MR. WAYNE: Yes. Thank you, chairman. I think I will -- if it suits you -- make an introductory statement, and then we will both take questions.

SEN. SARBANES: Okay, I think it would be helpful if you pull the microphone closer. You have to really speak right into it in order to be heard.

MR. WAYNE: Mr. Chairman, if it meets with your approval, I would make a shortened introductory statement, submit a longer statement for the record, and then we would both be available to take your questions.

SEN. SARBANES: Fine. And let me say, because I want to put it in after the statements of Senator Schumer and Senator Smith, I have a statement from Senator Kennedy, who was unable to be with us, but the statement and its attachments will be included in full in the record.

Mr. Wayne, please go ahead.

 

STATEMENT OF

E. ANTHONY WAYNE
Assistant Secretary for Economic and Business Affairs,
Department of State

 

MR. WAYNE: Thank you very much, Mr. Chairman. We are very pleased to have the opportunity to appear before this committee today, and to testify regarding S. 994, on the renewal of the Iran-Libya Sanctions Act. My name is Tony Wayne. I am the assistant secretary for economic and business affairs at the State Department, and I am happy to be accompanied by Jim Larocco, who has just returned from being our ambassador in Kuwait, and is currently serving as the principal deputy assistant secretary in our Near Eastern Affairs Bureau. He is actually the acting assistant secretary today, as Bill Burns is with Secretary Powell in the Middle East.

As you know, Mr. Chairman, the administration supports the renewal of ILSA in its original form, but for two years rather than the five proposed. We entirely share the concerns of Congress, the concerns that you mentioned and that your two colleagues mentioned about the objectionable policies and behaviors of Iran and Libya. And opposing those behaviors and those policies and changing them is a top priority. We have repeatedly condemned Iran's pursuit of weapons of mass destruction and the missile delivery systems for them, and its support of terrorism, including support for those using violence to oppose peace in the Middle East.

Although no Iranian individual was charged in the recent indictment related to the Khobar bombing, the investigation confirmed, as you noted, our concerns about Iranian support for terrorism, and that those are well founded.

As for Libya, it has not yet complied with the relevant U.N. Security Council resolutions, and we are focused on securing Libya's compliance with those Security Council obligations, including the payment of appropriation compensation and acceptance of responsibility of Libyan officials in connection with the bombing of Pan Am Flight 103.

The administration's decision to support a two-year renewal reflects no diminution in our concern about the objectionable behavior of Iran and Libya. Our concerns in these areas continue to be reflected in a wide variety of policies and actions: their designation as state sponsors of terrorism; our continued efforts to bolster international cooperation to stop terrorist activities. We are also playing a leadership role in the multilateral non- proliferation area in such regimes as the Missile Technology Control Regime, the Nuclear Suppliers Group, the Australia Group and the Wassenaar agreement, where we work in close partnership with European allies and other member governments to restrict the ability of countries such as Iran and Libya to have access to the equipment, technology and materials necessary to develop weapons of mass destruction and long-range missiles.

Rather, our support for a two-year term reflects this administration's view that sanctions should be reviewed, thought about, and debated at frequent intervals. Sanctions, as you know, Mr. Chairman, are one set of tools that we have to pursue our national interests and our important national values.

As we are working to counter such abhorrent practices as proliferation and terrorism, we need to build effective international cooperation. We need to 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 unintended effects and how to take those into account. And this process of reevaluation affords a further opportunity for all points of view to be heard as we look at how best to pursue our national values and objectives.

In sum, we believe that 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, and 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 or to support terrorism. It targets petroleum sector investors, many of them from friendly countries whose cooperation we need in working toward non-proliferation and counterterrorism goals, rather than targeting parties who are engaged in inherently objectionable behavior.

The administration, Mr. Chairman, is embarking on an overall review f 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.

For its part, the State Department believes that economic sanctions laws should reflect several common-sense principles. The should allow the president sufficient flexibility to modify or terminate sanctions as conditions change, or as he sees fit in balancing other important U.S. interests. 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 U.S. interests. In general, sanctions should be directly targeted at objectionable behavior by foreign governments or entities that threaten our values or interests, and they should minimize the 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. We may, however, occasionally need to be prepared to act unilaterally when necessary to defend important U.S. values and interests. And, as we have said, in general we believe that sanctions should be reviewed periodically and relatively frequently.

