House International Relations Committee Hearing: The Impact of Sanctions on U.S. Policy Interests (Panel I)

June 3, 1998

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REP. GILMAN: Can we close the door and ask our visitors to please take their seats?

The subject of our hearing today is how sanctions can affect United States policy interests.

It's a pleasure to welcome Undersecretary of State Eisenstat, Dr. Acton from the Congressional Budget Office, and our distinguished panel of private-sector witnesses to the first of several hearings that our committee plans to hold on United States economic policies. With the nuclear genie out of the bottle on the Asian subcontinent, the strongest possible deterrents are needed, short of military action, to make certain against any move from weapons testing to weapons deployment in this very dangerous part of the world.

As the administration searches for the very best way to respond to the nuclear proliferation crisis that is emerging in south Asia, the policy tools at the ready are, to no one's surprise, economic sanctions contained in the Arms Export Control Act of 1994. This measure, sponsored by Senator John Glenn, was supported by all members of our committee, even though it contained no waivers or sunset provisions. It was enacted into law as part of the 1994 State Department authorization bill. I'm certain that my good friend and colleague Mr. Hamilton will recall sitting in this very room and working with the Senate on those provisions during conference. My recollection is that there was nothing but praise for the good work of Senator Glenn at that time.

If our European Union partners would have adopted similar measures at the recent summit meeting in London, a multilateral approach might have deterred Pakistan from following India's example with tests of its own. Yet, the president didn't even try to persuade our trading partners to take those tough measures, opting instead for quiet diplomacy and strong public statements.

The president's evident decision to turn away from multilateral sanctions on nuclear proliferators raises serious questions about his long-term strategy and willingness to enforce and implement the terms of other sanctions laws, including the Iran-Libya Sanctions Act, or ILSA, and the Libertad Act, also known as the Helms-Burton Act.

The non-binding policy agreements and the special treatment accorded at the summit to a French, a Russian and a Malaysian consortium and all other foreign oil companies investing in Iran only adds to these questions.

Regrettably, the president secured little in the way of firm and binding commitments in the EU in exchange for his national interest waiver of the sanctions against a multi-billion oil and gas investment in Iran by a consortium of French, Russian and Malaysian companies, a decision that took the administration some eight months to reach.

When the president signed ILSA in August of '96, he trumpeted the measure as a way to curb Iranian and Libyan support for international terrorism. And the president promised to enforce it, even though it might run into serious objections from the EU member states. Yet, some two years later the president has waived a sanctionable investment in Iran's South Pars (ph) gas field, despite his admission that Iran, even with its change of government, continues to promote terrorism.

Moreover, at the recent summit meeting the administration retreated still further by essentially granting a blanket waiver for all such future projects in Iran and in Libya. The failure to make any reference to the possible sanctionability of pipeline projects, as opposed to investments in the exploration and production of oil and gas resources, enabled the European Council to state on May 25th that no pipeline or infrastructure project would be subject to sanctions under ILSA.

That statement contradicts a joint US-European Union policy statement of May 18th, whereby our nation insisted that investments in the construction of such pipelines might in fact be sanctionable under the provisions of the statute.

Sending the wrong signal at the wrong time, the exercise of this waiver on the South Pars (ph) investment leaves the administration virtually powerless to deter the full list of 100 petroleum development, refining and pipeline projects recently released by the Iranian National Oil Company. Despite President Khatami's offer of dialogue with the American people, the words have not been matched by his deeds. That country continues to support international terrorism and to develop weapons of mass destruction. Iran remains a major terrorist threat around the world and a source of instability for our allies throughout the Middle East.

Moreover, it is developing long-range missiles that could in fact reach Europe and eventually our own shoreline.

Because the Iran-Libya Sanctions Act, known as ILSA, was designed to meet these twin threats to our troops and to our allies in the Persian Gulf region, I stand ready to work with my colleagues to begin the process of amending the law to make certain that the administration has the leverage it needs to stop the next generation of pipeline projects transiting Iran. Removing the national interest waiver for projects of this type would, in my mind, send the clear signal that we are implementing ILSA not only to contain terrorism and the spread of missile technology, but also as part of a comprehensive strategy for the Caspian region.

On the one hand, it would deter Iran's ability to act as a regional hub for the refining and transporting of its gas and oil resources. And on the other hand, it would enhance our ability to promote alternative pipelines in cooperation with Turkey, with Azerbaijan, Georgia and other states neighboring Iran.

It is frequently asked if the administration has any support for a sanctions-based policy toward Iran and Libya. The answer is a resounding yes, according to a May 8th study of public attitudes on European American issues sponsored by the German American Marshall Fund. Seventy-five percent of the respondents in the opinion poll indicated that we should refuse to trade with Iran and Libya, whether or not our allies do so, because it's the right thing to do and eventually our allies might follow suit. Sixty-eight percent of the respondents rejected the argument, that the sanctions will just the hurt the masses without affecting the people on top. So (as ?) the administration made its case, at least to this member, on the impossibility(?) of softening its approach toward property expropriated by Cuba.

On May 18th, 1998, the administration reached a preliminary agreement with the European Union on, and I quote, "understanding with respect to disciplines for the strengthening of investment protection," close quote.

This political agreement would be applied around the world in exchange for a waiver of Title V of the 1996 Libertad Act. In it, the Europeans have finally acknowledged that their nationals are profiting from stolen American property in Cuba. Notwithstanding this admission, the agreement has a number of serious deficiencies.

And while I welcome the administration's efforts to bring the Europeans around to accepting the common-sense principle that no one should trade in stolen property, this agreement regrettably does not represent a viable substitute for the sanctions embodied in the Libertad Act.

It is a great pleasure to welcome Undersecretary Eisenstat back before the committee. We look forward to hearing his testimony. But before doing so, I'll welcome any opening remarks by any of our members. Anyone seeking recognition?

Mr. Bereuter?

REP. HENRY HYDE (R-Il): No, I -- I just was going to say I had no opening remarks, other than to welcome Mr. Eizenstat, who is a real professional, and provides a measure of reassurance when I look towards the State Department. Thank you.

MR. EIZENSTAT: Thank you.

REP. GILMAN: Thank you, Mr. Hyde. Mr. Bereuter.

REP. DOUG BEREUTER (R-NE): Thank you, Mr. Chairman. I don't want to delay the witnesses too long, but I did prepare some statement on this issue, and I do have some things to say about it. I think it's a very important hearing, I commend yo for holding it.

And, Mr. Chairman, my colleagues, I'm not going to tell you that economic sanctions cost America's firms nearly $22 billion in 1995. Dr. Hofbauer is more qualified to do that. And I'm not going to list the 61 laws and executive orders that have been enacted in the last four years, which target 35 countries for foreign policy sanctions. You can turn to the National Association of Manufacturers' report, or USAEngage Home Page for that information.

I want to focus on the politics of sanctions, because as a member of the House International Relations Committee, a sanction- inspired committee, it seems to me, I feel like I'm at least somewhat qualified to talk about that.

What's the impetus for sanction? Well, I think that foreign policy is no longer reserved for the elites, it's a public policy issue. Witness the unsuccessful town hall meeting in Ohio on U.N. sanctions against Iraq. Like it or not, the American public is very actively involved in helping us shape our foreign policy. The administration cannot ignore this reality that Congress has had to deal with for some time.

The U.S. is unique, in that we are so much a country of immigrants. Anything that happens any place in the world, has an ethnic constituency in the United States. Some of these ethnic constituencies, of course, have fled persecution for human rights abuses. And those immigrants often have personal reasons for having the United States stand up to the world's worst regime. Whether it's a Portuguese-Americans opposing our trade relations with Indonesia, Cuban-Americans supporting a tougher stand on Cuba, Jewish Americans supporting sanctions against Russia for its cooperation with Iran, the United States is, unlike any other country, because we have so much an immigrant base.

And I'm not critical of those involvements of the three that I've mentioned. You could go on and list a half a dozen or two dozen. I'm just recognizing a political fact of life. Activists are using foreign policy issues to raise money for other purposes. The religious right is using the religious persecution issue for this purpose. It works. It especially works, because the American public rightly yearns for morality in our foreign policy, and they often do not realize or see the down side of sanctions.

While activists have become more and more sophisticated and savvy in their efforts to push sanctions, nothing had arisen to combat them until USAEngage emerged. Individual companies dared not step in the way of sanctions, or they risked boycott. Foreign policy think tanks like the Council on Foreign Relations, or even the Center for strategic and International Studies, similarly do try to educate policy makers, but they don't lobby in a traditional sense. Because they don't represent votes, their voices are scarcely heard on Capitol Hill.

International organizations have not evolved yet to effectively deal with the bad actor nation-states. Except for the war crime tribunals, there is no international or multilateral mechanism to deal with these bad actors within countries either. Similarly, there's a big gap between the Security Council and the United Nations Human Rights Commission for the condemnation for sanctions against entire countries. Those important gaps create a vacuum, which is increasingly filled by U.S. foreign policy.

The United States is still the policeman of the world, like it or not. Activists focus not on British foreign policy, they focus on us. I'd like to say a couple of words about Congressional- Executive relation, with respect to sanctions.

The doctrine of separation of powers I think contributes to the proliferation of sanctions initiatives from the U.S. Congress. Congress reacts to the activists and the ethnic Americans who push sanctions. That makes sense, I suppose, because they're our constituents. Many times, these activist groups come to the Congress after their sanction proposals are rejected by the administration. For example, the proposed Russian sanctions came about after Israeli defense and intelligence officials were wholly disappointed -- I might say appropriately, in my judgment -- by the administration's unwillingness to realistically confront Russia's missile cooperation with Iran.

The reason for the increase in the number of sanction laws, not just bills, within the last several years, is a combination of all these factors. But most importantly, I think the reason for sanctions laws is that past and current administrations, have been willing to sign sanctions legislation without much of a fight within the Congress. They say "Let the Congress pass it. We can ignore, we got a huge waiver," and so that's what happens.

I watched President Bush sign Tienanmen sanctions that are still on the books, and cave on Cuba sanctions when faced with the prospect of losing the electoral vote of Florida. But the Clinton administration I think is unparalleled in its willingness to sign bad legislation, and then attempt to avoid the issue by overutilizing national security waivers year after year, or simply ignoring that the sanctions have been triggered. The law on the book says today, that if there's a coup in Cambodia, certain things have to happen. So, there's no coup that happened in Cambodia, according to the administration, when everybody knows there was a coup there.

I think President Clinton was unexpectedly candid, when he told a group of religious leaders last April, that sanctions caused the administration to "fudge the facts" -- those are his words -- in order to avoid opposing -- imposing sanctions. The President didn't know there was a reporter in the room. And Michael Kelly is right in his recent Washington Post column on this issue, that the Congress simply doesn't trust the president, and therefore tries to narrowly limit his discretion.

In sum, I guess you could say the current sorry state of the Executive-Congressional relationship, and the distrust in the Congress of the administration, unfortunately creates a receptive environment for more sanction legislation. Therefore, the sanction frenzy of the last several years is not ending any time soon. Today, we're considering a religious persecution bill. Excuse me, that's last week -- last week we're in session.

Russian sanctions are imminent because of their contributions to Iran's missile program. Congress may still try and overturn the administration's nuclear certification of China. Last but not least, sanctions on India are required now by existing law, because of that country's nuclear testing program. Last year, despite my objections, Congress rolled back the export controls on super- computers. The child labor sanction bill's on the deck behind the religious prosecution bill. The new generation of sanctions bills are really not aimed at nations alone. They're -- they're aimed at -- in other ways. It's either specific unilateral controls, targeted sanctions directed at specified entities, or bans on crucial U.S. export promotion programs.

For example, I predict the administration will try to avert the Russian sanctions by attempting to satisfy the Israeli intelligence and defense communities, and American members of Congress, with targeted administrative sanctions on specific entities in Russia. Such a course would mirror the way the administration dealt with China's complicity in the ring magnet transfer to Pakistan.

Unfortunately, I think there's little end in sight to these unilateral sanction measures. Congressman Hamilton, enjoined by Congressman Crane, myself, Senator Lugar on the other side, have an effort to try to put a little bit of a speed bump in the use of sanctions, by trying to make sure that we go through a more deliberate process here, weighing the pros and cons of sanctions before we do it. I'd say that's unlikely to prevail in this -- in this current atmosphere.

