House International Relations Committee Hearing: U.S. Policy on Iran

November 9, 1995

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REP. GILMAN: Good morning, ladies and gentlemen. The committee will come to order. I'd ask if our doors could be closed to the rear.

I take great pleasure in welcoming our distinguished panel witnesses before our hearing this morning on our nation's policy towards Iran. We have an opportunity today to launch a concerted campaign directed at the government of Iran in order to curtail its policies which support international terrorism and the threat of weapons of mass destruction.

Together with Mr. Berman, Mr. King, and Mr. Lantos and a number of my colleagues on the committee, we've introduced a bill to impose sanctions on foreign entities that provide oil-field equipment and technology to Iran. The Iran Foreign Oil Sanctions Act of 1995 declares that Iran's efforts to acquire weapons of mass destruction endanger (sic) the security of our nation and our allies and that we should prevent Iran from earning the hard currency it needs to purchase these type of weapons.

By requiring the president to ban U.S. government procurement, export licenses, and Ex-Im Bank assistance to companies providing Iran with assistance in developing its oil fields, this bill is intended to help our nation develop a comprehensive policy to deter Iran from supporting international terrorism and in developing nuclear weapons and the means to deliver them.

If enacted, this bill would help to ensure that Iran does not succeed in circumventing President Clinton's three-month-old trade embargo against Iran. That embargo ended our nation's companies' purchases of Iranian crude oil. I urge my colleagues to join in co- sponsoring this vitally important legislation and to enable us to send a clear message to the Iranian regime that we're not going to support a business-as-usual policy.

As long as our trading partners continue providing critical technology and additional financing for this terrorist country, our own embargo will have little long-term effects on its policies. Iran has invited more than a dozen major European and Asian companies to invest more than $6 billion in 12 new oil and gas projects, and will be holding a major investment conference in just a few days. It must be clear in the message that we're sending today in this area that Congress and the administration will close ranks to make certain that these companies pay a high price for any participation in such a conference.

I stand ready to work with the administration in implementing these goals and ensuring that Iran is not able to sidestep our current trade embargo.

Our hearing today will also focus on Iran's convention military buildup, its programs for weapons of mass destruction, and our nation's response. We will also review the Iran-Russian relationship regarding nuclear cooperation. We also want to explore Iran's bilateral relations with states in the Middle East and Gulf regions, its opposition to the Middle East peace process, its active support for terrorist groups, and its efforts to subvert governments by manipulating its diplomatic immunity through its embassies and diplomatic personnel.

We also want to assess Iran's efforts in neutralizing opposition at home and abroad.

We have a lot of ground to cover in a short time, so I will ask our witnesses to limit their statements to five minutes, so that we have ample time for questions. Of course, your full statement will be made part of the official record. We'll keep the record open for two weeks for the submission of any additional material you may want to submit.

Before we begin today's hearing, I'd first like to ask if any of our members have any opening statements.

REP. : Mr. Chairman, I'd just like to join you in your statement on Iran. We now have apparently a number of CEOs heading shortly to Iran to expand trade with a country that's clearly outside the nations of the world who wish to live under law and reasonable relations with other countries. Even countries such as North Korea are not as intent on causing destruction as the Iranians are, and, in contrast to North Korea, the Iranians have a thriving international business in the range of $15 billion of oil alone.

The United States, as often has occurred in the past whether with South Africa or Libya, has taken the lead. The Congress should help the administration get other nations to join us in pressing the Iranian government on its policies.

REP. GILMAN: Mr. Smith.

REP. SMITH: Thank you, Mr. Chairman, and I want to thank you for holding this important hearing. In shaping United States policy towards Iran, we must pay particularly close attention to at least three areas of concern. The first is human rights. After 16 years, the extremists who run the Iranian government still exercise tight control over the daily lives of all Iranians. They have been particularly harsh in their treatment of members of religious minority groups. Just last year, the Christian community in Iran witnessed a martyrdom of three prominent leaders, including Bishop Haik Meier (sp). Numerous converts to Christianity from Iran have been beaten and tortured in an effort to make them deny their faith. Severe persecution of Jews and inherent to the B'nai faith also continues.

The second area is nuclear non-proliferation. Both Russia and China have transferred materials and technology to Iran that could be used in the development and construction of nuclear devices. In each case, the transfers are ostensibly for peaceful purposes. We hear the same story -- and we heard the same story a few years ago about nuclear transfers to North Korea. Once Iran has acquired the immediate capability to build nuclear weapons, perhaps we will be given the option of spending a few billion dollars to persuade them to surrender this capability. Finally, there is Iran's well-documented support for international terrorism. Iran is the principle sponsor and the financier of international terrorist activities against both the United States and Israel. Mr. Chairman, the government of Iran is recently deserving of its status as a pariah regime. I look forward to this hearing, and I want to particularly welcome Under Secretary Peter Tarnoff to this hearing and look forward to his comments and those of our other witnesses. Thank you, Mr. Chairman.

REP. GILMAN: Thank you, Mr. Smith. Mr. Lantos.

REP. LANTOS: Mr. Chairman, first I would like to congratulate you not only for holding this hearing, but for providing leadership on a bipartisan basis in confronting the outlaw regime in Teheran. I also want to identify myself with every single statement of my good friend from New Jersey on the human rights issue of the nuclear non- proliferation issue and upon the support of terrorism issue. Congressman Smith has spoken, I think, for all of us on all three of these issues and to save time, I will not repeat the same items. I do want to say some additional items that have not yet been raised. I'm appalled at the performance of many of our closest allies which are repeating the shameful pattern of behavior they perpetrated with Iraq a few years ago.

We went through the same dialogue, some of us on this committee arguing that we are dealing with a very dangerous regime. At that time, of course, the administration disagreed with us and to the very end argued that we can do business with Iraq, that if we are only nice to Iraq, if we only provide Iraq with agricultural export credits, if we maintain a dialogue of openness and friendship, everything will be alright. And then on the second of August, Iraq invaded Kuwait, and there was a sudden awakening. And the administration was left in disarray and confusion. We are now repeating the same pattern. I am pleased to see the administration pursuing some of the policies that we are advocating, but I am a long ways from being satisfied with the vigor of these policies. Let me become specific.

There is a $38 billion trade surplus that China has with the United States.

I would like to see this administration tell China that they have an option of trading with Iran or trading with the United States. They have to make a decision whether the $38 billion trade surplus is worth it for them to cooperate with us in curtailing Iran's outrageous policy of nuclear proliferation, support for terrorism and the abominable behavior in the field of human rights. I also think it's important that we take a much stronger position with Russia. And I'm tired of hearing that when we take a stronger position, we play to the hands of Zhirinovsky and others.

I think it's important to understand that as the Russians are asking us to be sensitive to their concerns with respect to NATO expansion, and our difficulty seeing why they would be concerned about democratic countries like the Czech Republic or Hungary joining a defensive military alliance, they are showing no sensitivity to our concern with respect to their policy vis-a-vis Iran which contributes to Iran developing its nuclear and other capabilities of mass destruction. Yeltsin has his own problems, health-wise and in other areas. We have to play our own cards according to our own (life?). We have to make it clear to the Russians, we have to make it clear to the Chinese, and we certainly have to make it clear to our own allies and friends that there is a repetition of the failed western policy towards Iraq which led to the Persian Gulf War. And I fully understand that many in the western world are ready to sell anything to anybody in order to make a buck. We cannot take such an irresponsible policy.

I also think it's important to remind us, Mr. Chairman, that some of the most outrageous policies of this regime in Tehran with respect to Mr. Rushdie are still in effect. Here is a globally respected writer, a world-class writer, who is still under a death threat by his own government. We cannot let the Rushdie thing fade into the background. The Iranian government just recently reiterated its determination to carry out the execution of Rushdie, whose sole crime is to exercise his free speech privilege.

I think we need to insist on having this death threat removed, and I think it's important that we publicize to the fullest possible extent the list of companies that are about to arrive in Tehran to make profits out of nuclear proliferation, support of terrorism and the suppression of innocent human beings throughout the country of Iran. I believe our administration is on the right path, but I think this right path must be extended to the administration's policies with respect to China, with respect to Russia and with respect to our other allies.

Thank you, Mr. Chairman.

REP. GILMAN: Thank you, Mr. Lantos. Mr. Berman. I'm going to ask our colleagues to try to please be brief so we can get on with the dialogue.

REP. HOWARD BERMAN (D-CA): Thank you, Mr. Chairman. I want to commend you for scheduling the hearing. I think this is a very good subject for a hearing and also for introducing H.R. 2458, which imposes sanctions on foreign persons exporting goods or technology that enhance Iran's oil and gas industry. I'm proud to join you as a co-sponsor of this legislation.

The legislation and the hearing send a strong signal to those countries and companies who do not support President Clinton's efforts to halt Iran's export of terrorism. The bill installs a stop sign on the road to next week's oil seminar in Tehran. I think it's appropriate to warn all the companies now considering attending that meeting that the fastest way to ensure H.R. 2458's passage is to show up at that investment meeting.

I know there are companies and countries who think this is the wrong approach to take towards Iran. I've had a number of discussions with representatives of our allies who feel that way. After President Clinton imposed sanctions last April, European countries and Japan said they would maintain their critical dialogue with Iran. Well, we've tried their critical dialogue. The Reagan administration began a covert policy of trading arms with so-called Iranian moderates. President Reagan's policy of dialogue with Iran got nowhere, and our allies' policy of engagement has also gotten nowhere. Our allies need to be reminded that it is the lives of American soldiers -- not German soldiers, not French soldiers, not British soldiers, American soldiers -- that are on the front line in the Persian Gulf, lives at risk as they're prepared to defend the world's oil resources.

I think we should be clear about the target of this legislation. It's not aimed at overthrowing the Iranian government. I respect the right of Iranians to have a government of their own choosing, although it's not totally clear to me that's what they have. But they certainly have an obligation to respect the right of other governments to live in peace. Instead, Iran sponsors global terrorism. Whether it's the Hezbollah, first created by the Iranian revolutionary guards, the Hamas, the Islamic Jihad, Iran finances and directs these groups. Constructive or even critical engagement has not diminished their activities.

Instead, Iran is actively modernizing its military forces in the Gulf in disproportionate measure to Iran's defensive needs, purchasing submarines, anti-ship missiles, and ballistic missiles. Iran appears intent on developing chemical and nuclear weapons as well. These are not steps taken by a regime amenable to a dialogue. They must stop. What keeps Iran going is its oil and gas reserves. As the second largest oil producer in OPEC, whose gas reserves are the world's second largest, oil revenues grease the Iranian terrorist machine.

Now Iran wants to restore nearly 50 percent of its pre- revolutionary production capacity by 2000 -- the year 2000. It wants the west to invest in this production so Iran can afford to pay terrorists to disrupt the west.

Secretary Kenneth (sic) Tarnoff, who's here today, testified in October that a straight line links Iran's oil income and its ability to sponsor terrorism, build weapons of mass destruction, and acquire sophisticated armaments. We now need to sever that link even more cleanly. H.R. 2458 does precisely that.

I hope the administration will work with us to craft a joint policy that constricts as tightly as possible Iranian financing of international terrorism and helps the administration to even more effectively achieve its goals.

Thank you.

REP. GILMAN: Thank you, Mr. Berman.

Mr. Engel.

REP. ELIOT ENGEL, D-NY: Thank you, Mr. Chairman, and thank you for holding the hearing.

Let me say that if the assessment of all governments that have been trying to do something to combat terrorism, that their number one enemy in terms of international terrorism is Iran. The Israelis will tell you that, the Arab states will tell you that, and others will tell you that.

Given that record, I cannot understand why so many of our allies have such an abysmal record in terms of trying to clamp down and put pressure on Iran to once and for all stop their ways or to allow the people of Iran the freedom to choose a government of their choosing.

I'm happy to be a co-sponsor of the legislation that's being discussed, and I think that it's very appropriate that we in the House take the lead in working with the administration in trying to clamp down on Iran.

It isn't easy. Three administrations have tried, with different modes of success, different degrees of success, but I think if there's one constant that we need to have in our policy, it is to stand up for human rights and to stand firmly against terrorism.

And, again, when we talk about terrorism, Iran is the number one country exporting terrorism and fomenting terrorism all over the world.

Recently I came back from a trip to Argentina We visited the site of the blast of -- in Buenos Aires of the Jewish Community Center and, of course, Iran is suspected there. Whatever governments we go to, whatever heads of state we speak with, and we talk to them and ask them for their honest assessment in terms of terrorist threat, the name of Iran is always first and foremost. We went to war in the Persian Gulf several years ago against Iraq. It seems to me that if we look at the two countries -- and I'm not minimalizing the threat of Iraq -- but certainly Iran, in my estimation, because of terrorism, poses the greater threat right now.

