Mr. Chairman:

We are very pleased to have the opportunity to appear before this committee today, and to testify on S. 994 regarding renewal of the Iran and Libya Sanctions Act (ILSA) .

I am Tony Wayne, Assistant Secretary of State for Economic and Business Affairs. I am happy to be accompanied by Jim Larocco who has just returned from a tour as Ambassador to Kuwait to become the Principal Deputy Assistant Secretary in the Near East Bureau. Jim is Acting Assistant Secretary at the moment, while Assistant Secretary Bill Burns is traveling with Secretary Powell. Let me say a word about my background. Much of it, I think, has some relevance for ILSA. Before becoming Assistant Secretary for Economic and Business Affairs about a year ago, I was Principal Deputy Assistant Secretary in the European bureau --and ILSA certainly involves and affects our European allies. In this capacity, I was closely engaged in the discussions we had with the Europeans about cooperation on nonproliferation and counterterrorism in 1997 and 1998, as our decision process on the South Pars case moved forward. I also served in our Counterterrorism office from 1989 to 1991 where I helped to build our cooperation with others against terrorism, including activities supported by the governments of Iran and Libya. I thus have some perspective on that vitally important issue and its connection with ILSA.

As you know, the Administration supports renewal of ILSA, in its original form, but for two years, rather than the five proposed in S. 994. We entirely share the concerns of Congress about the objectionable policies and behavior of Iran and Libya. Opposing that behavior is a top Administration priority. We have repeatedly condemned Iran's pursuit of weapons of mass destruction (WMD) and missile delivery systems and its support for terrorism, including support for groups using violence to oppose Middle East peace. Although no Iranian individual was charged in the recent indictments over the Khobar bombing, the investigation confirmed that our concerns about Iranian support for terrorism are well-founded. Libya has not yet complied with the relevant UN Security Council Resolutions. We are focused on securing Libya's compliance with its UNSC obligations, including payment of appropriate compensation and acceptance of responsibility for the actions of Libyan officials in connection with the bombing of Pan Am 103.

The Administration's decision to support a two-year renewal reflects no diminution in our concern for the objectionable behavior of Iran and Libya in the areas of terrorism and proliferation. Our concerns in these areas continue to be reflected in a wide variety of policies and actions we have adopted towards these countries, including their designation as state-sponsors of terrorism, and in enforcement of the sanctions and restrictions derived from that designation. In addition, similar concerns are reflected in other legislation passed by Congress, such as last year's Iran Nonproliferation Act, the 1992 Iran-Iraq Nonproliferation Act, and a number of other statutes. We have played, and will continue to play, a leadership role in multilateral nonproliferation regimes, such as the Missile Technology Control Regime (MTCR), the Nuclear Suppliers Group, the Australia Group, and the Wassenaar Arrangement, where we work in close partnership with our European allies and other member governments, to restrict the access of countries such as Iran and Libya to equipment, technology, and materials necessary to develop WMD and long-range missiles.

Support for a two-year term reflects this Administration's view that sanctions should be reviewed, thought about, and debated at frequent intervals. Sanctions are one set of tools among the many we deploy for supporting important national objectives such as combating proliferation and terrorism. We are working to counter these abhorrent practices and to build a cohesive and effective international effort against them. Given the enormous importance of these objectives, we should regularly reevaluate our sanctions tools, assessing how well they are working; whether they should be altered or amended; whether they can be fine-tuned; whether there are other instruments or approaches that should be applied; whether there are ancillary effects, and how to take them into account. This process provides a further occasion for all points of view to be heard. In sum, regular reevaluation is essential to ensure that we are attacking critical problems in the most effective way.

Questions about effectiveness, impact, cost, and relevance inevitably arise in connection with any sanctions regime. ILSA is no exception, particularly since its approach is indirect: it focuses on investment, in order to limit revenue, rather than focusing directly on actions by Iran and Libya to procure weapons of mass destruction and support terrorism; and it targets petroleum-sector investors -- some of them from friendly countries whose cooperation we need in working toward our nonproliferation and counterterrorism goals -- rather than targeting parties who engage in inherently objectionable activity. We are working to maintain and strengthen cooperation with friends and allies to try to change objectionable aspects of Iranian and Libyan behavior.

The Administration is embarking on an overall review of sanctions policy that will include examining the cost and effectiveness of our sanctions efforts --in general, and with respect to specific sanctions laws, such as ILSA. The review will also examine ways to make the administration of sanctions that affect US business more efficient. At the Secretary's direction, the Department is working with other agencies to determine the extent to which economic sanctions laws achieve their objectives, have appropriate reporting requirements, or impede the President's ability to react to rapidly-changing international developments.At his confirmation hearing, Secretary Powell expressed concern about the number of existing sanctions laws and regulations; there is potential for overlap, inconsistency, and inappropriateness. He also noted that there have been instances in which sanctions have been useful. Carefully designed and prudently used, economic sanctions can be a valuable foreign policy and national security tool.

For its part, the State Department believes that economic sanctions laws should reflect common-sense principles. They should allow the President sufficient flexibility to modify or terminate sanctions as conditions change or as he sees fit in balancing other important US interests. Sanctions must do more than provide psychological satisfaction. They must be part of an integrated policy, that considers other options and weighs the costs and benefits of economic sanctions for the range of US interests. In general, sanctions should directly target the objectionable behavior by foreign governments or entities that threatens our values or interests and should minimize unintended harmful consequences. Sanctions that are indirectly targeted are likely to be less effective and need to be weighed with particular care for unintended effects. When sanctions are appropriate, it is far preferable that they be employed through a multilateral approach. Experience has shown that concerted multilateral efforts are almost always more effective than unilateral ones, although we may occasionally need to be prepared to act unilaterally when necessary to defend important US values and interests. As we have said, sanctions should be reviewed periodically, and relatively frequently, to assess their continued effectiveness and relevance, and make appropriate adjustments.

Finally, I want to stress that whenever possible, the decision to impose sanctions should be the product of collaboration and consultation between the Administration and Congress. We look forward to working with you and your colleagues on this important set of issues. Through a close dialogue, we can make sanctions more rational, coherent and effective in support of US foreign policy and national security interests.

We are grateful to the committee for the opportunity to appear, and to make this statement. We would be happy to respond to any questions you might have.