Mr. Chairman, my colleagues, those are some of my concerns today. I think we really are becoming sanction-happy here, and I'd like to see us use this tool much more carefully than we have in the past. I look forward to the testimony of Mr. Eizenstat. The secretary is one of the people I think who is clearly one of the most able people in this administration, as he was in the Carter administration. I have great confidence in him as an individual, and I hope he'll sort -- help us sort through a better way for Congress to work with the administration on dealing with the sanction issue.

Thank you very much.

REP. GILMAN: Thank you, Mr. Bereuter. Mr. Hamilton, our ranking minority member.

 

OPENING STATEMENT OF

LEE HAMILTON
A Representative from Indiana and
Ranking Member, House International Relations Committee

 

REP. LEE HAMILTON (D-IN): Thank you very much, Mr. Chairman. I appreciate greatly your willingness to have the hearing today, and I think it's an important topic. I didn't get to hear all of Congressman Bereuter's statement, but I certainly commend him for his general approach to this. He and I are working closely together on this.

I'd like to make a few comments, if I may, about sanctions. I think most of us recognize that economic sanctions are an important foreign policy tool, and that they are a useful option on occasion, between diplomacy and sending in troops. But I have come to the view that unilateral sanctions, more often than not, damage U.S. interests. We're imposing them, as Congressman Bereuter said, much too frequently. We've imposed foreign policy sanctions 100 times since World War II, but more than 60 times since 1993. Seventy-five countries are now subject to or threatened by U.S. sanctions. U.S. laws authorize 21 different sanctions, targeting 27 different kinds of foreign conduct.

I think these unilateral sanctions should concern us for several reasons. First, I don't think they work. They rarely achieve their objectives. They fail now, because the world's economy has become too interdependent. And when we act alone to deny another country access to our products or to our markets, it usually has -- that country usually has plenty of alternatives.

Secondly, I think unilateral sanctions hurt our economy. One estimate that will be made later today by one of the private witnesses, is that we reduce U.S. exports by $15 to $19 billion annually. I understand that $19 billion in a $7 trillion economy is really rather small. But it still means tens of thousands of good- paying export sector jobs. And the calculations of the economic impact of sanctions, understate their actual cost. I've had several conversations with CEOs, just in the last week, in which they have indicated to me that for the first time now, their customers are saying to them, very seriously, that the United States is not a reliable supplier, or may not be a reliable supplier, and that they are beginning to look now for alternative sources of supply, because the Congress is so prone to put on these sanctions, that it will cripple their -- our producers' abilities to be a reliable supplier.

I've come to think, too, that unilateral sanctions often harm our foreign policy. Unilateral sanctions often victimize the innocent, especially full trade embargoes, and leaders of countries we know only too well, can insulate themselves from economic pain, but the ordinary people and the poor people cannot.

Unilateral sanctions are counterproductive. When we act alone to punish a bad government, we give it a scapegoat for problems of its own making. Unilateral sanctions deny the president the authority and the flexibility he needs to promote U.S. foreign policy interests. I think a powerful example of the damaging impact of automatic unilateral sanctions on U.S. foreign policy are the sanctions the president had to impose on India (and) Pakistan under the '94 Nuclear Proliferation Prevention Act. And I might say I supported those sanctions when they were put into place in '94.

But because Pakistan's economy is in far worse shape than India's, U.S. sanctions, which the president may not adjust, will hit Pakistan much harder than they hit India. The United States is being perceived now throughout South Asia as favoring India. That's not what the Congress intended. It also means Pakistan's economy will be in danger of defaulting. Nothing could be more threatening to the region's stability than a political and economic crisis in Pakistan.

Another bill that would require the president to impose a rigid list of sanctions is the House-passed Freedom from Religious Persecution Act. If the Religious Persecution Act were to become a law, a friendly country that engages in economic persecution of a religious community would be hit with the exact same sanctions as a hostile country that slaughters a religious group. The administration would have no discretion, and U.S. national interests would suffer.

I think two recent laws, the Helms-Burton and the Iran-Libya Sanctions Acts, have also undermined U.S. foreign policy leadership. I don't think there is convincing evidence that either law has promoted change in the policies or the regimes of the targeted countries.

But there is clear evidence that both laws have harmed U.S. foreign policy interests well beyond Cuba, Iran and Libya. They've damaged relations with some of our very closest friends, countries whose support we count on for many important foreign policy and trade initiatives. They've given comfort to the leaders of Iran, Libya and Cuba.

The state-controlled media in Iran and Cuba, for example, have paid a lot of attention to international condemnation of the United States. A couple of weeks ago, thanks to the impressive work of our witness here, Mr. Eizenstat, the United States was able, at least temporarily, to resolve the principal disputes caused by these laws. These diplomatic achievements deserve, I think, the support of the Congress.

On ILSA, the administration's decision to waive sanctions against three foreign firms was clearly in the U.S. national interest. Sanctioning this deal would have jeopardized the achievements of several extraordinarily important foreign policy objectives. It would have undermined U.S. efforts to maintain a multilateral coalition to contain Iraq.

It would have reduced multilateral cooperation on Iran, extinguished any hope of drawing Iran's new democratically-elected president into a constructive dialogue on issues of very great interest to us, jeopardized our efforts to persuade Russia to stop missile cooperation with Iran, and sent our disputes on ILSA and Helms-Burton back to the World Trade Organization and would threaten the integrity of that vital organization.

On Helms-Burton, the United States and the EU reached tentative agreement on measures that will restrict investment in illegally- confiscated properly worldwide. For this deal to be completed, as I understand it, Congress will need to approve a presidential waiver for immigration restrictions of Helms-Burton.

In my view, we should do so, because this agreement is too valuable to pass up. It will increase protection for property rights of Americans worldwide. It will resolve a dispute with our most important allies and trading partners. It will put the promotion of democratic change, rather than U.S. disputes with our allies, back at the center of multilateral discussions on Cuba. And it will reduce investment in properties that were illegally confiscated in Cuba.

The U.S.-EU agreement on Helms-Burton deserves the support of Congress. It represents an unprecedented step forward for global property rights. It ends a major dispute with our allies. And it will make it easier for us to cooperate with them on steps to promote democracy in Cuba.

Finally, Mr. Chairman, let me just make a brief statement in support of H.R. 2708. Remarkably, no U.S. law requires an assessment of the impact of foreign policy sanctions before or after they are imposed. H.R. 2708 would change that. It requires a committee reporting a unilateral sanctions bill to request an analysis by the president of the bill's likely impact on U.S. foreign policy, economic and humanitarian interests, and an analysis by CBO of its impact on the private sector. The president would be required to prepare a similar analysis of sanctions he wanted to impose.

The bill also establishes some guidelines for future sanctions. It would require that they expire after two years unless reauthorized, protect existing contracts, be targeted narrowly on responsible actors, and minimize interference with the work of private humanitarian organizations.

I do not think the bill would have any impact on sanctions currently in effect or prohibit any future sanctions. It does not limit the president's ability to impose sanctions in emergencies. It would not affect any sanctions imposed under U.S. trade, arms export, health or safety laws or under multilateral agreements on proliferation, the environment or other international issues.

H.R. 2708 is a yellow light for sanctions, but it is not a red light. It would ensure that before we impose sanctions unilaterally, we have in hand better information on their potential costs and benefits. And if we choose to act unilaterally, the bill would strengthen U.S. sanctions by reducing their domestic costs and minimizing their harm to innocent citizens.

I look forward very much to the testimony of Ambassador Eizenstat. I commend him on the agreements that he reached with regard to ILSA and Helms-Burton. And I want him to know of my full support for those agreements.

I thank you, Mr. Chairman, for letting me make this extended statement.

REP. GILMAN: Thank you, Mr. Hamilton. Any other members seeking recognition? Mr. Leach? We'll now proceed with the testimony of Mr. Eizenstat. Ambassador Eizenstat is our undersecretary of state for economic, business and agricultural affairs in the Department of State. He is a frequent visitor to our committee, has testified on a wide range of issues.

Today he's here to discuss the administration's position on the use of sanctions in foreign policy. This is an area in which he has a wide range of experience, having served as undersecretary of commerce for international trade in addition to his post as U.S. ambassador for the European Union.

We look forward to your comments today, Mr. Ambassador. You may proceed. You may put your full statement in the record and summarize, or you may pursue it in any other way you deem advisable.

Before we take your testimony, though, there is a bit of business for our committee. I ask our members for unanimous consent that at the joint hearing of the committee and the Committee on Government Reform & Oversight to be held tomorrow, June 4th, on the subject of the sale of body parts by the People's Republic of China, one, that the rules of the Committee on International Relations shall apply, and two, that members of the Committee on Government Reform & Oversight shall have the right to participate in the hearing. Without any objection, the consent request is adopted.

Mr. Eizenstat.

 

STATEMENT OF

AMBASSADOR STUART E. EIZENSTAT
Undersecretary of State
for Economic, Business and Agricultural Affairs
Department of State

 

MR. EIZENSTAT: Thank you, Mr. Chairman. I appreciate the opportunity to be here and to have my full statement in the record. Because of the breadth of the subject matter you've asked me to address, if you'll permit me to make a slightly longer opening statement than I would normally do, I would appreciate it.

REP. GILMAN: Without objection.

MR. EIZENSTAT: I want to discuss our view on the use of economic sanctions as a foreign policy tool and our use of that tool in the case of the Iran-Libya Sanctions Act and the Libertad or Helms-Burton Act. Before that, I would like to briefly describe several principles which we believe should guide our country's use of sanctions.

First, economic sanctions should not be a first resort against countries whose actions threaten our interests. Our first line of action should be to aggressively pursue all diplomatic options available. Economic sanctions, particularly unilateral ones, should be considered only after these measures have been aggressively pursued anfailed or been judged inadequate.

Next, sanctions are most effective when they have broad multilateral support and participation. We should make a maximum effort to develop a multilateral sanctions regime in instances where sanctions are a viable option and give a reasonable period of time to develop an international consensus for such actions.

And finally, if we are unsuccessful in efforts to achieve a multilateral regime and important national interests or core values are at issue, we must be prepared to act unilaterally. We can't permit other countries to veto our use of sanctions by their failure to act.

In such cases, a primary consideration must be whether unilateral sanctions are effective, whether they are part of a coherent strategy to change behavior, because sanctions, after all, are intended primarily to influence the behavior of others, not solely to punish them, and whether they contribute to or detract from efforts to gain multilateral support for our policy objectives.

Sanctions that are ineffective, that impose substantially greater costs on other U.S. interests than on the sanctioned country, and that are unable to garner broad support even among our closest allies, do not send a message of U.S. resolve or U.S. commitments. Rather, they send a message of U.S. irrelevance.

If our policies are to be effective, we need to develop a relationship of comity between the administration and Congress. And Chairman Bereuter's statements are very much appreciated in that respect. Simply put, without flexibility from Congress, the president and the secretary of state cannot tailor U.S. actions to meet our foreign policy objectives. We recognize and appreciate important congressional prerogatives in foreign policy, particularly where economic sanctions are involved. At the same time, the president of course, is constitutionally responsible for the conduct of the nation's foreign policy. Ideally, our foreign policy should be the product of cooperation and consultation between the administration and Congress to foster wherever possible a bipartisan consensus focusing on US national interests.

Hence, in regard to sanctions legislation, the inclusion of appropriate presidential waiver authority is a good way of balancing these interests. Waiver authority can in fact advance this constitutional scheme.

A very recent letter from 33 agricultural groups to the president of the United States dated June the 2nd makes this point. It mentions that sanctions should be targeted narrowly to increase the possibility of their effectiveness. However, if sanctions are imposed, these agricultural groups say, policy officials should have a means of judging in a timely manner whether sanctions are achieving their purpose. If they're not effective or if underlying circumstances have changed, the president should have the flexibility to lift sanctions as quickly as possible. And the agricultural groups concluded by saying the president also needs to be able to waive their imposition when he believes sanctions will have a negative effect on US interests, especially on agriculture. Very much our views.

With respect to the Hamilton-Bereuter-Crane-Lugar bill, which also deals with the issue of comity between the branches, the administration supports enhancement of trade, security and human rights through the Sanctions Reform Act in H.R. 2708 as a vehicle for enhancing sanctions policy-making in an age of increasing globalization. We stand ready to work with the Congress in achieving this legislation that improves the effectiveness of sanctions. As part of that dialogue, we do have concerns with specific provisions of the bill regarding the executive branch, but that can be addressed and we look forward to doing so.