So it seems to me that there are countries in the world, our allies, that want our help and want our cooperation in endeavors that are important to them, and I certainly think that this is not only important to the safety and well-being of Americans, but, indeed, the safety and well-being of people throughout the world.

So I am very delighted that we're having this, and I hope that we can come up with a policy that's effective, and I think that we really need to let our allies and others know that we draw the line. We draw the line against international terrorism and we draw the line with their winking on the one hand and doing whatever satisfies them on the other hand, paying lip service against international terrorism, but really aiding and abetting it.

So, again, I look forward to the hearings and I look forward to working with the administration and coming out with legislation that will make our Iran policy even more effective.

Thank you, Mr. Chairman.

REP. GILMAN: Thank you, Mr. Engel.

Mr. Tarnoff, if you would be kind enough to lead off, and you may submit your full statement and we welcome your brevity so that we can get into a dialogue with you. Undersecretary of State for Political Affairs Peter Tarnoff.



Under Secretary of State for Political Affairs


MR. TARNOFF: Well, thank you, Mr. Chairman, very much for inviting me to present an overview of U.S. policy towards Iran and to try to respond to many of the questions in your letter and that have been raised here today.

I do have a longer statement that I would like to submit for the record, but let me try to summarize the salient points so as to be able to open the discussion afterwards.

This administration has maintained and intensified its efforts to contain Iranian actions and policies that threaten U.S. interests and values. We know that we share that objective with Congress. Six months ago, President Clinton imposed an embargo against Iran, and with this strong action, he confirmed American leadership towards Iran. The president's decision complements long-standing American determination to counter Teheran's rogue activities, and today, as we evaluate our policy towards Iran, let us first review some of the fundamental issues.

I believe that this review will demonstrate that the Clinton administration has devised a responsible and realistic policy, a policy which safeguards American interests and deserves your support. Our strategic interests in ensuring the free flow of oil from the Persian Gulf and in maintaining regional stability requires us to focus on Iran for obvious reasons. Iran is the largest and most populous state in the Middle East, and it contains nine percent of the world's proven oil reserves and 15 percent of the world's proven gas reserves.

Iran is proud of its long and distinguished history and it believes it should be a regional power, but today Iran is behaving, for all of the reasons mentioned here, in a highly irresponsible fashion. Our policies with Iran are based on our concerns about specific Iranian policies, which we judge to be unacceptable to law- abiding nations. Our goal is to convince or force the leadership in Teheran to abandon these policies and to abide by international norms.

Iran engages in terrorism by assassinating its opponents, it provides material and political support for Palestinian rejectionists trying to undermine the Middle East peace process through violence. Iran also supports opposition groups seeing to subvert secular regimes in the Muslim world.

It is pursuing the development of weapons of mass destruction -- that is nuclear, chemical, and biological weapons -- and the missile systems to deliver them. Iran is also engaged in a conventional military buildup that threatens regional peace and stability.

At home, Iran abuses the human rights of its citizens, particularly the rights of political dissidents, women, and religious minorities. With the president's support and under Secretary Christopher's leadership, this administration has accorded a high priority to our efforts to deny Iran the military capabilities and financial resources it needs to successfully implement these policies. We've acted alone when necessary and collectively when possible. First we concentrated on blocking the transfer to Iran of dangerous goods and technologies. We began with the strictest national export controls in the world. We've engaged in close negotiations with other governments to obtain agreements to keep Iran from acquiring armaments and sensitive dual- use items and technology for military purposes. We also have been working with other governments to thwart Iran's efforts to acquire items useful for its program of weapons of mass destruction.

Second, by pressuring Iran's economy, we seek to limit that government's finances and thereby constrict Teheran's ability to fund rogue activities. We launched an initiative to block Iran's access to the international capital markets that its economy needs, and we have worked bilaterally with international -- and within international financial institutions to obtain these results, as well.

To contain Iran, we have employed the full panoply of political and economic measures that we have at our disposal, but we seek to reinforce what we are doing, and that will be the subject, I hope, of close cooperation between the Congress and the executive branch.

By imposing an embargo, we have demonstrated to our friends and allies that Iran's actions make it unacceptable to conduct business as usual, but while we continue to pursue every option available to us to increase the course -- cost to Iran of its unacceptable activities, the costs we can impose by acting alone are somewhat limited.

We believe this effort to compel Iran to change its behavior deserves multilateral support. Therefore, through diplomatic channels, we are working aggressively to urge other governments to join us. We seize every opportunity to make our point.

Let me just mention a few examples of this, because they include phone calls from the president, meetings with the vice president, personal letters from Secretary Christopher, visits to capitals by myself and other high officials of the Clinton administration, including the Secretary of Defense and the Secretary of Energy.

I can tell you from my own experience, these exchanges on Iran are candid and detailed, and our persistence has paid off -- not as much as we'd like, but I would submit we have made real progress with our allies on many Iranian issues. Because of U.S. leadership, 28 nations have agreed to cooperate in preventing Iran from acquiring armaments and sensitive dual-use goods and technology for military-end uses. As these nations include most of the world's major arms suppliers, this collective consensus should dramatically limit Iran's future acquisitions. In addition, most nuclear suppliers, including our major allies, have assured us that they will not encourage nuclear cooperation with Iran. Russia and China remain exceptions, and we're working hard with both of those governments at a very high level to obtain their cooperation as well.

Our proposal to block Iran's access to international finance have also met with some important successes. Since the president announced our embargo, no government has extended new official credits to Iran. Japan continues to withhold development assistance; we continue to successfully block aid to Iran from the World Bank and other international financial institutions. Specific U.S. action has also hurt Iran's economy, and our embargo has resulted in a dramatic evaluation of Iran's currency. With regard to additional action, building a coalition requires time and determination. And we believe that our current approach of leading by example and working cooperatively with our allies is making some progress and is likely to continue to make progress. We also know that Congress is now considering a proposal to sanction foreign companies that sell equipment and technology to Iran's petroleum industry, and we share your desire to explore additional steps that increase pressure on Iran. But we have some concerns that I'd like to state in a general way with the legislation, although, as I mentioned before, Mr. Chairman, we are prepared to work with the Congress and have scheduled for early next week meetings between members of this committee and their staffs and members of the administration to work on these issues.

First, we are concerned to find additional measures that are effective. In other words, measures that have a punitive effect on Iran; discouraging effect on Iran, without jeopardizing larger U.S. interests in a harmful way. The second concern is whether we could administer such sanctions. Accurately monitoring trade between Iran and the world's major suppliers is a very complicated issue, especially since we could not count on trading nations to cooperate with us. A final concern is that whatever approach we and the Congress choose may not produce a state of acrimonious international litigation with our closest trading partners or fragment increasingly effective diplomatic coalition that we have successfully forged to counter objectional Iranian policies. I'd like to reiterate that while more needs to be done, and we do have differences with our friends and allies, let us not overlook the real progress on a whole range of issues in which we cooperate very effectively with our allies to counter Iran.

In conclusion, let me say that our comprehensive efforts have frustrated Iran's military ambition and frustrated its financial -- and hampered its financial situation. We must maintain and strengthen these efforts, but our vigilance is succeeding in protecting American interests. Because our policy is grounded in a thoughtful assessment of reaching international realities and additional opportunities to bring pressure on Iran, we are confident that we can deter any Iranian threat. We depend on congressional support and understanding for our commitment and efforts, and we look forward, Mr. Chairman, to working with you, other members of the committee, other members of Congress in both parties on effective ways to increase pressure on Iran. Thank you very much.

REP. GILMAN: Thank you, Mr. Tarnoff. Deputy Assistant Secretary of Defense for Near Eastern and South Asian Affairs Bruce RIEDEL. Please proceed Mr. RIEDEL.

MR. RIEDEL: Good morning, Mr. Chairman.

REP. GILMAN: (Inaudible) -- full statement for the record and Mr. Tarnoff, did you want to submit your full statement for the record? Without objection, both statements will be made part of the record.



Deputy Assistant Secretary of Defense
for Near Eastern and South Asian Affairs


MR. RIEDEL: Thank you, Mr. Chairman. Since my full statement will be entered, I will just give you a few of the highlights of the key points. It is a pleasure to be here today to discuss the threats posed to United States interests by the government of Iran and the role of the Department of Defense in the United States government's strategy for dealing with those threats. First, I think Under Secretary Tarnoff has already outlined the importance of U.S. interests in the security of the Persian Gulf energy supplies. Let me only add to that that no where in the world have the United States armed forces been more engaged in combat operations in the last decade than in the Persian Gulf, and I think that is a direct reflection of the importance we attach to preserving our access to those energy supplies.

Secondly, at the Department of Defense, we believe that Iran constitutes both a serious immediate and an important long-term threat to the security of the Gulf. Iran harbors ambitions of establishing Iranian hegemony over the region and of assuming a leading role throughout the Islamic world. Iran has not hesitated to pursue these twin objectives to every means at its disposal, including subversion and terrorism. We see such tactics applied toward the realization of Iranian ambitions far beyond the Gulf as well, in places as distant as Egypt, Sudan, Algeria, Lebanon and even the former Yugoslavia. Teheran has been the most vocal and active opponent of the Middle East peace process and is the sponsor of several of the group's most vehemently and violently opposed to it. Only this week, Iranian President Rafsanjani called the assassination of Israeli Prime Minister Rabin a divine act of vengeance.

Iran is the financier, armorer, trainer, safe haven and inspiration for the (Hezbollah ?) in Lebanon, one of the world's most deadly terrorist organizations, and it provides similar types of support to a broad range of other terrorists groups. Iran spends well over $100 million annually on such support.

While Iran's overall conventional military capability was sharply weakened by its defeat in the Iran-Iraq War and will remain so throughout the 1990s, recent Iranian purchases demonstrate Teheran's desire to develop an offensive capability in specific mission areas that endanger U.S. interests. We are especially concerned about the recent sale of Russian Kilo submarines and tactical aircraft and Chinese and North Korean missiles to an Iranian government that makes no secret of its desire to dominate maritime traffic in and out of the Persian Gulf.

In this regard, we have been closely watching the Iranian military build-up on several islands whose ownership is disputed between Iran and the United Arab Emirates. Whatever the specific Iranian motivation for fortifying these islands, the creation by a hostile power of bases sitting astride the western approaches to the Straights of Hormuz is obviously a matter of serious concern for commercial traffic, our own naval presence and the security of our Arab friends. These actions give Iran the capability to menace merchant ships moving in and out of the Gulf and allow it to flex its muscles vis-a-vis its smaller Gulf neighbors. Of even greater concern in the long run, Iran is also dedicated to developing weapons of mass destruction, including chemical, biological and nuclear weapons, a prospect that would have serious repercussions for regional stability and perhaps for our ability to protect our interests in the area.

Third, the Department of Defense is pursuing a three-tier cooperative approach with the states of the Gulf Cooperation Council to build strong regional security capabilities to deter aggression in the Gulf, whatever their source. This approach consists of strengthening local self defense capabilities, promoting GCC, an inter-Arab defense cooperation and enhancing the ability of U.S. and coalition forces to return and fight effectively against local forces in a crisis. In this regard, the peacetime forward presence of U.S. naval, air and land forces in the Gulf is an essential element of being able to return quickly to a crisis against any aggressor. It provides an initial capability to deal immediately with any direct challenge and serves as the key symbol of our commitment to deter regional aggressors.

We presently have approximately 24,000 personnel in the region. But even with a presence this high, forces in the region are not designed by themselves to meet a full-scale attack on our areas of vital interest which would require the dispatch of substantial additional forces from outside the Gulf. We are therefore pursuing a number of enhancements in cooperation with our partners in the Middle East to better -- to make us better able to meet the challenge of rapidly deploying a force if necessary. The most recent of these enhancements was the deployment of a United States Air Force squadron of 18 F-16 fighter aircraft to Bahrain. This deployment was based upon consultations between Bahrain, the United States and other states in the Gulf to cover the gaps after the departure of a U.S. aircraft carrier from the region.

Finally, U.S. policy, as Under Secretary Tarnoff has outlined, seeks to change Iran's objectionable behavior by containing its aggressive actions and by making it an increasingly costly choice for Iran to continue its rogue policies. We have had some success in denying Iran access to new international credits and financial aid. Moreover, most countries now refuse to sell Iran advanced weapons. Even Russia has agreed to cap its arms sales to Iran. We are pressing Moscow and others for more. Due to U.S. pressure and Iran's economic weaknesses, Teheran has been forced to substantially reduce military purchases in the last few years. Arms imports, as measured in hard currency expenditures, have fallen by more than 50 percent since 1992. This is no small accomplishment and of considerable importance for the Department of Defense.

