filter to the Cuban people. They see none 
of that. They have a complete apartheid system of government 
where it is one system for the tourists and the communists that 
lead, and pesos and worthless devalued pesos for the Cuban 
worker, who gets paid maybe $20 a month, while the tourists are 
enjoying a wonderful vacation in Cuba. That's the reality of 
Castro's Cuba today.
    Mr. Matsui. Thank you. My time is up, but we'll undoubtedly 
have to continue this discussion. I appreciate it, and thank 
all three of you.
    Chairman Crane. Mr. Thomas.
    Mr. Thomas. Thank you very much, Mr. Chairman. I won't try 
to belabor the points. It just seems to me that the attempt to 
create a structure which is one thing to some people and 
something entirely different to another is inevitably doomed. 
Castro is on the same path as the satellite countries, and in 
fact, the Soviet Union itself. It's just that it's a different 
timeframe. It's also hard for me to argue that a country is 
closed when Members of Congress not only travel there, but brag 
about the fact that they travel there and perhaps perpetuate 
some of the concerns that we might have.
    The difficulty I have of course is that I agree with my 
friends Mr. Hamilton and Mr. Kolbe that you can't have a policy 
of one size fits all. That to a certain extent, the idea of 
whacking back through a sanction is almost a faddish kind of a 
thing that's going on.
    Notwithstanding that, I can't accept the argument that you 
should never have a policy in which you fall short of some kind 
of military intervention, especially if there's an opportunity 
to utilize an economic sanction for a good reason that's well 
designed and coordinated. Our job is to make sure that we don't 
overstep our bounds to the extent that we don't accomplish what 
it is that we decide that we want to accomplish.
    You then of course have to fall back on the argument that I 
think Ms. Lehtinen is making and others make. There are 
sometimes when, if the issue is so important and so critical 
and so fundamentally violative of positions that we take, we 
have to make the decision notwithstanding others, that perhaps 
you have to go it alone.
    I do think though that those decisions need to be made less 
often than they are made most of the time, because if you pick 
and choose, when you choose correctly it is far more effective. 
So I have difficulty because it isn't a one size fits all, and 
it's not a don't ever do it kind of a situation. Whenever you 
fall in between, the problem is when, how much, to what extent, 
under what circumstances. That's what we are going to be 
wresting with in listening to other folk. Give us the examples.
    I am especially interested in the administration's 
examination since a number of us would be perhaps a bit bolder 
than they would be as to whether or not we utilize sanctions, 
and whether or not they believe sanctions are useful, properly 
applied in the proper place. Reactions?
    Mr. Kolbe. My only reaction, Mr. Chairman and Mr. Thomas, 
would be that I think the key words that you just said were 
well designed and coordinated. I think that the sanctions that 
you use must be well designed and they must be coordinated.
    Mr. Hamilton. Mr. Thomas, I agree with all of your remarks. 
I think you are absolutely right. There are times when 
unilateral sanctions would be appropriate. We ought not to 
exclude them from the arsenal of weapons, so to speak, that a 
President and the Congress has in exercising American foreign 
policy.
    I also agree with your comment that we should use some care 
in the imposition of those sanctions. I think we all recognize 
that sanctions result from frustration by Members of Congress, 
perhaps in the executive branch as well, when a country does 
something we don't like. There are a lot of countries that do 
things we don't like. We don't want to send in the Marines. 
That's a little too extreme. Rhetoric is not tough enough. So 
we're looking for other tools. What we have done in the past 
few years, as you very well point out, is we have just fallen 
more and more into this business of applying sanctions.
    All I am suggesting with the bill that Mr. Kolbe, Chairman 
Crane, and I have introduced is to say, ``Be careful here, 
let's take our time, let's weigh the factors, let's make sure 
we have got a process in place that makes us consider all those 
factors before we act.'' That's the point of it.
    Mr. Thomas. My concern is that when all of those in fact do 
occur, that there's an understanding that you move forward, and 
you move forward in a way that makes it effective 
unhesitatingly until and unless it's no longer necessary. In 
certain instances, I notice, we have wavered along the way 
because other people aren't with us, because time somehow seems 
to wear you down. The fact of the matter is in certain 
instances time should not be the problem, and others not 
agreeing with us is sometimes their fault, not ours.
    Thank you, Mr. Chairman.
    Chairman Crane. Mr. Rangel.
    Mr. Rangel. Thank you, Mr. Chairman.
    Lee Hamilton, we're really going to miss you in this 
Congress. I can think of no Member, whether people agreed or 
not agreed, that has enjoyed more respect in the Congress than 
you have. I am going to miss your advice, even though you may 
think I never take it, and the great comraderie which you have 
provided us. You are going to be missed.
    Mr. Hamilton. Thank you.
    Mr. Rangel. I would like to say to Mr. Kolbe as you 
referred to the sanctions as it relates to the countries that 
we didn't think were cooperating in the area of narcotics, I 
sponsored that legislation. I couldn't agree with you more. It 
just doesn't work.
    Of course to my dear friend, Ileana, I share your pain in 
terms of wanting to see your home country enjoy the sweet 
nectar of liberty and freedom, and you are right, we both are 
seeking the same goal. It's a question of how we can work 
together. Quite honestly, I wish you and I had the power to set 
the basis for change. Because with the State Department, from 
President Carter, Reagan, Bush, Clinton, when I ask what should 
these people do in order to start talking, all of them would 
say well Castro has got to send a signal, he's got to be 
serious. They have to do something. We have got to be 
convinced. But still, that goal post keeps moving as the 
political situation in the United States, and more specifically 
in Florida, as that changes, our policy changes. I can not 
think of anybody that had any meaningful job on the Latin 
American desk or in the State Department that didn't change 
their Cuban position after they left.
    All of them are saying now the embargo should be removed. 
Of course all of them have to state the policy that's given by 
the President. Presidents change that policy as we find the 
Clinton policy changing, the Bush policy was changing. I know 
darn well compensation for property that has been confiscated 
should be openness. A promise of elections that could be 
monitored should be one of the things that we are looking for.
    But I look forward to visiting Cuba next year with the Pope 
and the cardinal, with tons of food and medicine, with American 
flags, and all of those things.
    Do you approve of these type of intrusions into Cuba by 
Americans and by the Pope? Do you think this violates Helms-
Burton or the spirit of it?
    Ms. Ros-Lehtinen. We welcome the Pope's message to free the 
people Cuba message. That is what we would like to hear from 
the Pope, to send a message of hope and democracy and liberty 
and freedom from enslavement. We hope that is the message that 
the Pope will deliver in Cuba.
    Mr. Rangel. So you welcome the Pope doing this?
    Ms. Ros-Lehtinen. I am not in charge of the Pope's 
itinerary. He's going and I wish him much success.
    Mr. Rangel. No, because I agree with you. I would want 
American students to do it. I would want American 
businesspeople to go there and say I'm not----
    Ms. Ros-Lehtinen. Let us talk 1 minute about this free flow 
of people. You know something interesting that is happening 
now, we have got baseball fever in Miami, as you can imagine, 
as our Florida Marlins are going to be victorious in the World 
Series. We have a wonderful pitcher there, his name is Livan 
Hernandez. I think Livan's case speaks volumes about the 
reality of Castro's Cuba today. Livan is a wonderful, wonderful 
pitcher, 22 years old. He has a brother in Cuba who people say 
is an even better pitcher than Livan. He was playing ball. He 
was doing a good job. But then because Livan, the brother is 
banned from playing baseball in Cuba because the Cuban 
Government fears that he will defect. He is one of eight other 
players and coaches who are banned.
    So when you talk about free flow, it is always one way, 
Charlie. That is what--you always want to excuse Castro and 
blame the United States. Let us accuse Castro and applaud the 
United States for taking the strong moral stand against the 
dictatorship who does not even allow a guy to play ball because 
he does not want him to leave the country. He exploits people, 
whether you are a ball player or whether you are cleaning pots 
and pans. All of those investments and all of that free flow 
that we would love to take place, is a one-way street because 
Castro says all of that cash is going to my pocket. That is the 
reality.
    You want to excuse him and blame us. I want to accuse him 
and applaud us. That's a big difference.
    Mr. Rangel. Listen. We're doing business with 1 billion 
communists----
    Ms. Ros-Lehtinen. And it is wrong for us to do so, Charlie. 
Just because we are doing it with China does not mean that it 
is right to do it everywhere else. I vote against most-favored-
nation status to China each and every time. It is one of my 
proudest votes. Shame on us for what we are doing. There is 
something more important than trade, and that is human rights 
and democracy and liberty.
    Mr. Rangel. We're doing business with those scoundrels in 
North Korea.
    Ms. Ros-Lehtinen. We should not do it.
    Mr. Rangel. We are doing business with these scoundrels in 
North Vietnam, communists up there. You know it and I know it. 
We're doing business with communists. They haven't changed 
their colors.
    Ms. Ros-Lehtinen. I voted against that too.
    Mr. Rangel. Now you're telling me it's going to be 
baseball, baseball that should be something we should consider 
in not talking freely with the people in Cuba about finding out 
the basis that we normalize our relationship. Baseball. The 
brother of a Cuban that comes over here and becomes an American 
hero, and because the brother over there, Castro is mistreating 
him, that's an impediment for our State Department. Clinton is 
not even running for reelection to do business to say can we 
talk. That's what we're talking about.
    If you are telling me that we have to consider how Castro 
treats the mother and the brother of a baseball hero who 
happens to be Cuban here, there's nothing----
    Ms. Ros-Lehtinen. We have to consider how Castro treats 11 
million people. Yes, I think that we have to consider that.
    Mr. Rangel. Thank you.
    Chairman Crane. Mr. Neal.
    Mr. Neal. Thank you, Mr. Chairman. A question for any one 
of the panelists. Is there a reason that in your judgment in a 
certain geopolitical state that sanctions work and in other 
instances do not work? We have had some success in a place like 
South Africa where I think we helped to change the debate. At 
the same time, it seems as though the reaction in China, for 
example, over MFN is always one of hostility. It seems not to 
work very well. Is there a reason for that?
    Lee.
    Mr. Hamilton. Well, in general I think the response is that 
multilateral sanctions often work, not always, and that 
unilateral sanctions rarely work. That seems to me to be the 
general rule. I think unilateral sanctions really have been 
quite ineffective overall.
    Multilateral sanctions, I think the record is quite uneven. 
The South African case is always I guess exhibit number one. We 
recognize that the multilateral sanctions there were quite 
successful.
    I think the U.N. sanctions against Libya have sharply 
limited the Gadhafi government's military adventurism and 
terrorism. I think the multilateral sanctions against Saddam 
Hussein and Iraq were very important. They kept him and his 
military, or are keeping him, in a tight box. I think sanctions 
have helped in Bosnia, and I think that sanctions have helped 
in Haiti. I'm sure there are cases where sanctions have not 
helped.
    Mr. Neal. Jim.
    Mr. Kolbe. Just very quickly to add to that. I would say 
that Lee is correct in saying that. I think there are two 
things. One is the fact that they are multilateral, and they 
tend to work much better when other countries are cooperating 
obviously.
    Since you mentioned the word geopolitical, Richard, I would 
just note that I think quite honestly they work better when the 
country is small. It would be very hard, I think, impossible to 
make unilateral sanctions work against China and very difficult 
even to make multilateral sanctions work against a country as 
large as that country, and that economy are. So you have to 
find other avenues, pressure, other ways of trying to open the 
economy, open the political system there, pressure to keep them 
from trading nuclear weapons, nuclear technology with countries 
like Pakistan, missiles with Iran. The economic sanctions have 
very, very little impact in a country like that. So that's just 
the geopolitical reality.
    Ms. Ros-Lehtinen. Certainly multilateral sanctions I would 
agree are far more effective in most situations than 
unilateral, but I agree with my colleagues, they have been 
successful unilateral sanctions in the past as well.
    Mr. Neal. Thank you, Mr. Chairman.
    Chairman Crane. Mr. McDermott.
    Well, I want to thank the panelists for their participation 
this morning. We look forward to working with you.
    I now call our next witness, Hon. Stuart Eizenstat, Under 
Secretary of State for Economic, Business, and Agricultural 
Affairs of the State Department.

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

    Mr. Eizenstat. Thank you, Mr. Chairman, Members of the 
Subcommittee. I am here to discuss with you how we can work 
together and think more comprehensively about where and when 
sanctions should be applied in promoting America's interests 
around the world. I have worked to advance America's security, 
prosperity, and values in a number of capacities. Last year in 
my role as special representative for the promotion of 
democracy in Cuba, I traveled 50,000 miles to work with our 
allies to adopt measures that support democracy and further 
isolate the Castro government, and understand the consequences 
of acts by regimes that consistently conduct themselves outside 
the norms of acceptable behavior. I met with the father of a 
man who lost his life in the inexcusable shoot down of a plane 
to Cuba, and have spoken to the parents of one of the victims 
of PanAm 103. These experiences have helped me better 
understand the role of sanctions in foreign policy, and have 
firmed my resolve to work with you on ways to more effectively 
change abhorrent behavior and isolate rogue regimes.
    The record is clear in this age of increasing 
globalization. We have turned more frequently to sanctions to 
deal with inappropriate or unacceptable behavior by states. We 
must improve our ability to use them effectively. They should 
be used only when carefully considered by both the executive 
and legislative branches as to their likely effectiveness after 
all benefits, costs and consequences are analyzed and after the 
full range of diplomatic and political options have been 
attempted to change the conduct in question by the target 
country or group.
    Sanctions, especially multilateral sanctions, have been 
effective. Iraq, Libya, former Yugoslavia, Haiti and others 
provide examples. At the same time, a realistic appraisal of 
our experience has taught that sanctions are not a panacea and 
are not cost free.
    The general concept of sanctions is not new. The idea is as 
old as society itself. But the frequency with which we have 
turned to sanctions has increased dramatically since 1990. More 
than half the sanctions imposed in the last 80 years have been 
imposed in the past 3\1/2\ to 4 years.
    Sanctions are an important potential tool, but as I 
indicate, they are not without costs. They offer important 
levers for behavior modification, and they will continue to do 
so. Sanctions on South Africa, on Iraq, Libya and Serbia, in 
each instance have been important. There are examples of 
unilateral sanctions which have been effective or which have 
served as an encouragement to others. The recent sanctions on 
Burma, for example, have increased international attention to 
human rights abuses by the regime. The Europeans, Canadians, 
and Japanese have now also imposed sanctions or withdrawn 
benefits. Even in Cuba, while Castro remains in power, 
sanctions have discouraged foreign investment. In still other 
areas, unilateral sanctions have proven effective in combatting 
the scourge of drugs.
    In general, however, such cases tend to be much fewer in 
number and generally restricted to those in which we have 
overwhelming economic or political leverage. Unilateral 
sanctions are not only less likely to be successful than 
multilateral ones, but they also impose costs which we have to 
recognize honestly. For one thing, unilateral sanctions have 
embroiled us in differences with key allies that often can 
detract from the desired result. They also have real costs to 
U.S. business and American workers. A number of organizations 
have released different studies of the cost and effectiveness 
of these sanctions, including the President's Export Council, 
which has estimated the direct costs of economic sanctions in 
1995 at between $15 and $19 billion. It is also suggested that 
sanctions have an indirect effect through undermining 
confidence in the reliability of U.S. suppliers in providing a 
competitive advantage to foreign competitors. This is not to 
say that we should forswear the use of sanctions or that they 
are an inappropriate tool. They do have a role to play in our 
panoply of tools to defend our interests.
    Permit me to give you some lessons that I think we've 
learned from sanctions over the years. First, as a general 
rule, we should resort to sanctions only after appropriate 
diplomatic options have been aggressively pursued and have 
failed or appear to be inadequate.
    Second, a primary consideration in considering a sanctions 
regime must be whether or not the sanction measures are likely 
to be effective in achieving the goal and whether they are part 
of an integrated strategy. Sanctions that are ineffective in 
the long run debase and undermine the value of sanctions in 
general as a potent foreign policy tool.
    Third, we should design sanctions carefully so that to the 
extent possible, the target country feels the pain, not the 
innocent, and certainly not solely our U.S. business community 
and citizens.
    Fourth, sanctions are much more likely to be effective when 
they have multilateral support and participation. Multilateral 
sanctions maximize international pressure. They are more 
difficult to evade or avoid, and they minimize damage to U.S. 
business.
    Fifth, while our preference must be to act multilaterally, 
there are times when the stakes are so high, when important 
national interests or core values are at issue that we must 
also be prepared to act unilaterally. Otherwise, our ability to 
influence or respond to threats will always be subject to 
someone else's veto. But again, primary considerations in 
unilateral sanctions must be whether or not they are effective, 
whether they are part of a cohesive strategy to change 
behavior, and whether they contribute to or will detract from 
our efforts to gain multilateral support.
    Sixth, we must work together, the administration, Congress, 
communities at the State and local level, the business 
community and NGOs, to see that our use of sanctions is 
appropriate, coherent, and designed to attract international 
support.
    Seventh, engagement with countries is more often better 
than isolation. There are many countries which engage in 
certain practices or policies which we find objectionable. We 
need to tailor our approach to fit the individual target. 
Cutting off dialog and engagement with those countries would 
often be counterproductive. There are other cases, however, 
where the practice of a country are so egregious, so outside 
the norms of international behavior, so threatening to U.S. 
interests and those of our allies, that an attempt at 
engagement is pointless and indeed could be counterproductive. 
For example, engagement with a country such as Iraq which 
simply feeds Saddam Hussein's appetite for inappropriate 
behavior, the same is true with respect to Iran.
    Eighth, the President must be given discretion to waive 
sanctions in the national interest. This is important to have. 
We have effectively used it under title III of the Libertad 
Act.
    Ninth, Mr. Chairman, experience has shown that development 
early on of appropriate consultative mechanisms with countries 
which share our goals can be helpful on states of critical 
importance.
    Thank you, Mr. Chairman. I have also discussed ILSA and the 
Helms-Burton Act specifically in my testimony. I assume that my 
entire testimony can be introduced in the record. But in the 
interest of time, I'll defer giving any further opening 
statement.
    [The prepared statement follows:]

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

    Mr. Chairman and Members of the Committee, thank you for 
this opportunity to testify before you on the use and effect of 
unilateral trade sanctions.
    Mr. Chairman, the view that I would like to lay before you 
today is that the record is clear. Properly designed, 
implemented, and applied as part of a coherent strategy, 
sanctions, including economic sanctions, can be and are a 
valuable tool for enforcing international norms and protecting 
our national interests. In this age of increasing globalization 
we have turned more frequently to sanctions to deal with 
inappropriate or unacceptable behavior by states. We should 
improve our ability to use them effectively. They should be 
used only when carefully considered by both the Executive and 
Legislative branches as to their likely effectiveness, after 
all benefits, costs, and consequences are analyzed, and after 
the full range of diplomatic and political options has been 
attempted to change the conduct in question by the target 
country or group.
    Sanctions, especially multilateral sanctions, have been 
effective. Iraq, Libya, former Yugoslavia, Haiti and others 
provide examples. But at the same time, a realistic appraisal 
of our experience has taught that sanctions are not a panacea 
and they are not cost-free. Our object must be to learn from 
our growing experience, to draw the appropriate lessons so that 
we can find the best, the most effective way to employ this 
potentially powerful tool while minimizing the adverse costs.
    Some things are clear. We should resort to sanctions only 
after other appropriate diplomatic options have been 
aggressively pursued and have failed, or would be inadequate. 
Sanctions are much more likely to be effective when they have 
multilateral support and participation. Multilateral sanctions 
maximize international pressure on the offending state while 
minimizing damage to U.S. competitiveness and more equitably 
distributing the sanctions burden across the international 
community. There are times, however, when the stakes are high, 
when important national interests or core values are at issue, 
that we must also be prepared to act unilaterally. Before 
imposing unilateral sanctions, serious thought must be given to 
all the potential ramifications.
    In many instances, engagement can be preferable to 
isolation although the choice is not always so stark. In some 
cases, a mixed policy approach that incorporates both carrots 
and sticks may be appropriate. Engagement, including engagement 
by the US business community, may contribute a positive 
influence. In the case of some rogue regimes, however, 
engagement would simply feed the regime's appetite for 
inappropriate or dangerous behavior.
    Most importantly, there can be no ``one-size fits all'' 
approach. The President must have the flexibility to tailor our 
response to specific situations.
    Mr. Chairman, the general concept of sanctions is not new; 
the idea is as old as society itself. In their work ``Economic 
Sanctions Revisited'' authors Hufbauer, Schott and Elliott cite 
the imposition of a trade embargo by the Athenian leader 
Pericles on neighboring Megara in approximately 432 BC in 
retaliation for Megara's attempted expropriation of territory 
and the kidnapping of three women. In 1812 the United States 
imposed an embargo on Great Britain in retaliation for British 
attempts to limit US trade with France. In 1917 President 
Wilson imposed an embargo on the sale of iron, steel and other 
war essentials to Japan. President Roosevelt also imposed 
economic sanctions on Japan in 1940. I was personally involved 
in the use of sanctions against the former Soviet Union 
following its invasion of Afghanistan during my service in the 
Carter White House. So the use of sanctions in pursuit of 
foreign policy objectives is not new.
    We, however, are living in an age of heightened political 
and economic global integration and growing interdependence in 
which most countries derive their prosperity, and even power, 
from growing engagement in the international economy. In such a 
world, sanctions are an important and potentially effective, if 
problematic, tool for enforcing international norms and 
standards of behavior, mediating not only between differing 
countries, but in the relationship between individual states 
and their own citizens as well. Sanctions are also a tool, 
however, which bring with themselves real costs as well as 
potential benefits.
    The frequency with which we turn to sanctions has increased 
dramatically, particularly since 1990. The U.S. has applied 
sanctions for foreign policy purposes a total of 115 times 
since World War I, 104 times since World War II, and according 
to the count of the President's Export Council, 61 times since 
1993. Thus more than half the sanctions imposed in the past 80 
years have been imposed in only the past four years. These 
figures do not include the increasing use of sanctions at the 
state and local levels.
    In the UN, the Security Council imposed sanctions only 
twice between 1945 and 1990: Rhodesia and South Africa. Since 
1990, however, the UN has imposed mandatory sanctions on 8 
countries: Iraq for its invasion of Kuwait; Serbia for its use 
of force in former Yugoslavia; Libya in reaction to the PanAm 
103 massacre; Somalia and Liberia in their civil strife; Rwanda 
for genocide; Haiti for abrogation of democracy; and Angola 
during a renewed insurrection. Just within the past few weeks 
the UN has threatened further tightening of existing sanctions 
on UNITA, and imposed sanctions on the revolutionary junta in 
Sierra Leone.
    Others have also resorted to sanctions. The EU, Japan and 
Canada have joined us in imposing sanctions on Burma. The EU is 
withholding aid from Kenya until that country deals with 
problems of corruption and rigged elections. The IMF has also 
moved to condition its lending to Kenya on serious efforts to 
deal with problems of pervasive corruption. The East African 
states imposed sanctions on Burundi, the Economic Community of 
West African States (ECOWAS) on Sierra Leone, and the 
Association of South-East Asian Nations (ASEAN) on Cambodia.
    Sanctions are used for a variety of purposes:
     to punish a country for unacceptable behavior;
     to influence the behavior of a target country;
     to signal disapproval of a government's behavior;
     as a necessary early reaction and as a warning 
that harsher measures--even military--could follow;
     to limit a target state's freedom of action;
     to deny resources or technology;
     to increase the cost of engaging in unacceptable 
behavior;
     to draw international attention to unacceptable 
behavior;
     to challenge our allies to take more forceful 
action themselves in support of common objectives;
     or at times, simply to signal that a business-as-
usual approach to a government that violates core values is not 
acceptable.
    We also use sanctions in pursuit of a large number of 
policy objectives. These include such things as support for 
human rights, including workers and religious rights, promotion 
of democracy, to combat terrorism or the scourge of narcotics, 
in support of weapons of mass destruction and conventional non-
proliferation or protection of the environment.
    We have available a broad array of policy measures. These 
include not only punitive or coercive economic measures but 
political and military steps as well. These may range from 
simple measures such as a change in the level and size of 
diplomatic missions to the ultimate sanction, application of 
military force, with many possible stops in between. The 
Secretary's Advisory Committee on International Economic Policy 
has developed an ``Illustrative Matrix of Foreign Policy 
Tools'' including possible diplomatic, political, cultural, 
economic and military measures ranging from friendly 
persuasion, including positive inducements, to hostile or 
coercive steps. This matrix offers a response ramp of measures 
from which one could select appropriate tools for seeking to 
change the behavior of states that violate international norms.
    We must be frank to recognize that in today's 
interdependent, global economy, the ability of the US to 
unilaterally deny key economic benefits to a target country is 
limited. Nevertheless, there are some measures which are not 
subject to foreign substitution, such as denial of a US quota, 
withdrawal of port privileges or landing rights, and actions in 
international financial institutions, consistent with their own 
rules, to withhold loans and assistance.
    In any event, it is not always easy for us to agree whether 
specific sanctions have been effective. How we judge the 
effectiveness of sanctions depends on the desired results--
overthrow of a government (in which case anything other than 
the application of military force is likely to be ineffective 
by itself); changes in a regime's behavioral patterns by 
increasing the cost of doing business (by deferring investment, 
deterring trade and the like where multilateral sanctions are 
likely to be most effective); or simply as a means of 
expressing moral or other outrage at what we consider 
unacceptable behavior.
    There is no single, common standard against which to 
measure success or failure. The standards proposed by a firm 
dependent on sales to Burma (where we imposed targeted 
unilateral sanctions) would certainly differ from those applied 
by a committed human rights activist who oppose any interaction 
that might legitimize or strengthen the position of the 
authorities. The lower the expectations set for what sanctions 
are intended to accomplish, of course, the more likely the 
judgment is to be positive and, perhaps, the greater the 
willingness to bear the costs imposed on the country imposing 
sanctions.
    One thing is clear: sanctions are an important potential 
tool but are not a panacea and they are not without costs. 
Sanctions do offer, however, important levers for behavior 
modification and will continue to do so. There is one common 
thread: the sanctions which are most likely to be successful 
are multilateral ones in which a significant number of 
countries with economic and political clout have agreed. These 
also impose fewer burdens on the US business community since 
the companies of a significant number of countries will be 
required to forswear doing business with the target country.
    Multilateral sanctions on South Africa were certainly a 
major contributor to bringing down apartheid. In Iraq, 
multilateral sanctions have blocked Saddam Hussein's access to 
the resources needed to rebuild his war machine and, even 
worse, restock his arsenal of non-conventional weapons. In 
Libya, UN sanctions have made Qaddaffi pay a heavy price for 
failing to turn over for trial those indicted for the massacre 
of PanAm 103. In Serbia, sanctions, backed up by the very real 
threat of military reversals for the Bosnian Serbs, clearly 
brought Milosevic to the negotiating table in Dayton.
    There are examples of unilateral sanctions which have been 
effective or which have served as an encouragement to others to 
take action. The sanctions the United States imposed on Burma 
called increased international attention to human rights abuses 
by the ruling regime. The Europeans, Canadians and Japanese 
have now also imposed sanctions or withdrawn benefits. Even in 
Cuba, while Castro remains in power, US sanctions have 
discouraged foreign investment and increased pressure on the 
regime to adopt reforms. In other areas such as the effort to 
combat the source of drugs, the use or threat of unilateral 
sanctions has proven to be an effective tool.
    In general, however, such cases tend to be fewer in number 
and generally restricted to those instances where we have 
overwhelming economic or political leverage.
    Nonetheless, it is often important to show US leadership in 
isolating regimes or governments whose actions violate 
international norms. The repressive Castro regime, the last 
dictatorship in the hemisphere, is such a case. The greatest 
challenge is to develop common policies with our allies to deal 
with such regimes.
    Unilateral sanctions are not only less likely to be 
successful than multilateral, they also impose costs, which 
must be honestly recognized. For one thing, the unilateral 
nature of many of our sanctions efforts has embroiled us in 
differences with key allies that detract from the desired 
results.
    Unilateral sanctions are also now being imposed on 
countries by US states and localities--such as New York City 
and the State of California's actions against Swiss banks, or 
the sanctions imposed by Massachusetts on Burma. While the 
latter were adopted in pursuit of a noble goal, the restoration 
of democracy in Burma, these measures also risk shifting the 
focus of the debate with our European Allies away from the best 
way to bring pressure against the State Law and Order 
Restoration Council (SLORC) to a potential WTO dispute over its 
consistency with our international obligations. Let me be 
clear. We are working with Massachusetts in the WTO dispute 
settlement process. But we must be honest in saying that the 
threatened WTO case risks diverting United States' and Europe's 
attention from focusing where it should be--on Burma.
    The actions against Swiss banks are counter-productive, 
failing to recognize the real progress made by Switzerland in 
dealing with its past conduct during WWII, and discouraging 
further cooperation to right the wrongs of the past.
    While state and local governments should express the 
democratic will of their citizens, unless sanctions measures 
are well conceived and coordinated, so that the United States 
is speaking with one voice and consistent with our 
international obligations, such uncoordinated responses can put 
the US on the political defensive and shift attention away from 
the problem to the issue of sanctions themselves.
    Questions have been raised about the constitutionality of 
state sanctions, and I am not here to debate that issues. But 
from the perspective of the Department of State, we are 
concerned about the impact of state and local sanctions on the 
President's ability to send a clear and unified message to the 
rest of the world. As the world's only economic and military 
superpower, the United States has the obligation to project a 
coherent and consistent message to oppressive regimes. Ad hoc 
and scattered actions at various levels of government, however 
well-intentioned, can do more harm than good in achieving the 
desired objective and impede the President's and Secretary of 
State's conduct of foreign policy. It is the Executive Branch 
of the US Government which is charged with conducting the 
nation's foreign policy, in consultation with the US Congress, 
not states and municipalities. We should have only one foreign 
policy at a time.
    We are working with Massachusetts, and with other state and 
local governments which have implemented or are considering the 
imposition of various sanctions measures, to try to ensure that 
they are designed so that they do not conflict with our 
international obligations and work to advance rather than 
retard progress toward meeting our foreign policy objectives.
    Unilateral sanctions in particular also have real costs to 
US business and American workers. A number of organizations 
have recently released different studies of the cost and 
effectiveness of sanctions, including the President's Export 
Council, the National Association of Manufacturers, the 
European-American Business Council, the United Nations 
Association of the United States, the Secretary's Advisory 
Committee on International Economic Policy, and the Carnegie 
Foundation. Others are engaged in on-going studies on 
sanctions, such as the Center for Strategic and International 
Studies. USA*ENGAGE has been formed with over 600 US member 
companies solely for the purpose of dealing with the sanctions 
issue from an American business perspective.
    Most of these studies reach similar conclusions and 
criticisms of the current use of sanctions. According to these 
studies, sanctions, particularly unilateral economic sanctions, 
are often seen as undisciplined, poorly targeted and/or 
ineffective. Measures may be overly broad--like applying a meat 
cleaver where laser surgery would be more appropriate--and the 
consequences are not well thought through. Decisions to impose 
sanctions may be made with little or no analysis of the actual 
impact the proposed sanctions are likely to have on various 
groups within the target country, or on how economic pressure 
is likely to be translated into political pressure. 
Alternatives such as diplomatic measures, sometimes more 
effective, may not always be considered.
    Some also argue that the cost to the US economy and US 
competitiveness can be disproportionate to the results 
achieved. The President's Export Council, for example, recently 
estimated the direct cost of economic sanctions to the US 
economy in 1995 at $15-19 billion in lost export sales and up 
to 250,000 jobs. It also suggested that sanctions have an 
indirect effect through undermining confidence in the 
reliability of US suppliers and providing a competitive 
advantage to foreign competitors. Other studies have also 
pointed to lost exports and lost jobs, to cases where US 
components are specifically designed out of products because 
the producers do not wish to face the prospect of eventual 
restrictions on exports to particular markets, and to reports 
that foreign firms have intentionally switched R&D away from 
the US to Europe because of a desire to avoid sanctions 
problems.
    The imposition of sanctions may also place us in difficult 
policy dilemmas. Would, for example, the imposition of strict 
sanctions on Syria, a country on our terrorist list (and with 
good reason), be consistent with our desire and need to engage 
Syria in the most cooperative way possible in seeking peace in 
the Middle East?
    It is unfortunately also true that too often a decision to 
impose sanctions may be taken reactively, to demonstrate moral 
indignation or the resolve to be seen as doing something--
without any real consideration of whether the measures imposed 
will be an effective means of advancing our goal and without 
consideration of the costs along with the benefits. H.R. 2431 
(the Wolf-Specter Freedom from Religious Persecution Act) is, 
we believe, as case in point. While we agree with the goal of 
the bill and have made respect for religious freedom a top 
priority in our human rights policy, as originally constituted 
the bill could actually undercut our efforts to promote the 
very values that the bill seeks to foster: adversely impacting 
our diplomacy in regions from South Asia to the Middle East, 
and undermining our efforts to promote the very regional peace 
and reconciliation that can foster religious tolerance and 
understanding. H.R. 2431 is an excellent example of the need 
for the Administration and Congress to work together to craft 
the kind of legislation that will be effective in meeting our 
common goals.
    This is not to say that we should forswear the use of 
sanctions, or that sanctions are an inappropriate tool. They do 
have a role to play in our panoply of tools to defend US 
interests. There is a great need for more dialogue and 
engagement between the Executive and Legislative branches, more 
opportunity for comment by the public, and more careful 
attention to all the potential consequences before we leap. The 
issue is how we can ensure that this potentially valuable tool 
is an effective instrument of policy while minimizing the 
costs.
    The studies to which I have referred generally indicate 
that thoughtfully designed and implemented, sanctions may be an 
effective policy tool. The task we face is to substantially 
reduce negative effects while still achieving policy goals. 
Critics recommended a number of both policy and process 
changes. These include: broader and more methodical 
consideration of policy alternatives, increased emphasis on 
multilateral sanctions, improved consultation and coordination 
between Congress, the Administration and State and local 
governments, and revisiting sanctions if the objectives are not 
achieved in a reasonable period of time.
    The mixed results of various sanctions regimes, both 
multilateral but especially unilateral; the lack of an agreed 
``standard of performance'' against which to measure the 
utility of sanctions; the economic and other costs imposed on 
those imposing the sanctions and on third countries; the 
differences which unilateral sanctions with an alleged 
extraterritorial impact in particular have caused with our 
allies, who may share our objectives but disagree with our 
tactics; all have led to a growing number of calls to 
reexamine, to rethink the way in which we use sanctions. Here 
are some of the lessons we have learned from our growing 
experience with sanctions:
    First, as a general rule, we should resort to sanctions 
only after other appropriate diplomatic options have been 
aggressively pursued and have failed or would be inadequate. 
Sanctions are, after all, only one of many measures available 
to us, from symbolic measures like withdrawing an Ambassador, 
reducing Embassy staff, to denying visas to target figures, 
entering into security arrangements with neighboring countries, 
to military intervention and everything in between. We should 
also not forget the power of positive inducements--rewarding 
desired behavior.
    Second, a major objective of sanctions is to change 
behavior. That implies that a primary consideration in 
considering a sanctions regime must be whether or not the 
sanctions measures are indeed likely to be effective in 
achieving that goal and whether they are part of an integrated 
strategy. Sanctions that are ineffective, that are easy to 
evade or avoid, that are imposed merely to ``make a 
statement,'' are not only pointless in achieving our 
objectives, but in the longer run debase and undermine the 
value of sanctions as a potent foreign policy tool.
    Third, we should design sanctions carefully so that, to the 
maximum extent possible, the target country feels the pain, not 
the innocent and certainly not solely our business community 
and citizens. Sanctions should be constructed so as to minimize 
the cost to the U.S. and its allies while extracting maximum 
leverage. Whether we act alone or in concert with others, we 
should analyze before we penalize, studying in advance the 
specific purpose, enforceability, cost and likely effect of any 
decision to impose sanctions.
    Fourth, sanctions are much more likely to be effective when 
they have multilateral support and participation. Multilateral 
sanctions maximize international pressure on the offending 
state. They show unity of international purpose. And, because 
they are multilateral, these sanctions regimes are also more 
difficult to evade or avoid, while minimizing damage to U.S. 
competitiveness and more equitably distributing the sanctions 
burden across responsible countries. We should make a maximum 
effort to develop a multilateral sanctions regime in instances 
when sanctions are a viable option, and given a reasonable 
period of time to develop an international consensus for such 
sanctions.
    Fifth, if we have been unsuccessful in achieving a 
multilateral regime, we must nonetheless recognize that, while 
our preference will be to act multilaterally, there are times 
when the stakes are so high, when important national interests 
or core values are at issue, that we must also be prepared to 
act unilaterally. Such actions must be considered, sometimes 
applied, if the United States is to play a leadership role. 
Otherwise, our ability to influence or respond to international 
or regional threats will always be subject to someone else's 
veto. But again, primary considerations in any eventual 
application of unilateral sanctions must be whether they are 
effective, whether they are part of a cohesive strategy to 
change behavior, and whether they contribute to or detract from 
our efforts to gain multilateral support for our policy 
objectives. There generally should be some reasonable 
expectation that the sanctions will have a significant impact 
on those targets, and that there is some expectation they can 
be effectively implemented and enforced.
    Sixth, we must recognize that in our democratic system the 
impulse to impose sanctions is by no means restricted to the 
Executive Branch. If our policies are to be effective, we must 
work together--Administration, Congress, communities at the 
state and local level, the business community, NGOs--to see 
that our use of sanctions is appropriate, coherent, and 
designed to attract international support. Congress should go 
through the same careful consideration and balancing of 
interests as the Executive Branch. There must be more 
structured, systematic discussions between the Executive Branch 
and Congress when sanctions are an option.
    Seventh, engagement is more often better than isolation 
though the choice is usually not between these two extremes 
There are many countries which engage in certain practices or 
policies which we find objectionable, which we seek to change. 
We need to tailor our approach, whether carrots or sticks or a 
mix of the two, to fit the individual target. In many cases, 
engagement at every level may be a better, a more effective way 
to achieve our intended result. In such cases, engagement, 
including engagement by the US business community, will 
contribute a positive influence. Cutting off dialogue and 
engagement with those countries would be counterproductive. In 
other countries, critical US interests may be so involved that 
isolation is simply not an option, as is the case with China, 
where not simply economic but important security interests in 
the Pacific are at stake. Even during the height of the so-
called ``evil empire,'' for example, the Reagan Administration 
sought to both engage and change the Soviet Union.
    In other cases, however, the practices of a country may be 
so egregious, so outside the norms of international behavior, 
so threatening to US interests and those of our allies, that 
any attempt at engagement is pointless. Engagement with a 
country such as Iraq would simply feed Saddam Hussein's 
appetite for inappropriate behavior. In the case of Iran, 
economic pressure is one component of a policy designed to 
demonstrate that countries which want to benefit from full 
participation in the international community must abide by 
accepted norms of international behavior. Pending such a 
change, our approach limits the capacity of Iran to support 
terrorism or acquire weapons of mass destruction.
    Eighth, the President, the custodian of the country's 
foreign policy under the Constitution, must be given discretion 
to waive sanctions in the national interest. This authority, or 
example in Title III of the Libertad Act (Helms-Burton) has 
been used effectively to help build an international consensus 
to take a much tougher position to encourage democracy and 
human rights. The Administration, which is charged with 
carrying out our foreign policy, must have the flexibility to 
tailor our response to specific situations. There can be no 
``one-size fits all'' approach.
    Ninth, Mr. Chairman, experience has shown that the 
development early on of appropriate consultative mechanisms 
with countries which share our goals can be helpful on states 
of critical concern. While such mechanisms do not guarantee 
results, the absence of such a mechanism can almost certainly 
guarantee failure.
    Let me turn now, Mr. Chairman, to two special cases, ILSA 
and the Libertad Act.
    I would venture to say that no nation's behavior poses a 
greater threat to US political and security interests than that 
of Iran. Iran's support for terrorism, its efforts to obtain 
weapons of mass destruction and the means to deliver them, and 
its efforts to disrupt the peace process in the Middle East are 
intolerable. They threaten our friends, allies, and interests 
in the Persian Gulf, the Middle East and beyond. As the Mykonos 
decision in Germany indicated, the reach of Iran's terrorist 
activities extends to Europe, as well. The behavior of the 
Iranian regime is dangerous and unacceptable. It has been for 
years and remains so. Even with the new government and the 
possibility of change which it may present, we see no sign that 
Iran has changed its external behavior in areas of critical 
concern to us and to our allies as well. It is a matter of 
great frustration that some of our allies do not seem to share 
our sense of urgency in confronting Iran's dangerous behavior 
and convincing the new Iranian Government of the need for 
change.
    We are not prepared to carry on business as usual with the 
Iranian regime, and we feel very strongly that our friends and 
allies should not do so either. We supported the Iran and Libya 
Sanctions Act (ILSA) only after our earlier bilateral and 
multilateral efforts failed to produce change in Iran's 
behavior in areas of critical concern to us. In the case of 
Iran, efforts were made for years to develop a multilateral 
consensus inhibiting Iran's efforts to acquire weapons of mass 
destruction and deter support for global terrorism. They were 
not fully successful. Our allies have resisted trade and 
investment sanctions that impose economic pressure on Iran. 
Europe joined us in some efforts to prevent Iran from acquiring 
the technology and components needed to build weapons of mass 
destruction. Europe's ``critical dialogue'' was designed to 
engage Iran but had no apparent effect in altering its 
unacceptable behavior. The ``critical dialogue'' seemed, at 
times, less critical and more a design for economic benefit.
    Nonetheless, the sanctions provided by ILSA are not an end 
in themselves, but the means to further our goal of denying to 
Iran the ability to carry on its highly objectionable behavior. 
That is why ILSA also includes a provision for a waiver of the 
law towards any country that agrees to undertake substantial 
measures, including economic sanctions, to inhibit Iran's 
behavior. We are committed to working with our allies in the EU 
and others to build an effective multilateral coalition that 
would increase our cooperation on Iran. European Union members, 
for example, believe that their existing cooperation in the 
various nonproliferation agreements--such as the Wassenaar 
Arrangement on Export Controls for Conventional Arms and Dual 
Use Goods and Technologies, the Missile Technology Control 
Regime, and the Nuclear Suppliers' Group--and their on-going 
efforts to fight international terrorism provide an adequate 
basis for the Administration to grant country-wide waivers. We 
do not. These steps are important and we should not be 
dismissive of them. But they are not enough. We believe that 
they should do more to address our common concern regarding 
Iran, particularly on the issues of their pursuit of long range 
missle capability, weapons of mass destruction, terrorism, and 
sales of sensitive technology, but we should not be dismissive 
of the steps taken so far. In the wake of the Mykonos decision, 
the EU has withdrawn its Ambassadors and suspended its critical 
dialogue, although we cannot be certain that these measures 
will continue. Of more lasting importance are the commitments 
barring arms transfers. Nevertheless, we have told the EU we 
will not be in a position to grant country-wide ILSA waivers 
based on these measures alone.
    We are undertaking a thorough investigation of foreign 
investment in two Iranian energy projects--one in the Balal 
field involving the Canadian company Bow Valley and the 
Indonesian company Bakrie and another in the South Pars field 
in which the French company Total, the Russian company Gazprom 
and the Malaysian company Petronas are reportedly large 
investors. We are making every effort to gather as 
expeditiously as possible the necessary information to 
establish whether sanctionable activity under ILSA has 
occurred. Since we take the possibility of sanctions very 
seriously, we want the information on these cases to be as 
complete and accurate as possible. While we have not made any 
final decision, we are committed to fully implementing the law.
    Our Cuba policy is illustrative of one of the principal 
goals of economic sanctions--to encourage our friends and 
allies to adopt policies that can advance our common interests. 
Our allies and major trading partners disagree with our embargo 
of Cuba and have urged us to change or alter the provisions of 
the Libertad Act. At the same time, our allies have said they 
agree with us on the key goal of encouraging democracy and 
human rights in Cuba.
    Last year, the President, for the first time in the 37 
years since Castro took power, launched a broad effort to 
develop a multinational approach to promote democracy in Cuba. 
The President's initiative built on years of bipartisan policy 
towards Cuba.
    The President launched this initiative when he acted to 
suspend the right of claimants to file suit under Title III of 
the Libertad Act. He wanted to use the opportunity presented by 
the six-month suspension to explore whether US friends and 
allies were prepared to do more to achieve our common objective 
of expediting a peaceful transition to democracy in Cuba. I was 
appointed as Special Envoy for the Promotion of Democracy in 
Cuba.
    After months of effort, thorough consultation with the 
Congress and the Cuban-American community, and thousands of 
miles of travel by myself and many dedicated people, we have 
succeeded in launching an unprecedented, multilateral effort 
that has changed the terms of the discussion about Cuba. Much 
more can, should, and will be done, but today we can genuinely 
say that Cuba's government is increasingly isolated and under 
growing pressure to launch fundamental democratic change.
    Our initiative has involved governments, non-governmental 
organizations, and the private sector. As part of our April 11 
Understanding with the EU on Helms-Burton, we are seeking to 
reach an agreement on disciplines on investment in properties 
expropriated in contravention of international law, and to 
address questions of conflicting jurisdiction. Agreement on 
such disciplines would make an important contribution to 
advancing a key Helms-Burton objective, that is, to deter 
foreign companies from unfairly acquiring assets that have been 
confiscated from US nationals by governments, like the Castro 
regime, which refuse to abide by international norms.
    Last week we held another round of talks with European 
Union representatives. While we still have significant 
differences with the EU, both sides agreed that we should 
continue the talks since we are making progress and see 
promising areas for future work.
    EU representatives have said they are disappointed that no 
agreement was reached at this last round. So are we. Both the 
EU and the US will benefit from additional protections afforded 
to our investors abroad by effective and enforceable 
disciplines on investments in confiscated properties. And we 
can both benefit from avoiding problems arising from so-called 
conflicting jurisdiction, which have been at issue in 
connection with Helms-Burton and other legislation. That is why 
we proposed, as part of the agreement, a high-level 
consultative mechanism to encourage discussion before either 
side acts. Closer cooperation with our international partners 
in responding to threats posed by states that refuse to respect 
international norms will be more effective in changing 
unacceptable behavior and will be less likely to result in 
conflicting policies which undercut our respective interests.
    In conclusion, as the world becomes more interdependent, as 
we move forward to establishing codes of acceptable 
international behavior and the will to enforce them, the 
effective application of sanctions will be a real asset. But it 
is no panacea. Thus it is all the more important that we 
undertake a rigorous analysis of sanctions before we impose 
them. We need to know not only how they will affect the target 
governments, but also how they affect vulnerable groups within 
the target countries. We also need to know how proposed 
sanctions affect US interests in other areas, including US 
business and workers, and how they affect our international 
partners on whose cooperation we depend to advance key foreign 
policy goals.
    Sanctions can be an effective tool to punish states that 
violate international norms and threaten vital US interests. 
And we must keep this tool at our disposal. But we need to work 
to sharpen our ability to use it effectively. One lesson is 
that taking time to forge a consensus both at home with the 
American people and abroad with our allies can greatly increase 
the effectiveness of sanctions and reduce the cost to the 
United States. Building such a consensus in many cases does not 
come quickly. However, it can help to avoid problems down the 
road while demonstrating to the offending state that our nation 
and the international community are united in opposing its 
unacceptable behavior.
    Sanctions are intended to send a serious message. Both 
Congress and the Administration need to ensure that, when we do 
choose to impose them, we do so in a way that has the greatest 
possible impact with the least possible damage to the US 
business community, to American workers, and to other US 
interests.
      