Mr. Chairman, to illustrate and underscore these guiding principles, I would like to focus on two specific cases, the Libertad Act and ILSA. In both, it was the prospect of sanctions rather than their actual use which effectively achieved greater cooperation in support of the objectives of the act without at the same time upsetting our political and economic relations with our closest allies and friends.

In the Helms-Burton case, we believe that our success in agreeing with the Europeans on property disciplines merits seeking authority to waive Title IV. And in ILSA, we've used the flexibility authority you provided to us to advance the purposes of the act. In so doing, after weighing our interests, we concluded that the imposition of sanctions would be counterproductive to Congress's own objectives. This flexibility, as reflected in the waiver authority Congress wisely gave the executive branch under ILSA, is a model for how Congress and the executive branch can successfully work together on sanctions issues, and is precisely what it's important that the president be afforded similar discretion in other sanctions laws now under consideration.

Let me first address the question of Cuba.

I have been, Mr. Chairman, a strong and unequivocal defender of the Libertad Act -- against all critics, foreign and domestic. I think I've traveled more miles than any three people in this country supporting and defending this act, from Mexico and Central America and throughout Europe.

I am pleased to report that with the encouragement of Congress the administration has made significant progress in our effort to bring other nations more fully in support of the objectives of the act. Despite vocal and at times passionate opposition from other nations, we were able to achieve a higher level of international cooperation by holding out the possibility of a waiver of Title IV if the European Union would agree to disciplines on investments in illegally expropriated property.

The understanding we reached with the EU on May 18th represents a historic breakthrough and I appreciate very much Mr. Hamilton's recognition of that. It builds on the Libertad Act and represents an enormous step forward in protecting property rights of US investors anywhere abroad. For the first time, we have established multilateral disciplines against major capital exporting -- among major capital- exporting countries to inhibit and deter investment in properties which have been expropriated inconsistent with international law.

These restrictions will discourage illegal expropriations and they will chill investment, warning investors to keep hands off. The understanding will send a clear and unequivocal to any country which engages in repeated illegal expropriations that it's not deserving of normal economic relations with other states.

Mr. Chairman, I remind you, this has never been done before -- it's never been done before -- it's never been approved by any set of countries before. The tough measures which we will apply to countries such as Cuba, which have an established record of repeated expropriations and contravention of international law, are a key element of the understanding.

All requests for government diplomatic support or commercial advocacy or for commercial assistance, such as risk insurance, loans or subsidies, will have to be reviewed to ensure that the transaction does not involve illegally expropriated property. If expropriated property is found to be involved, the support or assistance will be denied and these properties will be added to a public list of properties with respect to which investment will be actively discouraged. No support or assistance will be provided unless and until this evaluation has been performed.

Of paramount importance, the Europeans have now acknowledged in writing that one of the primary tools of the Castro regime used in mass expropriations of property from US citizens appears, in their words, to be contrary to international law.

Mr. Chairman, 37 years have gone by since Castro has been in power; this is the first time that Europe has recognized this -- the first time, Mr. Chairman.

Based on this conclusion, they state that it is reasonable to assume that the disciplines will apply to certain expropriations of US citizens' property under this law, and that if these expropriations are typical of others, as they are, that it will apply to them as well.

This is an extraordinary achievement which represents the first collective acknowledgment by Europeans since the Cuban revolution that Cuba has engaged in illegal expropriations of US property.

This understanding, including the EU conclusions regarding the Castro's regime's past expropriations of US property, will effectively chill investment in confiscated property and discourage investment in Cuba in several ways.

First, it accentuates Cuba's scandalous record of illegal expropriations. Second, it highlights the potential investors of serious risk that any investment in Cuba could turn out to involve expropriated property. Third, it proclaims the US and now Europe's strong disapproval of investment in illegally expropriated property in Cuba. Fourth, it proclaims that from this day forward any investor which becomes involved with expropriated property can be expect absolutely no help or assistance from their governments, and they will stand naked in an insecure and dangerous environment. And that goes into effect as of May 18, 1998, it's already in effect, and already will have a chilling effect.

This message landed hard in Cuba. I'd like to show you this chart on my left. "Castro denounces EU-US accord on Cuba." And well he should, because he understands the significance of our accomplishment and the serious threat it represents to his regime.

Mr. Chairman, I would urge you in the strongest terms, don't hand Fidel Castro a victory by turning down something he himself denounces.

He's condemned the understanding, and I quote, as "an internationalization" of the principles of what he calls the vile Helms-Burton law. He's decried it as a pact between the US and the European Union with the purpose of strengthening the blockade of Cuba.

This demonstrates the measures of what we've accomplished by joining together with Europe against Castro. Castro understands only too well that this understanding is an effective multilateral endorsement of some of the core principles underling Helms-Burton which will have a profound effect on investment in Cuba.

He would be delighted if this understanding never took effect. We must work together to ensure that this doesn't happen. Unless Title IV is amended to provide a targeted, country-specific waiver, it will continue to impede the application of multilateral measures in response to Cuba's illegal actions.

With respect to ILSA, I believe that the flexibility provided by the Congress in the statute to decide whether or not to impose sanctions is central to our ability to achieve the objectives of the act. In developing ILSA, Congress expressed its deep concern, and properly so, about Iran-related WMD and terrorism, and asked the administration to develop a multilateral consensus to address these issues. And that's exactly what we've done. Congress had the foresight to include provisions in ILSA both for imposing and for waiving sanctions. These provisions were aimed at increasing multilateral cooperation and gave us the tools to achieve it.

Since ILSA became law, and in the negotiations which culminated at the recent G-8 and EU-US summits, we've used those tools to great advantage and success. We've achieved significant enhanced cooperation on our Iran-related concerns with the European Union, with whom cooperation was already at a high level; and with Russia, which has for the first time put in place the legal framework and detailed regulations for a catch-all export control system. Implementation has begun, but obviously we recognize that sustained and rigorous implementation will be crucial with the Russians, and we'll continue to closely monitor the implementation process.

Our concerns with Iran have not changed. Iran continues to develop WMD in their delivery systems and to support terrorist groups, as you, Mr. Chairman, properly suggested. We do not support investments by Europeans or other foreign firms in Iran while Iran acts outside accepted international norms. And we'll continue to bar companies from such investments. The administration, at the highest levels, tried repeatedly for months to get France, Russia and Malaysia, the three countries whose companies were involved in the South Pars deal, to stop their companies from this investment. We indeed had some success with a parallel investment, the (Roe Valley Bakri?) deal, where Bakri has backed out.

We carefully examined as well all of ILSA's sanctions, and we concluded that none would be effective in stopping the South Pars deal due to the position of these companies or, the fact is, of lack of position in the U.S. market. Until such time as Iran changes its own behavior, it's crucial to work at the supply end of a problem such as Iran's weapons-of-mass-destruction development; that is, to deny Iran's access to sensitive materials and technology by working closely with the countries who are potential sources for those items.

ILSA recognizes this through its emphasis on building multilateral cooperation. We've done that with the EU, Russia and with Malaysia. The secretary's determination reflects the assessment that in this case, the national interest waiver which Congress wrote into Section 9c of the act was by far the most effective way to serve U.S. interests and to advance the fundamental objectives of ILSA; namely, constraining its WMD capacity and delivery systems.

Congress wisely provided the president with this authority, which we have used with great care to achieve the statutory objectives, just as we've achieved the statutory objectives with Helms-Burton. In referring to our national interest, the secretary noted that waivers will enhance our ability to work with the Europeans, Russians and Malaysians on a host of bilateral and multilateral concerns.

The chart designated 'B' on my left indicates some of the cooperation which would have been put at risk had we used sanctions which, in any event, would have been ineffectual. They would not have stopped this deal. For example, Russian ratification of START II, cooperation on non-proliferation and progress on their internal economic reforms; resolution of differences over Helms-Burton, including these historic disciplines that I've mentioned and their continued support for democratic change and human rights; creation of a new initiative to liberalize trade between Europe and the United States; multilateral cooperation on Iraq to maintain the isolation of Saddam Hussein and to bring about compliance with U.N. Security Council obligations, including cooperation with UNSCOM inspections; progress on Kosovo and Bosnia, where cooperation of our NATO allies is essential, and on other European security issues; cooperation with European and Asian partners, including Malaysia, in addressing the Asian financial crisis and the unfolding events in Indonesia.

We're also concerned about the effect of sanctions on a Malaysian company at a time when Malaysia was feeling the serious effects of the Asian financial crisis. A waiver helps consolidate the gains we've made with the EU and Russia on strengthening international cooperation to oppose Iran's dangerous and objectionable behavior and lays the foundation for future progress to work with the Europeans, Russians and Malaysians on multilateral and bilateral concerns which we've outlined and which will avoid a major dispute which could have led to trade retaliation and reduced cooperation on the very things that ILSA tells us we should cooperate on.

In stark contrast, a decision to sanction would have undermined our efforts at multilateral and bilateral cooperation, and in any event, wouldn't have stopped the South Pars deal. I want to emphasize, Mr. Chairman and members of the committee, that we already have a very high level of cooperation with our European allies on non- proliferation, as reflected in the joint EU-U.S. summit statement on non-proliferation. The EU is taking additional steps, separately and in cooperation with us, to strengthen further their policies in this area.

Chart C indicates the level of cooperation. It includes an EU commitment on top of already complete dual-use export controls, to give high priority to proliferation concerns, including missile delivery systems, specifically mentioning -- they specifically mentioned in their joint statement Iran and a commitment to stepped-up efforts to prevent dual-use technology transfers where there is any risk of diversion to countries who have mass-destruction programs in place.

We've also made progress with others in building the multilateral regime that this act itself asks us to build. For example, the Ukraine, at our urging, recently agreed to forego all nuclear cooperation with Iran, including canceling the sale of turbines destined for Iran's Lushir (ph) nuclear plant.

Let me say a word about our opposition to petroleum sector investments in Libya. I make this point because I want to answer comments such as those attributed to an Italian trade minister which have been made about our policy with respect to Libya. Let me state categorically our policy has not changed. We strongly oppose any investment in Libya's petroleum sector, and we will continue our efforts to discourage and prevent it.

We'll continue to examine all such investments under ILSA and take appropriate action if any activity is found to be sanctionable. We've offered no expectation for firms from any country or group of countries with respect to investments there or about the results of any review of our national interests with respect to Libya.

Russia has also announced a series of new measures, including a January 22nd executive order that strengthens the government's authority to control missile technology and other transfers of concern. As a result of an executive order issued just on May 15th, which we've worked very hard with the Russian government to develop, the Russian government is now taking significant steps to implement the January order to ensure compliance, including establishing supervisory bodies in all enterprises dealing with missile and nuclear technologies.

The positive start of our joint export control working group is also important. If you look at Chart D, which you have attached to my testimony, you will see the specific and additional Russian measures which are concrete and which, for the first time, put in place a legal framework for the implementation of strict export controls. Now, do we consider this major progress? Yes. Are we fully satisfied? No.

The Russian government is acting to implement fully President Yeltsin's policy, but considerable work remains. We cannot say all is well, so we will remain closely engaged with the Russian government at all levels to ensure the effective enforcement that President Yeltsin himself has committed to to the president of the United States.

The important thing to recognize, however, is that the will to control these exports and, for the first time, the basic mechanisms to do so are in place because we've been able to use ILSA effectively. Moscow has accepted the gravity of the problem and stated clearly its policy. President Yeltsin's May 4th public statement, his speech of May 12th, along with strong statements by him and the defense minister, are important reiterations of Russia's commitment to stop the spread of missile technology.

While remaining vigilant, we also need to nurture this cooperation with a new Russian leadership willing to address vital non-proliferation issues and to work with them to make Russian controls effective. Our decision in the South Pars case strengthens our ability to do so.