To summarize, then, the United States has and will continue to seek to counter Iran's threats to our vital national interests. And while our current military posture in the Gulf is designed primarily to counter the threat posed by Iraq, our forces, in concert with those of coalition partners, are engaged in a carefully constructed regional strategy to ensure that neither Iraq nor Iran can dominate the Gulf, endanger the sovereignty and security of our partners, and control the flow of oil on which the welfare of both producers and consumers depend.

Thank you, Mr. Chairman.

REP. GILMAN: Thank you, Secretary RIEDEL. For my colleagues, we're going to continue right through the voting period. Mr. Smith will be coming back to chair the meeting while I go out. In the meantime, though, let me start off the questioning.

Mr. Tarnoff, Secretary Tarnoff, since the executive order, we've sought the cooperation of our allies on this matter. And as you stated in your testimony to the Senate Banking Committee on October 11th, 1995, and I quote, "If, after a reasonable period of time, diplomacy alone proves inadequate in achieving an acceptable level of multilateral support -- (inaudible) -- we would then consider additional approaches," closed quote. Have we made any progress in gaining multilateral support for our efforts?

MR. TARNOFF: I think, Mr. Chairman, we have made some progress, not as much as we would like, but we have made some progress. And let me cite two examples in recent weeks and months. The first is, as I indicated in my testimony, there has been no granting of official credits by any of the major industrialized countries to Iran since the president announced his executive order imposing a trade embargo on Iran.

Secondly, in connection with the investment seminar which you referred to or other members referred to, which is going to open in Tehran in the next several days, we have been in touch with industrialized countries around the world. I've handled much of this communication myself. And here again, most of these governments have responded that they will reaffirm their intention not to advance official credits, and some have even said that they will at least quietly discourage participation from their national companies, even if these are private entities. We will have to see what the results are after that seminar, but I think we've gotten at least a sympathetic hearing from most of those governments on this issue.

REP. GILMAN: Secretary Tarnoff, you also note in your testimony some modest limits on the assistance being provided to Iran by China and by Russia in the area of nuclear cooperation. Can you tell us what are the specific actions that our nation has taken to limit all nuclear, chemical and biological assistance to Iran for these two countries? And what are we doing to ensure these two countries do not provide Iran with missile parts, technology, technical assistance that violate the missile technology control regime and its related annexes?

MR. TARNOFF: Mr. Chairman, with your permission, I'd like to open with a statement of general policy and then turn to Mr. RIEDEL, who has been working on these issues intensely for a period of time. But I can assure you, in every high-level conversation that we have with the top authorities in both China and Russia, the subject of Iran is raised. A recent example of some progress on this issue occurred when, in a meeting this past September between Secretary Christopher and Foreign Minister Qian Qichen of China, the Chinese side indicated to us that they would not be pursuing any cooperation in nuclear reactor transfers to Iran, something that we had been talking to them about for a period of time.

At the same time, at a variety of levels these conversations have been going on with the Russians. But I'd like to ask Mr. RIEDEL to be a bit more specific, if I might.

MR. RIEDEL: Thank you. The United States has raised its concern about Iran's nuclear intentions repeatedly and at senior levels with the Russians and Chinese, as Undersecretary Tarnoff noted. We have consistently noted our reasons for doubting Iran's commitment to a purely peaceful nuclear program and have strongly counseled against cooperating with Iran's program even under safeguards. Both the Russians and the Chinese have responded by noting Iran's status as a nuclear non-proliferation treaty partner and that their nuclear sales to Iran will be fully subject to IAEA safeguards. They have also pointed out that the IAEA uncovered no evidence of a nuclear weapons development program during its visits and inspections of Iranian nuclear facilities. We have consistently reminded both the Russians and the Chinese that Iran's program is at an early stage of development and that we would not, therefore, expect the IAEA to uncover any smoking gun evidence of a weapons program. We have also reminded them that the IAEA has said publicly it could not vouch for sites it has not visited nor be certain that the sites visited would not be used for nuclear weapons-related activities in the future.

We have also noted that the Iraqi case serves as a stark reminder that NPT adherence does not guarantee that a state's nuclear program is purely peaceful in nature. We have told the Russians that nuclear cooperation with Iran would be an obstacle to bilateral nuclear cooperation between the United States and Russia. The administration is constantly reviewing further steps and further opportunities to dissuade Russia and China from proceeding with its nuclear sales to Iran. For example, next week Assistant Secretary Nye will be visiting China and will raise this issue again. We continue to harp after them with every opportunity we have, Mr. Chairman.

REP. GILMAN: And do we have any information that China is supplying Iran with any of the chemical weaponry wherewithal and the nuclear arms wherewithal at the present time?

MR. RIEDEL: In the chemical arena, we have seen evidence that China has provided some assistance or Chinese firms have provided some assistance, both in terms of the infrastructure for building chemical plants and some of the precursors for developing agents. I would point out here that the Chinese chemical industry is very rapidly growing at this time, and not all facets of it may be under the fullest scrutiny of the Chinese government. We continue, when we become aware of such incidents, to raise them with the Chinese government to the fullest extent we can while protecting intelligence sources and methods.

In the nuclear arena, China's nuclear cooperation with Iran dates back to the mid 1980s. In 1991, for example, China publicly acknowledged providing Iran a miniature neutron-source reactor and an electromagnetic isotope separation unit. In 1992 Iran and China concluded an agreement for peaceful nuclear cooperation, at which time China agreed to provide Iran two light-water power reactors. The Chinese have not yet provided that. They recently announced that they may be reviewing that deal again. We think Iran's economic problems have been a major element in Chinese reconsideration of that. But I want to stress, we continue to raise with the Chinese on every opportunity our desire that they not proceed on this front.

REP. GILMAN: Thank you. Has there been any response from our protests to China or to Russia with regard to any of these deliveries?

MR. RIEDEL: We have seen that both countries have acknowledged our concerns. We haven't gotten as much progress as we'd like but we have seen some areas of progress. If, for example, I could turn to the area of conventional weapons, we have repeatedly raised with the Russians our concern about the sale of kilo submarines and advanced fighter bomber aircraft. In September of last year the Russians agreed to sign no new additional contracts with Iran and to cap their sales program at the level that it is -- that had already been signed. We regard that as a significant accomplishment, because Russia is the only country currently providing advanced sophisticated weapons to China -- excuse me, to Iran. No other source of such advanced and sophisticated weapons is willing to sell to the Iranians, and getting the Russians to agree to cap their program, therefore, marks an important milestone.

REP. GILMAN: Thank you, Secretary. We'll have a brief few minutes' recess awaiting the return of Congressman Smith, who will conduct the hearing. In the meantime, the committee will stand in recess.


REP. : The committee will resume its sitting.

REP. CHRISTOPHER SMITH (R-NJ): Mr. Chairman, I'd like to ask a couple of questions. Chairman Gilman will be back momentarily, of course.

As you may probably know, London's International Institutes for Strategic Studies issued a statement in its "Military Balance 1995- 1996" report that said, and I quote, "Iran is the only state in the Middle East that is actively seeking nuclear weapons. It devotes an estimated two (billion dollars) to $3 billion a year of its hard currency since 1989 in importing dual-use technologies for the development of nuclear, chemical, and biological weapons."

I was wondering if you could tell us whether or not you believe those figures to be accurate and what can be done to prevent -- in addition to what the administration is already doing, which I think there's good, strong support on both sides of the aisle for -- what additional steps can we take to mitigate their acquisition of these -- of this hard currency and this dual-use technology?

MR. TARNOFF: Mr. Smith, with respect to the first part of your question, I'd like to ask Mr. RIEDEL, who is a long-established expert on these matters, and I will respond, if I might, to the second part of your question, namely the additional measures we might take to frustrate Iran's attempt to acquire these systems.

REP. SMITH: Thank you. Mr. RIEDEL?

MR. RIEDEL: Thank you. It's very difficult to come to hard conclusions about the size of nuclear weapons expenditures by Iran. Certainly, though, the IISS study correctly points out that Iran has made this a very major priority and is expending considerable quantities of its rather dear hard currency.

Judgments about the timetable for any country's development of nuclear weapons, particularly a country which is trying very hard to hide that from the outside world, is very difficult to make. The best available information that we have indicates that Iran would probably take at least eight to 10 years to produce its own nuclear weapons. If Iran receives critical foreign assistance for its development efforts, however, that timetable would be shorter.

The intelligence community and the Department of Defense's intelligence apparatus is constantly re-evaluating our judgments. I would say I cannot confirm the specific numbers, but the intent is clear.

MR. TARNOFF: Mr. Smith, with respect to actions that the United States and others can take to counter the developments that Mr. RIEDEL and you have referred to, let me mention two or three.

The first is that the effectiveness of the so-called new form or the post-COCOM regime, where 28 major industrialized nations and others around the world have come together to consort on the export of sensitive technology, including dual-use technology and military technology is enormously important, and Iran is one of the several countries most in mind of the post-COCOM regime, because of a great consensus that Iran represents the kind of dangers that we've been talking about.

Secondly, I think it's very important for us to continue and intensify and -- our exchanges of information on a discreet basis with countries around the world with respect to Iran. I hope that you appreciate that I cannot go into much greater detail in this setting, but we have, over the past year or so, made a considerable effort to share information with respect to these programs with many of the governments which have trading and other relationships with Iran, and some of the success that we've had in cooperating with these governments on at least some of these issues I'm sure derives from the fact that we have persuaded them that the information we have is credible and that Iran represents the kind of danger that we're talking about here today.

REP. SMITH: As you know, Prime Minister Bhutto just concluded a three-day visit to Iran and signed some agreements dealing with trade, enhanced trade, apparently, and did the department have any reaction to that? Because, again, this could be a means for further access to hard currency, which again means that their ability to project terrorism around the world becomes enhanced.

MR. RIEDEL (?): Mr. Smith, we do not, as yet, have a full account of Prime Minister Bhutto's visit to Iran. However, before she went, we undertook to make sure that the government of Pakistan and the prime minister personally was aware of our concerns. Pakistan has had a long-established relationship with Iran as a neighbor, and there are populations that go back and forth across the border, but I can assure you that we were in touch with her government to caution against further development of relations with Iran. We just don't, at this point, have enough of a report for me to give you an answer, but I will provide one as soon as we get additional information.

REP. SMITH (?): If that could be made a part of the record, that would be very helpful.

MR. RIEDEL (?): Yes, of course.

REP. SMITH: Appreciate that.

In general, could you tell us how women and minorities are treated in Iran, and if you could assess the status of some of the more significant minorities in Iran, including the Jews, the Christians, the Kurds, the Arabs -- you know, I mentioned in my earlier statement, you know, our subcommittee has been following the mistreatment of religious people, people of faith other than the Islamic faith, and I was wondering if you could give us an assessment on that?

MR. RIEDEL: Yes, Mr. Smith. I'd add the Ba'hai, of course, to the list that you provided, but the general state of affairs is miserable. These ethnic as well as religious groups are under intense scrutiny by the regime. In years past, their leadership has been decimated by imprisonment and even execution. They're under very tight constraints and, furthermore -- not surprisingly, given the nature of the regime -- Iran has not allowed transparency. It has not allowed international visitors to have normal relations or normal access to these minorities.

So for that reason, among several complaints, very public complaints, that we express about Iran, we never fail to mention that Iran's treatment of its own population with a special attention to its own minorities form part of our definition of unacceptable behavior.

REP. SMITH: I appreciate your comments, and at this point, I yield to Mr. Gejdenson. REP. SAM GEJDENSON (D-CT): Thank you, Mr. Chairman.

I'd like to inform members of the committee that later today Mr. Burton of Indiana, who I don't often co-sponsor things with because there aren't that many things we agree on, actually, will be introducing a bill on Iran which basically will focus on oil-drilling equipment and companies that sell oil-drilling equipment to Iran will be barred from sales in the United States.

The frustrating part, of course, is that, as always, to get the attention of our allies and adversaries, our allies in the world, to focus on the situation, I guess the question that I have is are there things that we in the Congress can do with the administration to increase the focus.

One of the things that happens in any country's foreign policy is understandably now that top levels of the State Department and the White House are focusing on the peace talks in Bosnia. There are other areas of the world which will constantly demand the administration's attention where there's more likely to be success, and so you don't want to spend a lot of your time trying to get governments to focus on Iran when it will be difficult to achieve a successful outcome.