                                


    Chairman Crane. It will be made part of the permanent 
record. We thank you, Mr. Eizenstat.
    How does the use of our unilateral sanctions affect U.S. 
interests in the WTO, World Trade Organization?
    Mr. Eizenstat. Well, with respect to one interest and one 
example which I have been very directly involved with, that is 
the Helms-Burton Act, let me first give a context and then a 
specific answer. We believe that the Helms-Burton Act is a 
reasonable bill targeted to protect U.S. property interests 
against further confiscation. We also believe that the dispute, 
that this is occasioned with the Europeans, should not be 
brought to the WTO at all, but should be resolved through 
diplomatic means, as indeed we have attempted with some success 
to do.
    Nevertheless, the European Union brought a suit, Mr. 
Chairman, in the WTO and was threatening to pursue it before 
our April 11 understanding. It was our position stated 
privately and publicly that we would not participate in such an 
action because of the foreign policy and security interests 
involved. We hoped, and luckily at that point did not actually 
have to take that position because of our compromise. It is 
quite clear that if that position were taken or if it is taken 
in future positions, it could have a potentially negative 
precedential effect, and that other countries may take the same 
position when we bring suits. So it's not a position we took 
lightly. It's one of the reasons that we wanted to solve this 
matter through diplomatic means. We think the WTO is a very 
important instrument in which we win the overwhelming majority 
of cases, and indeed we file more cases than any other country, 
and we win more cases. So we have an interest in seeing to it 
that the WTO remains a viable and important dispute resolution 
system.
    Chairman Crane. Thank you.
    Mr. Matsui.
    Mr. Matsui. Thank you very much, Mr. Eizenstat, for your 
testimony today. I only have one question. I agree with you 
that some countries are outlaw countries and you almost have to 
declare them as such and not trade with them. The Libya-Iran 
sanction issue is one in which I believe you have such a case. 
On the other hand, we have a potential problem. I know that you 
are discussing these things right now within the White House 
and the different agencies, so I won't ask you for your 
conclusion, but with the French company Total now engaging with 
Iran for energy resources, this is going to create obviously 
some kind of a fracture some place and sometime down the line. 
I realize the sensitivity of this issue at this particular 
time. But how do we try to address problems such as these? I 
agree with the premise of Iran. On the other hand--and it's OK 
for us not to have relations with Iran, but now we're involving 
third countries into this debate as well. How do we resolve a 
problem similar to that, because this has been a problem I 
think that we're going to see an increase of, mainly because of 
the fact that we have different jurisdictional interests 
between the various Committees of the Congress and for a lot of 
reasons.
    Mr. Eizenstat. Thank you, Mr. Matsui. The Total-Gazprom-
Petronas matter, as well as a second issue involving a Canadian 
and Indonesian consortium do present difficult situations.
    First, let me say that with respect to Iran, there is no 
country literally on the face of the Earth which presents a 
greater danger to the United States security and national 
interests and to those of our friends than does Iran. In its 
resort to support for terrorism, its effort figuratively and 
literally to blow up the Middle East peace process, its urgent 
efforts to acquire weapons of mass destruction, including 
missile capacity to deliver chemical and nuclear warheads, it 
is a very significant threat to our interests. ILSA is an act 
which is designed not to propose an extra-territorial regime, 
but to deny benefits such as Ex-Im Bank guarantees to countries 
which do business with Iran as usual.
    We have been working with our European allies on an 
accelerated basis now for almost a year to try to encourage 
them to take a greater concern about these threats. We are 
beginning to see some progress, not enough, but some progress. 
For example, after the recent Mykonos trial in Germany in which 
the highest court determined that at the highest levels of 
Iranian Government, there was an effort to assassinate people 
in Germany, the European Union withdrew its ambassadors, it 
suspended its critical dialog, which we always felt was less 
critical than simply an economic dialog. In addition, the 
Europeans have taken significant, although not fully adequate 
steps in terms of limiting arms and high technology products.
    We are working with a so-called trilateral working group. 
This is the United States, the European Union, and Canada. We 
have had a meeting already in October. There will be another 
one at the end of this month, to try to toughen up this regime.
    I would mention to the Subcommittee, because this 
Subcommittee was responsible in significant part for title IV 
of ILSA being in the act. That the goal of ILSA is to achieve a 
multilateral regime, including economic sanction, in which 
there is a deterrent to the capacity of Iran to acquire weapons 
of mass destruction in support of terrorism. That is the goal 
of the statute, not sanctions per se. So we are working in 
every way we can with the Europeans to create that type of 
regime, to deny in a meaningful way the Iranian Government with 
the very capacity which is so threatening. We're also working 
with China and Russia in the same way.
    At the same time, I want to make it absolutely clear 
because of inaccurate press reports, we are investigating with 
alacrity, we are doing so in a thorough way, the Total-Gazprom 
issue. I have a team of experts led by Deputy Assistant 
Secretary Bill Ramsey in Paris as we speak. He'll be then going 
to Moscow, later to Ottawa, then to Kuala Lumpur, and to 
Jakarta, to determine the facts of this case and to determine 
whether or not this is sanctionable activity under ILSA. If it 
is, sanctions are certainly a viable option.
    Mr. Matsui. If I can just, and I know my time is up, but 
let me just follow up with one further question. Again, these 
have been press reports and so I don't feel that I'm saying 
anything that would be inappropriate. But there have been press 
reports to the effect that Iran within the next 6 to 8 months 
will have a nuclear missile capability of anywhere up to 1,200 
miles. Obviously it would then be a major threat to the Middle 
East, but certainly also even to western Europe.
    For the French to be providing hard currency to the 
Iranians at a time when the Iranians then could become a 
nuclear threat to the French is kind of odd, to say the least, 
for the French to allow this to all happen. I again, don't want 
to get into the specific case, because that's something your 
entire administration are working on, but it would just seem to 
me that from my perspective that this is something that 
undoubtedly has to be dealt with. The French have been a 
problem over the years for many of us in terms of allowing 
these kinds of activities to occur. Somehow, we have to begin 
to--Europeans and the United States, and other countries that 
have obviously an interest in their own security, have to begin 
to address this issue.
    I appreciate what you all are doing, but it's again, 
obviously it's your decision. But it's my hope that we can take 
whatever strong action we can take with respect to the French. 
I normally don't like unilateral sanctions or third party 
sanctions, but if it becomes an issue of national security and 
with an outlaw country, certainly we have an obligation to make 
sure that we do whatever we can to diminish that threat.
    Mr. Eizenstat. Permit me to answer in three ways. First of 
all, we have said in the same terms you have and with the same 
urgency to the French at very senior levels that this is no 
time for business as usual with a regime which is making such 
rapid gains in acquiring missile and chemical and nuclear 
capacity.
    Second, I want to make it absolutely clear, we have not 
agreed in any way, shape or form to defer sanctions with 
respect to this particular matter. We have not examined it 
sufficiently at this point to determine if it is sanctionable. 
If it is, we then will have to go through a decisionmaking 
process as to how to handle this.
    Third, the issue that we are dealing with is what is the 
best way to deny Iran the capacity to continue to acquire these 
weapons of mass destruction and to support terrorism. What we 
are looking for is the most effective way consistent with the 
Iran and Libya Sanctions Act to deny Iran that very threatening 
capacity. We know that we need the cooperation of the 
Europeans, the Russians, the Chinese, and others to be fully 
effective.
    Mr. Matsui. Thank you very much, Mr. Ambassador.
    Chairman Crane. Mr. Thomas.
    Mr. Thomas. Thank you, Mr. Chairman. I thank you very much, 
Ambassador Eizenstat. This perhaps doesn't have the import of a 
potential nuclear missile confrontation, but I believe it's 
directly responsive to that portion of your testimony in which 
you have referred to, but did not include on ILSA.
    You say, ``We are not prepared to carry on business as 
usual with the Iranian regime. We feel very strongly that our 
friends and allies should not do so either.'' This is more 
under the business as usual category rather than potential 
nuclear missile confrontation, and the country is Israel, not 
Europe. The item is pistachios, which often times brings a 
smile to people's face. But I have been involved through this 
Subcommittee with Israel prior to the United States-Israel Free 
Trade Agreement and I take very seriously our friends and 
allies not living up to the sanctions that we have placed on 
Iran.
    My concern is that industry people and others have 
presented evidence which shows that up to 98 percent of the 
pistachios entering Israel happen to be Iranian pistachios. I 
frankly am less concerned about the transshipment of Jordanian 
olives that get transformed into Israeli olives and other 
things that through transshipment somehow wind up with an 
Israeli label on it because frankly, I don't mind spreading the 
wealth in that particular part of the country. What I do object 
to is an ally like Israel apparently being unwilling to pursue 
ordinary investigative procedures to determine the validity of 
this. I understand they have said that perhaps they are 
California as well as Iranian. But the sampling that they 
utilize doesn't allow them to determine either of those.
    I know you have been interested in this. I know they have 
tried to argue that there now has been an indictment. My belief 
is the indictment was more for tax evasion than for this 
violation. Where are we? What are we doing? Is there any kind 
of a time table for Israel to quit stalling and move forward on 
the determination of whether or not this information is 
accurate?
    Mr. Eizenstat. Mr. Thomas, this is in fact not a laughing 
matter. I was in the Middle East about 2\1/2\ weeks ago. I met 
with very senior ministers in the Israeli government, including 
Mr. Sheransky, the Prime Minister and others. I directly raised 
the pistachio issue. We believe that there is clear evidence 
that there is a violation of Israel's own laws against trading 
with Iran. You can go into virtually any kiosk on the streets 
in Jerusalem or Tel Aviv and get what are clearly Iranian and 
not falsely labeled Turkish pistachios. I said so. I said that 
we felt that this was a very important and urgent matter. I 
believe that that sense of urgency has now been not only 
imparted, but understood and shared.
    There has been an important indictment against someone who 
has been at least alleged to be involved in this trade. We hope 
that that indictment and others which will follow will send a 
very clear signal to importers in Israel that they should not 
be doing business here. We have also indicated our willingness 
to provide them with evidence of how you can easily sample 
products because Turkish and Iranian pistachios are easily 
distinguishable. We will continue to follow this very very 
closely.
    So I think we have not only gotten their attention, but 
they are beginning to act as this indictment indicates. We will 
not let it fall through the cracks.
    Mr. Thomas. I thank the gentleman. I'll supply some 
specific questions so that I can have a better understanding. 
But I can't think of a better example, not withstanding all of 
the qualifications that we've made, that this particular ally 
in this particular instance needs to make sure that they 
understand this is a serious and important concern of ours. 
Thank you.
    Thank you, Mr. Chairman.
    [Questions were submitted to Mr. Eizenstat from Bill 
Thomas. The response of Mr. Eizenstat follows:]

    Question: I am concerned about other nations' failure to 
impose sanctions on countries like Iran, particularly after 
U.S. industry and government representatives have tried to draw 
their attention to problems. For example, the U.S. pistachio 
industry has been presenting U.S. and Israeli government 
sources with evidence that up to 98% of the pistachios being 
brought into Israel are actually raw, Iranian pistachio nuts. I 
understand you are among the U.S. officials that have raised 
this issue.
    1. With whom did you meet in Israel?
    2. What has the Administration asked our ally to do and 
what time table has been set for doing it?
    3. Israel recently suggested its evidence shows imported 
nuts could be from either California or Iran. U.S. Customs 
believes the samples of nuts Israel provided were too small to 
permit adequate analysis of trace elements in the nuts as 
Customs would do in analyzing product brought into the United 
States. What has the Administration done to encourage our ally 
to revise its sampling?
    4. I understand Israel has informed the United States that 
Israel is prosecuting one importer for bringing in Iranian 
pistachios. The California pistachio industry has heard that 
indictment was primarily based on tax evasion. Please explain 
whether the Administration has written information, including 
the indictment, and whether there has been any outcome in the 
case. If you possess the indictment, can you supply copies to 
me and to the Committee?
    Have other indictments been announced?

    Answer: I share your deep concern about the illegal import 
of Iranian pistachios into Israel. Because of that concern, 
during my visit to Israel in October (my first in my new role 
as Undersecretary of State for Economic, Business and 
Agricultural Affairs), I raised this issue with both Natan 
Sharansky, Minister for Industry and Trade, and Shmuel Slavin, 
Director General of the Ministry of Finance (under whose 
jurisdiction the Israeli Customs Service falls). In addition, 
the issue was discussed at length during an October meeting in 
Jerusalem between an interagency team of officials from the 
State Department, the U.S. Trade Representative and the U.S. 
Customs Service, and senior officials from, inter alia, the 
Israeli Ministry of Industry and Trade, Customs Service, and 
Ministry of Agriculture.
    During my meetings with Minister Sharansky and Mr. Slavin, 
I expressed concern that the Government of Israel was not 
taking adequate steps to prevent Iranian pistachios from 
entering into the Israeli market in violation of its own 
embargo. I observed that pistachios are a major source of 
foreign currency for Iran, and that our common policy 
objectives vis-a-vis Iran were seriously impaired by providing 
them, albeit indirectly, with much needed hard currency.
    In response to my inquiry, I was informed that the Israeli 
Customs Service and Israeli Standards Institute had been 
cooperating to develop a system for randomly conducting 
chemical origins-testing of imported pistachios. Officials from 
the Finance Ministry told me that they had recently turned away 
two shipments of pistachios as a result of this effort. I 
encouraged them to increase the frequency of their testing.
    The U.S. Customs Service Laboratory has been cooperating 
with Israeli Customs over the last several months to assist the 
Israelis in developing their testing skills. Our Customs 
officials have expressed satisfaction with this cooperative 
effort. It is true that these efforts have been somewhat 
hampered by an inadequate sample pool. This problem is not 
unique to Israel--U.S. Customs is also seeking to update its 
sample. We are engaged in an interagency effort to assist both 
our labs and the Israelis to improve their sample.
    Israeli customs has filed a criminal case against an 
Israeli pistachio importer, Hamama Brothers, and its General 
Manager Meir Hamama, for illegally and knowingly importing 
pistachios of Iranian origin in violation of the embargo. While 
we have not received a written copy of the indictment, an 
official from the U.S. Embassy in Tel Aviv confirmed the nature 
of the indictment by attending the opening of the trial on 
November 4 and speaking with the prosecutor in the case. The 
Haifa Customs Authority is preparing a separate tax evasion 
case against Hamama Brothers arising from their illegal import 
of Iranian pistachios. An indictment has not been filed in the 
tax evasion case yet.
    While the indictment against Hamama Brothers was the result 
of an Israeli Customs investigation, begun in the summer of 
1996, into a number of Israel's larger pistachio importers, to 
our knowledge the Government of Israel has not issued any other 
indictments yet.
    I can assure you that we take this issue very seriously and 
will continue to press the Israeli government to crack down on 
the import of Iranian pistachios.
      

                                


    Chairman Crane. Thank you.
    Thank you, Mr. Secretary. The Subcommittee will go into 
recess in response to the vote that is still on the House 
floor. Then we'll be back with you, Mr. Yeutter.
    [Recess.]
    Chairman Crane. The Subcommittee will come to order. Our 
next witness is Hon. Clayton Yeutter, with the law firm of 
Hogan & Hartson, former U.S. Trade Representative, and former 
Secretary of Agriculture.
    Clayton, you may proceed. We, I think, are blessed with no 
vote interruptions during your presentation.

STATEMENT OF HON. CLAYTON K. YEUTTER, COUNSEL, HOGAN & HARTSON; 
FORMER U.S. TRADE REPRESENTATIVE; AND FORMER U.S. SECRETARY OF 
                          AGRICULTURE

    Mr. Yeutter. Thank you very much, Mr. Chairman. It's good 
to be here and good to see the Members and staff of your 
Subcommittee again. As you'll remember, it was 12 years ago 
when I became USTR and began to spend a lot of time in this 
room. It's a pleasure always to come back. I compliment you Mr. 
Chairman, for your personal interest in this topic which is an 
incredibly important one, far more important than most people 
today yet realize.
    You have copies of my prepared text, which are available, 
of course, for the record.
    Chairman Crane. It will be made a part of the permanent 
record.
    Mr. Yeutter. Thank you. I will try to extemporaneously 
summarize the basic content of that testimony.
    The first point I would like to make to you, Mr. Chairman 
and Members of the Subcommittee, is that this is a situation 
that's begun to get out of hand. Unilateral sanctions have 
become almost a fad in this country over the last several 
years. We need to put a halt to that. You have seen some of the 
numbers. I'm sure they came up in the earlier testimony today. 
In the last 4 years or so, we have had something like 61 
sanctions implementations involving about 35 countries with 
whom we trade. They cover about 40 percent of the world's 
population. We have about 20 percent of our U.S. export markets 
covered with sanctions activities of one kind or another.
    One must wonder about the wisdom of that course of action, 
Mr. Chairman, when one considers that exports today constitute 
about one-third of U.S. economic growth. Why in the world would 
we jeopardize exports to 20 percent of the world's market when 
this is so important to the U.S. economy?
    The other thing that troubles me about the sanctions 
efforts, Mr. Chairman, is the response that these actions 
generate elsewhere in the world. We try to be a role model for 
the world in terms of our own behavior. Ironically, as we take 
actions intended to alter and improve the behavior of others, 
we're getting a reputation of U.S. arrogance, of haughty 
behavior. We are considered to be sanctimonious in our approach 
to these issues. Recently, someone even called us an 
``international nag.'' Regrettably, all of these descriptions 
are to some degree accurate, perhaps more accurate than we 
would prefer.
    Putting all that aside, Mr. Chairman, it seems to me, we 
need to approach this issue systematically and balance the 
competing interests appropriately. That's what government is 
all about, whether it be in the legislative branch or the 
executive branch. What we're really trying to do in this case 
is balance whatever foreign policy benefits we might get from 
imposing sanctions, that is, what kind of corrective behavioral 
response we might obtain, versus the economic cost imposed on 
ourselves as we implement the sanctions. That's really what 
your Subcommittee needs to focus on as you evaluate this 
situation and any legislative response that you might provide 
for it.
    Unilateral sanctions, which seem to be our primary modus 
operandi these days, almost never work. The track record of 
unilateral sanctions is just abysmal. Multilateral sanctions do 
sometimes work, but we seem not to choose multilateral 
responses these days. We choose unilateral ones. One must 
wonder why we do not have the intelligence to avoid a policy 
that has such a poor track record. The answer to that, of 
course, is because it sometimes plays well politically here at 
home, even though it's a policy of failure. But we need to rise 
above that and try to follow policies that make sense over time 
rather than policies that have short term, transitory political 
benefits here at home.
    Putting that in a broader context, I appreciated what a 
former State Department official said to me 1 month or so ago, 
to the effect that we have chosen the wrong medicine, if you 
will, for the ills that are involved in sanctions situations. 
We want to change behavior around the world, and we want 
instant gratification. But the fact is, we don't change 
behavior over night. This is something that requires time. 
Sanctions do not provide time. So we have chosen the wrong 
response.
    When we perceive and evaluate the punishment we provide for 
what we believe to be the ``bad actors'' of the world, 
basically what we are saying to these folks, Mr. Chairman, is: 
``If you don't change your behavior, we're going to stop 
selling things to you.'' The reaction on the other side of the 
table when we say that is: ``Oh, the Americans are going to 
stop selling to us. Gee, I think I can live with that. Let's 
move forward.''
    We don't change behavior much if we stop selling to those 
folks, for other people will sell to them unless we get an 
effective multilateral sanctions program, and we haven't been 
moving in that direction. That is why unilateral sanctions have 
a terrible track record.
    Now when you look at the other side of that equation, Mr. 
Chairman, which is the cost side, you have to say: ``Well if we 
don't really accomplish much in terms of foreign policy 
benefits, and if we don't really accomplish much in changing 
the behavior of rogue states around the world, then it really 
doesn't make any sense to do this unless the cost is minimal.'' 
If it's a ``freebie'' for us, or if the cost to the American 
economy is minimal, one can justify doing this. But the fact 
is, the cost is pretty darn high. The major point I would make 
today is that unilateral sanctions have imposed severe costs on 
the American economy for many years to come.
    I'd like to expand on that for just 1 minute. We have gone 
through the trauma of sanctions with agricultural embargoes. 
You'll remember the grain embargo, Mr. Chairman, in 1980, and 
the soybean embargo in 1973. I lived through both of those as 
an agriculturalist. We're still paying the damages from those 
actions. The cost was not a 1-year expenditure; it's one that 
has lasted for many years.
    The soybean embargo led to the establishment of a major 
soybean industry in Brazil, with huge Japanese investments in 
that country. Brazil is now our major competitor in soy bean 
markets. The grain embargo led to a huge loss in market share 
for the United States in what was then the Soviet Union. We 
have never regained that market share. Those are two 
agricultural examples, but one can carry those examples forward 
to the rest of the economy too.
    In my judgment, all of the estimates that we have made of 
costs of economic sanctions are gross understatements. We are 
bearing a cost that's going to continue for years to come, and 
it's going to amount to billions of dollars. We are rather 
complacent about that right now, Mr. Chairman, because our 
economy is doing well and our exports are doing well, not--
withstanding all these sanctions. But some day, we're going to 
have a downturn in the economy. Then we're going to say: ``Gee, 
where are our export jobs?'' Then we're going to say: ``I guess 
we just gave them away, didn't we?'' We handed market share 
around the world to our competitors on a silver platter. We're 
going to rue the day that we have done that. We're in the 
process of doing it right now. A few years from now, we're 
going to come back and say: ``Why were we so stupid? Why did we 
do this? We swung at the bad guys of the world and we hit our 
own exporters in the chin.'' That's just not a very intelligent 
modus operandi.
    When one looks at the foreign policy side, and Brent 
Scowcroft will have more to say about this than I, to me firing 
that sanctions weapon is like using the last bullet you have 
available. Sanctions are a definitive, final kind of action. 
When we implement sanctions, we're done. At that point, we have 
exercised whatever influence we're going to exercise over that 
nation for a long time to come. We have no more bullets in our 
gun. We have fired them all.
    Is that a satisfactory situation? Basically, we have walked 
away from our foreign policy challenges and declared defeat. 
This is a policy of failure rather than a policy of victory. 
One must ask the wisdom of that course as well.
    I would summarize, Mr. Chairman, by saying there's got to 
be a better way. There is a better way. We have to 
systematically evaluate each of these situations when they 
arise and make a deliberate, considered cost-benefit analysis 
of the potential foreign policy benefits versus the economic 
cost, and then decide whether any of this makes sense. We 
should have a three-step process, which is really the essence 
of your legislation.
    One is to engage ourselves around the world with tough 
traditional diplomacy, leverage if you will. Let's find ways we 
can leverage the rogue states of the world, and there are a lot 
of ways we can do it if we just carry them out. Sanctions are 
the easy way out. They are also the worst way out. We need to 
do it the hard way sometimes. It may be hard to ``engage,'' but 
that's the right way to do it. We have to try to make 
engagement work through strong diplomacy.
    If that doesn't do the job, step two is multilateral 
sanctions. If we can't get the job done with step one, let's 
move to step two, and let's put together a coalition of 
countries around the world and put multilateral sanctions in 
place. That's hard too. Unilateral sanctions are a lot easier. 
We can do them ourselves. But again, it's the wrong way for it 
almost certainly will fail. The much better way is multilateral 
sanctions. If we really want to have a chance at success, we 
have got to go the multilateral route because the unilateral 
route 9 times out of 10, maybe 95 times out of 100, is not 
going to succeed.
    So we ought to see if we can put together a multilateral 
coalition to apply sanctions and make them work. Let's see if 
we can get some allies to go with us. So if we're firing 
bullets and we get to the last bullet in our gun, we've got 
some other people who can hand us more guns or fire their own 
to back us up.
    Then it's only as a last resort, not as a first resort, 
that we ought to look at unilateral sanctions. There may be a 
few times, Mr. Chairman, where we'll want to go to unilateral 
sanctions, where we are so appalled by what is happening around 
the world and so frustrated by not being able to do anything 
through engagement or through multilateral sanctions we'll say: 
``What the heck, let's go ahead and do unilateral sanctions 
even if it's going to impose a cost on our exporters and our 
total economy.'' But let's do that after carefully thinking 
about it, and analyzing the tradeoffs, rather than rushing pell 
mell into unilateral sanctions without thinking, which is what 
we have been doing in recent years. Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of Hon. Clayton K. Yeutter, Counsel, Hogan & Hartson; Former 
U.S. Trade Representative; and Former U.S. Secretary of Agriculture