Malaysia also shares our concern about proliferation and terrorism, and we've worked with Malaysia to put the issue of export controls, which will help combat proliferation, on the agenda of the just-completed U.S.-ASEAN dialogue. This is the first time, Mr. Chairman and members of the committee, we've been able to get this issue on the dialogue. So, in fact, we're building the very multilateral regime on non-proliferation that you urged us to do. In conclusion, I'd like to go back to the guiding principles. Our action on Helms-Burton and ILSA underscores and reinforces the appropriateness of these principles. For sanctions to be an effective policy tool, they have to be part of a coherent and well-designed strategy. The administration and Congress need to work together on a bipartisan basis to advance our overriding national foreign policy goals if these are to be effective.

It's become clear in Bosnia and Kosovo, in Cyprus and in Ireland and in the Middle East, that U.S. leadership is essential. We have the responsibility to lead and will not shirk our responsibility even if it means at times we have to act alone. But in today's global economy and politically multipolar world, our ability to shape the world unilaterally is increasingly limited. And that's just a fact.

We need the support and cooperation of like-minded nations. Multilateral support is essential if economic sanctions are to be a truly effective means for containing and influencing behavior outside international norms. We can do a lot alone, and there'll be times when we have to act alone. But we can do a lot more with support from others.

Three weeks ago, Mr. Chairman, as you yourself eloquently noted, India and Pakistan maintained nuclear programs shrouded in ambiguity and governed with a certain amount of restraint. Three weeks ago, President Suharto was unwilling to step down. Today India and Pakistan have both exploded nuclear devices. In Indonesia, a new president is promising widespread reform and a new democratic election within a year.

This rapid change also highlights the critical need for flexibility and the application of economic sanctions, and giving the president that flexibility. Only the president can weigh all the issues at stake at any given moment and tailor our response to a specific situation.

Of course, legislation should set forth broad objectives. But it should also allow the flexibility to respond to a constantly changing and evolving situation. If the Congress feels that at some point a president has not struck the right balance, then obviously oversight and criticism, in a spirit of comity, are appropriate, but not, Mr. Chairman, the removal of the president's discretion, not the removal of the administration's flexibility. That would make for bad policy which would come back to haunt not only this president but future presidents as well.

Thank you for your indulgence, Mr. Chairman. And I look forward to taking your questions.

REP. GILMAN: Thank you, Secretary Eizenstat. Mr. Secretary, I would welcome your clarification of one matter which you touched upon in your testimony. I believe we heard you to say that the investment disciplines that you negotiated regarding Cuba went into effect on May 18. But, in fact, the agreement states, and I quote, "Application of the disciplines and exercise of a Title IV waiver will be simultaneous." Accordingly, would you please explain, are the disciplines in effect today or are they on hold pending further action by the Congress?

MR. EIZENSTAT: The entry into force of the disciplines will depend on congressional action. But they will be retroactive to May 18th, so that the important thing is that even now, Mr. Chairman, an investor looking to invest in potentially expropriated property in Cuba will have to recognize that if Congress acts in a prompt way, that that investor's investment will be caught up in these disciplines as of May 18th.

We thought it was very important and frankly considered it a fairly significant achievement that we got the European Union to make the effective date, once the disciplines go into effect May 18th, and not simply the date when Congress actually passes it. So, in other words, let's assume that, hypothetically, September 1st Congress were to pass this waiver and the disciplines went into effect. It would cover all investments going back to May 18th.

REP. GILMAN: Well, Mr. Secretary, if Congress doesn't act expeditiously, can the European Union now act to utilize these properties without any sanctions?

MR. EIZENSTAT: Well, one of the points that we've mentioned is that what we've done through this vehicle is for the first time establish multilateral cooperation. Instead of simply acting alone and trying, on a case-by-case basis, to sanction companies threatening a WTO suit, which we've now gotten removed, we now have the capacity to work with Europe together to send a signal to all European investors, as well as other investors, that they need to keep hands off illegally expropriated property in Cuba.

And by getting the European Union to admit to the fact that these disciplines would apply in circumstances where we have asserted there is a pattern or practice of illegal expropriation, we've achieved a major objective of the Helms-Burton Act and we have done exactly what Mr. Castro realizes. We have really internationalized the provisions of the act and we have (chilled?) investment in ways that had not happened in 37 years. He fully recognizes the import of this, Mr. Chairman. It's important that we recognize how important he feels this would be as a body blow to his economy.

REP. GILMAN: So essentially they don't apply to already expropriated properties.

MR. EIZENSTAT: Well, one of the striking things is, I think all of you know that normally when you negotiate a new international discipline, it only applies prospectively. This does apply prospectively, so that anywhere in the world there'll be a ban on investment in illegally expropriated property -- anywhere in the world. And we hope to put this in the (MII?) agreement and multilateralize it.

But Mr. Chairman, what was also striking is this goes beyond normal practice. We got the European Union to agree that this would apply retroactively in two ways. First of all, a new investor applying an expropriated property that was expropriated 35 years ago would be subject to these disciplines. That's extraordinary.Second, even an existing investor -- let's take a Spanish hotel in Havana -- that wanted to get a new right from the government of Cuba, extend a management contract, extend their lease, buy a (joining?) expropriated property, or even sell their interest, would also be captured by this discipline -- also extraordinary.

REP. GILMAN: Thank you. Mr. Eizenstat, On May 25th, the European Council issued a communique on many foreign policy issues, including those related to the Helms-Burton and Iran-Libya Sanctions Act. On its face, it strongly suggests that their support for the understandings reach at the May 18th European Union/U.S. summit, is conditional in regard to ILSA, and is qualified by the statement that -- and I quote -- "it is axiomatic that infrastructural investment in the transport of oil and gas through Iran, can be carried out without impediment," close quote. What good did it do for you to extract this statement that the Europeans are favorably disposed toward multiple pipelines in the Caspian, if they're at -- if at the same time, they assert their right, under this agreement, to build pipelines across Iran?

MR. EIZENSTAT: They can assert any right they want, Mr. Chairman, but what we made very clear in the secretary's announcement, in the report to the Congress, and what I will reiterate to you today, is that they endorsed our multiple pipeline policy. They also recognize the importance of an East-West corridor. And we stated very specifically, that the waiver with respect to 9-C would not apply in issues -- in circumstances where there is a trans-Iranian pipeline from the Caspian.

And let me explain why we feel so strongly about this, and why this would be examined very carefully under ILSA and other sanctions laws, and why there would not be such an expectation, despite whatever the European Union may say or think. And we've been very clairvoyant to them on this. And that is because such a pipeline would give Iran a potential chokehold over the economic and political developments in the Caucasus and Central Asian states.

REP. GILMAN: Mr. Secretary, how could we credibly threaten to impose ILSA sanctions on investments in pipelines across Iran, in light of the very plain statements by the Council that the EU is exempt from any further application of the law?

MR. EIZENSTAT: They feel very strongly, and they've stated very strongly, that they don't believe ILSA applies to them, that it is, in their mind, illegal, and this is simply a statement of that. And the reason is that they had hoped, contrary to what occurred, that they would get a 4-C country waiver, which would eliminate any further application of ILSA to them. We did not provide that to them. So, this was their way of, in effect, licking their wounds, and saying that notwithstanding that, they simply don't accept the applicability of ILSA. But the fact is, we do. We're the ones who have the enforcement in our control, and we will implement it in the ways I've just described.

REP. GILMAN: Mr. Secretary, if any ILSA sanctions are applied, or waivers are not granted under Title III and Title IV of Helms- Burton, isn't it true that the EU no longer considers itself to be bound by any understandings with the U.S. of May 18th, regarding the protections against investments or expropriated properties, or by any anti-proliferation, or any various measures above and beyond those announced in April of '77. And haven't we, in fact, thrown away the stick, before the carrots are even on the table?

MR. EIZENSTAT: No, quite the contrary. We got very specific requirements by the EU to enhance their already-strong non- proliferation regime. Greater end-use certification; special concern about Iranian end-users; greater cooperation and sharing of information; efforts to help third countries; intervention with Russia as they've now done, to encourage Russia to be tighter on export controls.

So we got concrete indications of what they would do. This has been passed by the European Council, it is now legally binding on them.

In the Helms-Burton area, we did not do anything, we can't do anything, until Congress passes this waiver authority under Title IV. But what we got, was these very specific property disciplines worldwide, and applied to Cuba. And only if those go into effect, would the waiver go into effect. They're -- they're symmetrically tied.

REP. GILMAN: Secretary Albright has indicated a future project similar to the development of the South Pars gas field by a French- Russian-Malaysian consortia, are likely to get similar waivers. Does that amount to a tacit promise to the EU to grant a blanket Section 4- C waiver, in any and all future investments, even though only a Section 9-C national security waiver was issued in regard to the South Pars investment?

MR. EIZENSTAT: No, sir. What it means, first of all, is that, as we've very clearly indicated, our 9-C waiver would not cover trans- Iranian pipelines, in the ways I've just described, number one.

Number two, we have indicated that like treatment for future projects would occur only in the circumstance where we were getting the kind of enhanced cooperation on weapons of mass destruction and counterterrorism that we've gotten as a result of our May 18th, 1998 agreement. We've also tied that to continued cooperation on a whole range of other issues. The national interest test would still have to be met, we would have to examine each investment under ILSA, and the kinds of national interests that we mentioned, would be a factor in our consideration.

REP. GILMAN: And, Mr. Secretary, has any EU country implemented its pledge to expel Iranian intelligence officers made at the time of the April '97 decision on the Mykonos case? Is Iran still promoting terrorism in Europe and elsewhere?

MR. EIZENSTAT: Well, those are two separate questions. The fact is that as you yourself indicated, Iran is supporting terrorist groups. They are promoting terrorism. And we are very concerned about it. One of the things we got, Mr. Chairman, from this EU-U.S. summit agreement of May 18th, is a specific commitment to go beyond what they had already done in 1997, which itself was considerable, as a result of Mykonos, that is, thinning out intelligence operatives, and making it more difficult for those connected with the intelligence community to get visas into Europe. And that is being implemented.

But we got something in additional -- in addition to that on May 18th, and that is we got a commitment by the European Union, that it would get all of its member-states, and its future member- states, all those future member-states in Central and Eastern Europe, to ratify all 11 counter-terrorism conventions.

REP. GILMAN: Mr. Secretary, does our nation believe that Iran played a role in the Khobar Towers terrorist act that killed many American servicemen?

MR. EIZENSTAT: This is a matter still under investigation, and we have not made any final determinations on that. I think you are aware of the difficulties we've had in getting some cooperation from the host country, but this is an investigation that continues.

REP. GILMAN: And what about our nation's attention to Argentina? The Argentine government expelled Iranian diplomats recently, and cut off trade links with Iran, in regard to the '92- 94 bombings. What is our nation's attitude, with regard --

MR. EIZENSTAT: Well, I can tell you, first of all, I have -- I feel a personal commitment there. I met with the Jewish community in Argentina when I was there, and at their request, got President Clinton, as he had done previously, to urge President Menem to accelerate their investigation. We are very pleased that Argentina has taken this kind of action, and we obviously await further evidence of Iranian involvement. But the fact that Argentina acted so promptly, is certainly encouraging, and it indicates a growing awareness of Iran's efforts to promote terrorist activity, and we think that it is a potentially positive development.

REP. GILMAN: Well, with that kind of awareness of Iranian terrorism around the world in all of these areas, we're still giving a waiver to these kind of explorations of resources in Iran, giving 'em billions of dollars, allowing them to enter billions of dollars to their treasury. It doesn't seem to add up.

On April 30th of this year, the State Department issued its report on global terrorism, indicating Iran is as active as ever in sponsoring terrorism. So, my question is, why is the administration trying to engage Iran in a political dialogue, if it continues to promote terrorism, and give a high priority to developing its medium and long missile capabilities?

MR. EIZENSTAT: I'm frankly glad you asked the question, and I'm glad you asked it in that pointed way, because it gives me the opportunity to really respond and talk about what this decision was all about.

We are under no misapprehension about Iran's behavior. We certainly recognize that President Khatami is speaking in different ways, that his tone is different. It is clear that he is trying to have more of an opening to the West, and we have responded in kind by welcoming his exchange of civilizations and having more cultural exchanges. We've called for a political dialogue on a country-to- country basis to discuss these differences, which have not been accepted.

But we have not seen, and you yourself indicated in your opening statement, properly so, we have not seen those statements translated into concrete behavior. And until and unless we do, our policy will not change.