What are the kinds of things you think that we might be able to do to help you in getting other countries to join us? Because it's clearly most effective if we can get multilateral actions, rather than unilateral actions?

MR. RIEDEL: Well Congressman, let me begin by saying that I appreciate very much the spirit and the intent of your question and your offer. Despite other priorities, let me assure you that our presence here today, but more importantly, the continued attention by the president, by the secretary, is evidence that the issue of Iran is on our screens. We are concerned. We're concerned about developments in Iran as described to you just a moment ago, Iran's reaction to the assassination of Prime Minister Rabin, the investment seminar in Iran over the next several days, so we are tracking these events very, very closely.

What we have proposed, having looked at drafts of the legislation that has been prepared heretofore -- I'm not familiar with the latest version that you and Mr. Burton may be presenting later today -- is to offer administration consultation on a very broad basis beginning as early as next week, and we've been in touch with some of the members of the committee and some of the committee staff on that basis.

What the administration would do is to make available senior officials not only from the political side, but from the economic departments and agencies so that we could consult with a view to try to combine our efforts so as to be able to be even more effective in terms of bringing pressure on Iran. That will have to include not only U.S. actions, but U.S. actions affecting the trading relationships of others with Iran.

But we are disposed to deal with those matters seriously and urgently and, as I say, we have in place, I believe, some consultations that I hope will produce a large measure of agreement.

REP. GEJDENSON: Clearly one of the things that would be most helpful to the peace process in the Middle East would be to stifle Iran's continued support for terrorism in the region, and it's not as if we just hear that from the Israelis today. If you heard it from the Israelis, you'd expect to hear it. We hear it from the Palestinians, as well, that the Iranians continue to fund the fundamentalist assault on the peace process, and I guess my next question is that the last agreement between Hammas and the PLO, was there any indication that the Iranians have changed their view towards the peace process or given any new instructions to their agents?

MR. TARNOFF: There's no evidence whatsoever that the Iranians have modified one iota their opposition to the peace process and the statements Mr. RIEDEL mentioned a moment ago on the occasion of the assassination of Prime Minister Rabin only confirms their firm opposition to it.

REP. GEJDENSON: Thank you.

REP. : Mr. Lantos?

REP. TOM LANTOS (D-CA): Thank you very much, Mr. Chairman.

Mr. Secretary, I would like to ask you to specifically list the countries who have not been cooperative with us in our effort to curtail Iran's capability to develop weapons of mass destruction, and I'm asking you not (to cite that the issue ?). We simply cannot deal with an issue of such importance -- this is an issue that could lead to war or peace -- by being nice to our friends and allies. Clearly, there has been a different degree of willingness to cooperate with us, and I'm asking you to list the countries by name which have been least cooperative in our efforts to curtail Iran's capability to develop these weapons.

I also think that in your response, you will need to deal with the question of debt rescheduling. Iran has huge international debts. Iran will not be able to continue with its program of developing its weapons of mass destruction if the countries that Iran owes money to refuse to reschedule the debt.

So what has been the response of various countries, I presume to our suggestion that they do not reschedule Iran's debt? Because if Iran is unable to reschedule its debt, it has to use its resources to pay its debt and not to import items which are helpful in its weapons programs.

MR. RIEDEL (?): Congressman, I'd like to respond in two ways to two parts of your question. With respect to the first part of your question, obviously we do have such information available. It is my preference, for reasons that I hope you will agree with, to provide that information in a classified setting, and we will do so at your convenience.

REP. LANTOS: Well, Mr. Secretary, why would it be a matter of classified information if vital U.S. security interests are involved in Iran not developing weapons of mass destruction? This is not a secret to be kept from the American people or from the Congress. This is not just a sort of a social dialogue that there are some things we would just as soon keep quiet. The American people are entitled to know which of our friends and allies or other countries are unwilling to cooperate with us in putting restraints on Iran. I see no national security interests being involved in terms of keeping this private.

MR. RIEDEL (?): I'm sorry, Congressman. I must respectfully disagree with your assessment. The information that we have available on a range of these issues is, in my view, classified in nature. I'm not ruling out the possibility that some information might be releasable after scrutiny by the appropriate departments and agencies, but I do want to reiterate our willingness to make it available.

REP. LANTOS: Well, before I move on to the second part of the question, Mr. Chairman, I formally request that a classified hearing be held at the earliest possible time. Mr. Chairman?

REP. GILMAN: I'm sorry.

REP. LANTOS: I formally request that a hearing be held on a classified basis as early as next week so we can obtain this information.

REP. GILMAN: We'll try to arrange that kind of hearing.

REP. LANTOS: Yes. Please go ahead, Mr. Secretary.

MR. RIEDEL (?): Congressman, with respect to your second question, not representing an economic agency or department, I would have to refer that to the other departments and agencies which have more information than I have immediately available here. This is not -- this is simply not sufficiently covered in the brief that I have in front of me today, but we will get you that information.

REP. LANTOS: That isn't -- I think, Mr. Secretary, you're stonewalling me with all due respect. Let me just say that it is self evident to anybody with minimal economic understanding that Iran has huge foreign debts, and it's prime goal in this field is to reschedule these debts. And if the creditors are unwilling to reschedule the debts, Iran is unable to buy items which are useful for its programs of developing weapons of mass destruction. Are you suggesting you have no information on this subject you can share with me?

MR. TARNOFF: I'm only suggesting, Congressman, that I do not have it immediately available, but it can be provided to you by the end of the day.

REP. LANTOS: And in preparing for this hearing, it didn't occur to you that the question of debt rescheduling would occur.

MR. TARNOFF: I did make reference to debt rescheduling in a general basis, and I said that I believe that our efforts had made it more difficult for the Iranians to reschedule their debt, and I think there's evidence that that has been the case. But what I do not have immediately available is a country-by-country listing of the amount of debts that are being held, which we will provide very shortly.

REP. LANTOS: The Japanese government, Mr. Secretary, provided $364 million in concessional financing for the Kirin (?) River Dam project. There are two additional financing requirements, and my understanding is that the Japanese government has, so far, not provided those. Do we have an assurance from the Japanese government that they will not provide additional concessional financing to the government of Iran?

MR. TARNOFF: The Japanese government, which is aware of the considerable interest that the United States has in this matter has assured us that they will take into account, take very seriously, the objections that we have raised to any additional financing of the dam, and they have indicated to us that there are no present plans to pursue financing of that project.

REP. LANTOS: But we have no commitment that they have stopped financing this project?

MR. TARNOFF: They have not told us that they have terminated for all time any consideration of --

REP. LANTOS: Well, I'm not talking about eternity, I'm just talking about as long as this regime, with these policies, is in power in Teheran. MR. TARNOFF: Naturally, naturally, that's what I'm saying; that they have indicated that they understand the seriousness of the issue, and they know that it is one of the primary bilateral issues which we raise with the Japanese, and it will certainly be discussed on the occasion of the president's state visit to Japan later this month.

REP. GILMAN: The gentleman's time has expired. Thank you, Mr. Lantos. Mr. Berman.

REP. BERMAN: Well thank you, Mr. Chairman. Just with respect to the briefing, I believe we had a class of (I-briefings ?) scheduled on this which got postponed because of the lack of session on Monday, and so --

REP. GILMAN: We'll try to rearrange such a schedule.

REP. BERMAN: Great. I gather, Secretary RIEDEL, that you spoke to an issue that I was going to ask about which was the whole question of the extent to which information about any country that -- or China specifically -- that was providing chemical weapons exports, either in terms of facilities or materials to Iran. Could you -- am I right? Did you speak to that? What's the answer? I was not in the room, and I missed that. What was the answer to the --

MR. RIEDEL: Yes, I did. We have had indications of Chinese support, through Chinese commercial firms, in areas of dual-use technology, in areas of potential precursors. When we acquire such information we, as a routine, to the extent we can while protecting our intelligence sources and methods, try to go to the Chinese government and discourage them from such acts. We have some success sometimes, not always. A question of timing is always very important here, and the question of the sensitivity of the sources is very important. But this is an issue that we have put forward with the Chinese, and we continue to put forward with the Chinese.

REP. BERMAN: I want to make a comment. You folks have done more to try and deal with Iran than any administration since we've seen these policies develop by the recent regime -- the current regime and its predecessor regime. And I think you deserve tremendous compliments for that. I think it's particularly interesting, I gather from your testimony, Mr. Tarnoff, that there are now 20 countries who, in effect, embargo any arms sales to Iran, as well as sensitive dual- use technology. Was that my correct understanding?

MR. TARNOFF: That's correct. It's part of the Post COCOM regime.

REP. BERMAN: I'm curious, are there any COCOM members who are not part of that embargo? Any members of what was COCOM, like France?

MR. TARNOFF: France is a member. Let me ask Bruce whether there are any countries that were part of COCOM that are not part of the new form arrangement.

MR. RIEDEL: Nothing comes to my memory, but we can check.

REP. BERMAN: In other words, basically you're saying that in all the COCOM countries, they have regimes to prohibit their companies from exporting anything which is on the international munitions list and agreed upon sensitive dual-use technologies from going to Iran?

MR. TARNOFF: That's correct.

REP. BERMAN: That's good. The bill -- I very much appreciate hearing of the plans to have some consultations and discussions on the legislation that Mr. Gilman and I and others have introduced. If I can make a pitch for this legislation here, this is very targeted. This is not an effort to persuade Japan and the European countries and the other countries to embargo -- impose the kind of embargo we have on trade with Iran. It's not an effort to get them to stop buying Iranian oil. It's focused very specifically on the kinds of exports that will help Iran increase its capacity to produce oil and gas and secure the currency that will allow it to finance the terrorists, to strengthen its conventional arms capabilities, to destabilize the Gulf region, to finance any programs of weapons of mass destruction. The existence of this bill gives the administration a chance, I think, to focus a very specific rifle shot on our friends who have the companies.

What's interesting about this as I understand it is, this isn't Russia's strength; this isn't China's strength. The countries that have not gone along with some of other efforts are not the problems here, because they don't have the capability to provide this kind of sophisticated infrastructure and equipment. It is our closest allies in Europe and Japan that have this capability, particularly in Europe, and it seems to me that the existence of this bill and the importance of the subject gives an opportunity to renew a diplomatic effort specifically focused on this kind of equipment, and I'd just be interested in your reaction to that. MR. TARNOFF: Well again, Mr. Berman, as I indicated to the chairman, we are interested in cooperating with the Congress and with other countries, of course, so that we can obtain the maximum amount of pressure on Iran for exactly the purposes that you described. The people who have been studying the proposed legislation in detail have some questions. They are going to be asking some clarifications of what the intents are.


MR. TARNOFF: But overall let me say, without entering into the details of any particular provision in the bill, we do want to find ways to indicate to governments, including major trading partners of Iran, some of whom are close friends and allies of the United States, that these relationships are undesirable from our point of view. And any way that we can reasonably make that case in an effective manner, we want to consider, and I hope that a common position will develop.

REP. BERMAN: Do you accept the premise of the bill that the export of this type of equipment and infrastructure that helps them enhance and increase their oil producing capability is a particularly important item to focus on?

MR. TARNOFF: I certainly accept the premise that this industry in Iran is absolutely critical, because it is the primary, almost exclusive source of foreign exchange and hard currency which allows them to develop the kinds of programs that we find unacceptable. There are certain questions, I understand, about the targeted nature of these provisions on this industry which we need to additional information about. We're going to have some questions and clarification about, but certainly the industry itself is of enormous importance to Iran for obvious reasons.

REP. BERMAN: Thank you. Thank you, Mr. Chairman.

REP. GILMAN: Thank you, Mr. Berman. Our ranking minority member, Mr. Hamilton.

REP. HAMILTON: Mr. Secretary, we're glad to have you here. Would you or would we as a government be willing to meet with the Iranian government at the present time?

MR. TARNOFF: Yes, Congressman. The policy of this administration and our predecessors has been for a decade or so that at a diplomatic level, as long as this were a public -- publicly announced, that we would be prepared to have conversations with the Iranian government, as long as it was understood that there were no pre-conditions and that each side could bring up whatever issues it wanted to.

REP. HAMILTON: Why don't those conversations take place?

MR. TARNOFF: The Iranian government has shown absolutely no interest in holding them either now or anytime over the past ten or 12 years.

REP. HAMILTON: So we have made it very clear we're prepared to meet with them to talk about the range of issues between us; we've conveyed that to the Iranian government.