Finally, I want to stress that, whenever possible, any decision to impose sanctions should be the product of collaboration and consultation between the administration and Congress. Through a close dialogue, we can make sanctions more rational, more coherent and more effective in support of U.S. foreign policy and national security interests.

We are grateful for this opportunity to appear before you, and we'd be happy to respond to any of your questions. Thank you.

SEN. SARBANES: Thank you. Ambassador Larocco, did you want to add anything to the statement?

MR. LAROCCO: No, I have no additional remarks.

SEN. SARBANES: I'm a little puzzled by your references to fine tuning and flexibility, since the statute as currently written and as proposed for extension provides quite a broad waiver authority to the president, does it not?

MR. WAYNE: It does, senator.

SEN. SARBANES: I mean, the president can, by making a determination that it's important to the -- it's a national interest -- it's not even a national security interest determination -- he can waive the application of the sanctions -- is that right?

MR. WAYNE: Correct.

SEN. SARBANES: What's the problem then with extending it for another five years, since the president has that authority? Or let me put the question this way: If I accept your argument that you need frequent and periodic review, which the Congress would involve itself, wouldn't it be reasonable in that circumstances to tighten up the waiver authority very significantly if you are going to shorten the time period? In other words, suppose we did a two-year time period but eliminated the waiver authority, and then every two years we'd have a chance to look at this thing. Meanwhile, the sanctions would go into effect. So you get a shorter time period, but you don't then have the same latitude to just kind of waive the sanctions. Now we have a longer time period which we think serves some other important purposes. But you do have this waiver. What's your reaction to that?

MR. WAYNE: Well, I think as you pointed out in your introductory statement and just now, the waiver authority in this bill is broad. And, sir, as I tried to talk about, we think there are several different things that it's important to have in an approach to sanctions in general and in this bill.

SEN. SARBANES: Would you rather have a broad waiver authority and a five-year period or a very narrow or no waiver authority at all and a two-year period?

MR. WAYNE: Mr. Chairman, what I think we would -- what we very much favor is a two-year period on this of the current bill without any changes. Now, the reason for that -- let me just say I don't think -- to come back at you, I don't think there is a downside in that. What we are very much proposing is that we all have the opportunity to come together in two years, and again look at the set of issues --

SEN. SARBANES: Why wouldn't it be an invitation to Qadhafi to wait out the period and not pay the compensation?

MR. WAYNE: Because there is no sign at all that we would not renew ILSA again in two years.

SEN. SARBANES: Well, I don't know. I mean, here we are now trying to renew it, and we thought the obvious thing to do would be to take it out for another five-year term, and you are in here telling us, no, just do it for two years --

MR. WAYNE: Sir --

SEN. SARBANES: And then while you support the legislation, most of your statement has been spent sort of questioning the whole notion of sanctions.

MR. WAYNE: I'm sorry, sir, if I was -- if I wasn't clear in that, or if my statement conveyed a different impression than I intended to. What we are suggesting is that sanctions, an important tool in our foreign policy, need to be used carefully, and as our other tools, need to be reviewed and discussed and debated on a regular frequent basis. And that as we have looked back, sir, over the past decade in the range of sanctions that have been used and that we've undertaken, that one of the lessons that we think we have drawn from that is that there should be a periodic and frequent review of them for all sanctions, sir -- not just ILSA, but in general that this would be a good practice to have.

SEN. SARBANES: Of course the legislation as written gives the president the opportunity to conduct that review at any time, and considerable flexible authority then to act upon it.

Well, I want to put one other question to you, and then I'll yield to my colleagues. Is the Supreme Council for National Security the Iranian decision-making body for establishing major Iranian security policies?

MR. LAROCCO: That's my understanding. It's very clear that while President Khatami has the title of president that the true authority in the country for many decisions remains in the hands of what we would consider to be the hard-line conservatives.