    Mr. Chairman, thank you for the opportunity to appear 
before this Subcommittee to discuss a problem that represents a 
growing threat to American interests: the proliferation of 
unilateral U.S. economic sanctions. Simply put, the use of 
unilateral sanctions as a tool of U.S. foreign policy has 
gotten out of hand and is imposing major burdens on our 
companies and farmers. Put still more simply, as a nation we've 
been shooting ourselves in the foot regularly! We are using 
unilateral sanctions as the first tool out of our foreign 
policy toolbox, instead of the last. We are turning to 
unilateral sanctions where their deployment would be futile or 
counterproductive to advancing our foreign policy or human 
rights objectives, and where the costs to American workers, 
farmers, and companies clearly outweigh the potential benefits. 
And we've not even been thinking about what we're doing to 
ourselves.
    I would like to spend a few moments on several specific 
aspects of the problem.
    First, resort to unilateral sanctions has become almost a 
fad. A recent study of the National Association of 
Manufacturers found that, in the past four years, the U.S. 
imposed unilateral sanctions for foreign policy reasons 61 
times. The 35 targeted countries account for over 40% of the 
world's population and about one-fifth of the potential export 
markets for American goods, services, and farm products.
    With exports presently accounting for a third of our 
economic growth, one must question the wisdom of applying 
sanctions to 20% of our export markets. That may not hurt much 
now, with our economy purring along impressively, but the hurt 
will unquestionably be felt in the future. If and when we have 
a downturn in our domestic economy, people will be clamoring 
for export related jobs--at which time we'll unhappily discover 
that we've given them away through unilateral sanctions.
    Second, unilateral sanctions do not work. Unfortunately, 
the current popularity of unilateral sanctions is badly 
misplaced. In the vast majority of cases, these measures fail 
to impose a significant burden on their intended targets. This 
reflects the tremendous expansion of global trade and the 
intense competition among exporters that exists today in 
virtually every industry. There are few goods, services or 
technologies that cannot now be acquired from a wide variety of 
sources. For example, today the United States accounts for 20% 
of world exports of agricultural equipment and 16% of world 
exports of telecommunications equipment. The ``offending'' 
countries need not buy such products from us; the most likely 
impact of unilateral sanctions is simply to hand markets over 
to foreign competitors.
    Even where unilateral sanctions do impose an economic 
burden on a foreign country, they seldom lead to improved 
conduct. As a former U.S. diplomat recently pointed out, we 
want instant gratification with sanctions, but behavioral 
changes are almost always evolutionary. Thus, sanctions are an 
improper treatment for abhorrent behavior. All too frequently 
they provide despotic leaders an opportunity to solidify their 
political support by railing against the alleged arrogance of 
the United States.
    Proponents of sanctions often admit their shortcomings, but 
nevertheless justify them on the basis of moral leadership. The 
argument is that improper behavior must be challenged, and, as 
the leader of the world, the U.S. must be in the forefront of 
that challenge. We must ``send a message'' of condemnation of 
the abhorrent conduct, even if its impact on the offending 
nation may be minimal, and even if that may damage our own 
interests. There may indeed be times when we should do 
precisely that--but those times should be the exception rather 
than the rule. And this should be a considered decision, 
whether it be made by the Congress, the Executive Branch, or 
both. If the U.S. alone is to send such a message, we should do 
so only after carefully deliberating the relevant factors, on 
the upside and the downside. Today we seem not to deliberate at 
all; we simply rush to impose sanctions because we ``must do 
something.''
    Not all sanctions are ineffective. In particular, 
multilateral sanctions have often advanced American interests. 
The extraordinary consensus to oppose Soviet expansionism led 
to 40-years of effective export restraints imposed by the anti-
Communist allies through CoCom, the Coordinating Committee on 
East-West Trade. Since the end of the Cold War, multilateral 
sanctions against Iraq and Serbia have also curbed activities 
hostile to U.S. interests.
    Third, unilateral sanctions threaten America's prosperity 
and global influence. Incredibly, we seem to have forgotten the 
lessons of past embargoes. The Institute for International 
Economics concluded that U.S. sanctions cost $15 billion to $19 
billion in lost exports in 1995, which translates into a loss 
of 200,000 jobs in the export sector. Beyond the direct damage 
of current sales and jobs lost, unilateral sanctions generate 
extensive downstream effects. The loss of a sale of a fleet of 
aircraft sacrifices the sale of related service contracts, 
upgrades, and replacement parts, as well as long-term 
commercial relationships that can generate new sales in the 
future. Therefore, the job loss over time will far exceed that 
attributable to the initial sanctions decision.
    The case of the Soviet grain embargo is a classic 
illustration of this. When President Carter imposed the embargo 
against Russia to protest the invasion of Afghanistan, the 
Russians simply turned to other suppliers, all of whom were 
delighted to seize market share from the United States. Russia 
paid a bit more for grain than if it had bought from us, but 
not much more. By the time President Reagan terminated the 
embargo, American farmers had lost $2.3 billion in sales. 
Seventeen years later, we have not yet restored our Russian 
grain exports to pre-embargo levels.
    As in the case of the grain embargo, once foreign 
competitors establish a beachhead in markets the U.S. has 
abandoned, for whatever reason, the losses to American workers 
and farmers multiply. When the United States banned exports of 
equipment for use in building the Siberian pipeline in the 
early 1980s, Europe and Japan gained a foothold in the 
previously U.S.-dominated market for arctic drilling equipment, 
which they fully exploited. When the United States banned 
soybean exports to Japan in 1973, the Japanese invested in 
Brazilian soybean production. The U.S. share of world soybean 
exports then fell dramatically, and today Brazil is still our 
toughest export competitor.
    Over time, the cumulative effect of the repeated resort to 
unilateral sanctions is a loss of confidence in American 
suppliers and America as a place to do business. If we do not 
take action to shore up that basis of trust and America's image 
as a reliable business partner, we will place in jeopardy the 
robust export sector that has contributed so much to our 
current economic prosperity. Sapping our economic strength, in 
turn, will reduce America's political influence on the world 
stage.
    Fourth, unilateral sanctions constitute a ``declaration of 
defeat'' in foreign policy. When a nation does something to 
offend us, it is assuredly appropriate for us to respond. But 
why unilateral sanctions? Whatever happened to traditional 
diplomacy?
    As the world's strongest nation, the U.S. has immense 
leverage throughout the world. Every nation wants something 
from us, and in situations of rogue behavior we should 
carefully and comprehensively explore just where our leverage 
lies. It may, and often does, lie in areas totally unrelated to 
sanctions. But in recent years we've been so quick to rush to 
sanctions that we've not given diplomacy, broadly defined, a 
chance to work. That, of course, is simply foolish. We should 
try to influence behavior through engagement, long before we 
even contemplate moving to sanctions.
    That is why more than 600 companies and trade associations 
have now joined together in USA ENGAGE. Their objective is to 
bring some sanity to this process, to ask our government to 
respond to abhorrent behavior in a deliberate way rather than 
on the basis of pure emotion, as we often do with unilateral 
sening an action, so long as the threat is credible. But 
implementing the threat (e.g., through sanctions) is another 
matter, for that can generally be done just once. It is like 
firing the final bullet in a revolver. What does one do next? 
At that point one's options are limited indeed. Unless the 
bullet finds its mark, i.e, the sanctions are effective, we're 
now isolated. Our influence is at an end, and with unilateral 
sanctions we have no friends or colleagues who might throw us 
another revolver.
    About all we can do at that point is run, and that is the 
typical outcome for unilateral sanctions. We make persuasive 
speeches about moral leadership, but then we take an action 
that denies us the opportunity to exercise that leadership. We 
isolate ourselves, and we're forced to abandon the good fight 
because we've chosen the wrong weapon.
    Fifth, a better alternative. What should we do? We should 
put in place a procedural modus operandi for dealing with these 
global behavioral challenges in a systematic way. Unilateral 
sanctions should be at the end of that procedural chain, not at 
the beginning.
    As I alluded earlier, we should start with vigorous 
engagement, leverage if you will. Bold, sometimes even brash, 
diplomacy is in order when we observe repulsive conduct 
elsewhere in the world. But let's truly exhaust the diplomatic 
options, broadly defined, before we move beyond them. And let's 
have the President or the Secretary of State certify to the 
Congress that we've reached the end of that road before we 
start to tread a different road.
    If diplomacy fails, and it sometimes will, then let's 
examine multilateral sanctions as an option, not unilateral 
ones. Unilateral sanctions are the easy answer in these 
situations, which is one reason why we often choose them. 
Diplomacy is hard work, and it takes time, which does not suit 
our penchant for a quick response. Puttinge allies in the Gulf 
War, a coalition brilliantly pulled together by President Bush. 
That is one reason the War was a success for us, and it is also 
the reason that multilateral sanctions have an infinitely 
higher probability of success than do unilateral sanctions. 
Putting it in crass political terms, if all we want is ``an 
issue,'' if all we want is to tell our constituents that we're 
``doing something,'' then we might as well use unilateral 
sanctions even though they'll accomplish little or nothing. But 
if we really want to affect abhorrent behavior elsewhere in the 
world, we ought to demand of ourselves the patience to do it 
right. In this case that means starting with diplomacy, and 
then moving, if necessary, to a multilateral sanctions effort.
    Only if we fail to achieve the necessary cooperation for 
multilateral sanctions should we consider unilateral sanctions. 
If we're to choose sanctions as our weapon, let's have a big 
arsenal, not just one six-shooter. And let's have a lot of 
other people firing weapons, not just ourselves. We should know 
by now that sanctions programs do not succeed automatically; 
they rarely succeed even under the best of circumstances. So it 
behooves us to get the circumstances right, to do everything we 
can to maximize the potential to affect behavior. Otherwise, 
sanctions are essentially a sham, often doing more harm than 
good.
    Does that mean we should never apply unilateral sanctions? 
Not at all, but it does suggest that we move in that direction 
only as a last resort, and only if the anticipated foreign 
policy or other benefits are determined to be greater than the 
economic costs to U.S. exporters and to the U.S. economy 
generally.
    We know that sanctions are going to cost American jobs; the 
issue is how many. And we know they're going to damage our 
reputation as a reliable supplier of American products and 
services worldwide. The question is how badly our reputation 
will be damaged, whether irrevocably, and over how large a 
segment of the American economy. The overall question, of 
course, is whether it is worthwhile to do this to ourselves. In 
some cases it may be. In those cases we should implement 
unilateral sanctions.
    Follow-through. Once we choose the sanctions route, whether 
multilateral or unilateral, we should also put appropriate 
follow-through mechanisms in place. The U.S. International 
Trade Commission and the Administration ought to monitor each 
of our sanctions programs to determine on an ongoing basis just 
how successful they are and also just how costly they are. If 
the results are disappointing, we should reconsider our 
actions; if they are encouraging, we may wish to extend the 
sanctions time frame. In any case, there should be a sunset for 
sanctions actions, perhaps after two years, unless they are 
reauthorized on the basis of all facts then available.
    If and when sanctions are applied, we should respect the 
sanctity of existing contracts. Otherwise we'll create enormous 
inequities and stimulate endless litigation. And the President 
needs some implementation flexibility, so that he can 
effectively shape the sanctions effort.
    In summary, in this often heated environment, where we are 
appalled by conduct we observe somewhere on the globe, we need 
to stop and think. We should never sacrifice our basic values, 
and we should never forego our leadership role in this world. 
But we should ask ourselves whether we can affect the behavior 
in question, for sometimes we cannot. If and when we can, the 
next question is how best to do that. We'll discover that 
unilateral sanctions will rarely be the answer. The final 
question is whether we can affect the objectionable behavior 
without doing far more damage to ourselves, particularly in the 
long run, than to the miscreants. If not, we should think 
mighty hard before we aim our sanctions weapons at the 
miscreants and instead hit our exporters and all their 
employees.
    If we approach this delicate issue in a systematic way, 
we'll make the correct policy decisions. The American public 
has good instincts and remarkable judgment when confronted with 
matters such as this. We've just not dealt with sanctions 
issues in a systematic, rational way in recent years, and that 
must change.
    Mr. Chairman, I will happily respond.
      

                                


    Chairman Crane. Thank you, Clayton. I agree with you 
totally. With regard to multilateral sanctions, have you any 
recommendations or thoughts on how one goes about building that 
kind of consensus?
    Mr. Yeutter. You do it the way President Bush did in the 
gulf war. Obviously it's a little easier in that situation than 
it is in these because one has a more definitive objective, and 
it is one around which folks can rally more readily because 
national security is at stake. But it's the same process.
    We simply must have a President of the United States and a 
Secretary of State who will get on the phone with the major 
players around the world in a given situation and say: ``We 
have a problem here of reprehensible behavior. We need to do 
something that will bring about civilized conduct by this 
Nation in this particular situation, but we're going to have to 
apply pressure. Will you help us do it.'' You have to make that 
phone call to Germany, France, the United Kingdom, Japan, and 
whatever other countries are necessary.
    If we get the cooperation of the key players in that 
particular situation, vis-a-vis that particular offending 
country, multilateral sanctions can and will work. As I said, 
that's not easy, but that's why we have a President of the 
United States, and that's why we have a State Department.
    Chairman Crane. Thank you.
    Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman.
    Thank you very much, Clayton, for your testimony. You know, 
one of the reasons that I, and I'm not questioning the 
legislation that Mr. Hamilton and Mr. Crane have introduced. 
The problem with the whole area of sanctions is that it's 
really an emotional issue. I agree with everything you are 
saying. To think that we could do a cost-benefit study after 
the two planes went down by the Cubans just before Helms-Burton 
passed the House almost unanimously, perhaps it was 
unanimously, it just wouldn't happen because all of a sudden 
the Members are outraged. You see evening news stories and 
those kinds of things. I think it does help to try to set up 
some process, but the reality is is that usually it's a very 
emotional response.
    Second, I think it's--I don't know of a time really when 
either President Bush or President Reagan or President Carter 
also was able to get multilateral support for economic 
sanctions. The gulf war was a very unique situation. Obviously, 
the pipeline of energy was threatened and so it's a much easier 
case to make. But economic sanctions, there's always a country 
that's going to go in there and say hey, I want to cut this 
deal. Iran is not a very good country, but you've got the 
French in there thinking they are going to make a little 
economic hit out of it because other countries won't go in.
    I think the key really is testimony like yours, the group 
that Anne Wexler and others have put together to try to get the 
message out, because the American public doesn't understand the 
consequences. I think you stated it, that there's economic 
loss, export loss, opportunities. It hurts workers, it hurts 
U.S. industries. Somehow we have to communicate to the public 
and to our colleagues, you know, two-thirds of the Members of 
the Congress are new since 1990, that there is a price to pay. 
That's why I think it's important that this hearing is going 
on. That's why I think it's important you testify and this 
group is out there and others begin to talk this issue up.
    This is an issue that seems to be coming up, as you 
suggested, monthly now. Again, how do you argue a case in the 
middle of a crisis that we shouldn't be doing these kinds of 
things. You can almost get pushed into it in a very emotional 
situation. But I think that it almost has to be done on a case 
by case basis because of this. I don't know, I agree with you 
intellectually and substantively 100 percent. On the other 
hand, if something happens in the Middle East or Eastern Europe 
tomorrow, undoubtedly on Tuesday we'll have a bill on the floor 
and it would probably pass overwhelmingly.
    Perhaps you can't respond to a theoretical question like 
that, but how do we really handle this given these impediments 
that I just raised in terms of the emotional aspects of this?
    Mr. Yeutter. You have raised all the right questions, 
Congressman Matsui, and we have thought about all of them. You 
are right about the emotions of these kinds of situations and 
the desire of people to do something immediately. That's one of 
the values though of having a deliberative process in place so 
that you can say to your constituents who want instantaneous 
action: ``Look, we're going to work on this situation, but 
we're going to do it in a careful way so that we make sure that 
we do the right thing.''
    If you've got a procedural mechanism in place that can fend 
off some of that emotion, even for a relatively short time, 
that would help. In other words, instead of getting a decision 
in the next 48 hours, if you can even postpone it 1 or 2 weeks, 
that may lead people to come to their senses and operate in a 
more sensible, objective manner.
    Mr. Matsui. Hope that a crisis occurs Thursday so we don't 
have to vote until Tuesday, and give us the weekend to think 
about it.
    Mr. Yeutter. You can do a benefit-cost calculation fairly 
quickly if you have to. It depends on how much time you want to 
allow for that, but if the administration knows the offending 
country well, the administration ought to be able to come back 
to the Congress in a fairly short period of time with a good 
evaluation of what the benefits and costs would be of moving 
toward sanctions.
    Until now, that hasn't been done at all. Basically, we have 
been shooting from the hip in all these situations. That's just 
very unwise.
    But in terms of the educational task, you are right, 
Congressman Matsui. It's up to the USA*ENGAGE folks and 
everybody else who has an interest in this issue to do a better 
job of explaining what the tradeoffs are and especially that 
there is a major downside in this situation, that there is a 
lot of cost here. That message just hasn't been conveyed very 
effectively thus far.
    There are jobs at stake, lots of jobs at stake if we start 
doing foolish things. We have already started. We are going to 
lose those jobs forever if we're not careful. We're not going 
to win them back. And we're going to lose market share 
permanently in these situations.
    Multilateral sanctions are going to be hard. We may not be 
able to get coalitions together in some situations. But we 
ought to think long and hard before we go to the alternative of 
unilateral sanctions because that really is shooting ourselves 
in the foot.
    If I can make just one supplementary comment that's in my 
testimony but I didn't mention here orally. One of the reasons 
unilateral sanctions are going to be so costly to this country 
in the future relates to the way business is being conducted 
around the world today as contrasted to 20 or 30 years ago. 
Today everything is alliances. No matter what industry you 
observe, whether it be the food industry of California or 
manufacturing industries in Chicago, we now have alliances or 
linkages around the world--joint ventures, long-term contracts, 
just in time inventory commitments, and all kinds of investment 
arrangements. You have, in essence, a team approach in the way 
things are done today in business around the world. You are 
either on that team or off it.
    The problem with unilateral sanctions is that we force our 
guys off the team. They have to go to all of their colleagues 
and counterparts and say: ``We'd like to be a part of your 
consortium, but we have this sanctions program that says we 
can't sell in such a such a country, and therefore, you won't 
be able to sell either.'' They are going to say: ``Thanks, but 
you know, I guess we'd better replace you.''
    Mr. Matsui. One thing, and I know my time is up and I'll be 
very brief, but one thing I think that's important is that 
conditionality doesn't work. The MFN issue always comes up. If 
you've got a small country you can overwhelm and obviously 
they'll capitulate if the GDP, gross domestic product, is zero 
compared to the United States. But you take a country 
comparable or even somewhat smaller or certainly a larger 
country populationwise, they take it as a threat to their 
sovereignty and a threat to their self-worth as a nation.
    It's always been my feeling that the only time you really 
should consider sanctions is if we decide this is a rogue 
country, and then you just cut it off. You don't condition it. 
You don't threaten them saying we're going to do this if you 
don't do these kinds of things or if you do these things, we're 
going to cut it off. Because I think that, as you suggested, 
and this is why I mention this, what you basically end up doing 
is using your best hold card. You take away any other 
opportunity to begin the process of trying to reach some 
accommodation. That's your last shot. You might as well hold 
that in reserve and not even talk about it, and then do it if 
you find that you can't negotiate through diplomacy and other 
ways.
    Mr. Yeutter. Absolutely. In fact, I pointed out in my 
prepared testimony that any good negotiator knows that one must 
make threats sometimes. But a good negotiator never carries out 
the threats unless he absolutely has to because he knows that 
once you do that, you are through. That's what is so unwise 
about this policy. With unilateral sanctions, we do treat the 
big guys differently from the little guys.
    Mr. Matsui. Cuba versus China.
    Mr. Yeutter. Yes. Look what we do with Burma versus what we 
do with China right next door. There are countless examples 
like that.
    But the other point, and I think the real bottom line of 
this, Congressman Matsui, is that if we are looking at creating 
conditions that will foster democracy around the world, do we 
foster democracy by engaging in unilateral sanctions? The fact 
is, we foster democracy when nations, poor nations generate 
economic growth. Economic growth is almost synonymous with the 
creation of democratic institutions. Look at Korea, Taiwan, 
Argentina, and Chile, examples of countries that have become 
more democratic as they generated more economic growth.
    The flip side of that is that the purpose of economic 
sanctions is diminution of economic growth in the country that 
we don't like. Well, how does one generate democracy if you are 
diminishing economic growth, deliberately forcing a reduction 
in economic growth? We ought to look at the countries in which 
we have economic sanctions and ask ourselves whether we have 
fostered democratic institutions in any of these countries by 
the implementation of economic sanctions. I would hypothesize, 
Congressman Matsui and Mr. Chairman, that in almost every case, 
we'll conclude that economic sanctions have worsened the 
probabilities of democratic progress in those countries.
    Mr. Matsui. Thank you very much, Mr. Ambassador. I really 
appreciate your testimony.
    Chairman Crane. Mr. Jefferson is coming up. But just one 
quick question. With the imposition of those economic 
sanctions, who are you punishing more, the rulers, the 
parasites that are living off the backs of working people or 
are you hurting those people?
    Mr. Yeutter. Well, as you well know, Mr. Chairman, in 
almost every case one hurts the lower echelons of that society. 
There are countless examples of that too. The rich and the 
ruling class typically find ways to exempt themselves from 
punishment. So we punish the low and middle classes in those 
societies, along with punishing our own exporters.
    Chairman Crane. Mr. Jefferson.
    Mr. Jefferson. Thank you, Mr. Chairman. To follow up on the 
Chairman's inquiry, would it be true then that the less 
affluent the country is, the more devastating sanctions might 
be for the people of the country?
    Mr. Yeutter. Without question. Also the more likely that 
we'll apply unilateral sanctions to them. We have an 
inclination, as Congressman Matsui was indicating, of omitting 
the major nations of the world from sanctions programs and 
forcing our sanctions primarily on the poorer countries of the 
world where we find conduct that's abhorrent.
    Mr. Jefferson. When you say that where there's more 
economic growth, there's likely to be more democracy, what is 
your reasoning behind that? Is it because people have a greater 
stake in the decisions the country makes or what?
    Mr. Yeutter. That's a bit hard to analyze because I'm sure 
it varies from country to country. But we have seen just so 
many examples over the last 15 or 20 years where countries that 
have been previously dependent upon state-controlled economies 
have shifted to much greater reliance on their private sectors. 
As that has occurred, they have generated much higher levels of 
economic growth. We have then seen a proliferation of 
democratic institutions, over and over again.
    That's true of almost all of Latin America today. Those 
countries are not perfect by any means in their conduct, but 
when one evaluates where they are today versus where they were 
20 years ago, the contrast is stark and very positive. I used 
to live in Latin America, so I have observed that first hand.
    Mr. Jefferson. There's a long list of sanctions that can be 
imposed. We in this country have talked about just about every 
one of them, economic sanctions, bans on travel, visa bans, and 
a number of other ones. But when you talk about unilateral 
sanctions in general, do you mean in every specific case that 
it operates in about the same way or do you make a distinction 
between the various ones, bans on financing, private rights of 
action and whatever the sanctions might be.
    Mr. Yeutter. No. I think there's a lot of difference 
between and among all of those, Mr. Jefferson. That's a very 
good point. I'm glad you raised it.
    As you may know, the State Department has recently had an 
Advisory Committee that has worked on a list of potential 
actions that could be taken in the way of engagement or 
leverage in the event of reprehensible behavior around the 
world. Some of the items that you have just mentioned are on 
their list. There are a lot of others. I think they have a list 
of 100 or so that they are about to make public in a report.
    But the fact is if and when we have the challenge of 
confronting reprehensible behavior around the world, we should 
pick the right, the correct response. Some of those make very 
good sense. They would not fall within the category of what I 
would call sanctions, but rather in the category of what I 
would call leverage. I would make a significant distinction 
between the two concepts.
    But one has to look at each of those individually to 
categorize them.
    Mr. Jefferson. But probably the countries that against 
which they are imposed wouldn't make that much of a difference 
between them. They would be equally outraged.
    Mr. Yeutter. Well, countries are going to be outraged no 
matter what we do in the way of denying them access, additional 
consulates in the United States or denying them appointments to 
lucrative United Nations positions or whatever.
    But we have to stand up and do what we think is right in 
all of these situations. My fundamental point here today, Mr. 
Jefferson, is that we have been doing the wrong thing rather 
regularly.
    Mr. Jefferson. I understand. Let me ask you one question 
about Cuba. Do you feel that the current restrictions upon the 
United States companies with respect to Cuba, are the most cost 
effective methods to achieve the goals of the United States 
policy toward Cuba?
    Mr. Yeutter. Well, I would defer to your judgment and the 
judgment of people who are experts on the Cuba situation as to 
whether or not we could follow a policy that would be more 
effective than the one we have today. I would answer your 
question by saying that in my personal judgment, as I look at 
Cuba today after 30 years or so of economic sanctions, I do not 
find greater evidence of democratic institutions today than 30 
years ago. So my personal conclusion would be that our present 
policy leaves much to be desired. What our alternative policy 
ought to be is another matter.
    Mr. Jefferson. Well, do you and members of the USA*ENGAGE 
support proposed legislation that would end restrictions in a 
more narrow area upon the sale of health care products that 
might be unauthorized export of commodities to Cuba?
    Mr. Yeutter. The USA*ENGAGE effort is one that's not 
intended to deal with specific sanctions issues or even 
specific countries. The whole thrust of this effort, which is 
reflected in the legislation that Chairman Crane introduced 
today, is to put a procedure in place by which we can exercise 
some common sense in dealing with such issues. Under that 
procedure, one can make a whole variety of decisions all the 
way from traditional diplomacy to the application of unilateral 
sanctions.
    All we're saying is let's stop and think and let's have a 
deliberative process by which we make these decisions instead 
of rushing into them on the basis of emotion. In USA*ENGAGE, we 
want to avoid getting into a debate over individual issues or 
individual countries because we think that would be 
counterproductive. Neither do we want to get involved in a 
debate over whether we ought to lift sanctions on a given 
country where we apply sanctions today, as we do in Cuba.
    It would be most appropriate to review our sanctions 
programs in all countries, Cuba included, but let's review it 
with that same kind of deliberative process and make a 
carefully considered decision as to whether we ought to 
reconsider sanctions, change them, tighten them, weaken them, 
or move to a different modus operandi.
    Mr. Jefferson. Thank you.
    Chairman Crane. We thank you, Clayton, for your 
presentation today and we look forward to continuing to work 
with you every opportunity we have.
    Our next panel includes Richard Albrecht, senior advisor of 
the Boeing Commercial Airplane Group, on behalf of USA*ENGAGE; 
Frank Kittredge, president of the National Foreign Trade 
Council; Charles Kruse, president of the Missouri Farm Bureau, 
on behalf of the American Farm Bureau Federation; Willard 
Berry, president of the European American Business Council; and 
John Kavulich, president of the U.S.-Cuba Trade and Economic 
Council.
    If you will all take your seats and we will proceed in the 
order that I introduced you. If you can try and summarize your 
written testimony in 5 minutes or less, we would appreciate it 
in the interest of our time constraints, but your printed 
statements will be made a part of the permanent record.
    You may proceed.

 STATEMENT OF RICHARD R. ALBRECHT, SENIOR ADVISOR, BOEING CO.; 
                    ON BEHALF OF USA*ENGAGE

    Mr. Albrecht. Thank you, Mr. Chairman. My name is Richard 
Albrecht. Until last summer, I served for 13 years as executive 
vice president for the Boeing Commercial Airplane Group, with 
responsibilities for sales, marketing, and customer support 
activity for Boeing's airplane business around the world. I am 
here today on behalf of USA*ENGAGE, a broad-based coalition of 
well over 600 companies, trade, and agricultural organizations. 
We have come together to encourage policy makers to find 
alternatives to unilateral sanctions as a foreign policy tool. 
To be frank, we think that unilateral sanctions are ineffective 
and unnecessarily costly to the U.S. economy. We think there is 
a better way.
    USA*ENGAGE was founded by the leaders of the National 
Foreign Trade Council and was formed to give a voice to the 
concerns that we in the international business, trade, and 
humanitarian aid community have about the current sanctions 
process. Unilateral sanctions that limit or prohibit American 
activity overseas have been proposed or are already in place 
for some of the largest potential markets in the world.
    In addition, we are witnessing a growth in United States-
imposed secondary boycotts, which our Nation has long opposed 
as we did with the Arab boycott of Israel. These actions are 
alienating the United States from our allies and our trading 
partners, and they conflict with the policy of engagement that 
has been a tradition of United States foreign relations since 
World War II.
    Members of USA*ENGAGE do not quarrel with the goals of most 
proposed sanctions. Americans support human rights, support the 
rule of law, and religious freedom. All Americans, including 
our member companies, want to prevent nuclear proliferation.
    Where we at USA*ENGAGE part company with our opponents on 
this issue is over the means chosen to change behavior. 
Unilateral sanctions have proven to be dismally ineffective in 
producing social change. The case of Cuba is a prime example. 
Sanctions ignore diplomacy, ignore multilateralism, and ignore 
the benefits of engagement.
    Today two-thirds of all Boeing airplanes produced are 
shipped overseas. We must have continued access to foreign 
markets, especially those emerging economies with fledgling 
airlines because their initial purchases usually establish the 
brand that they will buy in the long term.
    Unilateral sanctions are unpredictable, and for our 
business that spells trouble. The international aerospace 
market is intensely competitive. Boeing fights head to head 
with Airbus for every airplane order, and those orders mean 
jobs for U.S. workers. Our customers must be confident that 
their airplanes will be financed, delivered, and serviced over 
many years. When sanctions raise questions about our ability to 
deliver, it counts against us in a very concrete way during the 
evaluation process and gives Airbus Industry an undeserved 
advantage.
    I can assure you, our European competitors know very well 
how to plant the seeds of doubt about the United States as a 
reliable supplier. Airplane decisions are often made for 20 
year periods of time and longer.
    Boeing's current business is not exempt from the roulette 
wheel of sanctions implementation. Today we are precluded from 
selling aircraft in 7 countries, and at least 11 more markets 
are at risk because of current or potential sanctions. We 
estimate the market potential in these at-risk countries to be 
as much as $175 billion during the next 20 years.
    What we need is a process that will give our businesses, 
humanitarian and other organizations some assurance their 
investments in a country will not be wiped out indiscriminantly 
by a unilateral sanction. We applaud your efforts, Chairman 
Crane, and those of your colleagues, Congressman Hamilton and 
Senator Lugar, and all of the other cosponsors who have agreed 
to sign your legislation requiring a sober and objective 
examination before sanctions are imposed.
    American foreign policy leaders need to recall the examples 
of how engagement has contributed to the spread of democratic 
ideals and free institutions throughout the world. The post-
World War II economic reconstruction of Europe led by the 
Marshall Plan is one of the enduring triumphs of American 
foreign policy. Perhaps it's because I have been in a business 
that involves the production and sale of equipment that gets 
people together around the world, that I have become a true 
believer in engagement, and in engagement as an effective way 
to make change. I have seen the changes occurring in China over 
the past 15 years. I have been to Hanoi several times in the 
last few years and witnessed startling liberalization there. I 
have seen what's happened in Russia and in the eastern bloc 
countries and how they have opened up. Engagement does work and 
it does produce change.
    The members of USA*ENGAGE believe we can continue America's 
tradition of engagement if legislation like yours is adopted. 
Without a process like the one spelled out in this legislation, 
I fear that the growth in the use of unilateral sanctions will 
continue, and further impair our ability to spread ideals like 
human rights, rule of law, and religious freedom, and all of 
us, regardless of what country we call home, will suffer 
because of it.
    Thank you very much.
    [The prepared statement follows:]

Statement of Richard R. Albrecht, Senior Advisor, Boeing Co.; on behalf 
of USA*ENGAGE

    Mr. Chairman and Members of the Subcommittee, I am Richard 
Albrecht, Senior Advisor to The Boeing Company. Until last 
summer, I served for thirteen years as Executive Vice President 
for the Boeing Commercial Airplane Group, overseeing all sales, 
marketing, and customer relations for Boeing's airplane 
business. I am here today on behalf of USA*ENGAGE, a broad-
based coalition of 645 companies and trade and agricultural 
organizations. We have come together to encourage policy-makers 
to find alternatives to unilateral sanctions as a foreign 
policy tool. To be frank, we think unilateral sanctions are 
ineffective and unnecessarily costly to the U.S. economy. We 
think there is a better way.
    USA*ENGAGE, founded by the leaders of the National Foreign 
Trade Council, was formed to give a voice to the concerns we in 
the international business, trade, and humanitarian aid 
community have about the current sanctions process. Unilateral 
sanctions that limit or prohibit American activity overseas 
have been proposed or are already in place for some of the 
largest potential markets in the world. In addition, we are 
witnessing a growth in U.S. imposed secondary boycotts, which 
our nation has long opposed, like we did with the Arab boycott 
of Israel. These actions are alienating the U.S. from our 
allies and trading partners, and they conflict with the policy 
of engagement that has been a tradition of U.S. foreign 
relations since World War II.
    Members of USA*ENGAGE do not quarrel with the goals of most 
proposed sanctions. Americans support human rights, the rule of 
law, and religious freedom. All Americans, including our member 
companies, want to prevent nuclear proliferation. Where we part 
company with our opponents on this issue is over the means 
chosen to achieve these goals. Unilateral sanctions have proven 
to be dismally ineffective in producing social change--the case 
of Cuba is a prime example. Sanctions ignore diplomacy, ignore 
multilateralism, and ignore the benefits of engagement.
    Today two-thirds of all Boeing airplanes produced are 
shipped overseas. We must have continued access to foreign 
markets, especially those emerging economies with fledgling 
airlines because their initial purchases usually establish what 
brand they will buy in the long-run.
    Unilateral sanctions are unpredictable, and for our 
business that spells trouble. The international aerospace 
market is intensely competitive. Boeing fights head-to-head 
with Airbus for every airplane order overseas, and those orders 
mean jobs for U.S. workers. Our customers must be confident 
their airplanes will be financed, delivered, and serviced. When 
sanctions raise questions about our ability to deliver, it 
counts against us in a very concrete way during the bid 
evaluation process and gives Airbus an undeserved boost.
    Boeing's current business is not exempt from the roulette 
wheel of sanctions implementation. Today we are precluded from 
selling aircraft in seven countries, and at least eleven more 
markets are at risk because of current or potential sanctions. 
We estimate the market potential in these at-risk countries to 
be about $175 billion during the next twenty years.
    What we need is a process that will give our businesses, 
humanitarian organizations, and NGOs some assurance their 
investments in a country will not be wiped out indiscriminately 
by a unilateral sanction. We applaud your efforts, Chairman 
Crane, and those of your colleagues Congressman Hamilton and 
Senator Lugar, and all the other co-sponsors who have agreed to 
sign your legislation requiring a sober and objective 
examination before sanctions are imposed. This is a turning 
point in our nation's way of relating to its global neighbors, 
and your bold leadership will help define a thoughtful and 
rational method of expressing our views to the rogue states of 
the world in a way that is constructive, unified, and 
effective.
    American foreign policy leaders need to recall the examples 
of how engagement has contributed to the spread of democratic 
ideals and free institutions throughout the world. The post-
World War II economic reconstruction of Europe, led by the 
Marshall Plan, is one of the enduring triumphs of American 
foreign policy. America did not repeat its earlier mistakes of 
isolationism and protectionism following World War I and, as a 
result, more people in every region of the world enjoy more 
freedom and economic success than any time in our history.
    The members of USA*ENGAGE believe we can continue America's 
tradition of engagement if legislation like the Hamilton/Crane/
Lugar bill is adopted. Without remedies like this, I fear the 
growth in the use of unilateral sanctions will continue to 
impair our ability to spread ideals like human rights, rule of 
law, and religious freedom, and all of us, regardless of what 
country we call home, will suffer because of it.