MR. TARNOFF: Yes, we have.

REP. HAMILTON: And they have said no.

MR. TARNOFF: They've showed no interest whatsoever.

REP. HAMILTON: Showed no interest. They've not responded, is that correct?

MR. TARNOFF: That is correct.

REP. HAMILTON: Now, Secretary Christopher said that we must isolate Iraq and Iran until there is a change in their government, a change in their leadership -- that's a direct quote. Does that mean that our policy is to overthrow the government of Iraq? Of Iran?

MR. TARNOFF: No, and again, there is a policy which has been described as dual-containment, which the administration expressed early on. We can talk -- Bruce RIEDEL and I can talk about the Iraqi dimension to it. But with respect to the government of Iran, we are not seeking to overthrow that government. But we are seeking to demonstrate as forcefully as possible that several key aspects of Iranian behavior are threats to peace in the region and hostile to U.S. interests, and we are demanding and mobilizing support for change in the behavior of that government.

REP. HAMILTON: Why would the secretary then say that we must isolate until there is a change in government? I mean, doesn't that suggest that we're not going to deal with them at all unless the government changes?

MR. TARNOFF: Again, Congressman, I'd have to look at the exact context of the quote --

REP. HAMILTON: I understand, that's fair enough.

MR. TARNOFF: And I would be glad to do that before I respond. But isolation, of course, is a way for pressure to be brought on the government of Iran, and that is what we're trying to do in many respects.

REP. HAMILTON: In any event, I want to be very clear about this. In any event, the United States government is prepared today to talk to the Iranian government without pre-condition, but it is your -- and we have made that known to the Iranian government -- MR. TARNOFF: Yes.

REP. HAMILTON: And we've made that known to the Iranian government, and the Iranian government, as you put it, has not responded, is that correct?

MR. TARNOFF: That's correct. Correct.

REP. HAMILTON: So that's the status of our effort to try to open up a dialogue.

MR. TARNOFF: That's right. And this is a policy, as I indicated previously, that previous administrations have also subscribed to -- to have what we call an authoritative dialogue with Iran; we are prepared to do so.

REP. HAMILTON: Well I don't, of course, pretend to have any contacts with the Iranian government, but from time to time, I get messages coming through to me that the Iranian government is prepared to meet too, and I'm just curious as to why the meetings have not occurred. We've certainly got a long list of grievances against the Iranian government as you spelled out in your statement. Let me ask you specifically about the bill that has been introduced. You expressed your concerns about that bill on page 7 of your testimony, and you seem to register some pretty serious objections to it. Are you against the bill?

MR. TARNOFF: Congressman, we're strongly in favor of the intent of the bill for all the reasons that Mr. RIEDEL and I have been expressing. We have two to three areas of questioning and some concern with respect to provisions of the bill. And it's for that reason that we have decided to propose to the Congress -- and we did so at the end of last week -- that the administration meet with representatives of the Congress and senior staff to the committees of both bodies so that we can clarify the meaning and the intent of some of the provisions and express here and there our own reservations about certain of the approaches. But we hope this --

REP. HAMILTON: Well, it strikes me that the concerns that you express on page seven are very serious concerns. You say in effect that you can't administer it. That's a pretty serious weakness in a bill; you can't administer it. Secondly, you think it's going to develop a whole spate of acrimonious international litigation with our closest trading partners, and you suggest in there that the bill is going to hurt us more than it's going to hurt them. Now, those are pretty serious criticisms of the bill. And it is therefore a little surprising to me that your statement with regard to the bill is not stronger -- your conclusion that you oppose the bill.

MR. TARNOFF: Well, again, we --

REP. HAMILTON: Would the president sign this bill in its present form?

MR. TARNOFF: I cannot, I hope you'll understand, speak for the president on this.

REP. HAMILTON: Would the secretary of state recommend that the president sign this bill?

MR. TARNOFF: I think what the secretary of state would like us to do --

REP. HAMILTON: Would you recommend that the president sign the bill, Mr. Tarnoff? (Laughter.)

MR. TARNOFF: There again, I will reserve my opinion. But I think more urgently and importantly is we are very interested in discussing those aspects of the bill which cause us some concern, and you did mention the three that I cited -- the ability to monitor the provisions; the risk, which we think we might be able to minimize, after discussing this with the Congress, of litigation in some respects; and whether or not there are ways to minimize the unilateral damage to U.S. companies which we believe might be a result of the bill if we are interpreting it correctly. But again, these are areas of concern that we have. I thought it was useful to --

REP. HAMILTON: Well, I think I understand where you are. Let me just conclude with this question. Are we the only advanced industrial country that bans all commercial trade with Iran?


REP. HAMILTON: Have any of Iran's major trading partners or creditors changed their policies toward Iran since we imposed the full trade embargo?

MR. TARNOFF: Yes. They have -- to give you one example, none of Iran's major trading partners has given governmental credits to Iran since the president took the action. REP. HAMILTON: So we've got some progress there.

MR. TARNOFF: Yes, sir.

REP. HAMILTON: But in general, what we have is we're pursuing a policy of isolation or containment, as you express it, and our allies are favoring a policy of engagement. Is that a fair statement?

MR. TARNOFF: For the most part, they subscribe to a policy they describe as critical dialogue with Iran, that's correct.

REP. HAMILTON: And now how long have we had this full embargo on, full trade embargo?

MR. TARNOFF: Four months, four or five months.

REP. HAMILTON: And our policy is to try to persuade the other industrialized countries to join us.

MR. TARNOFF: Yes, it is.

REP. HAMILTON: What's your prediction about the likelihood of that?

MR. TARNOFF: I think it's unlikely that they will agree to a regime as restrictive as the one the president decided four or five months ago. But here again, on credits, on dual-use technology, on certain other specific areas of commerce, we have found that they are increasingly receptive to our request that they restrict trade with Iran. Now, I think it's also fair to say that one of the other reasons trade with Iran has been cut back over the past year or two is a direct result of the very weakened state of the Iranian economy and the fact that Iran, partly as a result of U.S. initiative, has less hard currency available for international commercial relationships.

REP. HAMILTON: Thank you, Mr. Chairman.

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

DEL. VICTOR FRAZER (I-VI): Mr. Tarnoff, tell me, how is it that the United States expects the countries of Russia and China to believe the United States is serious about not having -- not trading with Iran when, in fact, we continue to have dialogue with China and Russia to provide aid? Secretary Brown recently has been to China to engage in trade. If, in fact, we're serious about what we want to do or not to do in Iran and we want the Russians and the Chinese to understand that we're serious, what incentive is there if we continue to trade with these two countries, to offer assistance, to make credit available? The Russians do not have the hard currency we're speaking about, so they pose no economic threat to the United States. So why is it that we do not impose greater sanctions on the Russians and the Chinese? We're, in fact, kind of feeding the same monster that is about to bite our hands. MR. TARNOFF: Here again, in both the case of Russia and China -- and Mr. RIEDEL might want to speak to them more specifically from a technical point of view -- we have made clear in very high-level discussions with both governments, including at the chief-of-state level, that the matter of Iran does affect our relationship. It affects our ability to cooperate on a whole range of issues. It affects our ability to work with the Congress to provide assistance, and that while we are not in favor of specific linkage for specific assistance on the basis of a difference of opinion on this or other policies, we believe that engagement with both Russia and China over a whole range of issues has produced a scaling back of their cooperation with Iran.

Mr. RIEDEL could review the fairly significant progress that we've made with Russia in this regard, and even with China. While the progress has been less, the Chinese indicated to us a couple of months ago, for example, that they would no longer engage in cooperation with respect to nuclear reactors with Iran. So there is some movement, and leaders in both Beijing and Moscow understand, I think, how important it is to the overall relationship.

DEL. FRAZER: Mr. Tarnoff, very recently the Chinese, in my opinion, wanted to set American foreign policy when this body recommended that President Lee visit his alma mater. And I think that's a decision the United States had a right to make, the White House and Congress. However, the Chinese (were?) very acrimonious all over the world because that policy was in place.

The Russians have flaunted their refusal to assist the United States in not providing certain technical assistance to the Iranians. The Russians are still in line for foreign aid from the United States, assistance of all kinds. What does the United States lose if it, in fact, cuts off any kind of assistance, the kind of assistance that the Russians are in line for? What do we lose if we cut it off until such time as the Russians are more cooperative?

MR. TARNOFF: I think we'd lose a good deal if we directly link one issue to the other despite the importance that we attach to it, for a couple of reasons. First of all, the progress in the overall relationship between the U.S. and Russia, which covers, as you know, Congressman, many areas, is of enormous importance not only to both countries but to peace and stability in the world. I'm not going to cite examples for this except to say that the agreement that Secretary Perry and Defense Minister Grachev reached yesterday for U.S.-Russian cooperation on a joint force that might be introduced into the former Yugoslavia is one of a good deal -- a much larger picture of cooperation. And we have found, therefore, that by working with the Russians in areas of cooperation and dealing with them firmly, if sometimes discreetly, on areas of disagreement -- and there have been several of these as well, including Iran -- we have made some progress.

On the specific question of Iran, they have modified their behavior substantially with respect to terminating any future contracts for arms supplies to Iran, cutting short existing arms supplies to Iran, restricting certain levels of nuclear cooperation which run a greater risk of proliferation than the ones they still have on the board, so that in my view, the overall importance of the relationship is such and our ability to influence Russia has been demonstrated by pursuing the tactic that the administration has adopted.

MR. RIEDEL: I could just add one point to that. As Mr. Tarnoff indicated, in particular we've had some success in persuading the Russians to cap conventional arms transfers. Since the kinds of weapon systems that most concern our military planners in looking at planning in the Gulf tend to be Russian-provided, such as kilo submarines, such as SU-24 fighter bombers, such as SA-5 surface-to-air missile systems, the agreement by the Russians that they will not provide additional contracts in these areas gives us a significant boost to our efforts to ensure that the Iranians are not capable of providing additional military modernization means later in this century and in the first part of the 21st century. This makes a tangible difference in military planning as we look at the Gulf.

REP. GILMAN: The gentleman's time has expired. Thank you, Mr. Frazer. Mr. Payne.

REP. DONALD PAYNE (D-NJ): Thank you very much. I just have a question. I'm curious to know the current relationship, if any, with Iran and Iraq. What kind of relationship are they currently --

MR. RIEDEL: Iran and Iraq continue to have a very acrimonious relationship. The two regimes disagree on the fundamental world view between a secular Arab nationalist regime in Baghdad and an Islamic fundamentalist and Shiah regime in Tehran. Despite this difference of world view, though, and intense suspicion of each other, there are areas of discreet cooperation between the two of them. For example, both of them provide some assistance to the government in Sudan. Both of them can also occasionally be found together working to try to circumvent the U.N. sanctions regime on Iraq.

The differences are enormous. The areas of cooperation are tactical. We suspect that the strategic differences will continue to keep them from working together against our interests, but that is one issue which we have to closely monitor.

REP. PAYNE: Which of the two would you consider to be the strongest right now?

MR. RIEDEL: In purely military terms, Iraq remains the strongest of the two. It continues to have a much larger military than Iran.

The difference, of course, though, is that the United Nations regime imposes an arms embargo on Iraq and it is unable to purchase new weapon systems now. No such internationally recognized regime exists for Iran. And over time, if Iraq remains under arms embargo, Iran will relatively improve its military situation.

REP. PAYNE: What's the approximate population size between the two in size of the military? Do you know offhand?

MR. RIEDEL: In rough terms, the Iraqis, I think, are around 18 million and Iran is in the area of 70 million. So there's about a three-to-one advantage in Iran's favor. In terms of military hardware, in almost every category Iraq continues to have larger inventories. For example, Iraq has about 2,000 operational combat tanks. Iran has somewhere in the area of, I think, 700, 800 right now.

REP. PAYNE: Also, sort of a -- what is the relationship between Azerbaijan and Armenia?

MR. RIEDEL: I have to say, sir, that is outside of what we call in the Pentagon my AOR, so I'm not a specialist in that region.

REP. PAYNE: All right. Let me get back, then, to your area. I just have a question in regard to -- and I certainly support the embargo, but what impact will -- as you know, unfortunately, you know, people have to suffer when you have dictatorial-type leaders, and unfortunately the population, who are usually innocent women and children and elderly, et cetera, suffer.

What impact do you think overall this continued or an increased isolation of Iran will have on its population of children and women and those people who are totally disengaged from the leadership?

MR. TARNOFF: Congressman, I think that the miserable state of the Iranian economy has been and continues to be a direct result of the mismanagement and corruption of the regime itself. As Mr. RIEDEL implied, there is not an overall international regime with respect to commerce on Iran as exists on Iraq, and therefore Iran has free trading relations with most of the countries around the world.