SEN. SARBANES: Well, but is that exercised through the Supreme Council for National Security? That's the decision-making body for national security policies?

MR. LAROCCO: That's my understanding --

SEN. SARBANES: Now, is President Khatami a member of the Supreme Council for National Security?

MR. LAROCCO: I'd have to check that, sir. I do apologize -- I have been here for a week -- I would have to look further into that.

SEN. SARBANES: Well, for the record, it is my understanding that he is a member of the council, as is the supreme religious leader, the Ayatollah Khamenei, and the minister of intelligence, and a number of others. So, if that's the case, clearly the president is not out of the loop in these national security decisions. Would that be correct?

MR. LAROCCO: I was not suggesting that he is out of the loop, sir.

SEN. SARBANES: Okay.

Senator Schumer?

SEN. SCHUMER: Well, thank you, senator. I'd just like to follow up on the last part of Senator Sarbanes' questions. I'd just like to know -- you know, we had a time when we were trying to improve relations with concessions and nice talk and everything about that. I think there was more hope about Khatami a year or two ago than there is today. I think you've seen a hardening of opinion, because people have seen nothing. And in fact a large number of people I speak to think Khatami is nothing more -- this is not everybody, but there's a group who think he is nothing more than a puppet, a way of sort of saying, Hey, look, we have this guy who is not as bad as the rest of us out there, and he has no control over anything. So I'd like to know what elements -- when has this softening policy in whatever way ever produced results with Iran, and what results were they? Because clearly if we go to the administration's recommendation, it's going to look like an olive branch, a softening. And the question is: When has softening worked in the past? Or why can't you -- or why isn't it equally or even more plausible to say if they get the feeling, being hard line as they are, being as ideological as they are, thinking that they have the message from God, as they do, they see our tough nastiness is working -- the West is weakening. And if we act even nastier maybe they'll even next time have a weaker bill.

So just tell -- give me some logic as to why we shouldn't be as strong as we have been, when to me at least I have seen no change. It's not that Khatami is the new kid on the block anymore. In fact, you can argue that things have gotten worse -- support for Hamas has gotten worse, the arrest of the 13 and conviction of the 10 Jewish citizens for all practical purposes seems that it was done for their religion -- their nuclear program -- everything. Tell me where there has been some element -- what makes the administration decide to do this? Is it that there is some evidence in the past that when olive branches or little winks were extended that it produced results? Is it an attempt to try it again, even though it hasn't worked? Is there some information you have that we don't?

MR. LAROCCO: Mr. Senator, if I could first comment about the Iranian situation, I think it's important to set that framework. To begin with, I think we have all seen -- and we had great hopes when the election of President Khatami took place that there would be some changes in policy. But it's become very clear, even with his reelection now, that while there has been broad based support for reform -- and we are talking primarily because of demographics of the younger population -- they enfranchise their voters at the age of 15 -- that the support on a broad base, as reflected at the polls, has not been translated into the kind of policies that we would believe are -- serve our interests, or in many respects the interests of those same constituencies. We have seen in the short term even now continued crackdown on dissidents and closing of newspapers. At the same time, as we have stated in our patterns of global terrorism, it is very clear that there has been no diminution in terms of their support for terrorism, and their active support for terrorism, particularly directed against peace efforts, and at the same time their continued dogged pursuit of weapons of mass destruction. So I want to do make that very clear. If we are taking a look at the aspirations of the people, we have to conclude that they are longer term, that they are not short term. And so you are correct in the sense that the leadership of that country continues to take them in a direction that does not serve our interests.

SEN. SCHUMER: And give me the logic as to why a weakening -- it will be perceived as a weakening -- of ILSA would change any of that. I mean, my guess is that if you talk to some of the young people, the dissidents, privately, they'd probably say, Keep the heat on the government as much as you could.

MR. WAYNE: Senator, I guess I would say to that that we don't see a two-year renewal versus a five-year renewal as a weakening. It's the same law that is being -- that we support renewing. We think it just makes sense to come together in two years and again have a discussion.