                       USA*ENGAGE's Vital Message

    The companies and organizations comprising USA*ENGAGE are convinced 
that by working with Members of Congress, the Executive Branch, state 
and local legislators, and opinion leaders in non-governmental 
organizations and the media, we will develop better procedures for 
making decisions about unilateral sanctions, discover new ways for the 
public and private sectors to work together toward common goals, such 
as respect for the rule of law and human rights, and arrive at a better 
understanding of the true economic, humanitarian, and political cost to 
the U.S., resulting from the indiscriminate use of unilateral sanctions 
for an ever-increasing number of reasons. The reasons for the formation 
of USA*ENGAGE continue to be the core message that I want to convey 
today:
     USA*ENGAGE companies and organizations agree with many of 
the objectives of the unilateral sanctions proposals. Americans support 
human rights, the rule of law, and religious freedom. All Americans 
want to prevent nuclear proliferation. Where we part company with most 
proponents of unilateral sanctions is over the means they have 
selected--tools that are deeply flawed and often counterproductive. In 
many ways they are a ``boomerang'' approach to foreign policy, turning 
the punishment targeted for the other country back on ourselves.
     Unilateral sanctions have an abysmal track record in 
achieving their stated objectives. Multilateral sanctions programs, 
however, have demonstrated greater impact, such as in South Africa, and 
in some respects Serbia and Iraq. There are few, if any, countries 
today that are so dependent on U.S. exports and investment that we can 
unilaterally coerce them into making changes that they would not 
otherwise undertake. This results from the fact that in a globalized 
economy, there are abundant non-U.S. exporters, as well as investors, 
ready to replace excluded U.S. firms. Likewise, there are few countries 
that are crucially dependent on the U.S. as a market for their exports.
     Often unilateral sanctions merely create greater 
resistance to change. Authoritarian regimes by stiffen their opposition 
to outside pressure, and use the pressure to rally internal support for 
themselves.
     Government officials and ruling elites in sanctioned 
countries almost always find ways of circumventing the restrictions of 
sanctions, while ordinary citizens, the very people we hope to help, 
often feel the greatest pain from the deprivation the sanctions cause.
     The cumulative impact of unilateral sanctions constitutes 
significant costs to the U.S. economy. Earlier this year, the Institute 
for International Economics calculated costs to be $9-$15 billion per 
year in lost exports and 200,000 well-paying export-related jobs. These 
jobs pay 12-25 percent more than the average manufacturing wage. 
Therefore approximately $1 billion in export-related wage earnings are 
lost each additional year sanctions are in place. These hidden cost do 
not appear in any budget projections, and these projections include 
costs that may result from business lost because foreign companies do 
not believe they can count on an American partner. Though indirect, 
these costs are real, and ineffective unilateral sanctions are the root 
cause.
     At Boeing we have specific examples of how foreign 
airlines and our company are the unintended targets of indiscriminate 
U.S. sanctions. Colombia and Vietnam, despite normal relations with the 
U.S. government, remain stripped of their eligibility for Ex-Im Bank 
financing. In the case of Colombia, Avianca Airlines is locked out of 
the Ex-Im Bank because its government has not been certified as 
cooperating in narcotics intervention--an issue unrelated to Avianca. 
Likewise in Vietnam, the train to normal relations left the station 
without one key car--Ex-Im eligibility. Without Ex-Im, American-made 
aircraft for these developing economies will be nearly impossible to 
attain. We risk ceding these lucrative markets to Airbus, and the only 
losers will be the American worker.
     America must maintain its long-standing tradition of 
engagement with countries of differing beliefs. Our people-to-people 
contact is rooted in the belief that individual Americans and private 
American organizations (educational, commercial, philanthropic, 
religious, and emergency relief) present our nation's true face to the 
world reflecting the core values that continue to inspire and change 
nations around the globe. This effect is evidenced by the outbreak of 
democracy in the early 1990s in East Europe, Latin America, and Asia.
     Unilateral sanctions assume we can have more influence 
abroad by isolating and coercing governments and inflicting pain on 
their populations rather than by reaching out to them and proving by 
example and direct involvement that free market democracy and tolerance 
are the firmest foundation for prosperous and peaceful development.
    USA*ENGAGE endorses the legislation offered by Representatives 
Crane and Hamilton and Senator Lugar. We regard this bill's enactment 
as a matter of serious national policy because it will require thorough 
and sober consideration of the impact of unilateral sanctions before 
they are imposed, including ascertaining their chances for success or 
failure, their costs, and any alternative means of achieving the 
objectives of the sanctions.
      

                                


    Chairman Crane. Thank you.
    Mr. Kittredge.

 STATEMENT OF FRANK D. KITTREDGE, PRESIDENT, NATIONAL FOREIGN 
       TRADE COUNCIL, INC.; AND VICE CHAIRMAN, USA*ENGAGE

    Mr. Kittredge. Thank you, Mr. Chairman. I am Frank 
Kittredge, president of the National Foreign Trade Council, an 
association of 550 U.S. companies engaged in international 
trade and investment. It's a particular pleasure for me to be 
here this morning.
    The National Foreign Trade Council is a business 
association that has long been deeply concerned about the 
increasing tendency to resort to unilateral sanctions as the 
preferred first option in reacting to an adverse policy or 
action by a foreign government. Let me emphasize that the issue 
here is unilateral sanctions for foreign policy purposes. No 
one would deny that there are situations in which economic 
leverage is an important tool of foreign policy. Economic 
sanctions that are multilateral have proved effective in some 
cases. Unilateral sanctions programs on the other hand, are 
almost always ineffectual, and worse, counter productive.
    Our USA*ENGAGE coalition has conducted a thorough 
examination of the sanctions issue. Two of the most important 
conclusions we have reached are one, the costs of unilateral 
sanctions to the U.S. economy are very real, but are often 
indirect and long-term, and therefore have tended to be 
underestimated in the national debate over sanctions. Two, 
there are common sense reforms that can be implemented to 
increase the effective use of economic leverage by the United 
States.
    Addressing the first point, the cost of unilateral 
sanctions to the U.S. economy as a whole was calculated in a 
study released in April by the Institute for International 
Economics showing that in 1995, unilateral sanctions cost the 
U.S. economy 200,000 to 250,000 well-paying export related jobs 
and reduced U.S. exports by $15 to $20 billion. In its study, 
the institute said, ``The price is paid through a highly 
discriminatory tax imposed on workers that participate in 
export markets. Nevertheless, the United States continues to 
employ sanctions far more than any other country.'' In fact, as 
of January 1997, they were imposed or threatened against 75 
Nations, representing 52 percent of the world's population, as 
reported by the President's Export Council.
    Let me give you a few examples of the impact of these 
sanctions on U.S. companies affecting their employment and 
their market opportunities. In July of this year, President 
Suharto of Indonesia overturned a business decision to give a 
$600 million powerplant contract to a United States partnership 
with the result that Mitsubishi won the bid. Proposed Federal 
and State sanctions against Indonesia were cited by Indonesian 
Government sources as the reason.
    Second, as the United States gradually negotiated 
normalized political relations with Vietnam, United States 
sanctions remained in place. A major American chemical company 
wanted to be involved in a reverse osmosis water sanitation 
plant by supplying a water filtering system. Because of U.S. 
sanctions, the Vietnamese awarded their business to Asahi 
Chemical. The U.S. company's system had been in the original 
design, but was subsequently designed out and Japanese 
equipment was designed in. This was doubly significant because 
the plant was a prototype for others of its kind.
    Third, Airbus Industry, and I say this with the full 
knowledge of my associate here, has often been portrayed by 
this country as a foreign threat to U.S. aerospace jobs. But 
one could argue that the real threat to these jobs originates 
in Washington, not Toulouse. Twenty 5 years ago, Airbus's first 
line of jet aircraft, while assembled in Europe, contained more 
than 50 percent U.S. parts and components. To escape U.S. 
foreign policy controls, Airbus, as of 1992, had reduced its 
sourcing of U.S. controlled components to below 20 percent.
    Fourth, a U.S. supplier of oil drilling equipment and 
technology recently was excluded from a contract to build an 
offshore oil rig in the North Sea. There would seem to be no 
threat of United States sanctions against Great Britain, but 
the potential customer feared that United States law might 
preclude a future decision to move the equipment to other more 
politically sensitive locations.
    Fifth, the United States power generation industry has lost 
$15.8 billion in nuclear power generation opportunities in 
China as a result of United States sanctions imposed following 
the 1989 Tiananmen Square crackdown. Canada, Germany, and Japan 
got the business. Losing this significant business at a time of 
virtually nonexistent domestic demand has forced at least one 
U.S. supplier to cut more than a third of its U.S. nuclear work 
force. At the same time, the sanctions have had the result of 
completely isolating the United States from the Chinese nuclear 
program.
    These examples and others like them represent a serious 
loss of business, jobs, and U.S. involvement in these 
countries. How can sanctions policy be reformed to avoid these 
sorts of costs, and at the same time contribute to an effective 
and coherent U.S. foreign policy? Most important, we need a 
more deliberative process for resolving foreign policy issues 
without precipitously resorting to unilateral sanctions.
    Your legislation, Mr. Chairman, is the key ingredient to 
this approach. With its common sense procedural framework, its 
requirement for reports on likely success, economic costs, 
alterative solutions, and impact on other U.S. objectives, as 
well as its guidelines for waiver authority, contract sanctity, 
and sunset provisions, it puts in place the due diligence that 
should be required of any program with the far-reaching impact 
and serious consequences of unilateral sanctions.
    Finally, we believe that the U.S. private sector makes its 
greatest contribution to free market democracy through a 
constructive involvement in economies and societies around the 
world. Yet unilateral sanctions are a serious form of 
isolation. If we want other nations to share certain values 
with us, there is no substitute for sharing our values with 
them through a policy of active engagement at all levels--
political, diplomatic, economic, charitable, religious, 
educational, and cultural. The whole range of American activity 
in other nations transmits our values and ideals.
    It has been our experience that trade and investment are 
powerful tools for helping these values take root and grow. 
This will not be achieved by the absence of private American 
institutions, but only by deeper commitment and engagement in 
the world by the United States.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of Frank D. Kittredge, President, National Foreign Trade 
Council, Inc.; and Vice Chairman, USA*ENGAGE

    Mr. Chairman and Members of the Subcommittee, I am Frank D. 
Kittredge, President of the National Foreign Trade Council, an 
association of 550 U.S. companies engaged in international 
trade and investment. I am also appearing today as Vice 
Chairman of USA*ENGAGE, a broadly-based coalition of about 650 
American companies and trade and agricultural organizations 
that has formed to encourage policy-makers to find alternatives 
to unilateral economic sanctions as a foreign policy tool.
    It is a particular pleasure for me to be here this morning. 
These hearings mark the beginning of the congressional phase of 
an extended dialogue that has been taking place elsewhere for 
some time. That dialogue concerns the wisdom of frequent use by 
the United States of unilateral sanctions to affect the 
behavior of other governments. The National Foreign Trade 
Council is a business association that has long been deeply 
concerned about the increasing tendency to resort to unilateral 
sanctions as the preferred first option in reacting to an 
adverse policy or action by a foreign government. I will 
therefore focus my remarks today on the commercial consequences 
of frequent imposition of unilateral sanctions.
    Let me emphasize that I am speaking about unilateral 
sanctions for foreign policy purposes. No one would deny that 
there are situations in which economic leverage is an 
appropriate tool of foreign policy. Those are situations in 
which we have enough cooperation of the target country's other 
trading partners to actually deny them something they need and 
link that denial to changes in their behavior. Economic 
sanctions that are multilateral in this sense have proved 
effective in some cases. Unilateral sanctions programs, on the 
other hand, are almost always ineffectual and, worse, 
counterproductive.
    The concern of NFTC member companies about the rapidly 
growing trend of proposed unilateral sanctions in 1995 and 1996 
led our Board of Directors to initiate the USA*ENGAGE 
coalition. This coalition, which was formally launched in April 
of this year has conducted an exceedingly thorough examination 
of the sanctions issue. Two of the most important conclusions 
we have reached are: (1) the costs of unilateral sanctions to 
the U.S. economy are very real, but are indirect and long-term 
and therefore have tended to be underestimated in the national 
debate over sanctions; and (2) there are common-sense reforms 
that can be implemented to increase the effective use of 
economic leverage by the U.S. These reforms, combined active 
policies of engagement, promise a more successful coordination 
between U.S. foreign policy and foreign economic relations.
    (1) The cost of unilateral sanctions to the U.S. economy as 
a whole was calculated in a study released in April by the 
Institute for International Economics showing that in 1995 
unilateral sanctions in place cost the US economy 200-250,000 
well-paying export-related jobs in 1995 and reduced US exports 
by $15 to $20 billion. In its study the Institute said ``the 
price is paid through a highly discriminatory `tax' imposed on 
workers that participate in export markets. Nevertheless, the 
United States continues to employ sanctions far more than any 
other country.''
    Let me give you a few examples of the long-term impact of 
sanctions on U.S. companies, affecting their employment and 
profitability:
    --in July of this year the President of Indonesia 
overturned a business decision to give the $600 million Tan 
Jung Jati power plant contract to a U.S. partnership with the 
result that Mitsubishi won the bid. Proposed federal and state 
sanctions against Indonesia were cited by Indonesian government 
sources as the reason;
    --Shak Deniz is a major offshore oil field in the Caspian 
Sea, claimed by Azerbaijan. The field contains about 2 billion 
barrels of oil, worth perhaps $50 billion at today's prices. In 
1996 a U.S. company felt that it had to turn down an 
opportunity for a partnership interest in Shak Deniz because 
Iran was likely to be a 10% partner in the project. It is 
highly likely that a non-U.S. company will take on this 
American company's share;
    --an American company was selected to do a major power 
plant in Colombia valued at about $165 million, representing a 
breakthrough into a new market for the U.S. company. Most of 
the design work for the contract would have been done in the 
U.S., involving more than 40 suppliers. When Colombia was 
decertified, eliminating the U.S. Ex-Im Bank from 
participation, the company was given 30 days to find 
alternative financing. As a result, a French consortium got the 
business;
    --as the U.S. gradually negotiated normalized political 
relations with Vietnam, sanctions remained in place. A major 
American chemical company wanted to be involved in a reverse 
osmosis water sanitation plant by supplying a water filtering 
system. Because of U.S. sanctions, the Vietnamese awarded their 
business to Asahi Chemical. The U.S. company's system had been 
in the original design, but was subsequently designed out; 
Japanese equipment was designed in. This was significant 
because the plant was a prototype for others of its kind;
    --a U.S. consumer products company produces cough drops in 
Mexico for sale throughout Mexico, the U.S. and Canada. One key 
ingredient is sugar, which is purchased from Mexican refiners. 
An early draft of the Helms-Burton law would have required 
companies to certify that there was no Cuban content if the 
final product was intended for U.S. distribution. Given the 
nature of the Mexican sugar refinery industry, which buys sugar 
from all over the Caribbean, it was impossible to identify 
Cuban sugar. Although the provision was not included in the 
final bill, it illustrates the problem of foreign subsidiaries 
that are unable to comply with U.S. sanctions law;
    --the U.S. power generation industry lost $15.8 billion in 
nuclear power generation business in China as the result of 
sanctions imposed following the 1989 Tiananmen Square 
crackdown. Canada, Germany and Japan got the business. Beyond 
losing this significant business, this has had the result of 
completely isolating the U.S. from the Chinese nuclear energy 
program.
    (2) How can sanctions policy be reformed to avoid these 
sorts of costs and at the same time contribute to an effective 
and coherent U.S. foreign policy?
    The most important point I would like to make to you today 
is that the U.S. private sector makes its greatest contribution 
to free market democracy through constructive involvement in 
economies and societies around the world. We are urging common 
sense reforms that will support this role and help the U.S. to 
pursue more effective policies with less self-inflicted cost.
    This morning Chairman Crane and Congressman Hamilton have 
taken the lead in introducing legislation that would establish 
a more deliberative and disciplined approach to U.S. sanctions 
policy. The key to this bill is that it requires due process in 
considering the costs to U.S. security and diplomatic 
relationships, as well as economic costs of proposed sanctions. 
It would require consideration of the likelihood that proposed 
sanctions will achieve their stated objectives. It would 
scrutinize efforts to pursue alternatives to unilateral 
sanctions, such as multilateral initiatives and diplomacy. 
Importantly, the ``Enhancement of Trade, Security and Human 
Rights through Sanctions Reform Act,'' would require 
presidential waiver authority, ensure contract sanctity, 
authorize compensation for American farmers injured by 
unilateral sanctions, and require a two-year sunset on all such 
measures. Independent annual reports are also mandated to 
assess the cost and success of existing U.S. sanctions 
programs.
    This legislation would not seek the repeal of any existing 
sanctions legislation, nor would it prevent the President or 
the Congress from imposing sanctions whenever the foreign 
policy or national security of the United States dictates. It 
seeks to ensure a sensible and deliberative process so that 
sanctions measures are driven by common sense instead of being 
taken to counter-productive ends by politics and emotion.
    The business community has a major contribution to make in 
ensuring that the kind of world that will evolve following the 
Cold War respects the rule of law, the rights of individuals, 
and international norms. This is the kind of world in which 
most of the peoples of the world and certainly the American 
people aspire to live. It will not be achieved by the absence 
of private American institutions, but only by deeper commitment 
and engagement in the world by the United States.
    I thank the Chairman and the Subcommittee for the privilege 
of testifying today.
      

                                


    Chairman Crane. Thank you, Mr. Kittredge.
    Mr. Kruse.

 STATEMENT OF CHARLES KRUSE, PRESIDENT, MISSOURI FARM BUREAU; 
AND MEMBER, BOARD OF DIRECTORS, AMERICAN FARM BUREAU FEDERATION

    Mr. Kruse. Thank you, Mr. Chairman. I am Charles Kruse. I 
am president of Missouri Farm Bureau, and also serve on the 
board of directors of American Farm Bureau. I am a fourth 
generation farmer and operate a corn, wheat, soybean and cotton 
farm in Stoddard County, Missouri. I am very proud to be here 
today representing the 4.7 million member families of American 
Farm Bureau.
    Farm Bureau has longstanding policy opposing artificial 
trade constraints such as sanctions. We believe that opening 
trade systems around the world and engagement are the most 
effective means of reaching international harmony and economic 
stability. Our members depend on world markets for over one-
third of all the sales that we produce in this country. It 
seems in a way somewhat contradictory that I'm here today to 
address the issue of establishing a reasonable framework for 
economic sanctions at the same time that I am here in 
Washington stressing the importance of passing fast track trade 
negotiating authority.
    This Subcommittee has provided outstanding leadership in 
introducing sound legislation that would provide fast track 
trade negotiating authority to this and future administrations. 
It is international trade that has moved our economy one of the 
most stable times in our history. To maintain that role, our 
negotiators must have the ability to work with our trading 
partners to continue to open new and expand existing markets.
    Farm Bureau believes that all agricultural products should 
be exempt from all embargoes except in the case of armed 
conflict. Should a trade embargo or restrictions be declared 
under such circumstances, the embargo should apply to all 
trade, technology and exchanges. An embargo should not be 
declared without the consent of Congress.
    The threat of embargoes or other restrictions adversely 
affects markets, and is an inappropriate tool in the 
implementation of foreign policy. If an embargo is enacted, 
farmers should be compensated by direct payments for any 
resulting loss. All export contracts calling for delivery of 
agricultural commodities or products within 9 months of date of 
sale should never be interfered with by the U.S. Government 
except following an embargo consented to by Congress. This 
sanctity of contracts is essential to maintain the United 
States as a reliable supplier.
    Our policies are dedicated to more open trading systems 
around the world, not more sanctions or embargoes. For 50 
years, the United States has followed a reasonably consistent 
policy of engagement with the entire world to promote peace and 
freedom. Recently however, the United States has begun to 
depart from the longstanding preference for engagement. In just 
4 years, the United States has imposed 61 unilateral economic 
sanctions on 35 countries. These countries from which the 
United States is isolating itself contain approximately 40 
percent of the world's population.
    To continue to impose sanctions during a time when we are 
working to secure freer trade through the World Trade 
Organization and international agreements gives our trading 
partners very conflicting signals. We can look back to the 
Soviet grain embargo which cost U.S. agriculture approximately 
$2.8 billion. When we withheld our wheat from the Soviet Union, 
our other competitors and suppliers around the world, France, 
Canada, Australia, and Argentina stepped right in and gladly 
took the markets away from us.
    In far too many cases, we don't recover from these types of 
situations. I must stress that when any type of sanction or 
embargo is imposed, either political or trade, agriculture is 
the first to be hit in retaliation. While we in agriculture 
depend upon exports for our economic well being and future 
growth, no country is totally dependent upon the United States 
for its food. Our customers turn to our competition when our 
ability to deliver is disrupted by political or other market 
distorting actions. Sanctions and embargoes not only cost us in 
immediate loss of sales, but also destroy customer confidence 
in the United States as a secure and reliable supplier. Our 
customers find other suppliers and then are very hard and 
sometimes almost impossible to win back.
    America's prosperity is tied to our ability to remain 
competitive in global markets. Over 12 million working 
Americans and their families depend upon U.S. exports and 
access to global markets for their jobs. Sanctions and 
embargoes are sanctions against our own people, and only serve 
to disrupt the marketplace on which we depend.
    Let me conclude, Mr. Chairman, by saying that we believe 
that the Hamilton-Crane-Lugar sanctions reform bill addresses 
many of the concerns of our members, and provides a reasonable 
common sense approach to establishing a framework for 
consideration of unilateral economic sanctions. I commend you, 
Mr. Chairman and Members of this Subcommittee, for your work in 
this regard, and I pledge to you that we in Farm Bureau look 
forward to working with you to make this legislation a reality. 
Thank you.
    [The prepared statement follows:]

Statement of Charles Kruse, President, Missouri Farm Bureau; and 
Member, Board of Directors, American Farm Bureau Federation

    Mr. Chairman and members of the Committee, I am Charles 
Kruse, President of the Missouri Farm Bureau and a member of 
the AFBF Board of Directors. I am here today representing the 
American Farm Bureau Federation as well as the Missouri Farm 
Bureau. The American Farm Bureau represents 4.7 million member 
families in the United States and Puerto Rico. Our members 
produce every type of farm commodity grown in America and 
depend on sales to the export market for over-one third of our 
production.
    Farm Bureau has longstanding policy opposing artificial 
trade constraints such as sanctions. We believe that opening 
trading systems around the world and engagement are the most 
effective means of reaching international harmony and economic 
stability.
    Former President Ronald Reagan said, ``the freer the flow 
of world trade, the stronger the tides of human progress and 
peace among nations.'' These same sentiments were spoken by 
General Colin Powell last January at the Farm Bureau's Annual 
Meeting in Nashville, Tennessee.
    In the last decade, democracy has ascended amidst economic 
liberation in Taiwan, Korea, Poland, Hungary, Slovenia, the 
Czech Republic, Chile, Argentina, Bolivia, Peru, Brazil, 
Uruguay and Ecuador. The opportunities for peaceful American 
engagement and influence in the world are greater than ever 
before.
    Let me review some Farm Bureau policies that express the 
deep commitment of our members to opening and keeping open 
markets--not closing doors as happens when sanctions or 
embargoes are enacted:
    Farm Bureau believes all agricultural products should be 
exempt from all embargoes except in the case of armed conflict.
    Should a trade embargo or restrictions be declared under 
such circumstances, the embargo should apply to all trade, 
technology and exchanges. An embargo should not be declared 
without the consent of Congress.
    The threat of embargoes or other restrictions adversely 
affects markets and is an inappropriate tool in the 
implementation of foreign policy. If an embargo is enacted, 
farmers should be compensated by direct payments for any 
resulting loss.
    All export contracts calling for delivery of agricultural 
commodities or products within nine months of date of sale 
should never be interfered with by the U.S. government, except 
following an embargo consented to by Congress. This sanctity of 
contracts is essential to maintain the United States as a 
reliable supplier.
    As you can see, our policies are dedicated to more open 
trading systems around the world--not more sanctions or 
embargoes.
    For 50 years, the United States has followed a reasonably 
consistent policy of engagement with the world to promote peace 
and freedom. Recently, the United States has begun to depart 
from the long-standing preference for engagement. In just four 
years, the United States has imposed 61 unilateral economic 
sanctions on 35 countries, according to the U.S. Alliance for 
Effective Engagement. These countries, from which the United 
States is isolating itself, contain about 40 percent of the 
world's population.
    Professor Donald Losman of the U.S. Industrial College of 
the Armed Forces has stated, ``Comprehensive economic sanctions 
almost always fail to achieve their political goals, while at 
the same time opening a Pandora's box of economic and 
international relations headaches. They tend to strengthen 
offending regimes and policies. Pain without gain is probably 
the best description.''
    The Institute for International Economics estimates that 
unilateral economic sanctions cost the United States $15-19 
billion in lost exports in 1995. This translates into the loss 
of more than 200,000 American jobs. A 1994 Council on 
Competitiveness report found that eight unilateral sanctions 
episodes cost the U.S. economy $6 billion in annual sales and 
120,000 export related jobs.
    To continue to impose sanctions during a time when we are 
working to secure freer trade through the World Trade 
Organization and international agreements gives our trading 
partners very conflicting signals.
    The Soviet grain embargo cost the United States about $2.8 
billion in lost U.S. farm exports and U.S. government 
compensation to American farmers. When the United States cut 
off sales of wheat to protest the Soviet invasion of 
Afghanistan, other suppliers--France, Canada, Australia and 
Argentina--stepped in. They expanded their sales to the Soviet 
Union, ensuring that U.S. sanctions had virtually no economic 
impact. Russia still appears to restrict purchases of American 
wheat, fearing the United States may again use food exports as 
a foreign policy weapon.
    I must stress that when any type of sanction or embargo is 
imposed, either political or trade, agriculture is the first to 
be hit in retaliation. We are dependent upon exports for over 
one-third of all sales. However, no country is totally 
dependent upon the U.S. for its food. They go to our 
competition.
    Sanctions and embargoes not only cost us in immediate loss 
of sales, but also destroy customer confidence in the United 
States as a secure and reliable supplier. Our customers find 
other suppliers and are very hard to win back.
    America's prosperity is tied to our competitiveness in 
global markets. Agricultural trade accounts for over 30 percent 
of U.S. production. Over 12 million working Americans and their 
families depend upon U.S. exports and access to global markets 
for their jobs. Sanctions and embargoes are sanctions against 
our own people and only serve to disrupt the marketplace on 
which we depend.
    The United States still has an unprecedented opportunity to 
promote its values throughout the world by peaceful engagement. 
Reaching out through engagement, not withdrawing behind 
sanctions or embargoes, is the best way to achieve change.
    Thank you for the opportunity to speak on behalf of 
American agriculture.
      

                                


    Chairman Crane. Thank you, Mr. Kruse.
    Mr. Berry.

  STATEMENT OF WILLARD M. BERRY, PRESIDENT, EUROPEAN-AMERICAN 
                        BUSINESS COUNCIL

    Mr. Berry. Mr. Chairman and Members of the Subcommittee, 
thank you for the opportunity to testify today. I'm Willard 
Berry, president of the European American Business Council. Our 
80 member companies include many of the largest United States 
and European firms operating in the United States. The Council 
strongly opposes economic sanctions, and is alarmed that 
Federal, State and local authorities are increasingly adopting 
them.
    We have witnessed a proliferation of economic sanctions in 
recent years. Experience shows that these measures have had 
almost no success in achieving their stated aims, namely, 
changing the behavior of the target country. What these 
measures have done is seriously harm business, and in doing so 
have eroded the competitiveness of U.S.-based companies, cost 
American jobs, and strained relations between America and its 
closest allies.
    In my testimony, I will highlight the recent findings of 
the study undertaken by our council to assess the negative 
impact of these measures, that they have had on companies and 
the overall U.S. economy, and suggest alternative approaches.
    To give policymakers a better understanding of how 
sanctions harm business, the council conducted a survey to 
quantify the impact on both European and U.S. companies. U.S. 
authorities are often, too often adopting these measures 
without looking at the price tag. Economic sanctions usually 
involve tradeoffs with other important policy goals such as job 
creation and economic growth. According to our survey's 
findings, U.S. economic sanctions have harmed the global 
operations of 80 percent of the companies surveyed. That's 94 
percent of the U.S.-owned companies in this study.
    Looking exclusively at their U.S. operations, sanctions 
have had a negative effect on 65 percent of the companies 
surveyed. Forty four percent of the companies surveyed said 
they had been forced to forego a business opportunity to comply 
with U.S. sanctions laws.
    It is difficult to accurately assess the aggregate volume 
of business lost to sanctions. Generally companies do not like 
to report these losses. However, in our study 18 cases were 
reported in which sanctions forced companies to miss out on a 
total of $1.9 billion in business opportunities. U.S.-owned 
companies reported most of these cases, averaging about $130 
million in lost opportunities for each case cited.
    One of the primary goals of the study was to determine what 
business effects are the most likely consequences of sanctions. 
We asked companies what specific harmful effects would result 
if each of nine types of sanctions were imposed. The loss of 
joint venture opportunities, something highlighted by 
Ambassador Yeutter earlier, a critical element of global 
competitiveness was cited most frequently. Almost as many 
companies said they would reduce employment in the United 
States. This was followed by the loss of supply relationships.
    The study also looked carefully at individual sanctions. 
Denying U.S. entry visas to overseas executives, one of the 
Helms-Burton sanctions, would harm a greater share of companies 
than any other type of sanction examined. Especially a large 
number of European companies reported that this sanction would 
harm their business. Seventy percent of those surveyed say they 
would be forced to cut back on investment in the United States, 
and there is $416 billion of European investment in the United 
States, and 65 percent said they would cut back on U.S. 
employment. European investment supports around 6 million jobs. 
Denying most-favored-nation status to strategic countries could 
jeopardize the operations of more U.S. firms than any other of 
the sanctions examined.
    As for the existing sanctions laws, State and local 
sanctions affected 70 percent of the surveyed companies. Iran 
and Libya affected 66 percent. Sixty four percent said they had 
already been affected by the Helms-Burton law, even though it 
has been only applied in limited circumstances.
    There are a number of proposals and bills before the 
Congress currently that we oppose. These are listed in the 
testimony.
    Finally, Mr. Chairman, I would like to mention while we 
oppose these measures, we strongly support your efforts and 
those of Representative Hamilton and Senator Lugar to enact a 
sanctions policy reform bill. We urge the other Members of the 
Subcommittee to support this legislation as it is considered 
this year.
    In conclusion, we would like to encourage the Congress and 
the administration to work more closely to minimize the 
unintended negative consequences of sanctions. We also 
recommend that policy makers exhaust other foreign policy 
options before enacting economic sanctions, and make every 
effort to take action on a multilateral basis before imposing 
unilateral measures.
    Thank you, Mr. Chairman and Members of the Subcommittee, 
for the opportunity to testify.
    [The prepared statement follows:]

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

    Mr. Chairman and members of the committee, thank you for 
the opportunity to testify today. I am Willard Berry, President 
of the European-American Business Council. The Council is the 
only truly transatlantic business organization that provides 
actionable information on policy developments and works with 
officials in both the US and Europe to secure a more open trade 
and investment climate. Our 80 member companies include many of 
the largest US and European firms. The Council strongly opposes 
the increasing number of unilateral and extraterritorial 
sanctions adopted by US federal, state and local authorities.
    Since 1993, US authorities have enacted 81 sanctions laws 
and executive actions against 36 countries. Several new 
measures are pending before Congress in the current legislative 
session. Experience shows that these measures have had almost 
no success in achieving their stated aims namely changing the 
behavior of the target country. What these measures have done 
is seriously harm business and in doing so have eroded the 
competitiveness of US-based companies, cost Americans jobs, and 
strained relations between America and its closest allies.
    In my testimony today, I will highlight the recent findings 
in a study undertaken by the Council to assess the negative 
impact these measures have had on companies and the overall US 
economy. I also will highlight what is at risk if these 
policies continue to proliferate and suggest an alternative 
approach to considering economic sanctions.