Now, why did we therefore do the waiver? Because the waiver accomplished the very purposes that you and the committee and the Congress are most concerned about, and we're most concerned about. That is, it gave us the capacity to enlist Russia, to enlist the European Union, to enlist the Ukraine, to enlist Malaysia, in an effort to deny Iran, at the supply end, the ability to acquire weapons of mass destruction, and their delivery systems.

We concluded, Mr. Chairman, that the cause of the nature of this transaction, Total, had totally divested itself of its U.S. assets, with the exception of a few small subsidiaries. Gazprom unilaterally canceled a $750 million memorandum of understanding with ExIm Bank. And Petronos, the Malaysian company, had no relationship to this marketplace to begin with. The sanctions wouldn't have worked, to stop the deal.

So, instead of using ineffectual sanctions, which would have looked like a pop gun and held us in a program for using something that wouldn't have worked, and therefore would hardly have been a deterrent, instead we worked in a parallel fashion, to get these additional disciplines and controls to deprive Iran of the capacity to acquire weapons of mass destruction. That's far better than to have beat ourselves on the chest for a day, and sounded like we were doing something meaningful, have the deal go forward, and then not have the cooperation of our friends and allies on WMD and non- proliferation.

REP. GILMAN: Mr. Secretary, one last question. I've overstated -- I've overused my time. A State Department spokesman has indicated that we've made no decision with respect to petroleum investments in Libya. And many in Europe are obviously interpreting that as a green light to invest in Libya. Just last week in Italy's foreign trade minister -- ministry, they said that its -- its state-controlled oil and gas company is free to go ahead with investments in Iran and Libya, which have been waiting for Italian investment for quite some time.

What is our position regarding investment in Libyan petroleum industry? Does our nation support or oppose investment in Libya? If we oppose it, why don't we state that opposition clearly and unequivocally? How do you reconcile a statement in the United States non-paper about granting waivers for investments by the EU members in Libya, with the statement by the State Department, and I quote, "we have made no decision with respect to petroleum investments in Libya." This non-paper also makes no mention of our view on the sanctionability of pipelines transiting Iran. Secretary Albright, in a May 18th statement, indicated that the United States is strongly opposed to pipelines transiting Iran, and it doesn't rule out the imposition of sanctions on pipeline projects.

Can you reconcile all of that for us?

MR. EIZENSTAT: Absolutely. One of the reasons that I made such a firm and unequivocal statement in my opening remarks about Libya, was to put precisely on the record our policy, with respect to Libya. And that is that we strongly oppose any investments in the oil and gas industry in Libya, and that we will faithfully implement the Iran- Libya Sanctions Act, with respect to those. We have -- we have promised no waivers, nor have we created any expectation.

What we did say, is what we said in April of 1997 in the EU- U.S. understanding, which is that we would work with the European Union, as we are doing with respect to Iran, to create the conditions for a waiver, and we will do the same with respect to Libya. Those conditions include, for example, tighter enforcement of U.N. sanctions against Libya. They include cooperation on the Lockerbie case. So, we've done nothing beyond what had already been published and public and committed to in April of 1997.

REP. GILMAN: Thank you, Mr. Eizenstat. Mr. Hamilton.

REP. HAMILTON: Mr. Secretary, first of all, let me thank you for the very positive and constructive comments that you've made with regard to H.R. 2708. I was quite encouraged by those comments, and I want to say to you that I -- and I'm sure many others will be happy to take up your offer to work closely with us, to get a bill that is acceptable to us, the sponsors of the bill as well as to the administration.

In order to be clear, if the Congress refuses to enact the waiver on Title IV in the Helms-Burton Act, the U.S.-EU agreement falls apart.

MR. EIZENSTAT: The happiest person in the world if that happens will be Fidel Castro.

REP. HAMILTON: But it falls apart.

MR. EIZENSTAT: It falls apart.

REP. HAMILTON: Now, if I understand the situation right, and I'll ask you to comment on this, if you do not have that agreement on confiscated property, we then have no way of discouraging EU investment in Cuban property. If you have the agreement, we at least have an EU commitment to limit investment in property confiscated in violation of international law of properties held by foreign nationals at the time of the revolution.

In other words, without an agreement, no American gets any protection; with an agreement some Americans get some protection. Is that a fair analysis?

MR. EIZENSTAT: Yes. And I would even go further than that.

If I may say, with respect to that question, I think I know that, over the distinguished careers of Chairman Gilman and Chairman Leach, Chairman Hyde -- I've known you for many years -- Chairman Bereuter, property rights have always been a very important issue, and protecting American investors. We have the opportunity, Mr. Hamilton, for the first time ever to genuinely protect US property rights worldwide as well as in Cuba in ways they've never been protected before.

Let me just give you an example, because this will go --

REP. HAMILTON: But it all depends on the waiver.

MR. EIZENSTAT: Yes, sir, it does. And it will go beyond just expropriated property, because -- in Cuba. We're going to set up through this agreement an international claims registry. Every American citizen, and indeed every citizen worldwide, who believes that his or her property has been illegally expropriated can put their property on this international claims registry. That will serve as a notice to every other investor in the world who will be at risk if they tried to invest in that, that they are potentially investing in illegal property.

Now, the importance of this is obvious worldwide. But in respect to Cuba, it will not only help protect Americans' property in Cuba that's been illegally expropriated -- and this is why Castro's so opposed to it -- it will go beyond that, because, Mr. Chairman, and Mr. Hamilton, no investor will want to take the chance of investing in anything in Cuba without going through a very lengthy effort to determine whether that investment is -- (brief audio break).

REP. HAMILTON: Now, Mr. -- (brief audio break) -- policies enunciated in this act is to try to change -- to bring about a change of government in Cuba, and you do it by inflicting pain on the people of Cuba. You don't inflict any pain on Castro. We know he's going to live comfortably under any circumstance. But I think, as I understand the act, we're going to inflict pain on the people of Cuba.

Now, what's supposed to happen here with this embargo? Is the suffering of the Cuban people supposed to motivate them to depose Castro? Or is it supposed to motivate the Castro government to make changes on its own? What is the underlying rationale for this embargo on Cuba?

MR. EIZENSTAT: Well, we've had an embargo on Cuba for three and a half decades, beginning with President Kennedy and enforced by every president since. And I believe that the underlying principle is the fact that there ought to be pain exacted on the administration of that regime for their willful and wanton and repeated violations of human rights and property rights and dignity.

At the same time, we have tried to modulate that embargo in ways that will not require extreme suffering by the people. That's why there are licenses that have been provided for medicines and other materials. We've licensed --

REP. HAMILTON: Mr. Secretary, I support all of that, the trying to relieve that pressure.

But let me just say to you that it is my impression that when you have this kind of embargo, you don't hurt Castro personally and you don't help any of his top advisers. Those fellows are going to steal or cheat or do anything they need to live comfortably.

What really happens with an embargo is that you hurt ordinary Cubans. The Pope had it exactly right when he went to Cuba, you hurt ordinary poor people.

Now, in the first instance we all know it's Castro's fault, it's his policies that have made a mess of the place. But our embargo, in my judgment, is adding to the pain and the suffering of the Cuban people and I don't see that it's been effective.

Now, I have a difference with you on this point and you and I have discussed this. I appreciate it. I'm not going to ask you to respond any further on it, because I just think it's a difference. But I want to state my view of how this embargo works. I just don't think it works like you indicate that it does work.

Now, let me ask you another question. State and local sanctions were not covered in your comments at all, and I'm not even sure it's our part of the jurisdiction here, but it is part of this sanctions problem generally. We've seen a lot of state and local governments enact a number of economic sanctions in recent years. I'm just interested in getting the administration's analysis of those.

Do you worry about the state and local sanctions? Do you think they're constitutional? Are you going to join in that Massachusetts lawsuit that's pending in any way? What kind of thoughts do you have with regard to state and local sanctions?

MR. EIZENSTAT: We do have a concern with the proliferation of state and local sanctions. And the reason we have a concern is because it's important that the United States speak as much as possible with a single voice when we're addressing foreign governments. To the extent that there are conflicting and overlapping sanctions and other efforts by state and local governments in an area where it is quite clear that the president, secretary of State and the United States Congress speak, it does often present a cacophony of ideas and complicate our life.

It also makes it more difficult in many cases, Mr. Hamilton, to have cooperation with our allies, because the state and local sanctions often will hit them at a very time we're trying to work with them in a coordinated and multilateral regime.

And what we've said is we've started an unprecedented outreach program to state and local governments. We've met with the National Governors' Association, with the Conference of Mayors and others. And we've said to them that we recognize that under your procurement laws you have a certain right to act; we know that you're concerned with some of the same issues we're concerned about, whether it's in Burma or in other countries; and that the best way to deal with this is to consult with the administration and with the Congress so that we can try to coordinate our actions.

We've also said that it is important that if they have to act that they do so commensurate with our WTO obligations. For example, under the Government Procurement Act, there are certain requirements which states have -- at least some 37 states have bound themselves to obey and that they do obey those. That is important.

In terms of the constitutional issues raised by the case that has been brought by the USA engaged against the state of Massachusetts, we are studying that and we have not yet taken a position on the matter.

REP. HAMILTON: One other question, Mr. Chairman.

I have heard reports with regard to the India-Pakistan sanctions, that irritation on the part of some European governments over ILSA and Helms-Burton contributed in part at least to the EU governments' reluctance to follow our lead on imposing sanctions on India and in Pakistan. Is that correct?

MR. EIZENSTAT: I don't have any evidence that that is the case. The European Union has in fact begun to take action, certainly not as forceful as we would like. And, Mr. Chairman, I certainly agree with you that it would have been very helpful had that joined promptly after India in sanctions. But they have begun to take some action.

For example, at their --

REP. HAMILTON: But they're not going to apply any across-the- board kind of economic sanctions --

MR. EIZENSTAT: Well, they have -- that I can't predict. But what they have done, Mr. Hamilton, just a few days ago is their Council of Ministers approved a policy in which they will impose international financial institution loans to India. And that's a very helpful step and does begin the process of joining in a multilateral effort.

REP. HAMILTON: Do you think our sanctions will hit Pakistan harder than India?

MR. EIZENSTAT: We are in the process now of interpreting the Glenn amendment. There are many open issues -- what's a bank, what's a loan, what the government of India, does it cover state and provincial governments, does it cover paristatals? We're in the process of trying to define that.

We also are looking at the issue of the impact on Pakistan with respect to Iran -- to India as well.

This has to be said. It's simply a matter of fact that Pakistan is more dependent than is India on international financial institution funding and would be hit hardest. However -- hit harder. However, we have statutory obligations and we're going to follow them to implement --

REP. HAMILTON: As you go through this process of analyzing the impact of the Glenn amendment, are you trying to maintain some kind of a balance in our policies toward the two countries?

MR. EIZENSTAT: We are looking at the potential differential impact but we have not made a decision yet as to how, given the strictures of the Glenn act, the automaticity and the lack of flexibility, that would actually be implemented. So we have not made a policy decision as respects India and Pakistan --

REP. HAMILTON: Those sanctions under the Glenn amendment are indefinite, are they not?

MR. EIZENSTAT: They can only be removed with Congress's separate vote.

REP. HAMILTON: Thank you.

REP. GILMAN: Thank you, Mr. Hamilton.

Mr. Hyde.

REP. HENRY HYDE (R-IL): Thank you, Mr. Chairman.

I just have on question.

I've always been troubled by comments such as Mr. Hamilton made recently just now about the sanctions in Cuba. I don't know what an administration does with a country like Cuba, that has engaged in lawlessness concerning property owned by Americans, that has abused its own people and other people, that has been a source of destabilization in its region, and that shows no signs of being a good neighbor.

You can surround the island with ships, I guess, as we almost did in the missile crisis. We can launch an invasion, as we half- heartedly watched happen in the Bay of Pigs. We can -- there isn't an awful lot you can do unless you impose sanctions. Sanctions are a weapon. People say they don't work. Well, each case is different. They seem to have worked in South Africa.

One of the reasons they don't work is the rest of the world pays no attention to our sanctions, which is a function of world leadership, I guess, or some other missing element. But were I calling the shots for any administration, I would be at a loss to how to deal with Cuba. Resolutions from Congress aren't going to bring them to their knees, I can assure you. So do you look the other way? Do you deplore and view with alarm? Or do you use the economic weapon, such as it is, in the limited circumstances you have, without the world's sympathy, because they will always chase the drachma rather than the principle? I sympathize with the administration. And I'd like you comment on what do you do with a rogue state like Cuba if you deny the use of sanctions because some innocent people are going to be hurt?