SEN. SCHUMER: Well, we could do that anyway. You don't need to -- we are open to discussion -- I am -- I am sure all of my colleagues are -- any time of day. We could have a discussion any time we sit -- we could write in the five-year that two years from now there shall be a little conclave and we shall discuss this and reevaluate. But clearly it would be perceived as a weakening. Whether you intend it to be or not, you certainly would admit that some could make the plausible argument that it is a weakening. And there are a lot better ways in my judgment of indicating that we have to reevaluate, based on, hopefully, some change in action, without saying let this expire in two years. Tell me -- I mean, I still don't see the logic if, as Ambassador Larocco has honestly and forthrightly stated, we haven't seen any change in policy.

MR. WAYNE: Senator, we believe -- one, no diminishment in our concern, as Ambassador Larocco said. No change in our policy -- in fact, just yesterday, you may have noted we announced some new steps taken under --

SEN. SCHUMER: But don't you think some would perceive it as such?

MR. WAYNE: Certainly some might perceive it as such, but we will make -- we are making very clear that that is not what it is. There -- our convictions remain as firm as ever, that we need to respond effectively to this behavior. And we just think that coming back in two years we'd have a good opportunity to see where we are and discuss it again, and discuss a range of issues.

SEN. SCHUMER: Thank you, Mr. Chairman.

SEN. SARBANES: Senator Hagel.

SEN. CHUCK HAGEL (R-NE): Mr Chairman, thank you. I apologize for being late. I have, through my staff, monitored this. This is a very important issue. I find myself much in the minority on this issue, and certainly do not agree with my -- my friend and colleague from New York on the issue. And I'd first like to ask unanimous consent that a statement and a speech be allowed to be included in the record.

SEN. SARBANES: Certainly. It will be so included.

 

STATEMENT OF

CHARLES HAGEL
A Senator from Nebraska

 

SEN. HAGEL: Thank you, Mr. Chairman. Mr. Chairman, I would like to offer a couple of thoughts, and then a question within my time frame.

It is my opinion that a face value policy, which I consider this policy to be -- meaning that it is in face only. It's not enforceable; hasn't been enforced. We've not pulled the trigger on this. We've deferred the tough decisions. It I not the right way to do this. And I say that because if the focus is on terrorism and proliferation, and the interest of America in the Middle East, the interest of Israel, the interest of our friends and allies, the civilized world, then I find this legislation, this law that we are looking at renewing, a bit farcical. What are we accomplishing?

Senator Schumer has asked some good questions. But I think the better questions are: what results have ILSA produced? What clout do we have? What can we do? Symbolism is important. This is an imperfect world. Surely there are forces within Iran that are moving in the right direction -- it may take a generation.

But I start with Israel's position here as well. Why is this in the best interest for this policy to arbitrarily, unilaterally, needlessly, make enemies for Israel and the United States of this new generation of Iranians coming up, born after 1979, which is a large, large percentage of that population. And we're getting nothing for it. Has terrorism stopped? Has proliferation stopped? You might be able to enlighten us on that point.

It seems to me, we, as a great power, should be far more imaginative here in finding a better way to do this than just to say well, let's just wait five more years and see how the world looks. There are very little margin of errors left in the world today, and if you break this down either further into information gathering, when we are shut out of a nation and trying to figure out what's going on in that country, how does that serve our interests, to be shut out? How does that serve our geo-political, strategic, economic interests to be shut out? I don't -- I don't see how that does.

I don't think you make the Middle East more stable. I don't think you bring more security to Israel by this kind of policy -- which, again, unless you can tell me otherwise, has not produced any results. The one time that I am aware of, the Southpars decision that President Clinton gave a waiver to Totale -- the rest of the issues we're studying, we're looking at. I'm not aware of the fact that President Clinton pulled the trigger on any of these issues. And, in fact, if he did, what would we get? We are alienating much of the Middle East. We are alienating our friends and our allies.

And I guess more to the point, this is a multilateral effort. We don't combat the twin scourges of terrorism and proliferation unilaterally. It is impossible to do that. So, I -- I think the far wiser course of action, for the interests of this country and for Israel, is to find a better way to do this. And surely we are capable of doing that. We've got a lot of smart people in Congress. We've got a lot of smart people on the outside. I think the president has surrounded himself with some pretty part people -- starting with the two of you, Secretary Powell, it seems to me we can -- we can figure this out.