                        Sanctions Study Results

    To give policymakers a better understanding of how 
sanctions harm business, the Council conducted a survey to 
quantify the impact on both European and US companies. Our hope 
is that legislators here, in state capitals, and in cities 
throughout the country will see that sanctions measures bring 
with them considerable economic costs which are generally 
understood. Sanctions measures usually involve trade-offs with 
other policies which are given high priority in the Congress 
and elsewhere. I have brought a number of copies of the study 
with me, and am happy to offer them to you and your colleagues. 
The study was released earlier this month and EABC 
representatives have since been meeting with House and Senate 
staff to explain the results.
    Overall, US economic sanctions have harmed the global 
operations of 80 percent of the companies surveyed, including 
94 percent of the US-owned companies in the study. Looking 
exclusively at their US operations, sanctions have a negative 
effect on 65 percent of the companies surveyed, including 83 
percent of US-owned companies. Forty-four percent of the 
companies surveyed said they have been forced to forego a 
business opportunity to comply with a sanctions law.
    It is difficult to accurately assess the aggregate volume 
of business lost due to sanctions, but anecdotal figures 
gathered in the study illustrate an extraordinary impact. (13) 
Companies reported 18 cases in which US sanctions forced them 
to miss out on a total of $1.9 billion in business 
opportunities. US-owned companies accounted for most (87 
percent) of this total, averaging almost $130 million in lost 
opportunities for each case cited.
    One of the primary goals of the study was to determine what 
business effects are the most likely consequences of sanctions 
measures. The EABC asked companies what specific harmful 
effects would result if each of nine types of sanctions were 
imposed on them. The loss of joint venture opportunities was 
cited most frequently, a critical element of global 
competitiveness. Almost as many companies said they would 
reduce employment in the US, followed by the loss of supply 
relationships and a retraction in outbound investment.
    The study also looked carefully at individual sanctions 
measures. Denying US entry visas to overseas executives would 
harm a greater share of companies than any other type of 
sanction examined. An especially large number of European 
companies report that this sanction would harm their business. 
Seventy percent of those surveyed say they would be forced to 
cut back investment in the US, and 65 percent said they would 
cut back US employment. Other sanctions that our study found 
particularly harmful are those that would deny US bank loans 
and credits, ban imports from overseas companies, and deny US 
export licenses. US-owned firms said that denying most-favored-
nation status to strategic countries could jeopardize their 
operations more than any of the other sanctions examined.
    As for existing sanctions laws, state and local sanctions 
(such as the Massachusetts law targeting Burma) have affected 
70 percent of the surveyed companies. The Iran and Libya 
Sanctions Act (ILSA) has affected 66 percent of the companies 
surveyed. Sixty-four percent said they had already been 
affected by the Helms-Burton law, even though it has only been 
applied in limited circumstances. US export controls have 
harmed 61 percent of the respondents. Among US embargoes, the 
ban on trade with Cuba has affected 61 percent of the 
companies, followed by embargoes on Iran (60 percent), Iraq (60 
percent), Libya (47 percent), and North Korea (42 percent).
    We are aware that Congress is considering amendments to 
strengthen Helms-Burton and that some members have called for 
aggressive enforcement of ILSA. According to our survey, these 
actions would further threaten joint ventures involving US-
based companies and reduce foreign investment and jobs in the 
US.
    We have found that both US- and European-owned companies 
are greatly affected by sanctions, but in somewhat different 
ways. US-owned companies tend to be more aware of sanctions and 
report in greater numbers that they are affected by them. 
European-owned companies, however, are significantly harmed. 
Sixty-eight percent report that their global operations have 
been affected and 50 percent say that their US operations have 
been affected. These are significant figures, as European-owned 
companies account for 54 percent of all foreign direct 
investment in the US and support nearly 6 million US jobs.

                           Legislative Issues

    The Council opposes several bill under consideration in the 
Congress.
    The Council opposes two amendments included in the Foreign 
Policy Reform Act, H.R. 1757. The first amendment, offered by 
Rep. Ileana Ros-Lehtinen (R-FL), would impose new reporting 
requirements about the implementation of Helms-Burton. The 
second, offered by Sen. Jesse Helms (R-NC), would essentially 
apply the visa denial provisions of the Helms-Burton law to 
every market in the world. We are similarly opposed to H.R. 
2179, legislation introduced by Rep. Bill McCollum (R-FL) that 
would repeal the waiver of title 3 of Helms-Burton, thereby 
opening the door to lawsuits against foreign companies doing 
business in Cuba.
    Each of these measures could seriously disrupt talks 
between US and EU officials on creating multilateral 
disciplines for expropriated property and the use of 
extraterritorial laws. Negotiators hope to incorporate a 
bilateral agreement into the proposed Multilateral Agreement on 
Investment (MAI) being negotiated in the Organization for 
Economic Cooperation and Development (OECD). Therefore, the 
Council believes it would be better for the US to give those 
negotiations a chance to succeed rather than to endanger them 
by acting unilaterally. A binding multilateral agreement would 
be a better solution for everyone involved. Such an agreement 
would improve the prospects for individuals and business not to 
be harmed by expropriation without compensation, while avoiding 
a trade dispute caused by US action that is considered 
extraterritorial by all of its trading partners.
    The Council is similarly opposed to the Freedom from 
Religious Persecution Act, H.R. 2431, and its Senate 
counterpart, S. 772. This legislation would impose economic 
sanctions against countries that persecute religious groups. 
Like other unilateral sanctions measures, this legislation has 
the potential to hurt the competitiveness of US companies 
without achieving its aims. The Council strongly believes that 
the best way to address human rights violations, such as 
religious persecution, is through engagement.
    The Council strongly supports the efforts of Rep. Lee 
Hamilton (D-IN) and Sen. Richard Lugar (R-IN) to introduce a 
sanction policy reform bill. The legislation, which was 
introduced this morning, offers a more deliberative and 
disciplined approach for policymakers considering economic 
sanctions proposals. The bill strives to maximize US foreign 
policy flexibility, calling for all future sanctions measures 
to include Presidential waivers for national interest, sunset 
provisions, protections for contract sanctity, and mandates 
that a cost analysis be made of any sanctions bill before it is 
passed. We urge you to support this legislation as it is 
considered this year.

                               Conclusion

    Our study shows that both US- and European-owned companies 
have experienced a number of different negative effects from 
sanctions. While noting that other studies have shown that 
sanctions measures almost always fail to achieve their goals, 
the EABC has demonstrated that they impose significant costs on 
business. Furthermore, enacting new sanctions or strengthening 
existing sanctions would have a detrimental effect on the US 
economy and US workers.
    The EABC recommends that the US Congress and Administration 
establish guidelines such as those proposed by the Lugar-
Hamilton bill to evaluate sanctions measures before they are 
enacted. In addition, Congress and the Administration should 
work more closely together to minimize the unintended negative 
consequences of sanctions. The EABC also recommends that 
policymakers exhaust other foreign policy options before 
enacting economic sanctions and make every effort to take 
action on a multilateral basis before imposing unilateral 
sanctions.
    Thank you, Mister Chairman and members of the committee, 
for the opportunity to testify today.
      

                                


    Chairman Crane. Thank you, Mr. Berry.
    Mr. Kavulich.

 STATEMENT OF JOHN S. KAVULICH II, PRESIDENT, U.S.-CUBA TRADE 
                   AND ECONOMIC COUNCIL, INC.

    Mr. Kavulich. Thank you, Mr. Chairman. I appreciate the 
opportunity to appear today to discuss a country that has been 
the subject of unilateral trade sanctions almost longer than 
any other. Cuba is the largest Caribbean Sea area country, 
larger than nearly all of the islands within the Caribbean Sea 
area combined, and with nearly one-third of the combined 
populations. Almost as large as the State of Pennsylvania and 
approximately as long as the State of Florida. With its 11 
million citizens, the population is approximately the same as 
the State of Illinois, your State. If Cuba were a State within 
the United States, it would rank seventh in population.
    Between 1980 and 1992, the value of licensed United States-
owned foreign subsidiaries trade with Cuba was $4.5 billion, 
from almost 3,000 licenses issued to more than 100 United 
States companies, a number of which have certified claims, yet 
continue to choose to trade with Cuba when permitted.
    The implementation of the Cuban Democracy Act in October 
1992 eliminated virtually all United States-owned foreign 
subsidiaries trade with Cuba. In the absence of an unrestricted 
commercial and economic presence by United States companies, 
Cuba is importing from, exporting to, obtaining financing from, 
and investments from other countries. From Canada, Canadian 
companies have announced, committed or delivered investments of 
more than $2 billion in the mining, energy, tourism, health 
care, transportation, and agricultural sectors. From Italy, 
active companies include Fiat, Stet International, Benetton, 
Costa, San Pellegrino, and Olivetti. Costa will cease to 
operate its cruise ship venture in 1998 because U.S.-based 
Carnival cruise lines has purchased the company, and U.S. 
regulations require that the agreement be severed.
    From Spain, hundreds of millions of dollars have been 
targeted toward tourism, tobacco, fishing, production of 
tubing, and real estate. From France, Devexport and Babcock, 
and Gemco will upgrade a powerplant. Sieta provides financing 
for the tobacco crop. ELF Aquitaine plans to supply gas stoves 
and cooking gas. Club Med has a hotel. Companies are exporting 
poultry, producing control panels for power plants, and 
operating bakeries. Societe General and Alcatel have offices in 
Havana. Citroen, Renault, and Peugeot all export vehicles.
    From the United Kingdom, the first foreign investment fund 
to operate in Cuba since the revolution. BAT produces tobacco 
products. Castrol has a joint venture to produce lubricants.
    From the Netherlands, Unilever has a partnership with 
Cuba's Suchel to make the deodorant, soap, shampoo, toothpaste, 
and perfumes, including Pepsodent brand. Shell Caribbean has an 
office in Havana. ING Bank became the first foreign bank in 
Cuba since the revolution.
    From Mexico, Banamex has a joint venture to process 
receivables from credit cards. TIMSA operates a cellular 
telephone system. Raw materials are provided for the production 
of footwear.
    From Germany, Mercedes Benz installs heavy equipment 
motors, has a contract to sell 480 buses, and exports vehicles. 
Siemans and Brucker have exported MRI and CAT Scan equipment. 
Adidas has a $5 million sponsorship contract with Cuban 
athletic teams.
    From Sweden, Volvo exports vehicles and has a joint venture 
to replace as many as 100,000 truck motors, assemble buses, and 
other heavy motorized equipment. From South Africa, Atlantis 
Diesel Engines has an $85 million contract to supply 10,000 
engines for the sugar industry. From Brazil, Telebras is 
seeking contracts for 50,000 public telephones and the 
exportation of digital switching equipment. From China, Cuba 
has imported more than 1 million bicycles.
    From Japan, Casio watches and calculators are being 
assembled in the Pinar del Rio region of Cuba. Sharp products 
are exclusively distributed by a Canadian company. Canon 
photocopiers and facsimile machines have an overwhelming market 
share. Panasonic exports air conditioners, heavy construction 
equipment from Komatsu, Hitachi, and Mitsubishi. Mizuno has a 
$5 million sponsorship contract with Cuban teams. Nissan, 
Suzuki, Mitsubishi and Toyota vehicles are exported.
    From South Korea, Samsung and Goldstar products are 
imported. Goldstar assembles televisions in Cuba. Daewoo 
construction equipment and Diahatsu vehicles are exported. From 
Israel, joint ventures to produce metal, plastic, and cardboard 
containers for chemical products; and operate a citrus 
plantation, exporting the fruit to Europe and the Middle East. 
Finally, from Australia, Western Mining Co. is negotiating a 
$500 million mining venture.
    The value of unrestricted annual United States-Cuba trade 
has been estimated to be as high as $7 billion, with perhaps 70 
percent or $4.9 billion being exports from the United States to 
Cuba. According to the U.S. Department of Commerce, for each $1 
billion in U.S. exports, 20,000 new employment opportunities 
can be created. United States-Cuba trade could be responsible 
for creating perhaps 100,000 or more new employment 
opportunities for American workers.
    According to the U.S. Department of Commerce, the value of 
the United States exports to China in 1996 was approximately 
$12 billion. China has more than 100 times the population of 
Cuba, yet Cuba's import potential from the United States may be 
nearly 40 percent of the current value of the United States 
exports to China.
    Which United States companies would export to Cuba? Perhaps 
Kemper Insurance and Motorola from the Chairman's district, Dow 
Chemical from Representative Camp's district, Corning and 
Dresser Industries from Representative Houghton's district, 
Cargill from Representative Ramstad's district, Packard Bell 
and Blue Diamond from Representative Matsui's district, 
Sylvia's from Representative Rangel's district, Boeing from 
Representative McDermott's district, and the Port of New 
Orleans from Representative Jefferson's district. Thank you.
    [The prepared statement follows:]

Statement of John S. Kavulich II, President, U.S.-Cuba Trade and 
Economic Council, Inc.

    Mr. Chairman and members of the Subcommittee, thank you for 
the opportunity to appear before this hearing on the ``Use and 
Effect of Unilateral Trade Sanctions'' to discuss one country 
which has been the subject of unilateral trade sanctions in 
varying degrees by the United States for longer than almost any 
other country.

                 Section One-Cuba and the United States

    Cuba is the largest Caribbean Sea-area country, larger than nearly 
all of the islands within the Caribbean Sea-area combined, and with 
nearly one-third of the combined populations. Nearly as large as the 
State of Pennsylvania and approximately as long as the State of 
Florida. With 11 million citizens, the population is approximately the 
same as the State of Illinois, the home of Chairman Crane. If Cuba were 
a state within the United States, it would rank 7th in population.
    Cuba, like the United States, was a founding signatory of the 
General Agreement on Tariffs and Trade (GATT). Cuba, like the United 
States, is a member of the World Trade Organization, unlike the 
People's Republic of China and Russia, for example. The United States 
and Cuba share membership in many international organizations and are 
signatories to many of the same international treaties.
    Between 1980 and the end of 1992, for example, the value of 
licensed United States-owned foreign subsidiaries' trade with 
enterprises within Cuba was US$4.563 billion-US$2.637 in exports and 
US$1.926 billion in imports from 2,938 licenses issued to more than 100 
United States companies, a number of which have certified claims, yet 
continued to choose to trade with Cuba when permitted.
    Some of the companies receiving licenses included: Alcoa, Beckton 
Dickinson, Continental Grain, Corning, Del Monte, Dow Chemical, E.I. du 
Pont de Nemours, Exxon, Ford Motor Company, General Electric, Goodyear 
Tire and Rubber, Honeywell, ITT, Ingersoll-Rand, Johnson & Johnson, 3M, 
Otis Elevator, Pfizer, Caterpillar, Cargill, Carrier, Picker 
International, Tenneco, Union Carbide, Vulcan Hart, and Westinghouse 
among many others.
    NOTE: Some of the same companies that have chosen to trade with 
Cuba have also chosen to register their trademarks and patents within 
Cuba. During the last several years, these registrations have increased 
at an exponential rate. Many United States companies have continued to 
maintain their trademark and patent registrations since before the 1959 
revolution. A number of well-known United States companies, including 
McDonald's, Victoria's Secret, and Toys-R-Us, for example, each spent 
tens of thousands of dollars in legal fees upon their return to South 
Africa because their trademarks had lapsed due to a lack of use, and 
other companies were now using their names. Members of the Subcommittee 
on Trade might find interesting that two years ago, when the Office of 
Foreign Assets Control (OFAC) of the United States Department of the 
Treasury failed to continue the authorization for United States 
companies to make the required payments within Cuba to maintain the 
registration of their trademarks and patents, the Chamber of Commerce 
of Cuba notified each of the United States companies that all 
protections would be continued until the United States Government 
reinstated the authorization. The authorization was reinstated, but one 
year later. Cuba has not, to date, become a market for pirated United 
States-branded products, as continues to be symptomatic with some of 
this country's significant trading partners.
    The implementation of the Cuban Democracy Act in October of 1992 
eliminated virtually all United States-owned foreign subsidiaries' 
trade with Cuba.

                  Section Two-Cuba and Other Countries

    In the absence of an unrestricted commercial and economic 
presence by United States companies, the government of Cuba, 
Cuba government-operated companies, Cuba-based joint ventures, 
and Cuba-based economic associations are importing from, 
exporting to, obtaining financing from, and investments from 
other countries.
    As of October 1997, the estimated value of announced 
investments within Cuba by private sector companies and 
government-controlled companies from twenty-five countries is 
US$5.9 billion, of which US$1.3 billion is estimated have been 
committed and/or delivered.
    From Canada, the United States' principal trading partner, 
companies have announced, committed, or delivered investments 
of more than US$2 billion in the mining, energy, tourism, 
health care, transportation, and agriculture sectors. Canadian 
companies export everything from air conditioners to food to 
telephones to construction materials.
    From Italy, active companies include Fiat (automotive), 
Stet International (communications), Benetton (clothing), Costa 
Crociera (passenger ship port and passenger cruise operations), 
San Pellegrino (beverages), Olivetti (computers and cash 
registers), Moneblanco (soda fountains), and Fantinel (winery). 
Various companies have exported equipment used in the 
production of pharmaceuticals. A yacht constructed in 1938 for 
Hollywood singer Kathleen Baker, and now owned by an Italian 
entrepreneur, is plying the island's waters with tourists. 
Costa Crociera will cease to operate its cruise ship during the 
first quarter of 1998 as United States-based Carnival Cruise 
Lines has purchased the company, and United States Government 
regulations require the severing of the Cuba commercial 
dealings.
    From Spain, hundreds of millions of dollars have been 
targeted toward tourism, agriculture, fishing (exclusive 
marketing rights), production of tubing, and real estate. A 
Spanish company finances the production of, and imports, and 
distributes the majority of Cuba's tobacco products. Recording 
contracts with Cuba-based musicians and groups from which a 
Canary Islands-based company reported that it averaged 100,000 
sales per compact disc produced.
    From Panama, Caribbean International Motors S.A., reported 
vehicle sales to Cuba exceeding US$62 million in 1996, a nearly 
100% increase from 1995.
    From France, Devexport and Babcock & Gemco will upgrade a 
power plant. Sieta S.A. provides the financing for the tobacco 
crop. ELF Aquitaine, the oil and chemical conglomerate, plans 
to supply 100,000 eastern Cuba homes with gas stoves and 
cooking gas by the year 2002. The gas, which will eventually 
amount to 40,000 tons annually, will initially be imported and 
then bottled on the island. Companies are exporting poultry, 
producing control panels for power plants, operating bakeries, 
and investing in tourism (Club Med). Societe General and 
Alcatel (many telephones are from this company) have offices in 
the Republic of Cuba. Citroen, Renault, and Peugeot export 
vehicles.
    From Russia, Cuba imports a substantial quantity of its 
oil, Russia purchases sugar. The value of the bilateral trade 
exceeds US$500 million annually.
    From the United Kingdom, British American Tobacco (BAT) has 
an agreement to produce various types of tobacco products for 
multiple export markets. The government is providing millions 
in financing and financing guarantees. The first foreign 
investment fund to operate in Cuba since the 1959 revolution is 
from the United Kingdom. Britain's Burmah Castrol Group, 
through its Dutch subsidiary, has a joint venture to use excess 
Cuban refining capacity to process lubricants for sale in the 
Caribbean.
    From The Netherlands, Unilever PLC has a partnership with 
Cuba's Suchel to make deodorant, soap, shampoo, toothpaste, 
perfumes and other products. Shell Caribbean has an office in 
Havana. ING Bank NV became the first foreign bank to operate 
within Cuba since the 1959 revolution.
    From Mexico, a company will produce plowing equipment 
designed in Cuba. The equipment will be sold in Mexico, Cuba, 
Latin American-area countries. Banamex has a joint venture to 
process receivables from credit cards. TIMSA, an US$8 million 
joint venture, operates cellular telephone systems. Raw 
materials are provided for the production of footwear.
    From Germany, Mercedes Benz has been installing heavy 
equipment motors for more than two years in Cuba. The company 
also signed a contract in 1996 for the sale of 480 buses, with 
a ten-year parts guarantee, to the city of Havana. Mercedes 
Benz vehicles can be rented in Cuba and are being used as 
taxicabs in some cases. Eurowings LTDA, announced that it was 
negotiating in Cuba a series of investments and trade 
agreements for the European and Latin American companies it 
represents. A government official proposed a US$1 billion 
project to reconstruct the island's railway system. Siemans and 
Brucker have exported MRI and CAT Scan equipment. Adidas has 
sponsorship contracts, valued at an estimated US$5 million, 
with Cuba teams.
    From Sweden, Volvo has negotiated a joint venture that 
could result in the company replacing as many as 100,000 truck 
motors, assemble buses and other heavy motorized equipment. 
Volvo vehicles may be rented in Cuba.
    From South Africa, Atlantis Diesel Engines has a US$85 
million contract to supply 10,000 engines for the sugar 
industry.
    From Namibia, negotiations to establish a joint venture to 
produce and package vaccines and other pharmaceuticals.
    From Brazil, Telebras is seeking the contracts for as many 
as 50,000 public telephones during the next seven years, and 
contracts to export digital switching equipment.
    From China, Cuba has imported more than 1,000,000 bicycles. 
Letters of intent to construct a hotel, operate a restaurant, 
and produce footwear.
    From Japan, Casio brand watches and calculators are being 
assembled. Cuba is the first Latin American country to assemble 
Casio brand products. Other Casio products are planned to be 
assembled in Cuba as well. Meiwa, the electronics company, has 
an office in Cuba. Sharp Electronics products are exclusively 
distributed in Cuba by a Canadian company. Canon photocopiers 
and facsimile machines have the overwhelming market share in 
Cuba. Panasonic exports air conditioners. Heavy construction 
equipment from Komatsu, Hitachi, and Mitsubishi. Mizuno, the 
Japan-based athletic equipment manufacturer, has sponsorship 
contracts, valued at an estimated US$5 million, with Cuba 
teams. Nissan, Suzuki, Mitsubishi, and Toyota vehicles are 
exported.
    From South Korea, Samsung products are imported. Goldstar 
products are imported and the company assembles televisions in 
Cuba. Daewoo construction equipment. Diahatsu vehicles are 
exported.
    From Israel, a US$1 million joint venture within Cuba to 
produce metal, plastic, and cardboard containers for chemical 
products; and a US$22 million joint venture which operates a 
115,000 acre citrus plantation, exporting the fruit to Europe 
and the Middle East.
    From Australia, Western Mining Company is negotiating an 
agreement to operate mining ventures in the country. The total 
value of the investments may exceed US$500 million.
    From Vietnam, a company is producing and distributing Cuba-
developed insecticide.
    From Argentina, CODEMAR S.A. has a computer software joint 
venture.
    From Lebanon, Fransabank has an office in Cuba.

                     Section Three-Cuba's Potential

    The value of unrestricted annual United States-Cuba trade 
has been estimated to range from US$3 billion to US$7 billion-
with, perhaps, 70%, or US$2.1 billion to US$4.9 billion being 
exports from the United States to Cuba.
    According to the United States Department of Commerce, for 
each US$1 billion in United States exports, 20,000 new 
employment opportunities can be created. United States-Cuba 
trade could be responsible for creating perhaps 100,000 or more 
new jobs for United States citizens.
    According to the United States Department of Commerce, the 
value of United States exports to the People's Republic of 
China in 1996 was approximately US$12 billion. The People's 
Republic of China has more than 100 times the population of 
Cuba, yet Cuba's estimated import potential from the United 
States may be nearly 40% of the current value of United States 
exports to the People's Republic of China.
    Which United States businesses would export to Cuba? 
Perhaps, Kemper Insurance and Motorola from Chairman Crane's 
district. Dow Chemical from Representative Camp's district. 
Corning and Dresser Industries from Representative Houghton's 
district. Cargill from Representative Ramsted's district. 
Packard Bell and Blue Diamond from Representative Matsui's 
district. Sylvia's from Representative Rangel's district.
    Mr. Dwayne Andreas, Chairman of Archer Daniels Midland 
Company, headquartered in Chairman Crane's state, has said that 
the current Cuba market could be a several hundred million 
dollar per year opportunity for his company. Mr. James 
Perrella, Chairman, President, and Chief Executive Officer of 
the Ingersoll-Rand Company has expressed his company's interest 
toward Cuba. Mr. Oscar Wyatt, Chairman of the Executive 
Committee of The Coastal Corporation, has said that an ability 
to access opportunities in Cuba would be of value to the United 
States. Mr. Lee Iacocca, former Chairman and Chief Executive 
Officer of Chrysler Corporation, who has visited Cuba, has 
spoken of the value to the United States business community and 
consumers in having access to the island's developing market. 
Mr. Curtis Carlson, Chairman and Chief Executive Officer of 
Carlson Companies, the US$20 billion hospitality conglomerate 
headquartered in Minnesota wants to operate Radisson Hotels, 
T.G.I. Friday's restaurants, and CarlsonWagonlit travel 
agencies in Cuba.
    The tourism sector, for example, is receiving the most 
direct attention of the Cuban government. In 1997, Cuba expects 
to receive 1,190,000 tourists and earn gross revenues of nearly 
US$1.7 billion--a nearly 15% increase from 1996. Approximately 
forty foreign airlines are providing services to Cuba. Since 
1962, Delta, Continental, and United Air Lines have held route 
authorities to Cuba from various states including Illinois, 
Florida, New York, California, and Massachusetts. SH&E, the 
world's largest civil aviation consultancy, estimates that 
United States-Cuba air travel could reach 5.2 million 
passengers annually; that the economic impact upon United 
States airlines might approach US$1 billion annually; and that 
there may be a potential for up to US$2 billion in aircraft 
sales to Cubana Airlines, not including general aviation 
aircraft and helicopters. Cubana Airlines currently operates 
U.S.S.R.-built aircraft, two leased DC-10's through a Mexican 
company, and a small fleet of Fokker turboprop aircraft. The 
Europe-based consortium, Airbus, and Canadian manufacturers, 
among others, are currently seeking export opportunities.
    The State of Arkansas was the largest supplier of rice to 
Cuba before 1959. Today, Cuba imports from the People's 
Republic of China, Vietnam, and Thailand what amounts to 
approximately 15% of current United States rice exports. Cuba 
Rice imports have been decreasing as the People's Republic of 
China and Vietnam, among other countries, provide Cuba with new 
growing and cultivation methods. In 1996, Cuba imported 350,000 
tons, spending approximately US$135 million.
    Burger King, which is owned by Grand Metropolitan of the 
United Kingdom, has more than 100 restaurants in Puerto Rico, 
with one-third the population of Cuba.

                         Section Four-Questions

    Generally, if a country institutes a unilateral trade 
sanction, the government and citizens of the targeted country 
will design and implement short term, medium term, and long 
term commercial and economic strategies designed to minimize 
the impact of the unilateral trade sanction. Over time, a 
unilateral trade sanction becomes an expected ``cost of doing 
business.'' Those governments which choose to maintain 
commercial and economic relations with the targeted country and 
those companies which choose to maintain commercial and 
economic relations with the targeted country factor this ``cost 
of doing business'' into the relationship.
    The government and business sector of a country under a 
unilateral trade sanction may, after a period of time, no 
longer expect, or count upon, the re-entry of United States 
companies. If the government and business sector are no longer 
placing the United States into their short term, medium term, 
or long term development strategies, United States competitors 
may become confident that the market is theirs and will be 
theirs in the years to come.
    A long-term unilateral trade sanction by the United States 
may lessen the likelihood that within the targeted country 
there will be many citizens old enough to remember any 
advantages of having an unrestricted commercial and economic 
relationship with the United States. Thus, a necessary advocacy 
constituency may not have influence. Then, a question to 
consider: How does the United States demonstrably show the 
value of a relationship if no tangible evidence of a positive 
relationship currently exists within the targeted country for 
its citizens to support?
    Thank you.
      

                                