Nonetheless, it has suffered economically. The people have suffered, but primarily as a result of the mismanagement and corruption of its own government. REP. PAYNE: Just a last issue on the situation of the Kurds in Iraq, and is there any kind of a similar problem in Iran and Turkey?

MR. RIEDEL: In the case of Iran, like in Iraq, there is resistance to the central government by Iranian Kurds. The Kurdish Democratic Party of Iran is engaged in an active insurgency. The level of that insurgency is quite low, however, because of a very brutal repression by the Iranian government.

Turkey has a very different phenomenon, where a Marxist organization, the PKK, has been trying to foment rebellions against the Turkish government for some time.

I think the differences need to be highlighted. Turkey is a democratic government which allows measures of free expression. Iran, on the other hand, remains an authoritarian dictatorship which, as we had mentioned earlier, represses many minority groups, not just Kurds but Ba'hais and others.

REP. PAYNE: And, of course, Turkish evaluation is less subjective, you know, the question about the total freedom and democracy with the strong hand of the military, you know, there is some question whether those things, you know, truly exist.

MR. TARNOFF: Well, I think that we believe that despite the problems that do exist between the Turkish and -- Turkish government, the Turkish people, and the Kurdish elements in Turkey, that there has been progress in the strengthening of democracy in that country in recent -- recent years, and that there is, therefore, a better prospect for accommodation and reconciliation now than there's been in the past, despite, as Mr. RIEDEL indicated, the severe threat of terrorism from the PKK organization, which is not looking forward to -- is not trying to establish contact for reconciliation with the government of Turkey, but the violent opposition to that government.

REP. PAYNE: Well, thank you. Just on the question of the Azerbaijanis, you know, there are some of those folks, that ethnic group, in Iran, and I understand they're starting to have some ethnic tension which could, of course, spill over into those others. That's one of the reasons I asked that question earlier.

MR. TARNOFF: You're absolutely right, Mr. Congressman. There is a very large Azeri (ph) minority in Iran. We have seen some hints that, in reaction to the independence of Azerbaijan, there are new nationalist sentiments in that community.

Because Iran is such a closed society to most of the outside world, it's difficult to get a real handle on how serious those tendencies are, but it is something that worries the current leadership in Iran very much.

REP. PAYNE: Thank you. I know the eventual Azerbaijani and Armenian relationship with Iran could be just another thing that happens out there.

MR. RIEDEL: Iran has to watch what happens in its neighbors, because many of them do have ethnic groups that cross the borders. A similar phenomenon happens on their borders with Turkmenistan, with Afghanistan, with Pakistan, and all of these areas.

The current clerical regime imposes itself by force, not by seeking to secure broad populace support, particularly in these minority ethnic areas.

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

REP. PAYNE: Thank you very much.

REP. GILMAN: Thank you, Mr. Payne.

Mr. Smith.

REP. SMITH: Thank you very much, Mr. Chairman.

Mr. Secretary, in looking at Michael Eisenstadt's (ph) testimony, he, I think, has done -- Mr. Chairman, I would hope all members would read this testimony. It's probably the most fact-filled nine pages of what the assessment is of Iran's capability and what the issues are involved.

But he points out that Iran's economic woes have forced it to pare back its military procurement plans, and points out that the debt, which he estimates at some 35 billion (dollars), has hurt its access to international credit markets and these economic problems have forced Iran to reduce defense spending, cut procurement across the board by about half, cancel arms contracts, defer or stretch out procurement of key items, and prioritize the allocation of scarce financial resources along the various services.

Now, as we all know, much of the repayment on the debt has been principal -- or interest, I should say, and I know Mr. Lantos raised this issue earlier, but I'd appreciate, if you would, some further insight into your thinking since about six billion (dollars) -- and I could be wrong on that exact amount -- but about $6 billion in principal will come due sometime next year, and that to me suggests a tremendous opportunity to exert considerable leverage if our allies, if the western powers are willing to do it to rein in on this rogue regime.

What is the thinking of the administration to try to say, "Pay up! We're not going to stretch out those payments until you change your behavior and stop using terrorism and biological and chemical weapons production ceases and, of course, their nuclear ambitions cease, you're not going to get this considerable largess which makes all the rest possible"? MR. TARNOFF: Well, that is certainly, Congressman, our point of view. We would like nothing better than to have the major creditors of Iran say exactly what you -- what you -- what you recommended, and that is very much part of our dialogue with them.

I must tell you that we have had some success in getting them to restrict the rollovers, to make sure that the rate of interest for the rollovers is as high as possible, but without being able to give you a country by country analysis of this, in several of the countries involved, they point out that if these debts are not rolled over, the governments themselves would be liable out of budgetary revenues to compensate the countries -- the companies, rather, that would be affected, and this could involve considerable sums, hundreds of millions of dollars or so, and for strictly financial reasons, they have, at the last moment, agreed, therefore, to acquiesce in a regime of rolling over the debt for internal budgetary reasons.

REP. SMITH: So in other words, these governments have backed those loans and provided the full faith and credit of their own governments to back those loans?

MR. TARNOFF: Many of them are outstanding for quite a few years, but I believe -- again, we'd have to provide a country-by-country analysis that in certain cases the government would ultimately be liable in the case of default.

REP. SMITH: But are none willing to go this -- its not even the extra mile -- go this distance to -- are they unaware of the considerable threat that Iran poses to the Middle East and to --

MR. TARNOFF: The area of greatest tension and disagreement between ourselves and our allies, and it is an important one, and that's why we're talking about the matter today and that's why the legislation that you and others have proposed has come forward, is on the area of commercial and financial relations, and part of the desire on the part of Iran's trading partners comes from the perceived desire to have commercial relations, but also to protect themselves against the eventuality of having governmental funds being required to compensate countries if a default takes place, and that is the area of primary disagreement between ourselves and our allies over not the principle, but the tactics of dealing with Iran.

REP. SMITH: Thank you very much.

REP. GILMAN: Thank you, Mr. Smith.

And just two brief questions before we go on to the next panel. Mr. Tarnoff, to what extent does Iran use its embassies to support those engaging in terrorist activities around the world?

MR. TARNOFF: There again, Mr. Chairman, with your indulgence, I would like to be able to provide additional information in a classified setting, but suffice it to say that in many Iranian diplomatic establishments around the world, there is strong evidence of intelligence operations and the sponsorship of activities which we find unacceptable and which many of the governments to which these diplomats are accredited find unacceptable, and that's why there's a fairly constant pattern of expulsions of Iranian diplomats around the world, again because they conduct themselves in ways that are unbecoming to their position.

REP. GILMAN: With your regard to your willingness to provide this information in a closed session, I hope that both you, Mr. Tarnoff, and Mr. RIEDEL will make yourselves available for a further hearing with regard to these matters.

Just one other area that I'd like to explore with you. What's the regime's attitude towards women, their role in society? Has that changed at all?

MR. RIEDEL (?): I don't think I have a great deal to say on that. The regime has always tried to portray themselves as a great friend of women's rights, but its actual behavior continues to stigmatize them as second-class citizens.

REP. GILMAN: Well, how zealous have the security forces been in entering homes to determine the extent of violations of Islamic customs regarding dress and use of cosmetics, et cetera?

MR. RIEDEL: This tends to be a cyclical thing in Iran. It goes up and down based upon the overall national tempo, and it also often has a local, depending upon the zealousness of officials in certain areas, and, needless to say, abuses continue, and the regime has not taken action to curb those kinds of abuses.

REP. GILMAN: And what about the regime's prohibition of satellite dishes? Is that still an ongoing effort?

MR. RIEDEL: It's an ongoing debate in the Iranian system. As a practical matter, satellite dishes are going up in Iranian cities, and Iranians are increasingly looking to get access to outside media. This gravely disturbs the more extreme elements of the regime, which believe that access to outside media undermines their control over the Iranian people.

REP. GILMAN: And are women in Iran arrested and imprisoned for being improperly covered?

MR. RIEDEL: That can happen, yes. That can and does happen.

REP. GILMAN: And what happens to the women and young girls who are arrested by the morals police?

MR. RIEDEL: I couldn't give you a comprehensive picture on that, but it's certainly not -- it's not a system which encourages diversity, by any means. That's pretty clear.

REP. GILMAN: Do we have any information of how many women have been executed by the regime for their reported violation of the dress code?

MR. RIEDEL: No, I don't have that information with me. We could see if we could --

REP. GILMAN: Would you provide that for us and make it part of the record? Thank you.

Well, I think Mr. Berman has one more question.

REP. BERMAN: One question. Thank you, Mr. Chairman. Mr. Hamilton asked you if our containment policy was working, and you gave some information, and your testimony describes areas in where you think it is working and areas where -- things we haven't achieved.

Let me just ask you the flip side of that. Is there any basis, if you can detach yourself from our own policy for a second, but just as an observer, is there any basis for saying that critical dialogue has worked to accomplish any of the goals that the people who are espousing that approach claim they share with us?

MR. TARNOFF (?): None whatsoever.

REP. BERMAN: Nothing.

REP. GILMAN: Thank you. Any further questions?

I want to thank our panelists for giving their time to be here. Again, we'd like to remind you we will be conducting a closed hearing and would like your appearance at a later date. We thank the gentlemen, Mr. Tarnoff, Mr. RIEDEL, for being with us.

We call on our second panel to please take your seats at the witness table, Dr. Patrick Clawson, Mr. Michael Eisenstadt, Mr. Harold Lucks (sp), Mr. Arthur Downey. Gentlemen, we want to thank you for your patience, I am sorry it has taken so long to come to our second panel.

We are joined today by Dr. Clawson, who is a senior fellow at the Institute for the National Defense University. We are also joined by Mr. Michael Eisenstadt, a senior fellow at the Washington Institute for Near East Policy. And we are also joined by Dr. Harold Lucks (sp), who has been an international trade consultant with the Washington law firm of Arnold and Porter, and Mr. Arthur Downey, the vice president for government affairs in the Washington office of Baker -- (inaudible).

Thank you gentlemen for taking the time.

I see we have a roll call vote but we'll try to continue -- yes, would you do that and -- well -- all right.

All right, we'll suspend very briefly for the roll call vote and come right back.

(Recess for vote)

REP. GILMAN: We will start our panel with Dr. Clawson. Dr. Clawson you may summarize your testimony and submit the entire testimony for the record, and we welcome brevity.

I want to make note to the panelists that we do have a special briefing by some of our military people at 1:00 and we will have to stop our hearing at that time. Dr. Clawson.

MR. CLAWSON: Thank you very much, sir. I would ask if indeed my full testimony --

REP. GILMAN: Without objection.

MR. CLAWSON: I also submitted a forthcoming article entitled "What to do about Iran," that I thought might be of interest.

REP. GILMAN: We would welcome having it and without objection be made part of the record.



Director for Research,

Washington Institute for Near East Policy


MR. CLAWSON: Thank you. And let me just stress before I begin, that the views that I express here are mine alone and not necessarily those of the US government or the Department of Defense.

I my testimony last May before this committee's subcommittee on international economic policy and trade, I said that comprehensive US sanctions on Iran would reduce Iran's foreign exchange receipts by tens of millions of dollars a year, and I was criticized. Many analysts argue that the sanctions would in fact have no effect.

Well, indeed I was wrong. The sanctions have reduced Iran's income by several hundred millions of dollars, much more than I expected. The sanctions have been much more effective than anyone anticipated last spring.

The sanctions have hurt Iran in several ways. First and foremost about oil exports, Iran had problems adjusting to the cutoff and sale to US owned oil firms. In the first three months after sanctions were imposed, Iran was not able to sell about 400,000 barrels a day. Plus, on all the oil that it sold, Iran had to accept a lower price. The events of those three months alone may have cost Iran over $100 million.

Another way in which the sanctions have hurt Iran is in oilfield renovation and expansion. On a recent trip to the region I heard that businessmen selling to Iran explain that the National Iranian Oil Company is having to pay tens of millions of dollars a year more to get parts for its US-built equipment. That company is also having to offer particularly attractive terms to induce foreign firms to invest in Iran, terms that will bring Iran tens of millions of dollars a year less than what it could have expected in the absence of the US sanctions.

Another major way in which the sanctions have hurt Iran is their effect on business confidence. I said in my testimony in May, it is possible that comprehensive US sanctions will trigger a run on the Iranian currency. Indeed, that did happen. The imposition of sanctions caused Iranian currency to collapse, losing a third of its value in a week. Tehran responded by slapping on rigid controls and those controls have caused the market in foreign exchange to dry up and Iran is now in a spiral downwards, imposing more and more controls and getting a more distorted and inefficient economy.