But I -- I want to go on record, and I suspect in an unequivocal way, my opposition to this. Again, I recognize that I may have two votes with me, and I may be exaggerating one. But, nonetheless, somebody has to give another point of view here, and I'm incapable of being that articulate, but nonetheless I will and will try to continue to give another view on this issue.

Now, with the time I have, if I've got any left -- the yellow light is on, maybe I'll get a question in -- let's take the question that my good friend from New York asked. What results have there been? Give me an example, or as many as you can, of what ILSA has produced in the way of tangible evidence of how we have stopped terrorism and proliferation.

MR. WAYNE: Thank you. Thank you, Senator. Let me take a crack at that first. As I think was evident in a number of the statements, it is clear that Iran continues to support terrorism, and it continues to pursue the weapons of mass destruction and their delivery systems. That speaks of itself. Those remain very, very serious problems.

If you look at the effectiveness of ILSA, there are a number of different measures -- and I know some of the other panelists will comment on this -- if we look at oil production, Iran has continued to be able to meet or exceed its quota in OPEC. If we look at the price of oil, and the money that's been received in that, I guess I would say another way, the price of oil globally has been a much more powerful determinant of how much money Iran takes in than probably any other factor. When that price was low, at $10 a barrel, their income dropped. It currently -- as it's currently about $25 a barrel, their income has soared.

We do believe that ILSA did have, and has had some deterrent effect with those seeking to invest in Iran. The exact weight of that is very hard to measure because Iran is not an easy place to do business, even for those who are willing to do business there. I even read in the Financial Times yesterday an article about current debates going on within Iran among different power centers about whether to accept certain foreign oil deals that have been put forward. There have -- there are just a lot of problems in doing business there. So, to weigh out the effects of deterrence of ILSA and other facts is a hard -- is a hard thing to do, and there can be different analyses of that.

We have, using our dialogue about ILSA, regularly called our opposition to investment in Iran to the attention of -- when we have press reports of companies that are going in there and their governments. We have regularly had a dialogue on that, expressed our opposition, expressed why we oppose this. We have during this period I think deepened our cooperation with a number of our friends and allies in the non-proliferation area and the counter-terrorism area, because they do it -- they accept our goals and our objectives to change that behavior, and we've made a number of steps during the last five-year period to improve those regimes.bassador Larocco.

SEN. SARBANES: Mr. Carper.

SEN. THOMAS CARPER (D-DE): Thank you, Mr. Chairman. And to our witnesses today, welcome. I apologize for missing your statements. I have them, and I'll read them.

I've run for statewide office 11 times in Delaware, and served in the Senate, the House, as governor, and I have a real interest in the political system in our state and in politics, and follow it rather closely in our country. I'm also intrigued by the political scene in -- changing scene in Israel, and have been a student from afar and a visitor to the country from time-to-time.

I'm intrigued by what's going on politically in Iran, and followed the recent elections with some interest, and the preceding elections with equal interest. My recollection is that voter turnout this last time was down a bit, but those who seem to be voting for reform were in a greater percentage than had previously occurred. I hear what you're saying about Iran continuing to purse development of weapons of mass destruction and supporting terrorism -- none of which we want or like. Having said that, I know that there are substantial numbers of people in Iran who want to change the status quo in their country.

And I'm -- you may have said this in your testimony, but I would just ask of you, what -- what policy or policies do we pursue to strengthen the hand of those in Iran who seek, genuinely seek reforms, who seek to lift the repression, and to take a different path? What policy or policies can we take to strengthen their hand rather than to weaken it?

MR. LAROCCO: Thank you very much. I think I'd like to start out by saying how much I appreciate your comments, and note that Secretary Powell, when he appeared in his confirmation hearing, did note that Iran is indeed an important country in the region, and to our interests, that is going profound change from within.