MR. EIZENSTAT: Well, as usual, Mr. Chairman, your eloquence overshadows mine. and by the way in which you've stated the question I fully agree with you.

Let's be quite frank here. There really are legitimate debates about what is the best way to achieve a goal everyone shares, which is seeing the most rapid departure of the Castro regime possible. One argument is, let's overwhelm him with investment and he'll evaporate. The other is let's sanction and he'll evaporate. The fact is neither has worked. The Europeans and others have tried to invest and he's still there. We've had our embargo and he's still there. It, in some respects, makes the basic point that I was trying to make in my opening statement, and that is the importance of multilateral sanctions. Multilateral sanctions are the most effective sanctions, whether it's bringing Serbia to the bargaining table in Dayton, whether it's South Africa, although it took several decades, whether it's Iraq, as imperfect as they may be.

Unilateral sanctions are difficult. But there are times -- and I think this is the thrust of your statement -- when we can't get a multilateral regime together and when the notion of simply opening the flood gates to investment are not going to work.

I myself belief, and I think, more important, every president has believed since President Kennedy, Republican and Democrat, that ending the embargo would not end Castro; it would strengthen him. It would allow him to show to his people that his economy is better and that it's improved, and it would only strengthen his hand.

At the same time, one would have to admit that neither policy has been tremendously effective. Having said that, I still think it's important for the United States of America to stand for certain values. And when there are regimes like Castro's that are so odious, it is better in an imperfect world for us to impose the limited sanctions that we have, knowing that they may not be fully effective, than it is to say we're going to have business as usual with someone who contradicts every value for which this country stands.

REP. GILMAN: Thank you, Mr. Hyde. Mr. Faleomavaega.

DEL. ENI FALEOMAVAEGA (D-AS): Thank you, Mr. Chairman. Earlier, when we had opening statements, the members of the committee, I want to associate myself with the comments made earlier by the gentleman from Indiana, Mr. Hamilton, our senior ranking Democrat on this committee. Also I would like to associate myself as a co-sponsor of H.R. 2708 as it was discussed earlier by members of the committee.

Mr. Chairman, I want to commend you for calling this hearing this morning on this important and sensitive issue of sanctions. I do not want to suggest that the sanctions our nation has placed against Cuba, Iran and Libya are any less important for discussion, but this morning I want to focus my questions and impressions on the sanctions we have placed against India and Pakistan because of their recent detonations of nuclear devices.

First, I have always believed that our national policy on non- proliferation has been a sham, a contradiction, a sense of hypocrisy. India since 1974 sent a clear message to the five nuclear nations and to the world that it, too, had the capability of going nuclear if it wanted to. And for some 24 years, India as a nation -- and, by the way, Mr. Chairman, I'm not defending India this morning -- India as a nation has been pleading with the five nuclear nations and with the world that if we are really serious about non-proliferation, the five nuclear nations must be committed or obligated to a definitive timetable for a complete dismantling of all nuclear bombs with proper verification procedures, et cetera.

And I believe this is one reason why India, in the recent comprehensive test ban negotiations in Geneva, has been very, very resistant to signing on, because of this concern that India has. So instead, Mr. Chairman, it is my understanding that the five nuclear nations still have some 36,000 nuclear bombs at their disposal, and we continue to hold on to our current policy of deterrence as a means to justify our own supply of nuclear bombs for ready use.

It's my understanding, Mr. Chairman, that we killed more men, women and children in Japan in World War II in the fire bombs that we heaped upon Tokyo than we did with the nuclear bombs that we exploded in Nagasaki and Hiroshima. And with India's own national security seriously at risk and a classic example where the non-proliferation concept has truly become a sham and a farce, as far as I'm concerned, between the nuclear nations and the rest of the world, the nuclear haves and the have-nots, as the case it is now between India and China.

If you were one among the 980 million Indians living next door to a nuclear nation like China, wouldn't you feel a bit apprehensive and uneasy that a non-democratic country like China can nuke you out any time it wanted to because simply you did not have the means?

The unilateral sanctions that we placed against Pakistan and India is not the issue, Mr. Chairman. Why didn't we do the same against France when President Chirac decided unilaterally, breaking its own moratorium, to continue its nuclear testing program in the South Pacific in 1995, and this despite repeated pleadings from some 170 nations, and yes, even our own passive objections to French nuclear testing in 1995?

To me, Mr. Chairman, there seem to be some real contradictory issues as I see here this morning. And I'm sure that there's some real technical language of the 1994 act that we've kind of looked the other way and said, "Well, it's okay for France to continue nuclear testing, but any other country that comes afterwards, we're going to really hit them hard." And this is what we're doing against India and Pakistan.

Mr. Chairman, I believe we've got some real serious issues here on the non-proliferation issue. I think it's time that our nation take true leadership as a way that we can get the five nuclear nations to be truly committed to dismantling these weapons of mass destruction. If we're doing it for biological and chemical, biological agents, why can't we do it for nuclear weapon systems?

And I'd like to ask, Mr. Secretary -- I hope that the administration does not support this 1994 Sanctions Act, because what we've done simply is to tie the administration's hands on this issue. We've offered you now completely no flexibility whatsoever in dealing with this, other than to enforce this law that we've now come to realize its implications in two democratic nations. India is the largest democracy in the world. It is national interest. And I kind of like to think, as the Indian proverb says, walk in a man's moccasins for two weeks and see how it feels.

And despite all these pleadings for all these years, nobody's listened. We've pretended. And this horror and amazement that we've said, "Why have you done this?" as if India did not have the technology. And yet, for some 24 years it has restrained itself from getting into this whole situation with the hope that five nuclear nations would truly be honest and say, "Let's get rid of these weapons of mass destruction."

Mr. Secretary, I didn't mean to get into this, but I'd like your response to see where we're at right now. Do you support the 1994 sanctions, to start?

MR. EIZENSTAT: Yes. The president has made halting the spread of weapons of mass destruction one of his top priorities, and he made clear that he would have imposed stiff sanctions even if he had had the discretion. As a matter of principle and practicality, you're quite right. As I indicated in my opening statement, it is always better to give the president more flexibility so he has a capacity to shape events.

But we have an act which we are going to promptly, firmly and correctly implement. We're going to do so with respect to both countries. What both countries have done is indefensible, and they need to pay a price for having done so; not only pay a price, but act as a deterrent to other countries. And we will try to get our friends and allies to join us in that.

At the same time, no one wishes to make either India or Pakistan into rogue nations. The purpose of sanctions is not to punish; it's to influence. And we're now in the process of trying to implement the Glenn Amendment, to answer the questions which the generality of the statute leaves open, in such a way as to implement it firmly, properly and correctly, at the same time being sensitive to U.S. business concerns and at the same time being able to try to influence these countries in the next step.

And what is that next step? What we're hoping is that over the course of the next few weeks and months we can pursue the following goals for Pakistan and India: No more tests; signature of the Comprehensive Test Ban Treaty; no operational deployment or sharing of WMD technology; the cutoff of fissile material production; the resumption of a dialogue between India and Pakistan; and no unilateral action to change the status of Kashmir.

Now, you made a statement, Congressman, about other countries, France and the others who are nuclear powers. There are a couple of points I'd like to make to that. First, the U.S. and Russia have made great strides over the last several decades in dismantling our nuclear stockpiles. With START II and START III, we will do even more. And one of the factors in our national interest that we considered on our ILSA waiver was how could we get cooperation from the Russians to ratify START II if we're sanctioning their companies? This was one of the national-interest factors.

Our British and French allies have also made significant nuclear reductions. And all of the original nuclear powers are bound by the non-proliferation treaty, by its inspection regime, and by the Comprehensive Test Ban agreement, which is not the case with respect to India and Pakistan. And we hope to move them into the CTBT environment.

DEL. FALEOMAVAEGA: Mr. Secretary, I know my time is up. But real quickly, in addition, I appreciate your comments and your response. But in effect, knowing that there's no procedures for inviting members to be members of the nuclear club, aren't Pakistan and India now effectively -- are members of the nuclear club, whether we like it or not? Maybe because they haven't signed on to some of these principles. Now, some of the stipulations that you stated earlier about what India and Pakistan should do -- aren't the five nuclear nations also under those restrictions and prescriptions and whatever it is that make them as nuclear powers?

MR. EIZENSTAT: Under the legal and international analysis of the Non-Proliferation Treaty, they can't become signatories directly. But clearly they've demonstrated a nuclear capacity. What we hope we can do, through the vehicle of sanctions and other means, is to bring them into a regime in which they don't, in effect, operationalize that capacity by putting warheads together, by putting the warheads on missiles, by in effect implementing a full-blown arms race in the subcontinent. That's our goal at this point. But --

DEL. FALEOMAVAEGA: Mr. Secretary -- I know my time is up. I submit -- this is my humble prediction, Mr. Secretary -- Pakistan and India will be the first two countries in the world to submit to any kind of verification and total dismantling if the other five nuclear nations would do likewise.

REP. GILMAN: The gentleman's time has expired.

DEL. FALEOMAVAEGA: Thank you, Mr. Chairman.

REP. GILMAN: Thank you, Mr. Faleomavaega. Mr. Bereuter.

REP. DOUG BEREUTER (R-NE): Thank you, Mr. Chairman. Mr. Secretary, thank you for your testimony and for your responses to our questions. It's very tempting always to focus on the immediate circumstances involving certain countries. But the purpose of the hearing is, I think, much broader, and that is to examine how sanctions affect U.S. policy.

I'll give you a couple of examples. The sanctions against Burma apparently were opposed by the administration but it became law without a veto. It is a country where outrageous things go on, and yet ASEAN countries do not even -- the neighbors don't support us. It's clear that our sanctions are not effective.

I mentioned the situation in Cambodia, where a coup clearly occurred. Yet if the administration ever used the word as "coup," then certain sanctions would have to be brought to bear, and so therefore it contends that a coup has not taken place.

Currently we have appropriately some indication we're going to follow up on an effort by Mr. Payne, a long-term effort to try to affect what's happened in Nigeria.

The testimony you present suggests that the president's advisers will recommend a veto of the Iran Missile Proliferation Act. It's not clear that the president will veto it. The past -- the record is that the president signs bills and then uses the waivers so much. Mr. Hamilton has stood up on the floor opposing legislation frequently, but the administration will not weigh in in time to affect the vote on the floor.

I'd like to know what you think we can do to reduce the inappropriate use of sanctions and focus those sanctions that are brought to bear appropriately. What can we do to restore better cooperation between the Congress and the executive branch, in this executive branch or another one?

For example, since we have in the last four years imposed sanctions on 35 different countries, would the administration look at a comprehensive review of those sanctions and even go so far as to send up legislation to the Hill to make changes in those various provisions where it's appropriate? Leadership on both sides of the aisle agree that there are certain sanctions on the books now, and committee chairmen agree, that are very much contrary to our national interest, but once they're in the statute book, very difficult to pull them off.

Would the administration, finally -- last comment -- be willing to begin an effort as an example when Nigerians say, "Look, here's our idea of how we can work with the Congress and here's the things we're going to do to try to affect Nigerian policy and conduct, in an effort to avoid another major sanction bill."

MR. EIZENSTAT: I very much appreciate, again, the -- the spirit in which your question has been posed, because I'm frankly concerned that bipartisanship in foreign policy seems to be taking a backseat recently, and that the sanctions issue is a good example of how we often work at cross-purposes. We often find out about sanctions bills when we read about them in the newspaper, and we end up being in a defensive instead of pro-active vein.

I think that nothing would be more important than the kind of comity that you suggest, and let me suggest ways in which that can occur.

First, under your own legislation, which you've proposed, it - - it virtually invites the kind of consultation between the Executive and Legislative branches, before sanctions are imposed, so that at least we have a common understanding of what we're trying to do, what the goal is, and how effective the sanction may be.

It simply does no good to pass a sanction that looks good on paper, and it won't be effective. And the key is effectiveness. So that kind of dialogue that your legislation would -- would help foster, would be tremendously important.

