- USE AND EFFECT OF UNILATERAL TRADE SANCTIONS

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

USE AND EFFECT OF UNILATERAL TRADE SANCTIONS

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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

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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

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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

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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:

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.