It's very, very clear that the aspirations, particularly of the younger people, are for reform -- political and democratic reform, and economic reform. What we have been doing consistently is to speak out on the -- in support of that reform, and particularly for human rights, for freedom of expression, for all the freedoms that we cherish. And we believe by doing that is they're getting a clear message. And this is -- we believe is very -- is extremely important in broadcasting these messages to them, so that's -- that is what I'd like to offer to you on that.

But, I think we need to be very clear on this -- is that we believe that our influence is in fact quite limited, that this is a true domestic reform effort. It's coming from within. It is grassroots. It's not coming from the top. It's coming from the bottom up. And so our best influence is, indeed, to be consistent in what we say, and to support all those reforms and further democratization, so that -- but we believe this is a longer-term process, as you noted yourself.

SEN. CARPER: Mr. Wayne, do you want to add anything to that?

MR. WAYNE: I think Ambassador Larocco --

SEN. CARPER: All right. I think the administration's position -- I had the privilege of meeting with several -- several representatives of the administration a couple of weeks ago to discuss this issue at some length. And they were calling for an extension of ILSA of two years rather than five. Has any thought been -- and that would apply to both Iran and to Libya, is that correct? Does it make any sense to consider treating the two separately -- one an extension of the provisions of the legislation for two years and the other for five? Does that make no sense at all? What are the -- what are the problems with doing that?

MR. WAYNE: And which would be your --

SEN. CARPER: Two years for Iran. Five for Libya.

MR. WAYNE: I would have to think about that, Senator. Our position -- and -- has been, as you correctly put it, that we would favor a two-year rollover of the law as it is. (We're on board. ?)

SEN. CARPER: Okay. Mr. Ambassador?

MR. LAROCCO: I think it's fair to say that our concerns related to Iran are far different than our concerns related to Libya and the situations are different. That's all -- that's all I can say. But we are --

SEN. CARPER: Could you just elaborate on that just a little bit? You say the concerns are different -- would you just elaborate on that a little bit?

MR. LAROCCO: Yes. Our concerns with Iran, as we know, are related to some -- some of our most important national security interests when it comes to development of weapons of mass destruction and the development of the capability to deliver those weapons of mass destruction to some of our most important allies, including Israel, and our strategic interests in the energy field that could be threatened by that. At the same time, we have primarily a unilateral framework which we try to work in consultations with our friends and allies to prevent Iran from developing those weapons of mass destruction in particular, and to try to curb the terrorism.

In the case of Libya, we have a multilateral framework that has been agreed upon and that we adhere to strictly. And we believe to this point, while it's been very painful for the families and its been much too slow, it's something that we and the international community has stuck with. It is -- it is a different situation, but that's all I wanted to point out from a policy point of view.

SEN. SARBANES: Senator Corzine.

SEN. JON CORZINE (D-NJ): Thank you, Mr. Chairman, for holding this hearing. And I appreciate the folks who are testifying and their insights on this, I believe, truly important issue. I feel very strongly, both history and -- and not only as it relates to Iran and Libya, but other instances that economic sanctions end up having influenced -- but I also understand that we can't let the perfect be the enemy of the good, and therefore I can identify with some of the things that the senator from Nebraska talked about, but I believe that there is some influence that comes about by diminished economic activity that flows from sanctions. And there has been profound changes, as you verbalized within Iran.

And so I guess my question gets at haven't these sanction had some relevance to making that a possibility? And isn't it part and parcel of some of the elements of change that are occurring, knowing that everything has a balance sheet -- there are pluses and minuses associated with all -- but aren't we moving in a better direction than we would otherwise be if we did not have these sanctions in place? I feel very strongly that we should keep them in place by my own understanding of those changes, but I'd like to hear the reason that these haven't been effective, as was suggested by one of the senators, relative of my own impression that they've had a meaningful impact.

MR. WAYNE: Well, let me, if I could, Senator, take a first crack at that. First, it's important to remember that we have a whole series of different kinds of sanctions in place with Iran, and with Libya also. In both cases, we have identified them as state supporters of terrorism for a long time, which in and of itself brings a number of sanctions with that. So, I think that we would fully and totally agree that sanctions are an important tool that we have. They have had an effect, all the way from the very symbolic effect of signaling that this is not acceptable behavior, to concrete effects in specific areas. Our non-proliferation sanctions and actions that have taken in the multilateral arrangements have clearly cut off the supply of technology and weapons and equipment, as have a number of the other sanctions.