    Chairman Crane. Thank you. Let me ask just one quick 
question. What are in your collective minds the appropriate 
steps that Congress should go through before considering 
unilateral sanctions?
    Mr. Kittredge. Well, if I might take a swing at that to 
begin with, Mr. Chairman. As the legislation tries to point 
out, there needs to be a finding or an assessment whether the 
sanctions have a chance of being successful or not. Second, 
there needs to be a finding as to what the cost to the U.S. 
economy is in the overall. Then there needs to be an evaluation 
of how much have we tried to multilateralize the effort, as you 
have heard so many people says the difference between 
unilateral and multilateral is critical. Then if sanctions are 
considered, there should be contract sanctity, and there should 
be a sunset provision. There's one other thing in the beginning 
that I left out. There should be a finding as to what impact 
does it have on our other agreements, on our relationships with 
our trading partners and with our allies.
    Chairman Crane. Can you think right off hand of a 
successful unilateral sanction that we have imposed that 
achieved the objective at less cost than we paid for it?
    Mr. Kittredge. I certainly can't. But you wouldn't expect 
me to.
    Chairman Crane. Any of the rest of you?
    Mr. Berry. No, sir.
    Chairman Crane. Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman. I would like to ask on 
behalf of Mr. Rangel a couple of questions of the panel. Mr. 
Rangel would be here, but he is managing a bill on the floor at 
this time. He has been since about 12:45. So he is not able to 
be here. That bill will probably continue on until 3. So he has 
requested that two questions basically be asked. Then I would 
like to ask questions of my own.
    To Mr. Kavulich, and I think you may have answered some of 
these already, and I'm going to ask the entire question. It's 
actually three questions are asked here. In terms of the fact 
that you have received your license to visit Cuba and obviously 
market their health care products, Mr. Rangel has asked well 
what are the consequences of all this in terms of how it 
affected your organization? Two, do your members support the 
expansion of these opportunities? I would imagine your answer 
is yes. Then what about your sales factors? I think you did 
answer that. But perhaps you can, for the record, very briefly 
answer all three of those again on behalf of--the question on 
behalf of Mr. Rangel.
    Mr. Kavulich. Thank you, Mr. Matsui. In terms of health 
care, the Clinton administration last October began to permit 
United States companies under license to go to Cuba to explore 
sales opportunities, and also take product samples. Since that 
time, a number of companies have gone. The first such company 
did go last October and did receive an order. So this 
willingness on the part of the Cuban health care companies to 
purchase from American companies when they can is real. More 
and more companies are taking advantage of it. It would be nice 
if some of the license requests moved a little faster through 
the Office of Foreign Assets Control at Treasury, but I know 
they are working on it.
    As far as the other combined questions, and this might 
sound like it's taking a political position, but I'm not. I 
just haven't found a chief executive officer of a major 
American company that either supports current policy toward 
Cuba or would not choose to have an opportunity to trade with 
Cuba today as their decision, as opposed to someone else's. The 
interest level is growing exponentially.
    Mr. Matsui. Thank you for your response. I think that 
segways into the second question Mr. Rangel requested I ask. 
That is, what do all five of you believe has been the positive 
effects or negative effects of Helms-Burton. I think Mr. 
Kavulich, you did answer that, that obviously----
    Mr. Kavulich. If I can add one quick element to it. That 
is, with unilateral sanctions in general, Cuba is a unique 
case, because we're talking 38 years of varying degrees, and 
there have basically been three generations of Cuban citizens 
who have grown up under existing United States policy.
    One of the problems or one of the challenges, let's say, 
I'm trying to be nonpolitical about it, for any administration 
or any Member of Congress when they are discussing the use of 
sanctions, as in the case of Cuba, we haven't been there for so 
long that many of the individuals in Cuba today who are running 
these new companies and who are the technocrats per se, and who 
are going to be in their thirties and forties and around for 
the next 20 years, they have absolutely no idea, no 
recollection of the value of having United States business in 
the country. All they know is from old movie reels about what 
it was like in the fifties. That's a problem, the lack of face-
to-face contact.
    Mr. Matsui. Thank you.
    Mr. Kittredge. Maybe Clayton Yeutter said it best, I think 
it was Clayton just before, that 37 years or whatever that the 
sanctions have been in place, and it ought to be time to think 
of a new way to look at it. It certainly has not had any 
success in its original intention.
    Mr. Matsui. Yes, Mr. Albrecht.
    Mr. Albrecht. It's difficult to find something positive as 
a result of the Helms-Burton legislation, but I think one 
positive result would be a greater awareness of the futility of 
unilateral sanctions on the part of America.
    Mr. Matsui. Mr. Berry.
    Mr. Berry. In the testimony I mentioned that in the survey, 
64 percent of the respondents said they had been harmed in one 
way or another. That fails I think to mention the chilling 
effect. One of the substantial things there I think, which is 
hard to measure, is how European companies in particular have 
had to review their investments in the United States, which is 
the largest location for European investment and is sizeable.
    The last thing that I would mention is traveling to 
European a lot, what it really has done in terms of the 
relationship between the United States and the European Union, 
I think that has been improving since April, but I think a lot 
of other things on the agenda could not be advanced in any way 
because Helms-Burton had just irritated people so enormously on 
the other side of the Atlantic.
    Mr. Matsui. Thank you.
    Mr. Kruse.
    Mr. Kruse. Yes, sir. I think whether we're talking about in 
this case Helms-Burton or any unilateral trade sanctions, I 
think the issue that applies and one of the features of this 
legislation or many of the features that we find very positive 
is that it will cause us to take a deliberate, disciplined 
approach in looking at, as you mentioned, Congressman Matsui, 
what are the outcomes of this. How many jobs are we talking 
about losing? How does this impact our economy? So many times 
in agriculture, the history has been very clear. We look back 
and the unintended consequences of trade sanctions and 
embargoes hit us right between the eyes in this country, not 
just the producers, but the people whose jobs depend on the 
success of agriculture and all the other businesses represented 
here.
    So I think as we look ahead, we need to make sure, and I 
think this legislation goes a long way in making sure that 
unilateral trade sanctions are the last tool out of the box, 
not the first, and that we really understand the impact of 
what's going to happen if we in fact impose these sanctions.
    Mr. Matsui. Thank you. I thank all five of you.
    If I may just ask one question or make an observation and 
then perhaps put it in the form of a question in terms of my 
time. One of the areas I am concerned about, and I think one or 
the two of you may have brought up fast track, and it does 
follow up on what Mr. Kruse said. Trade sanctions should be the 
last alternative, the last resort. I'm afraid what's going on 
is that it's become the first resort.
    If you think about the whole issue of China, we conditioned 
MFN with respect to China right after Tiananmen, and it was 
trade sanctions we decided rather than using diplomacy and 
perhaps other forms of international discussions. I have given 
this a lot of thought and it's been my point of view, 
particularly in view of what's been going on with the fast 
track issue and how difficult it's been, is that many people 
throughout the country in America and within the beltway now 
look upon trade and the economic advantages of trade as being 
secondary, and that it's really not that important.
    Now I don't know whether it's because of our economy or the 
78 months of economic growth, or is it because we just don't 
care, or maybe we just need to rethink this over again, and we 
have to go through a whole new educational process. Perhaps 
every generation does need to do this. But it seems to me that 
recently there has been a significant increase in unilateral 
sanctions over the past decade is just because trade has taken 
a secondary role rather than a primary role in terms of our 
international discussions.
    That's why the fundamental problem seems to be trying to 
explain to the American public, to our colleagues, and to 
everybody that is involved in the opinion making in leadership, 
the importance of trade, both in terms of I think as all of you 
have suggested, moving to democracy in terms of transporting 
our values to other countries very indirectly, and also in 
terms of the economic advantage between both countries.
    I am surprised at the number of my colleagues, and Mr. 
Crane and I are both working this fast track issue along with 
other Members, that don't even understand or know what the word 
or phrase comparative advantage means. In fact, there was a 
recent article in this week's National Journal, which I would 
all suggest that you read.
    It was suggested that we shouldn't trade with less 
developed countries because their wages are so low. Of course 
if that's the point of view we take, Britain shouldn't have 
traded in the 1890's and early 1900s. They were trying to 
colonize every country they could find that was less developed. 
We shouldn't have been trading with Japan or Europe after World 
War II because obviously their wages were much lower than ours. 
In fact, we should only be trading with countries that have the 
mirror image of our economy, in which case we wouldn't be, 
because we would have no comparative advantage between us.
    Somehow, we have to recreate a discussion about this issue 
because it's really creating major damage. I think fast track 
is in deep deep trouble. You all know that. I think this is 
permeating the entire discussion. I really believe that this is 
kind of the root problem of the whole issue of unilateral 
sanctions. It's easy, let's just take a shot at Cuba, let's 
take a shot at some country and let's do it by economic 
sanctions because that doesn't hurt. That's the point of view 
people have.
    Mr. Kittredge.
    Mr. Kittredge. Well, the point you make is a fundamental 
one. If the country doesn't understand the benefits of trade, 
it's almost impossible to get support for fast track or 
antisanctions legislation or a better way to go about it. I 
think we all recognize we have to do, and that's everybody, has 
to do a better job of trade education. The BRT has a program 
and Boeing probably is one of the best companies in that 
regard. The chairman of the NFTC, National Foreign Trade 
Council, who wasn't here today but was at the press conference 
this morning, from Ingersoll Rand, Jim Perella, his company has 
done a very good job in getting the message out. But it's hard 
to do.
    It seems that the other side, if you will, has a very short 
message. Trade equals loss of jobs, and you go from there. We 
all have to do much better--the chairman of Procter and Gamble 
was here at a fast track hearing earlier in the year. He said 
exactly that. The whole group, you all, we, everybody has to do 
a better job in explaining----
    Mr. Matsui. I'm not suggesting you're not doing a good job. 
I'm just saying that there's some communication----
    Mr. Kittredge. Well, I don't think--we have got to do a lot 
better job.
    Mr. Matsui. Right. Right.
    Mr. Berry. I think you make a very good point, Congressman 
Matsui. I think it's reflected in the proliferation of 
sanctions measures at the State and at the local level. There 
are 17 or 18 things, we have some of them listed in our study, 
that have been enacted. There are others. Even in a State like 
New Jersey, where the State authority says that there will be a 
$2 billion cost, the legislature still ignores it.
    So there is a fundamental educational problem. I think 
that's a very good point.
    Mr. Matsui. Yes. Mr. Kruse.
    Mr. Kruse. Yes, sir. I think you make an excellent point 
too in reference to the fact that the economy is doing really 
well right now. Unfortunately, as we look at fast track and our 
ability in the next few years to be at the table, and that's 
what we're talking about, this country being at the table and 
trying to negotiate trade agreements. These negotiations are 
going to go on whether we are a part of them or not. Somewhere 
down the road, you know the old saying what goes up is going to 
come down some day, and this economy at some point is going to 
start looking perhaps a little different. We all hope that's 
not the case, but I think realistically we would think that 
that's a high probability.
    Then we're going to start realizing the impact of losing 
jobs in this country because we have not had the opportunity to 
be at the table and to be a partner in all these trade 
agreements that are being formulated.
    Mr. Matsui. Particularly agriculture. They are part of the 
WTO, World Trade Organization, negotiations.
    Mr. Kruse. Yes, sir.
    Mr. Matsui. Very shortly. I know I'm thinking the 
unthinkable for the first time, that fast track, who knows what 
might happen. But I want to thank all five of you for your 
obviously excellent testimony, but all the effort and work you 
have been doing as well on behalf of free trade. Thank you.
    Chairman Crane. I want to follow up just briefly on what 
Mr. Matsui said. That is to compliment you for what you are 
doing. But in addition, Mr. Kavulich, you mentioned Motorola 
and Kemper. I also have the corporate headquarters of 
Ameritech, Sears Roebuck, and United Airlines. Right across my 
current border is Baxter and Abbott Laboratories. I thought, 
``Wow, we've got all these major exporters in my district.'' We 
had a Trade Subcommittee hearing back home, and we are the 
fifth largest export State in the Nation. Over 90 percent of 
our State exporters are companies employing 500 or less.
    I had a fellow that came in to see me who was doing 
business in the Persian Gulf. He says, ``Congressman, have you 
any idea how many companies in your district are doing business 
over there?'' I said, ``No, I really don't.'' He said, ``Over 
150.'' He had a breakdown name by name of those businesses. I 
looked that list over, and I never heard of one of them. These 
were infinitely less than 500 employees. I have been trying to 
communicate with chief executive officers of our big 
corporations, but the little businesses are more important than 
that, to explain to their employees the importance of exports 
to the business, to their job preservation and growth. That 
message apparently is not getting out all that well because at 
town meetings back home, when I bring up the question of trade, 
people start drifting off to sleep. We're not communicating 
properly. We need more of that direct communication.
    If I get called by a chief executive officer like the head 
of Ameritech or something, surely he's got my attention. But do 
his employees call? I don't get all that input from the 
employees of the biggies or the little ones. I am not sure they 
understand it. Otherwise, they wouldn't show that kind of 
boredom, especially when you consider, as someone already 
mentioned today, that one-third of our economy is our trade. 
It's the most dynamic component. God forbid we don't get fast 
track this year, because if we don't, we won't get it until the 
next millennium.
    I personally believe that's going to cause a recession 
before the end of this century. So whatever thoughts you have 
and suggestions and recommendations, in that vein, please 
communicate them not just to us, but get them out there to some 
of those businesses that are actively involved in this, and 
really their futures depend on it.
    I thank you all for your participation today. With that, I 
will let you gentlemen depart and welcome our next panelist. 
That is Hon. Brent Scowcroft, president of the Forum for 
International Policy and former National Security Advisor.
    Mr. Scowcroft, you can proceed, and if you want, condense 
in your oral presentation your written presentation. But the 
written will be a part of the permanent record. With that, 
proceed.

    STATEMENT OF HON. BRENT SCOWCROFT, PRESIDENT, FORUM FOR 
   INTERNATIONAL POLICY; AND FORMER NATIONAL SECURITY ADVISOR

    Mr. Scowcroft. Thank you very much, Mr. Chairman. It's a 
great pleasure for me to be here with you to discuss the very 
important issue of unilateral sanctions. I don't actually have 
a prepared statement, but I do have a few opening remarks, Mr. 
Chairman.
    First, a word about economic sanctions in general, not 
simply unilateral ones. Economic sanctions, at least in theory, 
are the middle ground of actions against objectionable behavior 
by other states between diplomatic discussions and negotiations 
on the one hand, and the use of force on the other hand. Now 
there's a lot of space in between and sanctions really have 
been devised to fill that space. I would comment that one other 
device we used to use was covert action, which has now fallen 
into almost complete disuse.
    There are really two, perhaps three objectives against 
which sanctions are applied. The first is to prevent an 
offending state from doing something it otherwise would be 
likely to do. That's the nature of our sanctions against Iraq, 
to keep it from aggressive military action which we think they 
would otherwise undertake. Another example of this kind of 
sanctions which are really fairly rare, would be CoCom during 
the cold war.
    A more common objective of sanctions is to change the 
behavior of an offending state, which is basically what is 
behind our sanctions against Iran, Cuba, and many others. That 
is a much more difficult task.
    Finally perhaps, we use sanctions simply to punish behavior 
of which we disapprove. Perhaps an example of that is the case 
of the Soviet invasion in Afghanistan when we stopped selling 
grain and refused to go to the 1980 Olympics.
    Sanctions inflict pain, economic pain. They also require 
the imposing state or states to incur pain. Clearly, the 
objective of sanctions is to make the pain inflicted exceed by 
as much as possible the pain incurred by imposing the 
sanctions.
    Now basically how have sanctions worked in a multilateral 
setting? The kinds of sanctions we imposed and are imposing on 
Iraq are working very effectively. Changing behavior as an 
objective of sanctions has not worked well at all. The case 
most frequently cited for the success of economic sanctions is 
that of South Africa and the destruction of apartheid. But even 
there, the evidence is mixed. There, there was a special 
circumstance of a huge domestic ally that we had in South 
Africa to make a success of those sanctions.
    Sanctions against Libya in part, perhaps, have been 
successful, but not enough to achieve the goals of those 
sanctions. The sanctions have made Gadhafi nervous, but since 
oil is not included in those sanctions, they have not inflicted 
sufficient pain to convince him to release the accused 
criminals of PanAm 103 for trial.
    Now the issue of unilateral sanctions. The big problem with 
multilateral sanctions is that one has to go to the lowest 
common denominator. Unilateral sanctions avoid all the 
negotiating and watering down and dealing with other countries 
to get a sanctions regime. Thus, they have become a favorite 
weapon to deal with offending behavior of almost any kind.
    They seem to have many advantages. They allow us to say 
we're doing something about an unpleasant situation. Therefore, 
they make us feel good. They let us shed responsibility. We 
have done something and don't have to follow it up and we can 
just go about our way. They allow us to avoid serious thinking 
about how we can actually do something useful to change a 
situation. Finally, they calm all sorts of domestic pressure 
groups who are agitated by the offending behavior. Last, there 
are no readily identifiable costs involved, like the obvious 
costs involved in the use of force.
    The first problem with unilateral sanctions, however, is 
that they don't work. I have mentioned that even multilateral 
sanctions have a dismal track record. Unilateral sanctions have 
an unblemished record of failure. I can not think of a single 
case where they have achieved their objective. Of course, the 
most outstanding record of how they don't work is the 30-odd 
years in which we've had unilateral sanctions on Cuba. It's 
difficult to see that Castro's position is any less secure than 
it was when we began.
    When the world community applies sanctions as a group, the 
inflicted costs on the offending party are greatly 
disproportionate to those small costs incurred by any 
individual member of the sanction committee. That is not nearly 
so true with unilateral sanctions. Indeed, the offending state 
may actually be able to avoid any significant pain through the 
acquiring of substitute suppliers.
    But if it were only that unilateral sanctions didn't work, 
it still might be useful to use them to signal our disapproval 
of certain actions. Unfortunately, there are costs to us as 
well. Some of them are quite heavy. Let me mention just a few. 
Once sanctions are imposed, taking them off, short of success, 
and I can think of no single case of success of unilateral 
sanctions, represents a humiliation and a signal of U.S. 
impotence.
    Evidence of their ineffectiveness as well, reduces the 
possibility that the next time they are imposed they will be 
even as effective. They impose clear costs on U.S. business and 
in many cases hand U.S. markets over to others. I think the 
recent case of Conoco and Total with respect to Iran is an 
excellent example of that. In the process, they undermine 
confidence in the commercial reliability of U.S. firms. Indeed, 
they may actually benefit the sanctioned state by giving its 
leaders a scapegoat for its own economic ills, as in ``the 
great Satan'' called up by the Iranian leadership. They can 
also be used to whip up nationalist fervor and thus increase 
support for regimes that we find reprehensible. They also hurt 
those internationally oriented groups in the target country, 
those groups that we least want to have suffer.
    We sometimes also damage an entire relationship of major 
importance to us by the imposition of sanctions. Here, I would 
cite sanctions against Pakistan for its nuclear weapons 
program. Pakistan is a state of great importance to us, and our 
overall relationship has suffered greatly because of that one 
issue. We certainly create frictions with our friends and 
allies who may differ with us on the imposition with sanctions. 
Thus, we reduce our ability to lead them on other unrelated 
issues.
    When we impose third-party boycotts, those disagreements 
can turn relationships very poisonous. After all, we have 
fought third-party boycotts, especially in the Middle East with 
the Arab boycott in Israel, for decades. To turn around and 
apply it ourselves is not helpful.
    Last, more intangible, but perhaps in the long run most 
damaging, unilateral sanctions often appear to other countries 
as U.S. arrogance or as the exercise of cultural imperialism. 
In sum, Mr. Chairman, I believe unilateral sanctions do not 
work and they do serious damage to larger U.S. interests. Thank 
you.
    Chairman Crane. All I can say, Mr. Scowcroft is amen. Let 
me also though compliment you on this article that was in the 
Washington Post. Bob and I are going to get this distributed to 
all of our colleagues with both of us signing off on it, 
because as I'm sure you are aware, fast track is at risk. God 
forbid, too, because I share your view that the most civilizing 
influence we have exerted worldwide has been through economic 
ties.
    Mr. Scowcroft. Yes.
    Chairman Crane. I think it holds the greatest hope for 
improving the lives, as it's already demonstrating in China, of 
more people than ever before in the span of recorded history. 
So we thank you for that.
    Mr. Scowcroft. Thank you.
    Chairman Crane. I now yield to my distinguished Minority 
Member Mr. Matsui.
    Mr. Matsui. Thank you very much, Mr. Chairman.
    I also want to commend you on this fast track piece, Mr. 
Scowcroft. I read it Sunday morning and it was one of the best 
pieces on fast track that I have read in all the years I've 
been in Congress, I have to tell you, and it's been 19 years. 
So I really appreciate it. I just wish that all of the Members, 
my colleagues could have seen it. Obviously, with Chairman 
Crane's leadership here, we'll get it out to all of our 
colleagues.
    Mr. Scowcroft. Thank you.
    Mr. Matsui. Can I just ask you one question? I'm torn on 
this, so this is a stream of consciousness question more than 
anything else. There is a time when the United States should 
offer or engage in sanctions on a country, and I'm posing this 
as a question, if that country is so bad and so much out of 
step with world norms, I would imagine that we would have to 
impose sanctions or at least cutoff diplomatic and all ties, 
economic, diplomatic, and other ties with that country. When 
that happens, when other countries, third countries begin and 
still deal and still engage that rogue country or country we 
would consider to be a rogue country, how do we deal with that? 
Because that seems to be the case in Iran and with the French 
now with Total being involved with them.
    I happen to take the side that we should do everything we 
can to get the French to not give that contract or not engage 
in that contract because it gives the Iranians hard currency, 
which would then allow them to continue to develop in a short 
time their nuclear weapons capability. But on the other hand, I 
know that there are others that feel strongly in the other way. 
This does go against my whole notion of supporting open, free 
trade.
    So perhaps you can help me work my way through this because 
I am having a very difficult time with this particular issue, 
and other issues similar to it.
    Mr. Scowcroft. Well, Mr. Matsui, you certainly raise what 
is the real problem. As I say, there is this broad gulf between 
simply diplomatic talks and the use of force. We have to fill 
it somehow. Sanctions, even if they're not effective, sometimes 
are essential to impose. But I think we really ought to try to 
avoid the feel-good result of sanctions and try to do something 
that is useful.
    In the case of Iran, for example, there's no doubt that 
Iran is a regime that we would like to change--for which we'd 
like to change the behavior. Unilateral sanctions are not going 
to do it in Iran, especially if others replace us. It actually 
could be of benefit to Iran to have a dispute among the 
industrial democracies, for example.
    It seems to me, one of the things we ought to start out 
doing is go to our friends in Europe, for example, and in Japan 
and so on, sit down with them and say now look, some of the 
Iranian behavior is obnoxious to all of us. The export of 
terrorism is against all civilized norms of behavior. Now what 
can we agree to do that would help, that would send a message 
to Iran, that would hurt Iran. I guess I would say fewer 
sanctions universally imposed might well be more effective than 
total sanctions by the United States only. But there are a 
number of different things I think we can try.
    Sometimes we may feel we have to impose unilateral 
sanctions. But if we do, and there are very useful comments in 
the bill about this, we ought to do it with the full 
understanding of the fact that not only is it unlikely to 
achieve our goals, but the costs might be very high.
    Mr. Matsui. The Libya Iran bill that was passed last year, 
and of course the Ways and Means Committee actually added to 
that an exception for----
    Mr. Scowcroft. Yes.
    Mr. Matsui. One of the exceptions we added onto it gives 
the Secretary or the President the authority now to negotiate 
with other countries to try to set up kind of a European-U.S.-
Asian group.
    It seems to me, and maybe I understand this better, maybe 
we do have commonality here in the sense that the problem with 
the legislation, it's a direct affront to a country rather than 
if we did it quietly through diplomacy, perhaps if we weren't 
so visible with the French right now----
    Mr. Scowcroft. That's right.
    Mr. Matsui. Perhaps it might work better because we've 
stiffened the backs of the French. They feel they can't back 
down. Before you know it, we have a confrontation. It's a whole 
issue of national sovereignty rather than an issue of joint 
security against a rogue country.
    Mr. Scowcroft. That frequently is the way it is perceived. 
When we do it publicly as the legislation requires us to do, 
then it's taken as an affront to their sovereignty.
    Mr. Matsui. I truly believe that had we not been so public 
with China in the early nineties perhaps, when I say that, I am 
talking about Democrats and Republicans, Members of the House 
and Senate, all of us, we might have had more success. But what 
we did was we obviously confronted them. Then we obviously had 
to back down because they weren't going to work. Perhaps we 
would have been somewhat further along, it's hard to say, than 
the way we are now.
    Mr. Scowcroft. Well, I think back to the days of Jackson-
Vanik. When we were working quietly with the Soviet Union 
behind the scenes to get Jewish immigration out, we got the 
numbers up fairly high. As soon as we passed Jackson-Vanik and 
imposed it publicly, they went to zero.
    Mr. Matsui. Well thank you very much. I really appreciate 
your testimony and your being here.
    Mr. Scowcroft. Thank you, Mr. Matsui.
    Chairman Crane. I too, Mr. Scowcroft. I know you have had a 
busy schedule today, but we deeply appreciate the fact that you 
did it.
    Mr. Scowcroft. I appreciate the opportunity. Thank you very 
much.
    Chairman Crane. Our final panel today will include Kimberly 
Ann Elliott, research fellow for the Institute for 
International Economics; Marino Marcich, director of 
International Investment and Finance of the National 
Association of Manufacturers; and Matthew Massaua, regional 
director of international policy and market development at the 
USA Rice Federation. If our witnesses will be seated, we shall 
proceed in the order in which I introduced you.
    Before you proceed though, I have here the recent report of 
the President's Export Council on the subject of unilateral 
export sanctions. I ask unanimous consent that this valuable 
report be placed in the hearing record. I thought it would be 
unfair since you have to depart for another meeting, Bob, if I 
reserved that request for myself alone.
    [The report follows:]
      

                                


      
    
    
    
    
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    Chairman Crane. All right. Our first witness will be Ms. 
Elliott.

 STATEMENT OF KIMBERLY ANN ELLIOTT, RESEARCH FELLOW, INSTITUTE 
                  FOR INTERNATIONAL ECONOMICS

    Ms. Elliott. Thank you very much, Mr. Chairman. Let me 
apologize in advance. I may have to leave a bit early, in fact, 
to go to a conference on sanctions. I will summarize my remarks 
and request that they be included in full in the----
    Chairman Crane. Oh yes. Without objection all of your full 
statements will be made a part of the permanent record.
    Ms. Elliott. Thank you. In 1919, when he was promoting the 
League of Nations, President Wilson envisioned sanctions as an 
``Economic peaceful, silent, deadly remedy . . . which in my 
judgment no modern nation could resist.'' The reality of course 
has been quite different. The global comprehensive and 
vigorously enforced sanctions against Iraq and the former 
Yugoslavia have produced at best, limited and tenuous results. 
Unilateral sanctions, even when imposed by the largest economy 
in the world, face far larger challenges. Even against such 
small and vulnerable targets as Haiti and Panama, military 
force eventually was required to achieve American goals.
    Extensive empirical research by myself and my colleagues 
Jeffrey Schott and Gary Hufbauer on the effectiveness of 
economic sanctions throughout this century suggests that those 
two cases are not unusual. Since 1970, unilateral U.S. 
sanctions have achieved foreign policy goals by our estimation 
in only 13 percent of the cases in which they have been 
imposed. There's a table in my testimony that gives all of the 
numbers behind that.
    Other recent research that we have done and that I guess 
has been discussed earlier today, suggests that sanctions in 
1995 cost the United States nearly $20 billion in potential 
exports, and perhaps 200,000 or more jobs in the relatively 
highly compensated export sector.
    Our research addresses the issue of the effectiveness of 
sanctions through empirical research, through assessment of the 
outcomes in 115 cases of economic sanctions from World War I 
through 1990. In addition to assessing outcomes, our research 
also identifies the conditions under which sanctions are most 
likely to achieve foreign policy goals. We judged 35 percent of 
those 115 cases throughout this century to have at least 
partially achieved their goals, and concluded that sanctions 
are most likely to be effective when the goal is relatively 
modest and the target country is much smaller and weaker than 
the country imposing sanctions; when the sanctioner and target 
are friendly toward one another prior to the imposition of 
sanctions and conduct substantial trade with one another; and 
when the sanctions are imposed quickly and decisively to 
maximize impact. For example, the average cost to the target, 
as a percentage of its GNP, gross national product, in 
successful cases was 2.4 percent, but only 1 percent of GNP in 
failed cases. Finally, sanctions we found would be more 
effective when the sanctioner avoids high costs to itself.
    Our forthcoming edition will add probably 30 to 40 cases to 
the current 115. Our results so far as very preliminary, but we 
don't expect the fundamental results to change very much.
    Of the 115 cases, the United States was a participant in 
78, usually as the leading sanctioner, and often alone. A 
striking result of our analysis is the declining utility of 
U.S. economic sanctions, especially when they are unilateral. 
In cases where American policymakers received little or no 
cooperation from other countries, the United States was 
successful 70 percent of the time from 1940 to 1970, but in the 
seventies and eighties, again, only 13 percent of U.S. 
unilateral sanctions achieved any success at all.
    While the benefits of economic sanctions are elusive, the 
costs are not. Trade sanctions deprive the United States of the 
gains from trade, and frequently penalize exporting firms that 
are among the most sophisticated and productive in the U.S. 
economy. In a $7 trillion economy, the $15 to $19 billion that 
I mentioned may not be huge, but they are tangible, and they do 
hit some of the most productive and sophisticated firms.
    I would just like to cite very quickly some research by my 
colleague David Richardson and Karin Rindal, who found that 
workers in plants involved in exporting are more productive and 
more highly compensated than workers in comparable plants that 
do not export. Employment growth is nearly 20 percent higher in 
exporting firms and plants than in those that never exported or 
have stopped. Finally, exporting firms and plants are less 
likely to go out of business in an average year. They also 
concluded that the communities that host these exporting 
operations, as well as the workers and shareholders, benefit 
from having a more stable, growing, and high performance work 
force and tax base.
    In sum, a rapidly changing global economy means that 
unilateral economic sanctions are decreasingly useful, yet 
increasingly costly. If sanctions are to have any chance at all 
of producing favorable outcomes, they must be multilateral, 
they must be carefully formulated, and they must be vigorously 
enforced. Thank you.
    [The prepared statement follows:]

Statement of Kimberly Ann Elliott,\1\ Research Fellow, Institute for 
International Economics

    A nation that is boycotted is a nation that is in sight of 
surrender. Apply this economic, peaceful, silent, deadly remedy 
and there will be no need for force. It does not cost a life 
outside the nation boycotted, but it brings a pressure upon the 
nation which, in my judgment, no modern nation could resist.
---------------------------------------------------------------------------
    \1\ The views expressed are the author's and do not necessarily 
reflect the views of the Institute's Board of Directors, Advisory 
Committee, or staff.

---------------------------------------------------------------------------
                         President Woodrow Wilson, 1919 \2\

    The reality, alas, has been far different from what 
President Wilson envisioned. The global, comprehensive, and 
vigorously enforced sanctions against Iraq and the former 
Yugoslavia have produced at best limited and tenuous results. 
Unilateral sanctions--even when imposed by the largest economy 
in the world--face far more difficult challenges, especially in 
an increasingly integrated international economy. Even against 
such small and vulnerable targets as Haiti and Panama, military 
force eventually was required to achieve American goals.
---------------------------------------------------------------------------
    \2\ Quoted in Saul K. Padover, ed., Wilson's Ideals (Washington: 
American Council on Public Affairs, 1942, p. 108).
---------------------------------------------------------------------------
    Extensive empirical research on the effectiveness of 
economic sanctions throughout this century suggests that these 
two cases are not unusual. Since 1970, unilateral US sanctions 
have achieved foreign policy goals in only 13 percent of the 
cases where they have been imposed. In addition to whatever 
effect repeated failure may have on the credibility of US 
leadership, other recent research suggests that economic 
sanctions are costing the United States $15 billion to $19 
billion annually in potential exports. This, in turn, 
translates into 200,000 or more jobs lost in the relatively 
highly compensated export sector.\3\
---------------------------------------------------------------------------
    \3\ Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann 
Elliott, Economic Sanctions Reconsidered: History and Current Policy, 
second edition, rvd. (Washington: Institute for International 
Economics, 1990). The third edition of this research should be 
available early next year. See also Gary Clyde Hufbauer, Kimberly Ann 
Elliott, Tess Cyrus, and Elizabeth Ann Winston, ``US Economic 
Sanctions: Their Impact on Trade, Jobs, and Wages,'' Institute for 
International Economics Working Paper, April 1997.
---------------------------------------------------------------------------

        Potential Benefits of Sanctions as a Foreign Policy Tool

    The Institute's research program on economic sanctions 
began in the early 1980s, in the wake of the grain embargo, 
imposed in response to the Soviet invasion of Afghanistan, and 
the pipeline sanctions, imposed in response to the Soviet role 
in the Polish crackdown on the Solidarity trade union. The 
conventional wisdom then was that sanctions never work, that 
they are costly politically and economically, and that their 
use should be constrained.
    Our research addresses these issues empirically, through 
assessment of the outcomes in 115 cases of economic sanctions 
beginning with World War I and ending in 1990. In addition to 
assessing outcomes, our research also identifies the conditions 
under which sanctions are most likely to achieve foreign policy 
goals.
    We judged 35 percent of these cases to be at least 
partially successful and concluded that sanctions are most 
likely to be effective when:
    (1) The goal is relatively modest. This also lessens the 
importance of multilateral cooperation, which often is 
difficult to obtain.
    (2) The target country is much smaller than the country 
imposing sanctions, economically weak, and politically 
unstable. (The average sanctioner's economy was 187 times 
larger than that of the average target.)
    (3) The sanctioner and target are friendly toward one 
another prior to the imposition of sanctions and conduct 
substantial trade. The sanctioner accounted for 28 percent of 
the average target's trade in success cases but only 19 percent 
in failures.
    (4) The sanctions are imposed quickly and decisively to 
maximize impact. The average cost to the target as a percentage 
of GNP in success cases was 2.4 percent and 1 percent in 
failures.
    (5) The sanctioning country avoids high costs to itself.
    Our forthcoming third edition will extend this dataset by 
roughly another 30 to 40 cases. Although the results to date 
are preliminary, we do not expect these conclusions to change 
significantly.
    Of the 115 cases studied, the United States was a 
participant in 78, usually as the leading sanctioner and often 
alone. The results for US sanctions are broadly similar to 
those described above because the United States has been the 
dominant user of economic sanctions. Thus, the 33 percent 
success rate for US sanctions was virtually identical to that 
for the sample as a whole.
    A striking result of our analysis, however, is the 
declining utility of US economic sanctions as a foreign policy 
tool, especially when they are unilateral (see table 1). Prior 
to the 1970s, sanctions in which the United States was 
involved, either alone or with others, succeeded at least 
partially just over 50 percent of the time. Between 1970 and 
1990, however, US sanctions succeeded in just 21 percent of the 
cases initiated.

  Table 1. Effectiveness of Economic Sanctions as a Foreign Policy Tool
------------------------------------------------------------------------
                                                               Success
                                                                ratio
                                    Number of    Number of    (successes
                                    successes     failures      as  a
                                                              percentage
                                                              of total)
------------------------------------------------------------------------
All cases........................           40           75          35%
Cases involving US as a
 sanctioner:
    1945-90......................           26           52          33%
    1945-70......................           16           14          53%
    1970-90......................           10           38          21%
Unilateral US sanctions:
    1945-90......................           16           39          29%
    1945-70......................           11            5          69%
    1970-90......................            5           34          13%
------------------------------------------------------------------------


    The results for unilateral US sanctions, those in which 
American policymakers received either no or only minor 
cooperation from other countries, are even more striking. In 55 
post-war episodes, the success rate for such cases was only 
slightly below that for all cases involving the United States, 
29 percent versus 33 percent. However, more than two-thirds of 
those successes occurred in the early post-war period, when the 
United States was successful nearly 70 percent of the time. In 
the 1970s and 1980s, a mere 13 percent of unilateral US 
sanctions achieved any success at all (table 1).
    Many factors contribute to these results but a large part 
of the explanation must be the effects of globalization. The 
United States is no longer as dominant in the world economy as 
it once was and its leverage has declined concomitantly. Given 
that these trends have continued in the 1990s, or even 
acclerated, there is little reason to expect that the utility 
of unilateral sanctions has improved in recent years.

                      Costs of Economic Sanctions

    While the benefits of economic sanctions are elusive, the 
costs often are not. Trade sanctions deprive the United States 
of the gains from trade and frequently penalize exporting firms 
that are among the most sophisticated and productive in the US 
economy. As American sanctions have expanded and proliferated 
over the past 20 years, they have also led to increasing 
tensions between the United States and its allies and trading 
partners around the world.
    In a recent extension of the IIE research, my colleagues 
and I estimated that economic sanctions cost the United States 
$15 billion to $19 billion in forgone merchandise exports to 26 
target countries in 1995. The analysis tentatively suggests 
that even limited sanctions, such as restrictions on foreign 
aid or narrowly defined export sanctions, can have surprisingly 
large effects on bilateral trade flows (see table 2).

                       Table 2. Estimated change in trade due to sanctions, 1995 (percent)
----------------------------------------------------------------------------------------------------------------
                                                           All countries,
              Scope of sanctions imposed a                  exports plus     OECD countries,     United States,
                                                             imports b         exports only       exports only
----------------------------------------------------------------------------------------------------------------
Limited................................................                  c              -21/5                  c
Moderate...............................................              -31.2              -33.1              -68.0
Extensive..............................................              -91.9              -78.0              -96.8
----------------------------------------------------------------------------------------------------------------
 Notes:

 a. Limited sanctions include narrowly defined trade, financial, trade, or cultural sanctions, such as
  suspension of foreign aid or restrictions on exports of narrow categories of goods or technologies; moderate
  sanctions cover more broadly defined categories of trade or finance; extensive sanctions usually encompass
  most trade and financial flows between two countries.
 b. There are 88 countries in the database.
 c. The coefficients on these variables suggest that even limited sanctions depress trade by 15 to 20 percent
  but in these tests the regression coefficients were not statistically significant at normal confidence levels.