Perhaps most important of all, the sanctions have hurt Iran's access to foreign capital. Foreign lenders such as commercial bankers and government export credit agencies are more cautious about lending to Iran because of the sanctions. Tehran has decided that it cannot ensure continued access to foreign capital markets, so it has put top priority on repaying its foreign debt as quickly as it can.

As foreign exchange is used to repay debt less is available for other purposes, and that may indeed push Iran's economy into a recession. Also of particular interest to us is that with less money available, Iran is having to make downward adjustments in its military spending, thereby reducing its ability to purchase the kind of threatening equipment that we heard about this morning from Mr. RIEDEL.

I don't think that there is any prospect that these sanctions are going to cause the overthrow of the Islamic Republic. We just don't have that much effect on developments inside Iran.

However, I am reasonably confident that through the imposition of these sanctions, we can contain Iran's ability to engage in external aggression, and that eventually the clerical regime in Iran will fall apart. The Islamic Republic is in poor shape politically, socially and economically. The reservoir of support from the current rulers has begun to run dry. The Islamic Republic survives simply because there is no credible alternative to its rule. Like the Shah's regime, the Islamic Republic could collapse quickly if any such alternative emerged. Unfortunately, the Islamic Republic might also survive another decade or more if there is no good alternative.

If I may just add one word about allied attitudes towards Iran, there are many of our allies in Europe and in Japan who argue that the West should woo Iran, because Iran is the strategic prize in the Persian Gulf region. That view is outdated. Iran is no longer a country with a key economic or geostrategic position. Iran is not an oil superpower. Its oilfields are old. It's reserves are expensive to develop. Iran's oil output is likely to shrink, if anything, in the future.

Also, Iran is not a lucrative market. Iran imported less last year than it did in 1977, before the revolution. The simple fact is that Iran's economic importance has faded along with its oil wealth.

Many in Europe and Japan also maintain that the West should support Iranian moderates in order to undercut the influence of Iranian radicals. This argument misreads the history of the last 15 years. We in the United States have bitter experiences from the times that we tried to support Iranian moderates. The Iran-Contra Affair, after all, began as an effort to reinforce those moderates.

I am afraid that the lesson of our experience has been that Iranian moderates bite the hand of friendship.

It's likely that we will continue to disagree with our allies on what's to be done about Iran. I would suggest that the allies might well want to consider that on this issue the United States has perhaps a special right to take a leadership role, because it is the United States that is bearing the burden of guaranteeing Persian Gulf security, and the benefits of guaranteeing Persian Gulf security accrue to all of us in the West. A stable and secure supply of oil from the Persian Gulf is in all of our benefit.

Because Bonn and Tokyo are getting a free ride at US expense, it would seem fitting they should let Washington take the lead on deciding what are the threats to security in the Gulf and how to respond to them.

Thank you very much, Mr. Chairman.

REP. GILMAN: Thank you, Dr. Clawson.

Mr. Michael Eisenstadt.



Senior Fellow,
Washington Institute for Near East Policy


MR. EISENSTADT: Mr. Chairman, members of the committee, thank you for inviting me to testify here today. The following is a summary of my written testimony.

In 1989, following a costly eight year war with Iraq, Iran initiated a major military buildup intended to rebuilt, expand and modernize its ravaged armed forces and transform it into a regional military power. Iran's quest for nuclear weapons, coupled with the buildup of its naval forces in the Persian Gulf, efforts to undermine the Arab-Israeli peace process, and its support for radical Islamic movements throughout the Middle East raise disturbing questions about Iran's intentions and the long-term implications of its efforts to bolster its military capabilities.

As a result of financial woes, however, which have been exacerbated by US sanctions, Iran lacks the funds to sustain a major across the board military buildup. Instead, it has cut procurement by half and contented itself with selectively enhancing its military capabilities.

Iran's economic situation is likely to worsen in the coming years. Oil is central to Iran's economy and real oil prices are unlikely to rise significantly in the near to mid term. In these circumstances, Iran will find it increasingly difficult to fund military spending and it will likely be forced to make additional cuts.

Iran's non-conventional weapons programs are among the regime's top priorities and Tehran continues to invest significant resources in these efforts despite severe economic constraints. Its current efforts focus on the creation of an infrastructure needed to produce nuclear weapons, the stockpiling of chemical and biological weapons, and the acquisition and production of rockets and missiles to deliver these.

I had a few comments about the nuclear program, but they would be redundant from the comments made before by the two government officials, and instead of all that, I'd like to focus on Iran's biological program.

At this time Iran can probably deploy biological weapons and disseminate them via terrorist saboteurs, or spray tanks on aircraft or ship. Although more advanced means of dissemination by unmanned aircraft or missiles for instance, may currently be beyond its means.

Tehran's biological warfare program provides Iran with a true mass destruction capability to which the US currently lacks an effective counter beyond deterrence. In light of the uncertainties confronting its nuclear effort, Iran's biological warfare program assumes special importance, since it provides Tehran with a strategic weapon whose destructive potential rivals that of nuclear weapons.

Iran's conventional capabilities are by contrast to those of its non-conventional arsenal, relatively modest. It would take tens of billions of dollars, which Iran simply does not have at this time, to make it a major conventional military power. And due to financial problems, it has acquired only a fraction of the items on its military wish list.

The main conventional threat from Iran is in the naval arena, specifically the threat posed by Iran to the flow of oil from the region, the security and stability of the southern Gulf states and the ability of the US to project force in the region.

Iran could disrupt maritime traffic in the Persian Gulf using its submarines, coastal missiles and mines, and it could temporarily close the Strait of Hormuz, were it willing to use chemical or biological weapons against shipping. It is unclear, however, what policy objectives could be served by such actions, which would harm Iran as much as any other state, since it has no other way to bring its oil to market. This is an option of last resort to Iran, to be played only in extremes.

Thus, in the near-term, Iran is more likely to use the implied threat of disrupting shipping or closing the strait to intimidate its neighbors or deter its adversaries. Nonetheless, the US must plan to deal with Iran's growing ability to disrupt the flow of oil from the Gulf, even if it seems unlikely for now that Iran will use this capability in the foreseeable future.

Finally, Iran's capacity for subversion and terror remains one of Tehran's few levers in the event of a confrontation with the US. Barring the use of non-conventional weapons, it otherwise lacks the ability to challenge the US on anything near equal terms. In the event of such a confrontation, Iran may try to subvert Kuwait, Bahrain, Qatar, or the United Arab Emirates, all of which host important US military facilities, in order to undercut US power projection capabilities in the region. And due to its ties to Hezbollah, it has the means to launch a disruptive terrorist campaign spanning several continents.

And while funding for Iran's intelligence services have been cut in recent years, due to the country's financial woes, their ability to carry out terrorist spectaculars has probably not been hampered since these operations cost little relative to their potential payoff. In conclusion, the threat that Iran poses to US interests comes from the two extremes of the threat spectrum, biological and nuclear weapons on the one hand, and Tehran's capacity for subversion and terror on the other. These are the two threats, however, that the US will find the most difficult to counter. An Iran armed with biological or nuclear weapons could at the very least raise a potential risk and the potential stakes of US military intervention in the Gulf, and reduce the freedom of action of the US and its allies there.

And Iran has, in the past, shown it is able to use terrorist surrogates to strike painful blows against US interests while obscuring its involvement in such acts in order to escape retribution.

The US also faces a secondary threat to its interests in the form of Iran's naval buildup in the Persian Gulf. While the US and its allies in the region are reasonably well prepared to deal with its threat, Iran could nonetheless disrupt the flow of oil from the Gulf and afflict losses on US naval forces there if it desires to do so. And if it were willing to use chemical or biological weapons against US forces, American casualties could potentially be heavy.

However, the course of a major confrontation with the US could be devastating for Iran, resulting in the destruction of much of its military and civilian infrastructure and leaving it without the ability to defend itself by conventional means.

Moreover, hard experience over the past decade has shown Iran that it has neither the funds to replace significant combat losses, nor a reliable supplier capable of doing so. consequently, for the foreseeable future, Iran will try to avoid a major confrontation with the US that could lead to losses it cannot afford to replace. Although, under current circumstances a miscalculation by Iran leading to a clash with the US, along the lines of the accidental downing of an Iran Airbus by the USS Vincinnes in July 1988, cannot be ruled out.

Thank you.

REP. GILMAN: Thank you, Mr. Eisenstadt. Mr. Lucks (sp)?

MR. LUCKS (sp): Mr. Chairman, it's a great pleasure to be here today. I have a longer statement that I'd ask to be submitted for the record.

REP. GILMAN: Without objection we will be pleased to accept all of the statements in full for the record.

MR. LUCKS (sp): I would like to limit my remarks solely to HR 2458 and similar legislation that has been introduced in the Senate on a bipartisan basis by Senator D'Amato and Inouye.

And because of the time constraints I will try to move rather quickly.

First, I think it needs to be emphasized that the legislation before the committee is carefully crafted. It's designed to target the single most important sector of the Iranian economy, and that's oil production.

According to a recent study by the Federal Reserve Bank of Dallas, it forecasts soft oil prices, stable oil prices at least through the year 2000, and this, therefore, provides an opportunity for the United States and its closest allies to take action against Iran to limit its continued production of oil, and thereby to use that reduction in funds as a means to cripple or to hamper, to some extent, Iran's ability to acquire the commodities, the technology and the services to sustain its program to develop weapons of mass destruction.

Second point, HR 2458 dovetails quite appropriately with the export control legislation that has been approved by this committee on a number of occasions. This committee, for example, has approved legislation going back to 1985, to take action against imports from foreign persons that ship goods of a national security character to the Soviet Union. We expanded that into the nuclear area, into the chemical and biological area, and the committee enacted special sanctions against Toshiba machine tool and Kunsburg -- (inaudible).

So, many of the arguments, I would argue, that have been raised against this legislation are somewhat weakened, given the precedents that are well established in US law for this type of sanction.

The third point I would make is that although the export control program has been of some success, it has been unable to stanch the flow of weapons and weapons-related technology and commodities to Iran. And therefore, as I said earlier, we have an opportunity to hamper Iran's ability to acquire those means.

One other point, I think in this context that needs to be mentioned, and that is that very often the opponents of sanctions legislation raise the specter of extraterritorial trade controls and allege that they cause great potential damage to the international trading system, and this therefore, is raised as an impediment to adopting this type of legislation. But in fact, the adopting of such controls in the past has not caused the sky to fall and there is no reason to believe that it would cause the sky to fall again if it were adopted in this highly targeted way.

The fourth point I'd like to make is that very often the bill that has been criticized as being incompatible with the GATT or the World Trade Organization. However, going back to at least 1947, it's been the consistent position of the United States that Article 21 of the GATT creates a national security exception, and the GATT and member states have interpreted that exception in very broad terms. And the best way that I could sum this up is as follows, Mr. Chairman, and Mr. Berman, and that is that under the GATT, if the United States could not be the sole entity to define for itself what constitutes its own national security, and that some body in Geneva that does all sorts of wonderful things in establishing international trade rules could somehow say to the United States Congress or to the administration that you have inappropriately defined your own national security, I doubt whether Congress would have approved the accession of the United States into the World Trade Organization.

The fifth point I would make is that we already have comprehensive controls against exports to Iran. What this sanctions legislation seems to be trying to do is to create a level playing field for US companies where all the players will be out of the Iranian market until such time that Iran decides to conduct its affairs in such a way that it can rejoin the community of nations, and then all companies would be able to compete fairly and equitably for the Iranian market.

And the last point I would make, Mr. Chairman, is that though sanctions legislation that has been proposed has been compared to the Arab boycott, nothing could be further from the truth. This legislation does not compel any American company to discriminate against another company or person on the basis of race, religion or national origin. It doesn't require that we examine each little component and part of products imported into the United States to determine whether they have some Iranian content or Iranian origin.

The focus of this legislation is, if you want to trade with Iran you stand the risk of losing your ability to sell into the United States and to have financial dealings with the United States government, and to sell to the US government. And we are still, given all of our problems, the major market in the world.

And finally, in terms of human capital and financial capital, we must think of the cost of not taking action and permitting Iran to continue upon its course of developing weapons of mass destruction. Given the specter of that, the cost of this legislation, indeed, appears minor and seems to compel its adoption.

Thank you very much.

REP. GILMAN: Thank you, Mr. Lucks (sp). Particularly thank you for your support of the legislation. Mr. Downey.