I think we bear responsibility, too. I don't put by any means the responsibility only on your shoulders. We need to come to you more frequently, and indicate to you our concerns in certain countries of the world, and where we think the most effective policies can be -- can be done. Our new sanctions team at the State Department is beginning to adopt principles for sanctions. We would like to share that with you. And we would like nothing better to have a regular dialogue, again on a pro-active basis, so that we don't end up being at cross-purposes. And again, I appreciate very much the spirit, and I hope that with the changes that we will suggest, that your legislation will pass.

But even without that, this ought to be simply a matter of constitutional comity. And one of the reasons that I stress the waiver issue, is that when we are at cross-purposes -- and there will be, even with consultation, points at which we still differ -- by giving the President the ultimate national interest waiver test, you are recognizing that you the Congress have spoken, but that you recognize at the end of the day, under our Constitution, the President is the only one who can balance all the interests. You then have the right to criticize, but give us at least the flexibility.

And what we've done in the ILSA and Helms-Burton cases, is use that flexibility to advance the very purposes of the act.

REP. BEREUTER: Thank you, Mr. Chairman.

REP. GILMAN: Thank you, Mr. Bereuter. Mr. Hilliard.

REP. HILLIARD (D-Al): Thank you, Mr. Chairman. Mr. Secretary, there is serious concern about unilateral sanctions. And I have a great deal of concern about it. It seems as if whenever it is imposed, it is the Third World countries, the people of those countries, that really are affected, as well as the lower- income workers in this country, that's affected. And -- and to me, it creates an anti-competitive atmosphere for our businesses. It creates a loss of jobs here, and it creates a situation where our allies, like Canada, Britain, France, and others, profit from it. And -- and I don't appreciate this. And it's really getting to be a problem, because of the fact that this country is increasingly using that vehicle as a weapon.

Is there some way that this could be avoided? Is there some way we can make those countries that are supposed to be our allies and concerned about world affairs, more involved and more helpful on these issues? Is there some way that we could create sanctions from the United Nations perspective, so it would be general rather than unilateral? And do you feel that the International Claims Register is the -- is one of the vehicles that could be used, in getting away from -- in this country, getting away from unilateral sanctions?

MR. EIZENSTAT: Thank you very much for your statement and your question. And I associate myself very much with many of the concerns that you've expressed. We think, again, that there ought to be a hierarchy. When there is an action taken by a country with which we disagree, and which we think threatens our interests, or our values, we ought to go first through all full diplomatic means to change it.

If that fails, and it often will, we ought to do as you suggest, next to try to build a multilateral regime. Why? For two reasons. Number one, they're likely to be more effective, because more countries are involved. Second, the point you also make, they're less likely to be disadvantageous to U.S. competitive interests, because companies in other countries will likewise be bound by the same restrictions that we're binding ourselves. That's not the case, of course, with unilateral sanctions.

Nevertheless, there will be some instances where diplomacy fails, where we're unable to get a multilateral regime together, and where we will have to face the prospect of unilateral sanctions, because we still think it's important to act alone. we can't let other countries veto our right to lead. But in those instances, that's where the sanctions efforts, sanctions team efforts we're doing at the State Department and the Bereuter- Hamilton-Crane-Lugar bill comes into effect.

Let's think before we leap. Let's do a cost-benefit analysis of a unilateral sanction, and ask: is it going to be effective? Will it work? Will it change the conduct in the target country? How will it affect our allies? Will it be more or less likely to get them to join in with us, in parallel if not multilateral sanctions? What impact will it have on our workers? What impact will it have on the poorer people in the country being sanctioned?

These are the kinds of test that aren't being done now systematically. Now, you can't put that into a computer, and come out with a mathematical model that will say whenever you get less than a one-to-one ratio of cost and benefits you don't act, but at least if we go through a real examination of those kinds of costs, and the benefits, then at least, we will, if we do unilateral sanctions, have done them in ways that are most likely to be effective with the target country, and do the least damage to our own companies and our own workers.

REP. GILMAN: (Off mike.)

REP. HILLIARD: I have one further question, Mr. Chairman.

REP. GILMAN: All right. If you would, be brief.

REP. HILLIARD: Thank you very much. The religious -- the proposed religious persecution act: do you think that it will have the same effect as the Helms-Burton Act in putting our country once again in a situation where we impose unilateral sanctions?

MR. EIZENSTAT: well, we support the Helms-Burton Act. We do not support the Wolf-Specter Act. And the reason we disagree with the Wolf-Specter Act, it's not because of the purposes it is intended to pursue. we obviously strongly oppose religious persecution. The secretary's going to be naming a special coordinator. We are elevating this on our diplomatic screen, it's raised by the secretary frequently. Our human rights report now highlights religious persecution.

The problem with Wolf-Specter is that it is -- it automatically imposes sanctions, with no discretion. It would do so on a whole host of countries that are otherwise friendly. And we're being told by the very people who are intended to be protected -- that is, for example, the Copts, the Christian Copts in Egypt, that this would work to their disadvantage, not to their advantage, that they -- they would be more discriminated against, because the U.S. had tried to sanction their country, in the name of protecting themselves.

So, this kind of automatic sanction is the very problem which, thematically, I've been trying to deal with in my testimony.

REP. GILMAN: Thank you, Mr. Eizenstat and Mr. Hilliard.

REP. HILLIARD: Thank you, Mr. Chairman.

REP. GILMAN: Mr. Leach.

REP. LEACH: Mr. Chairman, I'd like to get back to a couple of basic themes, if I could, Mr. Secretary. And one is a distinction between peoples and governments. And that is frequently, we object to decision of governments, but our policies can affect peoples. And not infrequently, our policies that are negative, and people actually help governments we don't like.

And -- and I raise this from the perspective of two items. One is food, and one is medicine. And I would ask this very careful question. With the exception of countries to which the United States is effectively at war, has there ever been a case in which a food or medicine sanction has ever served United States national interest?

MR. EIZENSTAT: Well, I think one would be hard-pressed to find many instances of that. Let me respond, if I may, specifically. In the India-Pakistan case, where we're now trying to decide how to faithfully implement, as we will, the Glenn Amendment, there is built into the Glenn Amendment, humanitarian exception. But there is a question of what that means. And one of the issues we're now struggling with, is Pakistan is one of the largest purchasers of winter wheat from the United States. And there's the question of whether the CCGSM program would have to be cut off, which is the program necessary to make those sales possible.

The act is not clear at this point, in terms of whether that's humanitarian or not. It is a food issue, for sure, as you've asked. So, this is one of the things we're struggling with here.

With respect to Cuba, we have licensed $200 million in medicines. And the President, in his decision following the Pope's visit, indicated that he will try to facilitate the licensing process for medicines, and we're now trying to work with the Congress on the food issue, amongst the varying proposals of the --

REP. LEACH: I appreciate that. If -- just because my time is limited --

MR. EIZENSTAT: Yeah.

REP. LEACH: -- I'm not as interested in this case-by-case problem that we're dealing with today, although it underscores a lot. But it strikes me, that if the Congress of the United States is going to deal with a generalized bill on sanctions, it might be very appropriate, in a generalized bill on sanctions, to carve out precisely that food and medicine are not included in any sanction, unless specifically prohibited for some sort of particular reason. And that gets away from this whole issue of the angst that you deal with. And I -- we have another bill in this Congress, that relates to Cuba, whether food and medicine can, as a generalized subject, be sent, instead of something based upon some sort of State Department waivers.

But I think this is a very profound subject, and I would hope that it would be addressed, and -- and preferably resolved in a generalized sanctions bill.

The second area I'd like to ask, just in a kind of broad brush way, is that it strikes me that there's never been a sanction that I can think of that Congress has put on that hasn't been well- meaning. But there's also very seldom been a sanction that hasn't had elements of -- of unintended consequences, that have amounted to counterproductivity, some of which relate to a loss of jobs for American workers, that is, because of some foreign potentate's miserable decision-making, we put a stake in the foot of an American worker, some of which relates to actually helping foreign potentates maintain power, rather than the reverse.

And so, as a generalized principle, I'm wondering if it isn't wise to put in any bill that's of a general nature, the precept that all sanctions are always waiverable by the Executive Branch, and perhaps even consider the precept of sunset. But the precept of waiverability, I think should apply to a generalized bill. Would -- would that strike you as an appropriate approach, or inappropriate?

MR. EIZENSTAT: It would strike me as a very appropriate approach, and -- and the reason is precisely what you indicate: the law of unintended consequences.

I cited in my opening statement, how fluid world events are. A month ago, there were clamors on the Hill and elsewhere, legitimate, and we understood that, for sanctions on Suharto. Let's just assume, hypothetically, that the Congress had passed a sanctions act against Indonesia, which would crack down on Indonesia in the same way we will be doing with India and Pakistan, with no waiver authority.

Suharto's gone. Still, developments there remain to be seen, but certainly the trends offer some prospect for optimism. If we didn't have that waiver authority, we couldn't do it. So that the long and short of the answer is yes, it should, it's part of the comity between the branches that I've talked about, and it takes into account the fluidity of situations, and unintended consequences. It would certainly -- we would strongly agree with that.

REP. LEACH: I appreciate that. I -- at the risk of presumption, I'd like to ask one further question. It strikes me that with regard to the issue of the week, of India and Pakistan, that there's an aspect of -- of congressional consideration that I do not think has been really focused upon precisely in the way it should be. And that relates to the Comprehensive Test Ban.

As you know, the United States took an awful long time to come to a decision to advance a test ban agreement. But that test ban agreement has been signed, but it has not been ratified either by the United States or a number of other parties. In international law, one has a regime that's developed that can be considered in force even if there are countries that have not signed, because it becomes a generalized principle. But that doesn't become the case until there are ratifications. Signature is not enough.

Would the distinguished secretary care to opine on the appropriateness of early ratification of a test ban in the United States Senate? And does this strengthen our position vis-a-vis some of the very sensitive issues that are still going to be forthcoming in India and Pakistan, or has it placed us in a weakened position from the start? And is this not something that we ought to be pressing forward at this time rather than regressing in our consideration?

MR. EIZENSTAT: Yes, early ratification is essential. It would strengthen our argument and position when we deal with India and Pakistan and other countries. And for all the reasons you indicated, it would be highly desirable to do as soon as possible.

REP. LEACH: Thank you, Mr. Chairman.

REP. GILMAN: Thank you, Mr. Leach. And Mr. Ambassador, I know that you have to leave at 10 after, and we thank you for your patience. If you had a few more minutes -- MR. EIZENSTAT: My wife's not calling, so I think I can stay for a little longer.

REP. GILMAN: All right, then we have one more question. Mr. Payne. If you could be brief and give Mr. Manzullo an opportunity as well. Mr. Payne.

REP. DONALD PAYNE (D-NJ): It always gets that way when it gets down to the end. Let me say thank you very much for staying. I also think that this whole question about who should have nuclear weapons and who shouldn't, I guess, is an issue that I always thought would come about at some point in time.

And, you know, it's unfortunate that it's felt that it's necessary to have a nuclear weapon, a country that's going to be the largest population by the year 2010 of India, if population has anything to do with it. I certainly -- if two countries around me have it, why shouldn't I have it? So it's a difficult question to say who should and who shouldn't have it. And I think that this is going to be the real test as we move into the future. South Africa had it. Israel had it. Other countries were building it.

So the question, though, that bothers me more than anything else, though, is the ambiguity of our policy just in general. For example, with Cuba we have very strict policies against them. In China it has the same kind of government. We have a very open business, invest, laissez-faire policy. And it's difficult for me to figure out what drives our policy when we have even heard overtures from Cuba to start to have some discussions about perhaps changing relationships between the U.S. and Cuba.

We refuse to have discussions but we continue to invest heavily in China. And so I think many people are confused as to how we have a policy. And even in the Cold War, we had a policy dealing with Poland and the Soviet Union to try to have discussions to see where differences could come about. And we saw the Cold War, the Iron Curtain come down.

But these various policies tend to confuse me when we become upset about the nuclear devices but we won't sign a land mines bill which the rest of the world will sign but we say no. We refuse to sign a world treaty saying that there should not be soldiers under the age of 18. We say no; we refuse to sign that. That's wrong.

And then when we get to a place like Nigeria, we have about for or five different policies and we can't get the administration to be supportive of any one policy. And on the other hand, we decided to reopen the embassy in the Sudan where they have continued to use food as a weapons against its people. And so, you know, it's good that you have to leave, I guess. (Laughter.) But could you tell me what, in your estimation, drives U.S. policy? Or how do we come up with these multifaceted approaches?