    Lower exports of $15 billion to $19 billion would mean a 
reduction of more than 200,000 jobs in the relatively higher-
wage export sector and a consequent loss of nearly $1 billion 
in export sector wage premiums.\4\ Though the estimates were 
calculated using trade in the base year of 1995, similar costs 
accrue each year that similar sanctions remain in place.
---------------------------------------------------------------------------
    \4\ The US Department of Commerce estimated that, in 1992, $1 
billion of goods exported supported 15,500 jobs. Adjusting that figure 
for subsequent productivity growth gives an estimate of 13,800 jobs; 
multiplied by $15 billion to $19 billlion gives a figure of 200,000 to 
260,000 jobs. See US Department of Commerce, US Jobs Supported by 
Exports of Goods and Services (Washington, November 1996). This same 
study, along with research by Richardson and Rindal, also estimates 
that jobs in the export sector pay 12 percent to 15 percent better than 
comparable jobs in other sectors. Based on an average annual wage in 
manufacturing in 1995 of $34,020, the export sector wage premium would 
have been over $4000. See Hufbauer, et al. (1997), and J. David 
Richardson and Karin Rindal, Why Exports Matter: More! (Washington: 
Institute for International Economics and the Manufacturing Institute, 
February 1996).
---------------------------------------------------------------------------
    These effects could be overstated to the extent that 
exporters are able to redirect their goods to other markets. 
There are several reasons, however, to think the cumulative 
effects could be greater than suggested in this analysis. 
First, the study excludes investment flows and services 
exports, which in 1995 equalled nearly 40 percent of the value 
of goods exports. Second, one would expect the long-term 
effects of sanctions to be relatively more severe for suppliers 
of sophisticated equipment and infrastructure equipment than 
for exports as a whole.
    Indeed, many American businessmen claim that the effects of 
even limited unilateral US sanctions go well beyond targeted 
sectors and that the effects linger long after they are lifted 
because US firms come to be regarded as ``unreliable 
suppliers.'' Sanctioned countries may avoid buying from US 
exporters even when sanctions are not in place, thus giving 
firms in other countries a competitive advantage in those 
markets. Exports lost today may also mean lower exports after 
sanctions are lifted because US firms will not be able to 
supply replacement parts or related technologies. Foreign firms 
may also design US intermediate goods and technology out of 
their final products for fear of one day being caught up in a 
US sanction episode. If perceived as precedents that are likely 
to be repeated, the secondary boycotts and extraterritorial 
sanctions passed last year in the Iran/Libya Sanctions Act and 
the Helms-Burton Act could exacerbate this unreliable supplier 
effect. This effect could explain why the estimated impact on 
US exports is higher than for the OECD countries as a group 
(table 2).
    In a $7 trillion economy these costs may not be huge but 
they are tangible. Moreover, they are concentrated on sectors 
and firms involved in international trade and investment that 
are often the most sophisticated and competitive in the 
American economy. Research by my colleague J. David Richardson 
and Karin Rindal shows that:
     workers in plants involved in exporting are more 
productive and more highly compensated than workers in 
comparable plants that do not export;
     employment growth is nearly 20 percent higher in 
exporting firms and plants than in those that never exported or 
have stopped exporting; and,
     exporting firms and plants are less likely to go 
out of business in an average year.
    Richardson and Rindal also conclude that the communities 
that host exporting operations, not just the workers and 
shareholders in those operations, benefit from having a 
relatively more stable, growing, and high-performance workforce 
and tax base.\5\
---------------------------------------------------------------------------
    \5\ See Richardson and Rindal (1996).
---------------------------------------------------------------------------
    In sum, a rapidly changing global economy means that 
unilateral economic sanctions are decreasingly useful yet 
increasingly costly. If sanctions are to have any chance at all 
of producing favorable outcomes, they must be multilateral, 
they must be carefully formulated, and they must be vigorously 
enforced.
      

                                


    Chairman Crane. Thank you very much. You check your 
schedule and when you have to depart. Don't feel embarrassed. 
We appreciate your participation very much.
    Ms. Elliott. Thank you, Mr. Chairman.
    Chairman Crane. Mr. Marcich.

STATEMENT OF MARINO MARCICH, DIRECTOR, INTERNATIONAL INVESTMENT 
      AND FINANCE, NATIONAL ASSOCIATION  OF  MANUFACTURERS

    Mr. Marcich. Thank you, Mr. Chairman. May I submit for the 
record the report we did with Georgetown University Law School?
    Chairman Crane. Without objection, so ordered.
    [The report is being retained in the Committee files.]
    Mr. Marcich. In November 1995 Ken Saro-Wiwa and eight other 
environmental activists were hanged by the military government 
in Nigeria right after a trial that according to most observers 
lacked international standards of due process. The Burmese 
dissident, Nobel Prize winning dissident Suu Kyi remains under 
virtual house arrest. The American public has recently been 
treated to witnessing Mexican officials bribe their top 
antinarcotics official. Captured on tape we hear Cuban pilots 
joke about downing a civilian aircraft over international 
waters.
    Is it any wonder that Americans increasingly prefer to not 
watch the news, particularly when it concerns international 
issues? I don't think anyone can help but be moved by such 
scenes. Brutal repression is far too common on this century of 
world war and totalitarian governments. As we contemplate how 
to respond to terrorist acts, torture, violations of basic 
human rights, there is a temptation to react with all the 
severity our anger can muster, which is why we increasingly 
resort to unilateral economic sanctions.
    The problem with this approach is very simple. It's been 
highlighted by numerous speakers today. Unilateral sanctions 
simply don't work. Earlier this year, seven U.S. Senators wrote 
the President urging him to enact a new sanctions law against 
Burma, which the President eventually did. Yet in the letter, 
the Senators write that ``Since the Burma sanctions bill was 
signed into law, the situation has gone from bad to worse.'' 
Although the letter's signers would argue to the contrary, they 
unintentionally make my point.
    In March of this year, the NAM, National Association of 
Manufacturers, released the study I mentioned on unilateral 
economic sanctions for foreign policy purposes from 1993 to 
1996. What we really discovered was a real bewildering array of 
good intentions gone awry. In just 4 years, 61 U.S. laws or 
executive decisions targeted against 35 countries. Kimberly 
mentioned the study by the Institute for International 
Economics that concluded about a $15 to $19 billion loss as a 
result of sanctions in 1995 alone. When you consider that 
plants or firms that export experience almost 20 percent faster 
employment growth and pay about 12 to 15 percent more in wages, 
you get a better idea of how closely linked the issue of 
unilateral economic sanctions is to our future long-term 
economic prosperity.
    To be frank, there is more however to the national interest 
than market share. I think our U.S. industry and the American 
people expect the U.S. Government to play a leading role in the 
promotion of human rights. Make no mistake about it. If you 
read the State Department annual report on human rights, to be 
frank, I looked at all the 35 countries that were sanctioned in 
that 4-year period. It's not a pretty picture. It troubles our 
consciences and makes us want to act. But action taken without 
calculation of its effect is mere shadow boxing, an exercise 
that achieves nothing. Diplomacy, negotiation, and when our 
national security is directly at stake, military resolve, are 
the appropriate tools by which we can alter unacceptable 
behavior.
    It's quite clear that these sanctions have not worked to 
change the behavior of rogue regimes. I intend to follow up the 
NAM study with a brief updated report on the effectiveness of 
sanctions. What I did was basically compare the stated 
objective of each of the sanctions measure adopted in this 4-
year period with the conclusion drawn in the 1996 human rights 
and global terrorism and narcotics control reports produced by 
the State Department. I used a very liberal methodology on 
assessing the State Department's conclusion as to whether any 
improvement had taken place. The results shouldn't surprise 
anyone and are fully consistent with other testimony you have 
heard today. We get about 90 percent failure rate.
    If unilateral economic sanctions have not worked to change 
the behavior of a targeted country, then it's quite clear the 
United States should examine other weapons in its arsenal. Take 
the case of Burma. Before the ink was dry, Burmese officials 
were saying the action would have no effect on their policies. 
Japan indicated it would not go along with the policy. Burma's 
neighbors indicated they were not going to go along with it. 
ASEAN admitted Burma in July 1997. Statistics appear to 
indicate that foreign direct investment in Burma has increased 
in 1996, not withstanding the United States decision to bar new 
investment.
    When Nelson Mandela himself, no stranger to a repressive 
regime or the issue of sanctions, was asked if South Africa 
would boycott Burma, he declined, stating that sanctions would 
only cause chaos and suffering in Burma, and that South Africa 
preferred to act through international bodies such as the 
United Nations.
    What can U.S. business do to promote, support human rights? 
I think it would be a mistake to say that American trade and 
investment will bring about immediate revolutionary change in 
many countries targeted by sanctions. Expect U.S. business to 
play the leading role in this effort, would perhaps lead to 
some unfulfilled expectations. But I can say that trade and 
investment promote improved conditions of life in developing 
countries through increased economic growth, employment, and 
improved working conditions. In the words of a former U.S. 
Secretary of Labor, ``where capitalism lurks, democracy is just 
around the corner.''
    Similar logic concerning the failure in the human rights 
context can also be applied in the annual antinarcotics 
certification debate. As a result of the decertification of 
Colombia, the Export-Import Bank shut down in that country, 
leading to about $500 million worth of lost exports and 
thousands of jobs with it.
    Mr. Chairman, I don't think that throwing Americans out of 
a job will corral any drug barons in Colombia. Nearly 2 decades 
ago, former Secretary of State George Schultz warned against 
the dangers of light switch diplomacy. I believe this warning 
is more relevant now than ever. As of August 31, 46 separate 
initiatives were pending at the Federal, State or local level, 
authorizing sanctions against 38 countries, including allies 
such as Costa Rica, Turkey and Mexico, India, Indonesia, and 
Switzerland as well. Our commercial relationships are not an 
electrical current. For the sake of American prosperity and 
interests, we should leave the light switch alone. Thank you.
    [The prepared statement follows:]

Statement of Marino Marcich, Director, International Investment and 
Finance, National Association of Manufacturers

    Mr. Chairman and members of the Subcommittee, I appreciate 
the opportunity to testify in today's hearings on the use and 
effect of unilateral trade sanctions. My name is Marino 
Marcich, director of international investment and finance at 
the National Association of Manufacturers. I am submitting for 
the record A Catalog of New U.S. Unilateral Economic Sanctions 
For Foreign Policy Purposes 1993-96 (with analysis and 
recommendations), a report the NAM produced with Professor 
Barry Carter of Georgetown University Law School in March, 
1997.
    On November 5, 1995, Ken Saro-Wiwa and eight other 
political activists in Nigeria were hanged by the military 
government after a trial that, according to most observers, 
ignored fundamental standards of legal process. Burmese Nobel 
Peace Prize winning dissident Aung San Suu Kyi remains under 
virtual house arrest. We watch as Mexican officials bribe their 
country's top anti-narcotics official. And captured on tape, we 
hear Cuban air force pilots joke about shooting down American 
citizens as they fly over international waters. Is it any 
wonder that Americans increasingly prefer not to watch the 
news, particularly when it concerns international issues?
    No one can help but be moved and angered by such scenes. 
Brutal repression, far too common in our century of world war 
and totalitarian governments, stretches like an ugly scar 
across the landscape of our times.
    As America contemplates how to respond to terrorist acts, 
torture and violations of basic human rights, there is a 
temptation to react with all the severity our anger can 
muster--which is why we turn to unilateral economic sanctions.
    The problem with this approach is simple: unilateral 
sanctions don't work. Earlier this year, seven U.S. Senators 
wrote the President urging him to invoke a new sanctions law 
against Burma, which the President eventually did. Yet, in the 
letter, the Senators write that, ``Since the (Burma sanctions) 
bill was signed into law, the situation has gone from bad to 
worse.'' Although the letter's signers would argue to the 
contrary, they unintentionally make my point.
    On March 4, 1997, the NAM released a new study on the use 
of unilateral economic sanctions for foreign policy purposes 
from 1993 to 1996. What we found was a bewildering array of 
good intentions gone awry. In just 4 years, 61 U.S. laws or 
executive decisions were adopted authorizing unilateral 
economic sanctions targeted against 35 countries that account 
for 42 percent of the world's population and $790 billion worth 
of export markets. A new study by the Institute for 
International Economics concludes that U.S. exports to 26 
target countries were reduced by $15-19 billion in 1995 as a 
result of economic sanctions. Resulting job losses in the 
export sector may have been as high as 200,000. When you 
consider that plants or firms that export experienced almost 20 
percent faster employment growth and pay about 12-15 percent 
more in wages, you get a better idea of how closely linked the 
issue of unilateral economic sanctions is to America's long-
term prosperity.
    This is just the tip of the iceberg. A disturbing trend 
we've noticed over the years is what we call the ``de-
Americanization'' of products that once used American 
components. Under various U.S. laws, U.S. components suppliers 
are obligated to certify that the end product will not be 
exported to any country subject to a U.S. embargo. In the same 
way as a consumer avoids buying a product from a supplier with 
unreliable service, foreign purchasers avoid becoming dependent 
on suppliers who represent a political risk. And the rash of 
sanctions measures have made U.S. suppliers precisely that.
    Where Airbus once relied solely on U.S.-built engines, two 
of its latest models are designed for non-U.S. engines. In the 
wake of the pipeline and grain embargoes of a decade ago, 
European purchasers avoided U.S. components suppliers except 
where such components were unavailable from other sources. 
China and India hedge against potential sanctions by 
maintaining a significant Russian share in their fleets. In the 
wake of the grain embargo, Brazil, Argentina and others grew to 
become significant long-term competitors of U.S. farmers and 
are so to this very day.
    There is, however, more to the national interest than 
market share. Americans expect the U.S. Government to play a 
leading role in the promotion of human rights, and U.S. 
industry understands, respects and supports this. Make no 
mistake about it, the panoply of evil is large and vivid. It 
troubles our consciences and makes us want to act. But action 
taken without calculation of its effect is mere shadow boxing, 
an exercise that achieves nothing. Diplomacy, negotiation, and, 
when our national security is directly at stake, military 
resolve, are the appropriate tools by which we can alter 
unacceptable behavior.
    Economic sanctions have not worked to change the behavior 
of rogue regimes. I have since followed up the NAM study with a 
brief updated report on the effectiveness of sanctions, which 
will be released shortly. I compared the stated objective of 
each of the sanctions measures targeted against the 35 
countries with the conclusion drawn in the 1996 human rights, 
global terrorism and narcotics control reports produced by the 
State Department. A very liberal methodology was adopted when 
assessing the State Department's conclusion as to whether any 
improvement in the targeted country's behavior had taken place. 
Where the State Department annual report pointed to signs, 
however modest, of improvement in human rights or counter-
narcotics efforts, the result was tabulated as ``partially 
successful.''
    The results should not surprise anyone. Federal sanctions 
enacted from 1993 to 1996 failed to change the behavior of the 
targeted country 86 percent of the time. For 11 percent of the 
targeted governments, a partial success was achieved. In only 
one instance, or 4 percent of the cases, was the sanction 
considered a complete success.
    The results are fully consistent with previous studies 
concluding that sanctions did not achieve their stated foreign 
policy objectives over 80 percent of the time in the 1970s and 
1980s. There is reason to believe that the failure rate will 
increase due to the effects of globalization, as more and more 
countries are able and willing to fill the void left when U.S. 
companies are denied the opportunity to export and invest.
    If unilateral economic sanctions have not worked to 
effectively change the behavior of the targeted country, then 
the U.S. must examine other weapons in its arsenal. A failure 
rate of almost 90 percent suggests a need for reflection and 
caution. Consider the recently-applied sanctions against Burma. 
Before the ink was dry, Burmese officials were saying that the 
action would have no effect on its policies. Japan indicated 
that it would not go along with the U.S. approach. Burma's 
neighbors were not willing to go along with the U.S.-inspired 
approach. ASEAN admitted Burma in July 1997. Statistics appear 
to indicate that foreign direct investment in Burma increased 
in 1996, notwithstanding the U.S. decision to bar new U.S. 
investment. And when Nelson Mandela--himself no stranger to a 
repressive regime or the issue of sanctions--was asked if South 
Africa would boycott Burma, he declined, stating the sanctions 
would only cause chaos and suffering in Burma and that South 
Africa preferred to act through international bodies such as 
the UN.
    What can American business do to support human rights? I 
cannot say that American trade and investment will bring about 
immediate revolutionary change in many countries targeted by 
sanctions. To expect U.S. business to play the leading role in 
this effort would perhaps lead to unfulfilled expectations. But 
I can say that U.S. trade and investment improve conditions of 
life in developing countries through increased economic growth, 
employment and improved working conditions. In the words of a 
former U.S. Secretary of Labor, ``where capitalism lurks, 
democracy is just around the corner.''
    Sanctions, however, do the exact opposite, causing chaos, 
suffering and hardship for the very people they are designed to 
help. It is argued that trade with rogue regimes is immoral. 
But could someone explain how causing economic dislocation and 
pain for people in developing countries is any less immoral, or 
whether deepening their poverty will cause people to rise up 
against their well-armed oppressors?
    Similar logic can be applied not only in the human rights 
context, but in the annual anti-narcotics certification debate. 
As a result of the de-certification of Colombia, the Export-
Import Bank shut down in that country, leading to $500 million 
in lost U.S. exports and thousands of jobs with it. Throwing 
Americans out of a job will not corral any drug barons in 
Colombia.
    Nearly two decades ago, former Secretary of State George 
Schultz warned against the dangers of ``light-switch'' 
diplomacy; the belief that commercial relations could be turned 
on and off like a switch. This warning is more relevant now 
than it was two decades ago. As of August 31, 1997, 46 bills 
were pending in the 105th Congress authorizing unilateral 
economic sanctions against 38 countries, including China, Costa 
Rica, India, Indonesia, Mexico, Switzerland and Turkey. 
Fourteen sanctions measures were pending at the state and local 
level targeting 17 countries. Our commercial relationships are 
not an electrical current. For the sake of American prosperity 
and interests, let's leave the light switch alone.
    Thank you.
      

                                


    Chairman Crane. Thank you very much, Mr. Marcich.
    Our final witness, Mr. Massaua.

STATEMENT OF MATTHEW MASSAUA, REGIONAL DIRECTOR, INTERNATIONAL 
       POLICY AND MARKET DEVELOPMENT, USA RICE FEDERATION

    Mr. Massaua. Good afternoon, Mr. Chairman. My name is 
Matthew Massaua. I am regional director for international 
policy and market development at the USA Rice Federation. I 
appear here on behalf of the USA Rice Federation, the national 
trade association of the U.S. rice industry, which is working 
to advance the common interests of this country's rice farmers, 
millers, marketers, and allied industry segments.
    Trade has historically been and will continue to be 
critical to the U.S. rice industry. The United States is 
exporting approximately half of the rice it produces, and 
consistently ranks as the second or third leading rice exporter 
in the world. The U.S. share of world rice trade has ranged 
from 12 to 28 percent. Today, U.S. rice is sold in over 100 
countries around the world, recognized for its quality and 
reliability. The United States is also considered a reliable 
diversified supplier, exporting long, medium and short grain 
varieties of rice with a wide range of processing options.
    Our major export destinations include the European Union, 
Mexico, Japan, Turkey, Canada, Haiti, and South Africa. In 
addition, we're working to develop markets in other countries 
which have provided greater market access under the Uruguay 
round agreement.
    Of all the grains exported by the United States, rice has 
been hit particularly hard by unilateral trade sanctions. For 
example, before President Clinton's Executive order on the U.S. 
trade embargo with Iran in 1995, that country was emerging as 
one of the largest markets for high quality U.S. rice. 
Similarly, the largest importer of U.S. rice in 1989 was Iraq, 
which was closed to U.S. rice exporters by executive order in 
1990. Trade restrictions imposed by the U.S. Government, 
however well justified, do impact U.S. rice exporters and 
consequently the entire rice sector in this country. Despite 
occasional exemptions, such as general license programs, trade 
restrictions currently in force effectively reduce the size of 
the world rice market available to U.S. commercial exports.
    The recent scenarios in the Middle East have their 
counterpart in the Cuba of 1960. At that time, Cuba was the 
largest single importer of United States rice, preferring to 
buy the United States product on a commercial basis because of 
quality, proximity, and reliable supply. In 1951, Cuba imported 
a peak volume of approximately 250,000 metric tons of United 
States rice, which represented about half of total United 
States exports at the time. In 1996, a 250,000 metric ton 
market would have accounted for approximately 10 percent of our 
total exports.
    Cuba's share of total United States exports varied 
considerably from year to year, ranging anywhere from 17 to 51 
percent in the 10-year period prior to the embargo. Since the 
embargo, Cuba's annual imports have averaged around 300,000 
metric tons, with primary import origins from Thailand, China, 
and Vietnam.
    The United States rice industry believes once the United 
States Government has lifted the embargo, Cuba will again 
become a significant market for United States rice. Because of 
the structural changes that have occurred in Cuba and changing 
food consumption patterns, it's possible that a post-embargo 
Cuba may not immediately be in a position to commercially 
import the same high quality United States rice it had in the 
past. However, our industry views the Cuban market as one of 
great potential. Once the embargo is no longer in place, the 
U.S. industry will expect to reenter the Cuban market and will 
work closely with the U.S. Government to make use of any 
government programs which may assist in maximizing potential 
gains in this important market.
    In conclusion, Mr. Chairman, the trade sanctions currently 
in force are allowing other rice exporting nations such as 
Thailand and Vietnam to gain major competitive advantages over 
the United States rice industry. Furthermore, for 1997 and 
1998, when the United States is expected to harvest its third 
largest rice crop on record, U.S. Department of Agriculture 
estimates that more than 13 percent of projected global rice 
import demand will be subject to unilateral trade sanctions. 
This represents a very significant degree of lost marketing 
opportunities for the U.S. rice industry.
    I again thank you for this occasion to appear before the 
Subcommittee.
    [The prepared statement follows:]

Statement of Matthew Massaua, Regional Director, International Policy 
and Market Development, USA Rice Federation

    Good morning Mr. Chairman, my name is Matthew Massaua. I am 
Regional Director for International Policy and Market 
Development at the USA Rice Federation. I appear here this 
morning on behalf of the USA Rice Federation, the national 
trade association of the U.S. rice industry which works to 
advance the common interests of this country's rice producers, 
millers, marketers and allied industry segments. The Federation 
is composed of three charter members--the U.S. Rice Producers 
Group, the USA Rice Council and the Rice Miller's Association.

                            U.S. Rice Trade

    Trade has historically been, and will continue to be, 
critical to the U.S. rice industry. The U.S. exports 
approximately half of the rice it produces, and consistently 
ranks as the second or third leading rice exporter in the 
world. The U.S. share of world rice trade has ranged from 12 
percent to 28 percent. The U.S. industry's largest global 
competitor is Thailand, which maintains an average market share 
of about 30 percent. Today, U.S. rice is sold in over 100 
countries around the world and is widely recognized for 
quality. The U.S. is also considered a reliable, diversified 
supplier, exporting long, medium and short grain varieties of 
rice with a wide range of processing options.
    Current major export destinations for U.S. rice include the 
European Union (EU), Mexico, Japan, Turkey, Canada, Haiti, and 
South Africa. In addition, the U.S. rice industry is working to 
develop markets in other countries that have provided greater 
market access under the Uruguay Round agreement.

             The U.S. Rice Industry and Global Trade Issues

    Of all grains exported by the United States, rice has been 
hit particularly hard by unilateral trade sanctions. For 
example, before President Clinton's executive order on the U.S. 
trade embargo with Iran in 1995, that country was emerging as 
one of the largest markets for high quality U.S. rice. 
Similarly, the largest importer of U.S. rice in 1989 was Iraq, 
which was closed to U.S. rice exporters by executive order in 
1990. Trade restrictions imposed by the U.S. government, 
however well-justified, do impact U.S. rice exporters and 
consequently the entire rice sector in this country. Despite 
occasional exemptions, such as ``general license'' programs, 
trade restrictions currently in force effectively reduce the 
size of the world rice market available to U.S. commercial rice 
exports.

                        U.S. and Cuba Rice Trade

    The recent scenarios in the Middle East have their 
counterpart in the Cuba of 1960. At that time, Cuba was the 
largest single importer of U.S. rice, preferring to buy the 
U.S. product on a commercial basis because of quality, 
proximity and reliable supply. In 1951, Cuba imported a peak 
volume of approximately 250,000 metric tons of U.S. rice which 
represented about half of total U.S. exports at the time. In 
1996, a 250,000 metric ton market for U.S. rice would have 
accounted for approximately 10 percent of total exports.
    Cuba's share of total U.S. exports varied considerably from 
year-to-year, ranging from 17 to 51 percent in the ten-year-
period prior to the embargo in 1963. Since the embargo, Cuba's 
annual imports have averaged around 300,000 metric tons, with 
primary import origins of Thailand, China and Vietnam.
    The type of rice purchased by Cuba from the U.S. was a high 
quality U.S. long grain product. In the years since the 
embargo, Cuba has imported a lower grade product, both long and 
medium grain.
    The U.S. rice industry believes once the U.S. government 
has lifted the embargo, Cuba will again become a significant 
market for U.S. rice. Because of the structural changes that 
have occurred in Cuba and changing food consumption patterns, 
it is possible that a post-embargo Cuba may not immediately be 
in a position to commercially import the same high quality U.S. 
rice it had in the past. However, the U.S. rice industry views 
the Cuban market as one of great potential.
    Once the embargo is no longer in place, the U.S. industry 
will expect to re-enter the Cuban market and will work closely 
with the U.S. government to make use of any government programs 
which may assist in maximizing potential gains in this 
important market.

                               Conclusion

    Mr. Chairman, the U.S. trade sanctions currently in force 
are allowing other rice exporting nations such as Thailand and 
Vietnam to gain major competitive advantages over the U.S. rice 
industry. Furthermore, for 1997/98 when the U.S. is expected to 
harvest its third largest rice crop on record, USDA estimates 
that more than 13 percent of projected global rice import 
demand will be subject to unilateral trade sanctions. This 
represents a significant degree of lost marketing opportunities 
for the U.S. rice industry.
      

                                


    Chairman Crane. Well, we thank you for your participation. 
While it's not directly related to unilateral sanctions which 
obviously all of our witnesses but one I think today agreed on, 
I would urge you also to please try and get the word out, to 
communicate about the urgency of fast track extension before 
this session is over. Because while we're taking a hit on 
sanctions economically, and a big hit, I fear if we don't get 
fast track extended this session, it won't happen until the 
next millennium. Based upon the importance of trade, 
considering we're 4 percent of the world's market here in terms 
of consumers, our trade growth is the most dynamic component of 
our economy. You folks are aware of it, certainly. Please get 
the word out and communicate to colleagues here on the Hill, 
because we have many who unfortunately, well most, the vast 
majority, have not heard the presentations that you folks have 
made. They need to get that information.
    With that, I thank you very much for your testimony. That 
concludes our hearing. The record will be open until November 
6.
    [Whereupon, at 2:52 p.m., the hearing was adjourned, 
subject to the call of the Chair.]
    [Submissions for the record follow:]

Statement of Robert P. O'Quinn, Heritage Foundation
[GRAPHIC] [TIFF OMITTED] T4892.025

[GRAPHIC] [TIFF OMITTED] T4892.026

[GRAPHIC] [TIFF OMITTED] T4892.027

      

                                


Statement of Hon. Jim Ramstad, a Representative in Congress from the 
State of Minnesota

    Mr. Chairman, thank you for calling this hearing to discuss 
the use and effect of unilateral trade sanctions.
    While I do not disagree with the foreign policy goals of 
many of the sanctions bills Congress has passed, since there 
are real consequences for real people tied to these sanctions, 
we need to make sure they achieve the intended goals.
    I am aware that a 1997 report by the National Association 
of Manufacturers found few cases in which sanctions had 
effectively changed the behavior of targeted governments.
    I am also aware that the 1997 report of the President's 
Export Council determined that sanctions hurt the reputation 
and credibility of U.S. firms in the international marketplace 
and that ``a large portion of the negative impacts on U.S. 
economic interest could be reduced with no significant impact 
on foreign policy interests.''
    More importantly, however, I have heard from a number of 
constituents who--while not questioning the intentions of our 
legislation--have strong concerns about the impacts of 
sanctions legislation on U.S. leadership in the global arena 
and their own businesses.
    Knowing all this, I appreciate this opportunity to hear 
expert testimony on the impact of American sanction policy. I 
also look forward to learning more about the Chairman's 
recently introduced legislation to give Congress and the 
Administration a thoughtful framework in which to devise 
effective sanction policy.
    Thank you again, Mr. Chairman, for calling this hearing. I 
look forward to hearing from today's witnesses about the 
effectiveness of unilateral sanctions and possibilities for 
improving our methods for achieving our foreign policy goals.
      

                                


Statement  of  U.S.  Association  of  Former  Members  of  Congress, 
Hon. James W. Symington