Vice President of Government Affairs,
Baker Hughes Incorporated


MR. DOWNEY: Thank you, Mr. Chairman. I want to first express my appreciation to you for honoring the business community, for whom I speak in a narrow sense, for having the clean-up position in the panel, in your two panels.

It is important that it is clear that the business community is not the enemy here. I think there is full support for the goals of your legislation. Our difference relates solely to the methodology. What is the most effective way to achieve the goals that you are looking for? We are not apologists for the reprehensible behavior of the Iranian regime and we don't want to be put in that position. We are here to offer advice, at your invitation, as to methodology and costs.

It is superb that you have identified the issue of multilateral support being necessary for effective sanctions. The CIA in testimony last month in the other body, concluded that the strong and sustained support of other countries is essential for sanctions to succeed. However, the CIA could locate only the Ivory Coast and El Salvador and Israel among the world's 182 countries who support the current unilateral US embargo. Arithmetic says we don't have the strong support.

No American company objects to being cut out of Iraq. All American companies support that because it's multilateral and we are not on a different playing field than our competitors. So therefore, while we congratulate the chairman for identifying that important issue of the need for multilateralism, we have to part company on the remedy that you selected, which is the imposition of a secondary boycott on foreign companies supplying goods and technology to Iran's petroleum sector.

My testimony indicates five reasons why we do part company with you. In essence, the first one is rather than persuading and leading, genuine leadership, if that approach reflects the approach of the bully, I'll force you, foreign governments and foreign countries to do it my way because I have the power to coerce you. That is an unworthy course for a great power.

Secondly, a trade destructing boycott would run exactly contrary to the long-term direction of the world's trading system which has become vastly more open and friendly to US interests. It would violate the obligations in GATT, WTO and NAFTA. If you have any question about that, particularly with respect to what Mr. Lucks (sp) just said, I would encourage you to seek an opinion on the legal advisory of the State Department, the office of legal counsel at the Justice Department, and have that information on the legality in advance of your further consideration.

Third, we suggest that there is a high likelihood that foreign governments would retaliate against US subsidiaries abroad or other US international commercial interests. The welcome mat for American companies operating abroad would be pulled in and the competitiveness of US companies would be harmed. Last month, Secretary Tarnoff said that interference would, and this is a quote, "would backfire, hurting American businesses and harming the American economy."

We think it's likely that foreign governments will feel their sovereignty challenged and would feel a need to take measures to protect their companies from US policies. That's what happened during the 1982 Soviet-Siberian pipeline debacle. I would encourage you to consult former Secretary of State George Shultz. He lived through that experience and it would be interesting to see what his advice would be on this analogous circumstance.

We think that Iran, in any event, would take pleasure at the US becoming a target of friendly fire from our own allies and friends because of that challenge.

Let me address just a couple of factual points, questions, that relate -- that could relate to findings you might achieve.

The first is what would be the impact on Iranian oil and gas exports if your proposal were fully effective immediately and could be enforced immediately? Do we know that Iran's own locally produced equipment is inadequate to maintain their oil and gas exports? Do we know that Iran is so reliant on the Western equipment that it could no longer maintain petroleum export levels sufficient to generate hard currency?

We really need to know those answers before you can proceed that way. And I might add, Russia and China have been discussed a great deal this morning, in a military setting, but they also produce petroleum equipment that is not the best in the world, but perfectly adequate.

There is, as Secretary Tarnoff noted in his testimony, a very serious question about the enforcement -- the ability to enforce this, the administration of it. We wonder if it is credible that foreign governments will stand idly by while their companies are given the (Hobson's ?) choice of either being frozen out of the US market or the Iranian one. What would the United States do? What would you do, Mr. Chairman, if the tables were turned and another friendly government, foreign government, forced US companies to make that same choice?

Costs, another finding another question. It is essential to assess the cost to US companies, employees, communities and the economy. Would it not make sense for you to seek a study by the International Trade Commission, or the GAO, to prepare a serious calculation of these costs. Yesterday Congressman Roth's subcommittee held a hearing on US exports.


I would encourage you to review the testimonies given there by the CEOs of (GMU's ?) Electrics, (GMU's ?) Electronics, and Westinghouse. Both the chairmen and on the president's export council.

Their testimony sets out all of these kinds of costs, not just in an Iranian context but more broadly. They must be addressed.

In short, Mr. Chairman, we appreciate that you have identified the multilateral issue, which is so important, but we do think this particular response is not the right way to go. We think it will be costly and more importantly will be ineffective. Thank you.

REP. GILMAN: Thank you, Mr. Downey.

Let me ask the panelists. Apparently, Mr. Downey, you oppose legislation. Am I correct, Mr. Lucks (sp), you support it? Mr. Eisenstadt, where do you stand on the legislation?

MR. EISENSTADT: Sir, given that I have not seen the specific legislation, I'd rather not take a specific stand on that except to say that our basic approach of finance, technology and arms denial is the way to go, I think.

Finance, technology and arms denial is the way to go, especially finance denial is the sound approach.

REP. GILMAN: Is a sound approach?

MR. EISENSTADT: Is a sound approach, yes.

REP. GILMAN: And Dr. Clawson?

MR. CLAWSON: I strongly support the focus on the oil and gas industry. I confess not being a lawyer and therefore cannot address the particularities for legislation, but the idea of the legislation, I strongly support.

REP. GILMAN: Mr. Downey, when addressing the threat that Iran poses, you stated in prior testimony that the treat was in fact real, and you acknowledge the fact that Iran is involved in terrorist and other rogue activities. So, responding to those facts and the positive effects sanctions could have to curtail that activity, you stated that, "in order to ensure effectiveness, the proposal urges the US to obtain the agreement of other nations to impose equivalent sanctions for their citizens. It would be very difficult for responsible members of the international community to refuse to join in such a very targeted effort," close quote. Has your opinion changed at all? Do you still feel that it is a moral obligation to the world governments and citizens to punish Iran?

MR. DOWNEY: Mr. Chairman, as I said, I stand by exactly what I said last May before the subcommittee of this body. And in my current testimony I say is it credible that governments such as Canada, or Great Britain, as examples, are so cravenly submissive to their industries that need commercial exchange with Iran, that they would sublimate their responsibilities and principles. I don't think so and I have to question why is it that all other governments, good governments, responsible governments, are not agreeing with us on this broad economic embargo. I would hope that we could focus on things that are really important and persuade our allies and friends to join with us. The multilateral way is the only way to do it, but not by hitting them with an economic blunder -- (inaudible) -- and saying you must do what we say.

REP. GILMAN: Well, you ask the question why aren't they cooperating? So if they are not cooperating, then we have no alternative. It would seem to me then, to move unilaterally.

MR. DOWNEY: Mr. Chairman, our embargo is pervasive. We don't sell rice anymore, we don't sell refrigerators anymore, and other governments say that's not doing much. That doesn't do anything if we deny the Iranians those kinds of things.

MR. : Mr. Chairman, may I make a comment on that?


MR. CLAWSON: Economists like to talk about the free rider problem and I think that's what we're seeing here, which is to say that other governments know full well that the United States government intends to confront the problems that Iran represents on an international scale, that we are going to take responsibility for dealing with that problem. And therefore, other governments say okay, well the United States is going to take care of the problem, therefore let's see whether or not there's still some commercial opportunities for our companies and we don't have to worry about the problem because we know the US will deal with it.

I think as with many free rider problems, what we're trying to do here is to bring attention to those who are taking advantage of this situation and say look, you're getting the benefit of this, you've got to pay part of the cost as well.

REP. GILMAN: Thank you, Dr. Clawson. Mr. Berman?

REP. BERMAN: Thank you, Mr. Chairman, and thank you, Mr. Downey because I think it's very good to sort of join issue on all of this and have at it. And it spices up the hearing little bit.

Basically you say unilateral sanctions don't make sense. They disadvantage American business, they don't achieve the purposes if they're only imposed unilaterally, that you want to achieve, so move to a multilateral approach.

MR. DOWNEY: Mr. Berman, the CIA, the US government, this committee, everybody has said for 20 years unilateral sanctions --

REP. BERMAN: I never said it and I have been on the committee.

Unilateral sanctions sometimes work to some extent.

MR. DOWNEY: They do sometimes --

REP. BERMAN: We just heard --

MR. DOWNEY: Very rarely.

REP. BERMAN: Dr. Clawson just spent his testimony pointing out documented information on how the extent to which our sanctions on Iran have cost the Iranians hundreds of millions of dollars.

Now, you could say on balance the costs to American business were greater than that, that was enough, but to some extent it worked.

We imposed unilateral sanctions on South Africa and other countries soon joined us and pretty soon the South African business community pressured the South African government to change its direction on apartheid, and we had a massive change in that particular country.

By the way, the irony of citing our opposition to secondary boycotts in the context of the Arab boycott, was that the business community, of course, opposed the effort to legislate the prohibition of the enforcement of secondary boycotts. Now, the business community wanted to be able to enforce the Arab boycott and not have their business relationships restricted by our efforts to ban it, so back in the late 1970s, I think you'll see, if you look in the testimony.

And then, I'll let you comment also in a second, but I guess I fundamentally disagree with you when you talk about great leaders and bullies. Part of why this country is a great leader is because it's willing to be what some might view as a bully, that is, willing to use its military power or its economic power to achieve goals. And the debate about whether we're a great in the good sense, or great in the bad sense leader, is what are those goals and how do we exercise that power?

Let me tell you, there is nothing inherently about our persuasive capabilities that absent the threat and what we represent, will achieve very much on the international scene as we've seen so many times in the past. We aren't just able to achieve certain things because our goals are so noble. There has to be some backup there and this is one way to manifest that particular backup. So that's part of my critique of your analysis, and I just might add one last thing.

You said get an opinion from the administration on Harold Lucks' (sp) analysis of the national security exemption in these different trade agreements, GATT in particular. But what you don't do is give your analysis of why it's not compliant? What is wrong with Dr. Lucks' (sp) analysis of why this does not constitute a violation of GATT for which we could be brought before the World Court?

MR. DOWNEY: Mr. Chairman, you wanted to conclude at 1:00, I don't know if you want to give me an opportunity to respond at not?

REP. GILMAN: Did you want to make a further statement?

MR. DOWNEY: Well, Mr. Berman asked a series of questions.

REP. GILMAN: Just if you would, be brief. We do have a --

MR. DOWNEY: I'll just deal with the last one.

I have not seen Mr. Lucks' (sp) analysis, I have just heard his conclusion there. I have not seen any analysis. And I have been a professor of law at Georgetown Law School, of international law, and I know something about it, but I wouldn't presume to opine on this at this time.

Secretary Tarnoff, last month before the other body, said that all the other countries, members of NAFTA, GATT and the WTO, would charge that this is was illegal activity. I don't know the answer to that, and that's why I'm saying let's go to the best legal minds in the government and ask them. I'd be happy to accept whatever they said, and I think you would want that information.

REP. GILMAN: Mr. Berman?

Your mike.

REP. BERMAN: It's a fair request to seek out information and I think we should. But explain to me, why are sanctions against foreign governments, foreign companies that export missile technology do not violate GATT, why a whole series of laws that Dr. Lucks' (sp) cited that have been enacted for many years have not brought us in before --

MR. DOWNEY: He's absolutely right that there is a national security exception, and missile technology, nuclear weapons, conventional weapons all of those things are clearly in that ball park. REP. BERMAN: And what about the effort to focus on the financing of the efforts to acquire that?

MR. DOWNEY: That historically hasn't been viewed that way. But as I say, the State Department's legal adviser, office of legal at Justice, people who are expert in this area, would I am sure, be happy to advise you on what the law is.

REP. GILMAN: Mr. Lucks (sp), just very briefly.

MR. LUCKS (sp): Yes. I would just note that there are existing opinions by the Commerce Department, by the State Department that were submitted to the GATT, and printed legal analysis that confirm that the national security exception was drawn in very broad terms. And in fact, in a case not long ago when Nicaragua brought a case against the United States in the GATT, against its embargo, the GATT panel, although the report wasn't formally published but it's a public document now, said yes, it violates MFN and yes the sanctions violate national treatment, and yes it's inconsistent with other provisions of the GATT, but because of the national security exception we in Geneva are not in a position to define for the United States how it will choose to exercise its national security waiver. And I will send copies of these materials to the committee for your use.

REP. GILMAN: I'd welcome that and I want to thank the panelists for their patience and their time.

The committee will hold the hearing record open for one week for those who would like to submit statements for the record.

The committee stands adjourned.