Mr. Chairman and members of the Committee, it is a pleasure to be here with you today to discuss Iran and Libya, two of the principal challenges to U.S. foreign policy today. ILSA was passed by Congress and signed by the President because of our strong shared conviction that terrorism cannot be accepted or legitimated as an instrument of foreign policy. The U.S. will not accept the use of violence to terrorize or intimidate, whether the acts are committed on our own soil or elsewhere. Similarly, we reject the idea that weapons of mass destruction and their means of delivery are necessary tools of state power.

Ambassador Larson will give you a comprehensive update on the Administration's implementation of ILSA. I would like to focus more generally on what the Administration has done on Iran and Libya; the ways in which we are working with our allies to pursue our common goal of pressing these countries to alter objectionable elements of their behavior; and finally, how ILSA fits into our efforts.

Our approach on Iran focuses on three areas: economic pressure, counter-terrorism, and arms control and nonproliferation. In each of these, we have some measure of cooperation with our principal international partners; however, we seek greater convergence with our Allies on Iran policy.

First, economic pressure. Unilaterally, we have strictly enforced the trade and investment embargo instituted by the President's Executive Order of May 5, 1995. In addition, as Ambassador Larson has stated, we are implementing ILSA firmly and fairly. The fact that we have not yet imposed sanctions is an indication of to ILSA's effectiveness as a deterrent. The threat of sanctions has made Iranian projects much less attractive to foreign firms. In addition, it appears that interested firms find it more difficult to finance their projects. For their part, many of our allies are reluctant to grant Iran extensive access to official credits and guarantees for both economic and policy reasons. This is a first step, but more must be done.Second, counter- terrorism. Events over the past year have heightened our common concerns on terrorism and led to some useful actions by the EU. The April 10 Mykonos verdict demonstrated that concern over Iranian use of terror is not just an American preoccupation with traumatic past events. If acts of terror go unpunished, they will continue. The German court acted with great integrity when confronted by compelling evidence of Iranian involvement in a terrorist act.

Following the German court decision, the EU took several important steps including: suspension of the "Critical Dialogue" and official bilateral ministerial visits; a public confirmation of the existing ban on arms sales to Iran; increased cooperation on reducing Iranian intelligence presence in EU member states; and a recall of all EU members' ambassadors from Tehran.

Finally, at the Denver Summit of the Eight in June, we and our allies called on Iran to renounce the use of terrorism, including threats against Salman Rushdie. In the last year, the P-8 have increased cooperation on air and ground security, and agreed to further counter- terrorism cooperation.

Third, arms control and non-proliferation. Excellent multilateral cooperation has made it more difficult for Iran to buy arms, dual-use items and technology of proliferation concern. These arrangements include the Wassenaar Arrangement, the Missile Technology Control Regime, the Nuclear Suppliers Group, the Zangger Committee, the Australia Group, the Biological Weapons Convention, and a recent addition, the Chemical Weapons Convention. Although this net does not stop all transfers of concern, it has complicated Iran's procurement efforts and slowed the pace of their programs.

For the U.S. part, we push for compliance with these arrangements if we receive information that transfers are taking place. We have generally received good cooperation from other governments in such cases. U.S. legislation is an effective tool as well. On May 21, the U.S. imposed sanctions against seven Chinese entities and one Hong Kong company under the Chemical Weapons and Warfare Elimination Act. When appropriate, we have pursued sanctions under other non- proliferation instruments, including the Export Administration Act and Arms Export Control Act.And, at the Denver Summit, the P-8 called on all states to avoid cooperation with Iran's nuclear, biological and chemical weapons and missile development programs. In addition, the Eight reiterated support for all existing nonproliferation regimes and multilateral anti-terrorism cooperation.

Now, I'd like to discuss ILSA and what we've done to build greater consensus on Iran among our allies. In the Act, Congress urged the Administration to seek broad support for a multilateral sanctions regime to inhibit Iran's efforts to acquire weapons of mass destruction and support international terrorism. We have sought to construct such a regime. In doing so, we recognize that Iran will not change until it must choose between its current policies and the economic welfare of its growing population. We have no quarrel with the people of Iran. We do not wish to have a quarrel with the government of Iran, but we cannot and will not turn a blind eye to its actions. The election of Mohammed Khatami as president is an interesting development to the extent that it reflects the Iranian people's desire for change. We will have to wait and see whether it produces any positive changes in Iranian policies that threaten our interests.

It's been a year of tough discussions in pursuit of our goal of establishing a multilateral regime. The basis of our dialogue with our partners is our common conviction that Iran must alter its objectionable behavior. However, we differ on the tactics for achieving this goal The United States has taken a range Of unilateral actions to counter the Iranian threat. Now, we must have help from our allies, and we are working to develop the convergence between our and our allies' approaches.

We have regular discussions with the EU, Japan, Canada, Australia, Turkey and others regarding developments in Iran and how we should react to Iran's threatening policies. In these discussions, we have suggested a method of reviewing Iran's behavior together to come to a common evaluation of any change, positive or negative. It is our hope that such a process would lead to discussion of possible common reactions. Even if those reactions were parallel rather than identical, we and our allies would present Iran with a united front. We do not have agreement from our allies on this proposal. They remain concerned by what they view as U.S. efforts to impose a multilateral policy toward Iran. This is not the case. We are genuinely seeking a workable, effective method of cooperation, and we will continue to work with our allies to this end.

The Act provides that the President may waive the imposition of sanctions for nationals of any country that has agreed to take "substantial measures, including economic sanctions," that will inhibit Iran's efforts to acquire weapons of mass destruction and support for international terrorism. The Administration has stated clearly that economic measures are necessary to justify such a waiver. We have not defined precisely what those measures should be, and we do not believe it would be constructive to insist that our allies mirror U.S. policy on Iran. However, to merit a waiver, any actions taken by our allies must inhibit Iran's efforts to pursue those objectionable policies cited in the Act.

On Libya, we face a somewhat different situation. A UN sanctions regime exists on Libya for which there is wide multilateral support. Our allies, however, are disturbed by the additional sanctions ILSA places on investment in Libya. We are discussing our allies' concerns while seeking to maintain the strong cooperation we enjoy in our efforts to ensure the people behind the bombing of PanAm Flight 103 are brought to justice.

It is too early to gauge the impact of ILSA on would-be violators of the U.N. sanctions in place against Libya. However, we make it a point in our demarches to other nations concerning possible violations of the sanctions to emphasize that in addition to violating U.N. resolutions, entities which do so also risk exposing themselves to the sanctions of ILSA.

With regard to taking action against sanctions violators -- and there do continue to be violations of the U.N. sanctions -- we are currently investigating a number of cases, some of which are reaching more advanced stages. When we have information which supports a demarche to another country regarding violations of UN sanctions, we will make such demarches. We also remain committed to raising violations of the sanctions in the U.N. Sanctions Committee, even though the structure of the Committee makes attaining adequate responses difficult.

Iran and Libya present serious foreign policy challenges. We need the support of our friends and allies to confront successfully these challenges. We hope that our efforts with our partners will yield mutually beneficial cooperation on these issues, cooperation that will have a real impact on these regimes. In conclusion, I wish to emphasize that the Administration's goal, and I believe Congress's goal, is to see these nations become constructive members of the international community. However, this can not happen until they abandon those policies that directly threaten our interests. Thank- you.