As I said in the case of ILSA, and you will hear -- you will get several different measurements of the effectiveness of this -- we do think that there has been a deterrent effect from ILSA to add to the questioning that companies have had when they have considered investing.

SEN. SARBANES: I see. There's some country's significant economic players whose companies have not invested in Iran who otherwise might have been expected to do so, is that not the case?

MR. WAYNE: That is the case. But in all cases, when you're talking about a hypothetical, it's a hard -- it's a hard thing to measure. So, I guess that's what I would say. We do think -- we know that there has been deterrent effect. We know -- we've had good conversations with other governments and people about the bad behavior, about why believe that there should be no investment in Iran's petroleum industry. The exact weighing of that is a harder -- is a hard thing to do.

Without ILSA, I can be clear that, from my own experience, the secondary implications of how one company deals with another would not be an issue that was addressed at all in those relationships, and partnerships, and joint ventures, if this act were not in place. And so, it has to, in practical impact, have some flow-through to those relationships.

But I think it's also fair to note that it also have effect with our friends and allies who consider this to be a unilateral imposition of our preferences on them. In the European Union, there is a European Union-wide rule that forbids any company in the European Union from complying with ILSA. So there are other tensions that come up as we seek to implement this law, as we have been doing and will do if it is renewed.

SEN. SARBANES: Senator Stabenow.

SEN. DEBBIE STABENOW (D-MI): Thank you, Mr. Chairman. I first want to apologize for coming into the committee late. All four of my committees have met this morning at the same time, and so I'm seriously considering joining the discussion in cloning so I can be able to achieve my assignments. I wanted to be sure and be here, though, to indicate my pleasure of being a co-sponsor of this bill and the importance of the reauthorization of the Iran and Libya Sanctions Act.

And I would ask one question that I apologize if you have already addressed this this morning, but I would like to know your thoughts concerning lowering the threshold trigger for Libya to coincide more with the trigger for sanctions with Iran. And if you could just speak for a moment regarding that, I would appreciate it.

MR. WAYNE: We favor a rollover of the bill without any changes in it. We have, in the case of Libya and Iran -- in both cases, since the bill has been in place for five years, there is an understanding of those limits and of the rules and regulations with our friends and allies.

In the case of Libya, as Ambassador Larocco mentioned earlier, a great part of the effectiveness in dealing with Libya has been the fact that there have been U.N. Security Council resolutions passed and there has been an international and multilateral consensus that exists and still exists in urging Libya to do the right thing. There is a need to maintain and even bolster that pressure, that international consensus. We believe approving a renewal of the bill in its current form would be the most propitious for maintaining that international consensus.

SEN. STABENOW: Mr. Ambassador, would you want to add to that? Okay. Thank you, Mr. Chairman.

SEN. SARBANES: Thank you very much. Did you have anything else, Chuck?

SEN. HAGEL: If I could take a minute or two, Mr. Chairman, I would like to follow up on a couple of the points that were made here. The response that you each have given to some of the questions here about the results -- and I have yet to hear a tangible result of where you can point to that proliferation, terrorism, was stopped. Oil is still running rather well out of Iran.

Show me something, rather than just some reference to "Well, these are difficult tangible kinds of things" to put on the record here; intelligence, for example. Do you think we know more about Iran? Do you think we know enough about Iran? Do we know enough about what Senator Carper was talking about in regard to what's going on in Iran?

Maybe there is no reform effort going on. I think there is. I think Senator Carper thinks there is. I think a number of people think there is. And with these sanctions and a continuation, how then do we reinforce that reform effort? How do we, by symbolism that I have heard many times from the two of you gentlemen, how do we, through symbolism or any gesture, give these people any hope? What we do do is continue to allow ourselves to be vilified in Israel by these actions. And whose interest does that serve? Certainly the mullahs, who are in charge.