MR. EIZENSTAT: That's, I think, a very valid set of concerns. It indicates in a sense, because of the very circumstances of each country, that you can't have one sanctions policy that fits all.

Let's take the example you use of China versus Cuba. I think that the basic difference is this. First, as a practical matter, China, with 1.2 billion people, can't be economically isolated. Second, and more specifically and more important, is that there are going to be a select number of countries -- Cuba, Iraq, Iran -- that act completely outside international norms. We call them rogue regimes.

There are plenty of other countries who fall into a middle category who do a lot of things we don't like, China being a perfect example on human rights and religious persecution and so forth, but who in other respects -- cooperation with us in the Korean Peninsula, the four-powers talks, in a variety of other ways -- is beginning to change, is beginning to moderate.

And so what I would like to do is to suggest that for those countries that fit into the small category of rogue regimes or those who act completely outside international norms, it is generally better to try to isolate them on a multilateral basis. And that would be where Cuba would fit in. There's just no evidence that engagement with Castro would ever change his conduct.

But, again, there are a whole host of other countries that fit into this middle category. They're not pluralistic democracies by a long shot -- they do a lot of things we don't like -- but where engagement can make a difference. I think that it is absolutely, perfectly clear that the policy of engagement which we've followed, which president Bush, President Reagan before us followed with China, going really back to President Nixon, has paid dividends. China is a more responsible actor in the world community.

There is, for the people of China, more of an ability to live a lifestyle that is more flexible, a capacity to have access to information, to be employed by foreign corporations, to have foreign companies and U.S. companies bring our own values in, and that therefore, for this middle category of countries, engagement in general is the best policy. But for those who fall outside that, multilateral isolation is the best policy.

REP. GILMAN: Thank you, Mr. Payne. Mr. Manzullo.

REP. DONALD MANZULLO (R-IL): Thank you, Mr. Chairman, for holding these hearings, and Ambassador, for staying over a few minutes. I appreciate what you're trying to do with the sanctions reform, and I know how difficult it is. But the philosophy that you outlined in your opening statement conflicts with the administration's decision (denying?) Ex-Im Bank to U.S. companies trying to sell the Three Gorges Dam project in China.

The dam is being built. The Gyangze (ph) River has been closed. The Siberian crane is doing just fine. The Chinese alligator is doing just fine. The Europeans have sold the Chinese the power generators that should have come from the United States. They bought machinery from (other than?) Cat USA. And the U.S. is not selling much to the Chinese for that project.

And then we read on about the options that were available to the president on India. We just stopped sending them our airplanes, our machinery, our wheat, but they continue to send to us about $3 billion a year worth of their jewelry and clothing. I mean, this really makes sense. So we're going to punish India by allowing them to sell everything they want to this country because it would violate GATT; then, on the other hand, we're going to cut off our sales to China based upon Ex-Im's own figures of three and a half billion dollars of the guarantees. That's only somewhere between 60,000 to 100,000 American jobs.

My question is two-fold. First of all, would you -- would the administration favor some type of presidential waiver in the comprehensive test ban nuclear treaty? And if so, would the president have exercised it? And second of all, in light of absolute folly taking place worldwide in terms of the sanctions, the United States is still going to loan, notwithstanding Japan simply cutting off foreign aid to India. Is the United States really going to get aggressive in protecting American jobs by allowing the United States to engage in the Three Gorges project? I tied those two together purposely.

MR. EIZENSTAT: Well, you and I have discussed in this very room the Three Gorges project, and I know how strongly you feel about it. And I think you have many strong arguments. The administration made some time ago a difficult judgment because of the environmental concerns there. Obviously U.S. companies are free to engage in that, but because of the environmental concerns, not with Ex-Im Bank help. I know that this is a matter on which you strongly disagree. I very much respect the arguments that you make for it.

With respect to the issue of a waiver, I think that it's important at this point in time to send a very firm signal to India and Pakistan that we're going to implement these sanctions forcefully. In general terms, as I indicated in my testimony, and as I mentioned in response to Mr. Leach's question, it is in general better for the president to have more flexibility. And Mr. Steinberg, the deputy national security adviser, in a speech yesterday, indicated that.

I think it's important, Mr. Manzullo, that at this point we show a firm resolve to promptly and firmly implement the sanctions so that there is a cost to be paid for India's and Pakistan's --

REP. MANZULLO: I understand that. But India is paying nothing for this. Vajpayee came out and said that, "You know, we weighed the sanctions. It means nothing to us. We're going to detonate anyway."

MR. EIZENSTAT: Clearly the sanctions were intended for deterrence and they didn't work.

REP. MANZULLO: Right. My question to you would be if the president had had the opportunity to do some negotiations such as he could under Title IV of Libertad and ILSA, what would he have done differently? Because he had no alternative but to impose those sanctions under the law. What options -- what would he have done differently to try to work with India, at the same time not cutting off or not losing what could be 100,000 American jobs?

MR. EIZENSTAT: Well, Mr. Steinberg mentioned -- and if I may quote him, because I think it's pertinent, and this is a direct quote. "The president has made clear that he would have imposed stiff sanctions even if he had discretion, but he might be better positioned to help contain this arms race if the law gave him greater authority to offer the right mix of incentives and disincentives as the situation unfolds and the parties take steps to reverse the arms race and rejoin the international consensus against the development of nuclear weapons."

REP. MANZULLO: Would those incentives include import bans?

MR. EIZENSTAT: Well, that's one of the issues we have to look at. We are now in the process, and I hope really quite promptly -- we had a meeting on this just yesterday -- to try to interpret what is in some respects a very vague act. The amendment, the 1994 amendment, does not define what a bank is, what a loan is, what the government of India is.

There are a whole host of issues; what you do on pipeline projects, projects that are before the Ex-Im Bank but that might not yet have gotten final approval. We have to try to resolve those in a way that balances what the Glenn Amendment inflexively requires us to do and what we can do to try to mitigate the impact on U.S. business and U.S. workers.

REP. MANZULLO: Thank you, Mr. Ambassador.

REP. GILMAN: The gentleman's time has expired. Mr. Burr.

REP. RICHARD BURR (R-NC): I thank you, Mr. Chairman.

Mr. Ambassador, let me turn to the G-8 summit just very quickly and to an NPR transcript of one of their reports where Mara Liasson said -- as a matter of fact, the White House official said, "The president did not push hard to convince France, Britain or Russia to change their minds about sanctions." Is that an accurate statement from a White House official? Did the president push hard to change their minds about sanctions on India?

MR. EIZENSTAT: Yes, sir. I was at -- I was the so-called (sue?) sherpa at the G-8 summit and there was a very real effort to do so. And if I may say so, at the summit there was a communique, and one of the strongest paragraphs in the communique is a G-8 consensus on the importance of cracking down on proliferation of nuclear weapons and --

REP. BURR: Is that with the use of the word --

MR. EIZENSTAT: -- weapons of mass destruction.

REP. BURR: Is that with the use of the word "condemn"?

MR. EIZENSTAT: Sir?

REP. BURR: Is that with the use of the word "condemn"?

MR. EIZENSTAT: I would have to see the actual language.

REP. BURR: The report goes on --

MR. EIZENSTAT: But I can tell you that we fought for the toughest possible language. Mr. Steinberg was sherpa. I was a sue sherpa. We worked very hard to get the G-8 countries to take the very strongest language. And I'm sure that it may have included an effort to get "condemn." I don't think that was in the final language.

REP. BURR: This report says the aides insisted that President Clinton was more than satisfied the G-8 had issued a strong statement condemning the Indian blast and they admitted the president had to fight hard just to get G-8 to use the word "condemn."

MR. EIZENSTAT: Yes, it's true. I mean, again, this gets to the point that with respect -- and Mr. Gilman, the chairman, mentioned this in his opening remarks -- we wish there had been a much firmer statement by our G-8 partners and firmer action, action, after the Indian blast. And perhaps if that had occurred, it might have served as a clearer warning to Pakistan. Indeed, the Pakistani prime minister said that one of the factors in their decision was that other countries did not join the U.S. So we were pleased that we got that much. We would have wished to have gotten even more in terms of concrete action.

REP. BURR: Was the tradeoff for them using that harsh word "condemn" to, in fact, do away with the sanctions on European companies that were put into effect in the Iran-Libya Sanction Act?

MR. EIZENSTAT: No, sir. I can personally assure you of that. And the reason is --

REP. BURR: Didn't we, in fact, do a waiver at this same G-8 meeting which waived --

MR. EIZENSTAT: No, sir, we didn't do away with the G-8 meeting. We were already negotiating the very tough additional non- proliferation controls which the EU agreed to before the India deal, before the India testing was ever known. I've spent almost a year of my life negotiating these. Before we knew anything about India, those were all signed and sealed. And the G-8 summit occurred before the EU-U.S. summit. There were two separate summits, one in Birmingham, one in London, with different countries and different entities involved.

REP. BURR: Let me turn to a press release, I think from the White House, on August 5th, 1996, where the president said, after signing the Iran-Libya Sanction Act of 1996, "We already have acted ourselves through our sanctions, and with this legislation we're asking our allies to join with us more effectively."

And then let me go back to NPR's transcript. "Today President Clinton and the leaders of the European Union reached a compromise. The president decided to accommodate the European objections to (use his?) authority under the law to waive the sanctions." Is that -- are we talking about the same sanctions?

MR. EIZENSTAT: Well, the G-8 statement on India did condemn, as did the NATO and Russia statements issued last week after the Pakistani -- there was a separate G-8 statement on export controls with very strong non-proliferation language.

REP. BURR: So we use it sometimes, and sometimes we choose to waive it.

MR. EIZENSTAT: Well, sir, we use waiver authority only when we feel that we can advance the underlying purposes of the act. For example, with respect to Helms-Burton, as I mentioned before you were here, we achieved, for the first time, the protection of U.S. international property rights against expropriation. We got them applied to Cuba. We got the European Union to agree that Castro had acted illegally in expropriating property. And in return, we said we would seek waiver authority.

With respect to the Iran-Libya Sanctions Act, we used the waiver authority only when we had commitments from Russia to put in place a, for the first time, legal regime to deal with catch-all export controls, and only when the European Union added to an already strong existing non-proliferation regime the additional commitments that I discussed earlier.

So waiver authority should not be used willy-nilly. It ought to be used when it advances the basic purposes of the act; in Helms- Burton, if we get the waiver authority to advance the protection of property rights and to chill investment in Cuba; with respect to ILSA, to advance the basic purposes of the act, which are to deny Iran the capacity to develop weapons of mass destruction.

REP. BURR: Use of the waiver should be consistent. Is that what you're saying?

MR. EIZENSTAT: It should be consistent with the statutory purpose, and that's exactly what we did.

REP. BURR: You believe in this case that's what we did.

MR. EIZENSTAT: Sir?

REP. BURR: You believe in this case that's what we did?

MR. EIZENSTAT: I not only believe it, I know that that's what we did because we got from the waiver authority, Congressman Burr, concrete, concrete commitments from Russia which have to be faithfully implemented for sure, and additional legally binding commitments from the European Union specifically mentioning Iran as a country that is dealing in weapons of mass destruction and to which special attention has to be paid to on the EU's already very strong export controls.

They agreed to greater end-use verification, to greater sharing of information with us, to working with us with third countries that do not have good export regimes. All of that came as a result of the national interest waiver.

REP. BURR: We also got the word "condemn."

Thank you, Mr. Chairman. I yield back --

REP. GILMAN: The gentleman's time has expired.

MR. EIZENSTAT: The word -- the word "condemn," sir, did not come as a result of that. That came in a completely summit, the G-8 summit, that had nothing to do with negotiation of the Iran-Libya Sanctions Act.

REP. GILMAN: I ask unanimous consent to include in the hearing record the charts provided today by the administration and other statements submitted to the committee in regard to the May 18th decision on ILSA and Helms-Burton.

Mr. Eizenstat, I'd also ask that you respond as expeditiously as possible to any additional questions we may have for the record.

We thank you for your patience --

MR. EIZENSTAT: Well, thank you for your courtesies, Mr. Chairman.

REP. GILMAN: -- and generous sharing of your time.