    This report summarizes highlights and reflections of the 
U.S. Association of Former Members of Congress (FMC) delegation 
who visited Cuba from December 9 to 14, 1996 under the auspices 
of the U.S. Association of Former Members of Congress (FMC). 
The delegation's composition was unique in that no such 
bipartisan political group of current or former Members of 
Congress has visited Cuba in the past 25 years. The delegation 
was chaired by Association President former Representative 
Louis Frey (R/FL) and former Representative James Symington (D/
MO) served as Vice Chairman. The Congressional component 
consisted of two current Members of Congress, Toby Roth (R/WI) 
and Jon Christensen (R/NE) and four former Members of Congress: 
Senator Dennis DeConcini (D/AZ) and Representatives Michael 
Barnes (D/MD), Frey and Symington. The delegation also 
included, and was greatly aided by, Walter Raymond, Senior 
Advisor to the Association and former Special Assistant to the 
President for National Security Affairs, and Ambassador Timothy 
Towell, who formerly served in the U.S. Interests Section in 
Havana and as U.S. Ambassador to Paraguay.
    This program initiative of the U.S. Association of Former 
Members of Congress was funded by a grant from the Ford 
Foundation. The purposes of the trip to Cuba were to look and 
listen, to have a frank exchange of views with a cross section 
in the country, become better informed about conditions and 
attitudes on the Island and share American attitudes with the 
Cubans. The Cubans responded positively to this effort to have 
a broad and candid dialogue. The delegation will share its 
impressions and ideas with public and private groups in the 
United States.
    The delegation was based in Havana and met a broad range of 
senior Cuban Government officials, municipal and local 
authorities, university leaders and students, individuals in 
``self-employed'' enterprises, Western diplomats, religious 
leaders and a number of representatives in the democratic 
opposition (dissidents). Members of the delegation also took 
opportunities to reach out and talk to individual Cubans on the 
street to broaden their view of daily life in Cuba. The 
delegation had the opportunity to visit Matanzas Province and 
to discuss local and regional issues with municipal and 
provincial level leaders. In the course of the five days, 
visits were made to a variety of facilities including schools, 
at the primary as well as at the university level, an oil 
refinery, cooperative farm, church, community health center and 
teen club. The resort facilities along the Varadero Beach were 
held up as an important example of ``Western capital 
investment.'' These facilities also serve to highlight the 
disparity in quality of life between the average Cuban and the 
foreign tourist. Animosity toward the latter is tempered by 
recognition of their importance to the economy. For its own 
part, the delegation encountered no hostility from any quarter. 
The delegation's itinerary and meeting agenda is attached.
    As its observations and exposure to Cuban opinion were 
limited by time, the delegation's conclusions must be deemed 
tentative. Its members do not profess instant expertise on 
Cuba. However, having devoted a fair portion of their 
professional lives to politics--domestic and foreign--they were 
able to bring such experience to bear in their discussions and 
subsequent analysis. The end of the Cold War and the end to 
massive Soviet subsidies augurs for fundamental structural 
change in the Cuban economy and the underlying assumptions upon 
which Cuba's current political system rests. The next two to 
five years will be critical for the future directions of Cuba. 
This view was shared by a cross-section of people encountered. 
It would appear to offer the United States policy options which 
heretofore were unavailable.
    The state of mind of Cuba. Cuba's island mentality sets it 
apart from the attitudes and experience of the peoples of 
Central and East Europe as they sought to break from communism. 
It also tends to foster a ``siege mentality'' in the country. 
Less porous than the Iron Curtain, Cuba's ocean moat has thus 
far repelled the successful infiltration of new ideas. 
Moreover, in the Cuban view of history, the West, and 
particularly the United States, is not perceived as a force 
which helped support an independent Cuba. Current Cuban 
historians, bureaucrats and students stress that America's 
entry into the war for Cuban independence from Spain was 
unnecessary and exploitative.
    In the course of the delegation's discussions in Havana, 
the members received a variety of mixed comments about the 
Cubans who have left the island. Many look upon those who have 
fled with mixed emotions. There is a sense of relief for family 
members and friends, envy for those who struck it rich and 
resentment against those who would employ the power of a super-
state to take or regain property, prerogative and power in 
their former homeland. Paradoxically, the departure for almost 
40 years of significant numbers of the class of potential 
leaders has left the island with a more limited prospect for 
active internal dialogue, not to mention a more focused 
struggle for democratic change. By contrast, in Central and 
East Europe, after the communist takeovers, most of the 
population (including the potential political elite) remained 
in country, while in Cuba. Most of the political elite have 
been killed, jailed or systematically forced to leave.
    The Castro regime has created a system which its spokesmen 
say has no exact parallel. They call it ``Cuban Socialism.'' 
The Cuban officials say they want to avoid moving from 
``communism to corruption, as has happened in Russia.'' 
Politically, there is no moderation and Cuba continues as a 
tightly controlled police state. Maintenance of the status quo 
and the public acceptance of its ``advantages'' requires close 
supervision and severe limitations on personal freedoms, a 
centrally controlled Government press and frequent human rights 
violations. Cuban children are propagandized from the start. As 
an example, during a visit to an elementary school, the 
delegation was treated to a lively patriotic song by a 
typically friendly group of five year olds, which called on the 
fellow citizens ``to fight to the death against the great 
enemies of their country and the revolution.'' The controlled 
Cuban press diligently fills in the details of the challenge. 
At the same time, grass roots citizens efforts and self-help 
projects developed by residents in one of the poorer districts 
in Havana were genuine and impressive. The vitality, character 
and innate goodness of the Cuban people continue to survive 
despite all the obstacles that exist.
    There is dissatisfaction with the Government, but Castro is 
not universally blamed. Spokesmen for the regime underscore 
that, in the past 35 years, a genuine effort has been made to 
promote social and economic justice. They take pride in the 
improvements which have been recorded in the fields of 
education and public health. In this context, the Revolution 
still is discussed in positive terms. At least among ruling 
circles--and we suspect perhaps beyond--there is a strong sense 
of pride, including pride in fighting its most powerful 
neighbor to a standstill. As one senior Cuban official stated, 
adjustments could be considered in all areas except compromise 
in the social and economic progress achieved by the Revolution 
and as long as such changes can be made without causing the 
Cubans to appear weak internally and in the world's eyes. A 
policy to resist U.S. domination resonates in Cuba, although 
there is little ill will toward the United States, rather a 
general puzzlement about current U.S. policy toward Cuba. This 
attitude, articulated by officials, provincial workers, 
farmers, university students and others, is shared to an extent 
by the independent democrats and dissidents. Where differences 
emerge is over what political, economic and social policies 
should be adopted to meet the needs of the Cuban people.
    The economy is in very bad condition despite the best face 
put on it by senior Cuban officials. Two members of the 
delegation, who had visited Cuba in 1994, were able to identify 
limited positive economic changes in Havana, which probably 
were carried out largely by necessity. Doctors' and lawyers' 
salaries are roughly $8 per month; tobacco factory workers earn 
about $6 per month. Western companies in Cuba make salary 
payments for their workers directly to the Cuban Government in 
dollars and approximately five percent of the dollar value (in 
the open market) is passed to the Cuban worker in pesos. There 
are instances where doctors, lawyers and other professionals 
work and earn more as bellhops and make more money. In the long 
run, such anomalies will diminish interest in advanced 
education. Significant workers' benefits exist covering 
medical, educational and retirement expenses, although there is 
no social security system and retirement payments derive from 
general revenue. The Minister of Economy pointed out that the 
Cubans were faced with an incredible challenge with the sudden 
cut off in 1991-92 of the Soviet subsidy of at least $6 billion 
per year. He stated that the Russians had provided an 
additional $1.2 billion military subsidy annually. The Minister 
commented that the economy hit bottom in 1993-94, began to turn 
around in 1995 and is rallying upward in 1996. There may be 
some truth to this, but the increase does not begin to cover 
the 40 percent loss of GNP in the 1992-94 time frame. Another 
indication of Cuba's economic decline is the drop in annual oil 
consumption from 13 million tons in the days of Soviet support 
to eight million tons today. Cuba's own oil production meets 
about 15 percent of this lowered requirement. The rest much be 
purchased in what the Cubans describe as their ``Caribbean 
market.'' The country has the appearance of a ``socialist 
state'' economy with sparse stores, limited products, poor 
transportation and a breakdown of facilities. Food is available 
but supplies and variety are limited. As an example each Cuban 
has a ration of six to eight eggs per month. The desperate 
character of the economy is reflected in the high incidence of 
prostitution, forced on young women out of necessity. Dissident 
economists pointed out that the Cuban Government numbers are 
wrong and that the economy is ``dead in the water.'' Havana's 
darkened streets, decaying structures, makeshift conveyances 
and universally inadequate plumbing lend credence to this 
suggestion.
    There have been tentative steps taken to move toward 
reform, including: the establishment of areas where self-
employment is permitted, not including professions such as 
medicine, law and engineering; the legalization of the dollar 
and interchangeability with the peso; the move from state farm 
to cooperative in the agricultural sector; the relaxation of 
certain restrictions in foreign investment; and the expansion 
of tourism. Many of the best tourist facilities, including 
Varadero Beach, exclude the local population. Western observers 
label this practice as ``apartheid tourism.'' Such tourism 
brings revenue to the country, but increases resentment from 
the citizens as a result of their exclusion. The delegation 
learned that the owner of the private restaurant (paladares) in 
which it dined grosses $7,000 per month. This is significant in 
light of the fact that each paladares can only seat 12 
customers and can employ only family members. Even after 
expenses, which include a $750 monthly license tax for each 
paladares, this is a step toward the establishment of a private 
business sector. In the agricultural sector, the delegation met 
directly with farmers in the newly formed cooperatives. It is 
claimed that incentives are built into the process and that 
farmers who work hard and produce more earn more both in cash 
payments and in a greater share of the produce from the farm. 
There is a safety net, and farmers who are ill on the job 
receive a 70 percent salary payment and those who are ill for 
non-job related reasons receive a 50 percent payment. 
Permission for open farmer markets to be established has the 
potential for strengthening the ``private'' agricultural 
sector. It has brought more food to market but at significantly 
higher prices. Each step, to date, has been so carefully 
calculated and circumscribed as to vitiate real benefits to the 
economy. Nevertheless, it was the delegation's perception that 
the modest reforms are a start and should be nurtured wherever 
possible.
    Castro retains his powerful place in Cuban life and 
governance, and is feared by all, but with fewer manifestations 
of hands-on daily management. The two delegates who had been in 
Cuba before saw fewer Castro icons dominating Havana. The 
delegation noted with interest consistent reminders of Jose 
Marti and other revolutionary leaders of the late 19th Century.
    The challenge to managing the Cuban economy after the end 
of the Soviet subsidy has been addressed in several ways:
    (1) There is a concentrated effort to attribute all Cuba's 
economic problems to the policies of the United States. 
Opposition to the embargo is now supplemented by strident 
exploitation of the Helms-Burton Act as the current cause for 
their pain. By systematically pressing this propaganda theme, 
the Cubans are attempting to buy time with the propaganda 
tactic. The average Cuban knows much more about ``Helms 
Burton'' than his counterpart and the delegation noted this 
point to Cuban officials. Nationwide public meetings address 
the subject. School students discuss and debate the issue. 
Ministers can quote the law verbatim. The Cuban Government has 
scheduled an international conference, involving Cubans living 
in Cuba and overseas (Spain, Mexico, Venezuela and the United 
States), in Havana on January 18 and 19.
    (2) There has been belt tightening and the traditional 
propaganda point that the social and economic justice that has 
been established by the Revolution must not be lost is 
emphasized repeatedly. There is some popular support--not 
dissimilar to that encountered in Central/East Europe and the 
NIS--for the belief that changes should jeopardize social 
benefits of the Revolution, including free medical care, 
education and pension rights. These are vital for a population 
that has little, if any, reserve.
    (3) There are limited ``reform'' steps being taken. While 
modest and carefully calculated, they represent more creativity 
than at any time in the past 20 years. Some of the more forward 
leaning members of the Castro Government may want to move 
faster, but they are unwilling to get too far out in front. The 
``modernists'' in the regime realize that one day (probably 
after Castro), if these experiments are to work, they will need 
to be given more space. One Cuban official implied that they 
are starting to have labor problems. The Government tried for 
two years to pass an income tax bill but it has not been able 
to convince or overcome the opposition of the labor unions. The 
delegation noted that while some officials echoed the party 
line, others went beyond and were prepared to engage in 
reasonable exchange. The old leaders are still in evidence, but 
a new generation is preparing to take the field. While members 
of this new team may see the world differently, they are not 
yet certain whether they can make any viable changes in policy 
in Cuba. By exercising a senior statesman role (witness the 
exploitation of Castro's visit with the Pope), Castro permits a 
potential successor team of political and economic leaders to 
cope with the economic crisis created by the end of the Soviet 
subsidy. If they move too far out in front or appear to show a 
lack of revolutionary commitment, Castro can preemptively 
remove them from office.
    The delegation's tentative conclusion is that Castro has 
politically weathered more than 30 years of an American embargo 
and the more recent challenge created by the end of the Soviet 
subsidy and today, while impacted by the Helms-Burton Act, 
still remains solidly in control. As will be noted, the 
negative impact of Helms-Burton may be offset by its use to 
divert national attention from the innate efficiencies of the 
system. Western diplomats concurred with Cuban officials that 
Helms-Burton has been successful in limiting some new foreign 
investment. The total economic impact of U.S. action since 1962 
has been devastating, but Cuba has lived with this reality. 
While the Soviet subsidy was of vital importance, in recent 
years the Cubans have coped without it. Non-U.S. investment has 
been of modest help in meeting the shortfalls and this probably 
will grow. A key unanswered question will be whether the Cubans 
will press forward with modest economic reforms which would 
make the country a more attractive market for foreign 
investors. The delegation was advised by certain Cuban 
officials that the anger and concern in Cuba over the Helms-
Burton Act appears greatest over Titles I and II which expand 
the U.S. embargo and the U.S. commitment to support internal 
democratic processes in Cuba.
    Views from the diplomatic community. The delegation was 
briefed by Mexican, Czech and Canadian Embassy officials. The 
Mexicans and Canadians predictably thought Helms-Burton was 
counterproductive. The Mexicans believed Cuba is changing, more 
economically than politically, and that the Cubans will not be 
able to control the economic forces that will be created by 
internal reform dictated by necessity. The Mexicans think that 
the Pope's visit also will play an important part in 
strengthening ``people power.'' The Canadian Ambassador also 
believes changes would continue out of necessity and that 
Cubans authorities think they can control the changes. Should 
such changes get out of hand and/or should the succession of 
executive authority not be handled effectively, he was less 
sanguine about the avoidance of violence and a return of U.S. 
military involvement. There is a fear of succession among the 
Cubans, but the subject is avoided by Cuban authorities. The 
Canadian Ambassador noted that the Concilio Cubano was deemed a 
threat because of the promise it held for bringing the 
dissidents together. The Concilio was a coalition of a large 
number of unofficial groups and individuals, established in 
October 1995 and crushed by the Cuban authorities in February 
1996. The Czech diplomat said that despite the fact that the 
democratic opposition is weak and fragmented, it is necessary 
to support the democratic movement as a moral force. He sees no 
evidence of an emerging civil society and expects change will 
come from above and from external pressure. The Czech was alone 
among the diplomats in arguing for a continuation of the 
embargo. One diplomat envisioned that Castro would be out of 
power in two years, possibly violently, and that the OAS would 
provide support for free elections.
    The church as a moral force. The delegation made a 
concerted effort to determine the role of religion in Cuba, 
particularly with the possibility of a visit by the Pope within 
a year. The decrease in Catholic Church total attendance and 
membership reflects its vigorous suppression by the regime in 
the 1960s. Cardinal Ortega noted that in 1961, the number of 
Catholic priests was cut from 800 to 200 and the number of nuns 
dropped from 2,500 to 200. The Catholic University was closed, 
and access to means of communication was cut. The church was 
``reduced to silence.'' He added, however, that he believes the 
Church in Cuba has been experiencing a religious reawakening 
since the late 1980s. Recent surveys suggest that two percent 
of the Cuban population regularly attend mass while about seven 
percent of the population is Catholic. He believes the 
projected visit of the Pope will stimulate religious awareness 
and energize the population. The Cardinal echoed the Pope's 
views on the embargo and believes that after more than 30 
years, it is time for a change. Three representatives of 
different Protestant denominations with whom the delegation met 
also suggested that there is a greater interest among the 
population in church matters and in the faith. Another 
approximately seven percent support one of the 52 separate 
Protestant denominations. The Protestant groups appeared to be 
more willing to seek accommodation with the Castro regime. The 
largest number of Cubans supports Santeria, a derivative of the 
Catholic Church mixed with the faith, religious practices and 
beliefs brought to Cuba by Africans several hundred years ago. 
This practice is particularly prevalent among the black 
population of Cuba, which is over 50 percent.
    The democratic opposition. Discussions with the democratic 
political opposition/dissidents, who were identified to the 
delegation by human rights groups in the United States and by 
diplomats in Havana, produced some surprising statements. The 
majority of the group opposed Helms-Burton, although it is not 
clear how many of these want to drop the embargo. One dissident 
called it the Helms-Burton-Castro Act, in view of the 
opportunity it provides Castro for blaming the United States 
further for Cuba's economic problems. Several dissidents said 
that an opening of the economy at this point is the best way to 
effect genuine political change. One said that the EU posture 
was helpful as EU member states were both exploring economic 
opportunities and supporting the democratic movement. Another 
said that ``if the doors were wide open and one million 
Americans came to Cuba next year, Castro would fall 
immediately.'' The dissident thought the Cuban economy needed 
infusions of risk capital to reinvigorate and enfranchise the 
people. They believed this would speed the transition to a 
civil society and of democratic processes. Investments, 
properly managed, bring more people into the process. One of 
the dissidents presented a formal letter calling for changes in 
the embargo including a call for ``the unconditional lifting of 
the embargo of food and medical supplies for Cuba.'' This 
echoes the view of Cardinal Ortega who would welcome food and 
feed grains via Title III of Public Law 480 which provides for 
distribution through such voluntary agencies as Caritas.
    Another dissident recognized that, realistically, Helms-
Burton will remain for a while and suggested that the United 
States press vigorously for ``Sullivan/Arcos Principles'' to be 
established for all Western companies trading with Cuba. The 
Sullivan Principles were a code of business conduct supportive 
of labor which Westerners adopted to put pressure on the former 
South African Government to end apartheid. Senior Cuban 
dissident Arcos has drafted a similar set of ``principles'' 
designed to assure that Western companies trading with Cuba 
would use that opportunity to raise the standard of living of 
Cuban workers and their families. This suggestion is consistent 
with Stuart Eizenstat's efforts to press allies to insist on 
Western business practices in Cuba which include safe work 
places and fair wages. They would also required Western 
businesses to hire and pay workers directly which is not now 
allowed under Cuban law.
    One dissident underscored the extreme difficulty in 
building political support from a population that has been so 
crushed and subjugated. In referring to the Concilio Cubano, 
which brought together a large number of dissident groups for 
the first time, one Cuban said that it was a great idea but 
lacked sufficient support from the United States and the EU. 
Moreover, cooperation and coordination of efforts within the 
dissident community appears difficult to achieve. There were 
even differences of approach and some mutual suspicions within 
the group the delegation met. These sentiments were fueled by 
the dissidents own sense of permanent threat from the Castro 
regime. Several said that they probably would be picked up and 
interrogated after their meeting with the delegation, and one 
dissident thought he might be arrested.
    Continued detentions. The delegation discussed the plight 
of political prisoners with key members of the Cuban 
Government, including Minister of Justice Robert Diaz Sotolongo 
and the President of the National Assembly Ricardo Alarcon. The 
point was strenuously made that the continued arrest and 
imprisonment of Cuban citizens for political reasons has a 
direct and continuing negative impact on American and 
international opinion about Cuba. The delegation made the point 
to both Cuban leaders in separate meetings. At the meeting with 
Minister Sotolongo, who had been appointed earlier, members of 
the delegation noted that the violation of human rights and 
political repression were critical barriers to an improvement 
in the bilateral relationship, more so even than the 
expropriation issues. It was suggested that Mr. Sotolongo, as a 
new minister, could make a fresh start, reexamine previous 
actions and take some ameliorating initiatives.
    The Minister deflected a discussion of specific cases, but 
said the Ministry would assess past actions to determine if 
judicial errors had been made. He rejected the delegation 
urging that the Concilio be accredited because ``the aims it 
pursued were not helpful in building our own 
society...therefore it is not possible to allow space for the 
Concilio Cubana.'' While time constraints prevented exploring 
this statement further, the delegation pressed the case for 
recognition of individual human rights and fair trials. The 
delegation emphasized that changes in this area, including the 
release of Concilio members still in jail, could impact 
directly and positively on U.S.-Cuban relations. In closing, 
the Minister of Justice defended the Cuban Administration of 
Justice, but added that he had taken careful notes of the 
American concerns and will consider them. He also indicated a 
willingness to meet again. To confirm its concerns, the 
delegation forwarded to Castro a formal request for the release 
of 17 political prisoners by name.
    Background on policy considerations. The delegation is 
committed to political change and the respect for human rights 
in Cuba. The delegation is not recommending any lessening of 
that commitment. To ``get there from here'' may require, as has 
been the case with China, a more nuanced policy than that which 
has been in place for nearly four decades. Castro has withstood 
the U.S. embargo since 1962, plus the shock of the loss of more 
than $7 billion in annual Soviet subsidies. It can probably 
withstand the current low level of Western economic engagement. 
In contrast to Central/East Europe, the internal opposition, 
while well-intentioned and a moral force, does not now 
constitute, nor hold out the promise of being an alternative 
power base. There appears no likelihood that, in the near term, 
Cubans in opposition to the regime will be able to assume 
power. The military command has troop loyalty. The Castro 
Government has taken key steps to insure adequate funding to 
the military, even by engaging them in civilian economic 
enterprises--such as running the tourist trade--to avoid the 
financial problems that have beset the Russian Army. Further, 
Castro has assembled a competent network of young party 
nomenklatura leaders--one step from the top--and they are 
prepared to take on more responsibilities. The contrast with 
Central/East Europe is again instructive. When the old 
leadership fell in the Revolution of 1989, there was a vacuum 
filled by the intellectual and popular opposition. Over time, 
much of this leadership has been filled by rising 
nomenklatura--espousing their democratic commitment--such as 
Kwasniewski in Poland, Horne in Hungary and their counterparts 
in other countries. With Cuba's primary political opposition in 
exile, Castro hopes to finesse this stage and leave new 
leadership in place which is committed to the goals and methods 
of the Revolution. If there were to be conflict in Cuba in a 
post-Castro period, in the short term, it would more likely be 
between a reform wing and a law-and-order wing within the 
current Castro government. This could lead to civil strife 
which would be a matter of great national security concern to 
the United States.
    Such hypothetical scenarios invite a renewed examination of 
the policy options. The facts that Russia is no longer Castro's 
provider and Castro has lost the capability to export 
subversion in the Western hemisphere are major changes in the 
national security equation. It is the delegation's judgment 
that the timing is right for some adjustments in policy in 
1997, as there appears to be some soul-searching in Havana and 
the United States is not facing any elections. Castro is in the 
final chapters of his rule, although at this juncture he will 
probably continue until his death or incapacitation. As stated 
previously, there does not appear to be a basis for 
anticipating an internal overthrow of Castro and his 
government. Some of the dissidents urged the United States to 
let up the pressure so that they can grow internally and 
ultimately be prepared to win a battle with Castro and/or his 
successors.
    The visit confirmed the delegation's impression that trust 
between the Cuban and U.S. Governments is almost negligible. 
The realities around which policies must be crafted are that 
Castro is not going to fall and Helms-Burton is not going to 
disappear. At the same time, the delegation uniformly believes 
that we should seek to identify policy initiatives which are 
acceptable to the United States and which will help the Cuban 
people who are suffering. To make such initiatives viable, the 
Cuban Government will need to see these initiatives as also in 
their national interests. To traverse so great a distance, each 
country will have to begin taking small but significant steps.
    Such a step on the Cuban side was taken, in the judgment of 
the delegation, when Cuban authorities turned over to the U.S. 
Coast Guard six tons of cocaine intercepted by Cuban naval 
elements in Cuban waters. Given America's preoccupation with 
international drug trafficking, this step deserves appropriate 
recognition and response. Members of the delegation, however, 
made it clear that it will be very difficult to move forward, 
in any appreciable degree, without a unilateral step by Cuba 
concerning political prisoners as discussed with the Minister 
of Justice and requested in writing of President Castro. A 
second major question which must be addressed is that of a 
negotiated settlement regarding expropriated property. The 
point has been made by EU members that this is an issue to be 
settled between Cuba and the United States as governments have 
to settle expropriation claims directly and not through third 
parties. When the delegation raised this with the Cuban 
officials, the latter stated that they have virtually no funds 
available to meet these claims, certainly not in terms of 1996 
values. Again, while both of these points require discussion, 
the delegation focused its attention on the human rights 
concerns of the American people and the Congress.
    How can we help the transition to democracy? The time is 
ripe to look for opportunities to open up the country to 
people, ideas and information. We need to play cards that will 
open the avenues to a peaceful transition. In the likelihood of 
a nomenklatura takeover after Castro, lacking the mystique of 
Castro, they will have to demonstrate their success in economic 
terms. As soon as the economy starts to move forward, the 
people will begin to become ``economically enfranchised'' and 
supply and demand pulls will start to shape domestic policy. 
The engagement by non-American Western investors, tourists and 
students will begin a process which could lead to the 
establishment of a civil society and a peaceful transition to 
not only an economic but also a political open society. This 
may take ten years, but it is an option that can be achieved 
with limited, if any, violence.
    In summary, some of the basic precepts on which U.S. policy 
is formulated need to be re-examined. Castro is not going to 
fall nor will he be pushed off his pedestal by Helms-Burton. 
Engagement is more likely to achieve the path, primarily in the 
economic section but coupled with ``Sullivan Principles'' to 
insure that trade has the desired social dimension and supports 
an emerging working class. Policies which increase the 
probability of violent confrontation should be avoided and are 
not needed. Members of the delegation encourage Stuart 
Eizenstat's continued efforts to try to develop some common 
strategies with the EU to accomplish U.S. foreign policy goals. 
The United States should continue to press the EU to work for 
the adoption of the ``Sullivan/Arcos Principles'' which would 
guarantee a greater role for the Cuban workers and we should 
press the EU to work for the adoption of the ``Sullivan/Arcos 
Principles'' which would guarantee a greater role for the Cuban 
workers, and urge Cuba to release political prisoners still 
incarcerated. If these steps are taken, several basic building 
blocks will have been laid to establish a civil society in 
conjunction with EU allies. This could give the United States a 
basis for modifying Titles III and IV.

   Possible Actions Envisioned by the Delegation to be Taken in 1997 
                                Include:

    (1) A comprehensive bilateral program to reduce drug 
trafficking. The effort which led to the recent 6-ton cocaine 
bust should be expanded. Consideration might be given to 
developing joint counter-narcotics interdiction strategies, 
including undertaking joint naval patrols in the Bahamas and in 
Cuban and U.S. waters.
    (2) Visit by the International Human Rights Law Group to 
monitor the judicial process. This idea was raised with 
Minister of Justice Sotolongo who said he received many visits, 
but he was not closed to the idea. He said Cuban sovereignty 
and principles would have to be observed. The delegation urged 
the Minister to review all convictions, as a satisfactory 
resolution of cases concerning prisoners of conscience would 
evoke a positive U.S. response.
    (3) Consultation with U.S. nuclear experts before 
completion and operation of Cuba's first nuclear plant. The 
delegation urged closer international supervision and were 
advised that IAEA had paid a visit. The plant is being built 
with Russian equipment and technology and, with the precedent 
of the Chernobyl plant disaster in Ukraine, is a cause of 
international concern. The Cuban officials took pains to remind 
the delegation that they are as interested as the United States 
in constructing a safe facility. An offer of a visit by a 
technical group from the southern United States (possibly 
Florida) whose citizens would be the most directly affected by 
any nuclear waste, emissions or malfunction should be 
considered.
    (4) Support for human rights in Cuba. The delegation urges 
the U.S. Government, in conjunction with the EU, to press for 
the initiation of a process permitting free and open elections, 
maintained by a responsible international body. Further, the 
Cubans should be urged to invite the International Committee of 
the Red Cross to examine the conditions of Cuban prisons. Such 
a demarche to the Cubans would probably most effectively be 
pressed through the appropriate third party from the EU or 
Central Europe. The concurrent release of a number of political 
prisoners, estimated by the dissidents at 300-500, would be a 
dramatic gesture with little downside. In the judgment of the 
delegation, the political prisoners are considered as political 
chips and insurance rather than a security threat.
    (5) An offer to open property settlement discussions. The 
Cubans acknowledge that this is still an outstanding issue in 
the bilateral relationship, but politics aside, they have 
neither the funds nor the will to make a new offer, unless it 
is part of a larger negotiation concerning bilateral relations. 
Nevertheless, an effort should be made to establish a process 
with a payment schedule even if actual funding is deferred to a 
future date.
    (6) The elimination of barriers to two-way communication. 
This could range from the current--and significant--
establishment of the CNN Bureau, to the sale of Western books, 
magazines and papers and the removal of impediments to Internet 
connections. In this regard, the delegation was advised by the 
democratic opposition that TV Marti is never heard in Cuba 
except by party officials who have satellite dishes. Ordinary 
Cubans cannot own a satellite dish. Congress should explore how 
effective TV Marti actually is and if it proves to be as 
ineffective as the delegation was advised, funding should be 
stopped for TV Marti. These funds, however, should continue to 
be allocated for informational programming to Cuba. The 
delegation believes the estimated $12 million currently 
allocated for TV Marti could be effectively spent on more 
informational and academic exchanges and improvements to other 
communications channels including the provision of a broad 
Internet capability. In addition, serious program attention 
should be given to developing and broadcasting, via a variety 
of communication channels, basic educational materials 
concerning the development of a political and economic 
democracy. Paralleling U.S. programming to Central/East Europe 
and the NIS, the time is right to provide materials to support 
a peaceful transition in Cuba.
    (7) Lifting of restrictions on air travel from the United 
States to Cuba. This could be done on a step-by-step basis, 
such as for holidays, to monitor the new arrangements. However, 
it should be noted that Americans do get to the island now 
through a very complicated routing. The FMC delegation, for 
example, traveled via Costa Rica and Mexico. Others go via 
Nassau and, in comparatively large numbers, travel onward to 
Cuba by charter. In other words, travel restrictions are 
finessed and the difficulties imposed are counterproductive. 
These restrictions do not appear to have any redeeming value. 
Lifting them would facilitate and energize a range of contacts 
between Cubans in Cuba, their relatives in the United States 
and with the wider American community. Such contacts would 
provide a source of physical and moral support to the Cuban 
citizens and could temper the conduct and course of the regime 
itself.
    (8) The removal of barriers to humanitarian assistance. 
Discussions with Caritas, the international arm of the U.S.-
based Catholic Relief Services, were very positive and members 
of the delegation will be in further communication with it. 
Other channels may also be explored. The Cuban-American 
community in the United States has been very helpful in 
assisting their families, but the current restrictions have 
reduced this assistance. The delegation sees no reason to 
create obstacles to such assistance.
    (9) The removal of remaining impediments to exchange 
programs. Significant increases in exchanges should be 
authorized and, as needed, financed. On the basis of our 
discussions with faculty and students, stringent visa 
restrictions--which they said appeared to be getting tighter--
have directly hampered two-way student and professor exchanges 
involving the University of Havana. On the basis of the 
knowledge of the important role such exchanges have played in 
the past and continue to play in Central/East Europe and the 
NIS, the free flow of information can directly benefit the 
democratization process.
    (10) A U.S. Government call for the formal adoption of the 
``Sullivan-Arcos Principles'' by the foreign investment 
community (EU, U.S. and others) as an integral component of 
their business arrangements in Cuba. International and domestic 
trade unions should be urged to enlist their support and 
intercession with Western governments and the business 
community.
    (11) Enhanced foundation support for academic and 
scholastic programs. The MacArthur and Kellogg Foundations 
currently support the Center for American Studies at the 
University of Havana. Others with equivalent interests should 
be encouraged to determine if such programs (see Paragraph 5 
above) meet their criteria for support.
    (12) Development of a Speakers Program. Encourage the 
extension of speaking invitations from non-governmental Cuban 
groups to U.S. leaders. The delegation asked if Billy Graham 
were to visit Cuba could he speak to the Cuban people. The 
answer was that if invited by a Cuban institution, Billy Graham 
and other religious leaders could visit and speak in Cuba. By 
this measure, the openings for speaking engagements for 
scientific, cultural, farm and business leaders would be 
considerable.
    (13) Consideration by Members of Congress of fact-finding 
trips to Cuba. Hill staffers from the House and Senate foreign 
affairs committees have been invited to visit Cuba and should 
be encouraged to do so.
    The FMC delegation believes that the contacts developed and 
candid discussions which took place in mid-December in Havana 
were an important start. The bipartisan quality of the group, 
its liberal to conservative construction, and its ability to be 
one step removed from the direct domestic political pressure 
that a formal Congressional delegation would have suggest that 
this opening should be pursued. The delegation was asked by the 
Cubans to plan a sequel trip at an appropriate time in the 
future and the FMC will consider such a possibility if and when 
it appears such a mission could serve a constructive purpose.

Representative Louis Frey, Jr.,
Republican-Florida (1969-1979)
Chairman of Delegation

Representative James Symington,
Democrat-Missouri (1969-1979),
Vice Chairman of Delegation

Representative Toby Roth,
Republican-Wisconsin (1981-1997)

Senator Dennis DeConcini,
Democrat-Arizona (1977-1995)

Representative Jon Christensen,
Republican-Nebraska (1995-)

Representative Michael D. Barnes,
Democrat-Maryland (1979-1987)
      

                                


      
    
    
      

                                


Statement of Hon. Malcolm Wallop, Retired U.S. Senator

    No argument can be made that the previous sanctions and 
their expanded Helms-Burton successors are or have been 
effective in achieving the foreign policy objectives of the 
United States. It is laughable to hear American Spokesmen claim 
to have seen no improvements from the rest of the world's 
policy of engagement, as though we have even a modest, let 
alone spectacular list of achievements after our own forty 
years of embargoes. Indeed we can more easily believe we have 
become the wall against which Castro leans. In the vacuum 
created by our absence we are credibly blamed by him as the 
cause of all problems. Notwithstanding the claims of its 
supporters, the case cannot be made that ordinary Cubans blame 
their leader for their woes.
    In the case of Helms-Burton we have chosen a path 
unbecoming a great nation. WE ARE WAGING WAR ON CIVILIANS. Not 
in Iraq, not in Iran, not in Vietnam, not in South Africa, in 
fact nowhere save in Cuba, have we chosen to add trade in food, 
medicine and humanitarian supplies to the embargoed list. We 
have forbidden direct travel and the transfer of money from 
American families to their Cuban relatives. We have declared 
that nation of 11 million people a national security threat! We 
have chosen to punish not only those whom we have accused of 
violating the embargo but in an extraordinary act of pettiness 
punish their families as well. We have asserted our right to 
the extraterritorial reach of this law in contravention of our 
agreements under GATT, NAFTA, and the Organization of American 
States. In short we have offended our world trading partners 
and regional neighbors, while achieving nothing but added 
suffering to those whom we profess to be trying to help.
    Let's examine some of the effects of each of these. By 
waging war on the civilian population through the embargo on 
food, medicine and humanitarian supplies, can it be argued that 
in a post Castro Cuba the population will be grateful, or that 
the successor government will be inclined to embrace anything 
we suggest? The proponents will argue that no such embargo 
exists on medicine but their outraged resistance to making that 
clear in law, the virtual impossibility of procuring necessary 
permits, and the fact that virtually no trade in medicine has 
taken place belies their argument. The recently published study 
on the effects of this embargo on the health of Cuban children, 
women and seniors should cause any American to wince. The 
increases in malnutrition, the unavailability of breast x-ray, 
the lack of kidney dialysis, the extended pain and suffering of 
leukemia sufferers, the lack of ordinary medicines for burn 
victims and so on are not the tools of war of the America most 
of us know. Water borne diseases are increasing because we deny 
replacement parts for American built sanitation equipment. Is 
this how we wish to be remembered? And the rational proffered 
for all of this? If ordinary Cubans are not made to suffer, 
Castro is the beneficiary. Yet with North Korea for example, a 
country which can clearly be called a threat to Americans and 
American interests, we not only allow such trade, we are giving 
food and medical aid, nuclear technology, fuel, and other 
necessities. And oh yes they have killed Americans, taken them 
captive, and done as much or worse to our South Korean Allies. 
Why North Koreans should be more susceptible to engagement than 
Cubans one can only guess. In Iraq we lifted the embargo or 
some sales of oil so they could afford to purchase the 
permitted trade in foods and medicines.
    There are those who argue that Castro has no desire to 
trade in these commodities. If that is so, then at least it 
will be demonstrably his fault that medicine is unavailable and 
children are malnourished and Americans need have no further 
qualms about our policies. For the time being however, for 
America this is a new venture. We seek to fight human rights 
violations with ones of our own!
    Now then the ban on direct flights to Cuba has only made 
travel more expensive for those Cubans who wish to visit 
families, and at the same time turned many of them into 
stretchers of the truth as they claim medical or emergency 
necessity to qualify for their visits. Somebody gets richer 
while the ordinary folk pay for this policy. The same is true 
of the banned direct transfer of money. It was reported last 
week that these family dollars were the largest single segment 
of the Cuban Economy. The tortuous route this money must take 
to arrive there only makes some Bahamian, Honduran or other 
facilitator richer by up to twenty percent of the transfer. One 
of the most predictable, and least desirable consequences of 
unilateral sanctions is pure unadulterated graft.
    Examine the notion of Cuba as a National Security threat. 
Does any one doubt that if this be so we have clearly under 
funded the defense budget? This island of 11 million is about 
to storm Florida! Assistant Secretary of State Stuart Eizenstat 
has told our world trading partners that National Security is 
self-defining and cannot be questioned. But it is laughable, 
and demeaning as well. Last year Drug Czar McCaffrey stated 
that Cuba's air force was in his words `flat on its ass'. This 
year in the Senate Armed Services Committee hearing on his 
appointment to be Commander in Chief of the U.S. Southern 
Command General Wilhelm responded that the only threat Cuba 
posed was that of migration, and they were no longer capable of 
force projection. Does anyone believe that you relieve the 
migration pressure by making life ever more intolerable for the 
average Cuban? What of the listening post at Lourdes? Would we 
not be endlessly more knowledgeable of its capabilities were we 
there in some capacity rather than proudly professing the 
certain failure of engagement as a potential policy? And 
lastly, if we worry about the `Chernobyl' style nuclear reactor 
would we not be better off treating that problem as we have 
North Korea's by encouraging the use of American technology to 
prevent the oft stated threat to the American south of a Kiev 
style meltdown? If we must have devils can we not at least 
design our own defenses?
    So our own people save for Secretary Eizenstat claim there 
is little or no tangible threat to our security but since it is 
self-defining according to his lights we can declare it to be 
so. But think for a moment what that might mean as a U.S. led 
world precedent. Could not China, for example make the same 
case over Taiwan? Where would that leave us? We could deny that 
in that particular instance it was self-defining, and that only 
we held the key to the box of definitions. We could abandon the 
Taiwan Relations Act and throw our friend to the wolves. We 
could seek `multilateral' sanctions against China, for clearly 
any unilateral actions would be self defining in terms of the 
US economy! Does the Sub-Committee on Trade believe we would 
have many takers for multilateral sanctions given the emerging 
size of the Chinese economy. We are set on this path without 
thought to its consequences, and it's time we paused. President 
Clinton claimed in Buenos Aires last Thursday that it was ``the 
hardest line people in Miami who are basically responsible for 
this policy.'' It is truly time that America, not Miami, was 
basically responsible for this policy, and that all our 
interests present and future be considered. It is not in our 
interest to pander to Castro. It is, however, in our interest 
to consider the fact that he is mortal, that there will be a 
successor government, that we will likely not know much about 
it or its players by being absent, and that clearly any 
influence we could hope to have will not be bought with large 
sums of U.S. taxpayer dollars so much as it will be with 
knowledge acquired and not presumed.
    We seem to view Castro, as he views us in return, as some 
prehistoric rooster. As we stare at each other across the 
seventy miles each seems to expect the other to lay the first 
egg. Perhaps a great nation could, as a moral undertaking, 
become a hen long enough to try something new after forty years 
of failure.
    As to the general utility of unilateral sanctions let me 
make three points. They don't work, and haven't ever achieved 
the purposes for which they were imposed. While failing, they 
hurt most those whom we say we wish to help, and, while 
failing, they deny market access to American business and a 
great competitive loss which in most respects will be 
irretrievable. All the cultural aspects of freedom and 
democracy which American business carries with it by its very 
nature, is lost to the furtherance of what ought to be American 
policy. Thirdly, any chance we might have of gaining knowledge, 
influencing culture, and embracing the tools of freedom are 
lost to us.
    The great Yale and Us War College historian Eugene Rostow 
wrote in his brilliant book ``Towards Managed Peace'' that 
since the Boston Tea Party there has never been a decade in our 
country's history without some unilateral embargo, and that 
there is no instance he can cite in which they have achieved 
the purposes for which they were imposed. The answer is as the 
answer has always been, that these are actions designed to 
satisfy domestic political needs rather than to achieve some 
goal of National American interest. If our interest now is 
global consistency, hemisphere stability, Cuban Freedom then it 
is time to make an American policy to achieve just that.

                                  
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