And what no one is saying here -- and we should be very clear about this -- that Mr. Khatami is an Islamic Thomas Jefferson. I don't think anybody believes that. I don't. I think I have a pretty clear understanding of the real world. I've lived in the real world. And so it isn't a matter of being weak-kneed about our foreign policy. But what I think we should focus on always in foreign policy is what works, what's effective.

Now, I'm going to ask you each again, if you could, for the committee, give the committee some tangible evidence of where ILSA has produced some real change. Has there been less oil pumped, for example, in Iran?

MR. WAYNE: What I can say for sure is they have continued to meet their OPEC production quota during this period of time. Now, we will -- I'm not an oil expert. I think you will hear from some people who study this on the next panel. Whether there are differences between what might have been a projected production and what the current production is, I'm not expert to say. All I can really say is they have met their OPEC quotas during this period.

SEN. HAGEL: Well, what does that mean? So you're crediting ILSA for not allowing them to go beyond meeting their OPEC projections?

MR. WAYNE: Well, I think the effect of not having additional investment, foreign investment coming into their oil sector, has meant that they have not exploited new areas and they haven't maximized their production in existing areas. And I think ILSA has had some effect in that. The exact weight of ILSA versus the difficulty of doing business in Iran, of having Iran manage these complex buy-back procedures that they were doing --

SEN. HAGEL: Well, but the fact is when President Clinton gave the waiver to Total, didn't that allow Total to put some investment into Iran?

MR. WAYNE: It did. There are --

SEN. HAGEL: Well, why are we touting ILSA as something effective?

MR. WAYNE: Well, I do know that none of the new projects, even those that have started, have yet come on-stream in this; I believe even the one project, the Southpars project, that was --

SEN. HAGEL: You give ILSA credit for that, even though President Clinton waived the waiver -- I mean, gave the waiver, waived ILSA.

MR. WAYNE: I believe the deterrent effect of ILSA has had an effect in that process. The exact --

SEN. HAGEL: Well, I don't understand how. But Mr. Ambassador, one of your people gave you a note. Maybe you have the answer. (Laughter.)

MR. LAROCCO: It was the note reminding none of the projects have come up.

SEN. HAGEL: He works for you. Then we don't have an answer.

MR. LAROCCO: If I could just add something, Mr. Senator, that is drawn from my own recent experience, having been ambassador to Kuwait the last four years and having spoken with many businessmen who do business in Iraq -- and I'm talking about regional businessmen, not Americans, because we don't -- but there are many factors, and it would be very difficult to single out anything.

But quite frankly, one of the main reasons why there is not investment in Iran is because they simply have a totally ossified economic system that is not conducive to investment. They are not a part of the WTO. They don't have a rule of law in commercial behavior that is recognized, that is conducive to investment. That is a factor. I believe it teutonian (sp), as he said, that perhaps ILSA is a factor as well. But I think we need to keep in mind that it's going to be very difficult to measure any one factor in terms of why Iran does not have more investment than it has.

SEN. HAGEL: All the more reason just to go another five years blindlessly into the black hole of ILSA. Thank you, Mr. Chairman.

SEN. SARBANES: Well, we could continue for quite a while, but we have another panel and I'm anxious to get them on. So I'm going to close this out. I want to make just a couple of observations in doing so. One, the Jefferson quote that I was searching for at the outset of the hearing, which some will recall, is "The interests of a nation, when well-understood, will be found to coincide with our moral duties." "The interests of a nation, when well-understood, will be found to coincide with our moral duties."

I'd like to make just two observations. You all can submit something in writing if you choose to. I think most observers would accept the proposition that there would have been more investment from abroad in Iran's oil industry without ILSA than there has been with ILSA. Now, it's difficult to quantify that, but I know very few people who would say that it has not had any impact, I mean, and perhaps a substantial impact. And you can point to certain countries where companies have not gone in where they might otherwise have been expected to do so. And I think there's a general -- it acts as a general restraint. You don't quarrel with that, do you, Mr. Wayne?

MR. WAYNE: (No audible response.)

SEN. SARBANES: No. The other point I wanted to -- well, you shook your head. Why don't you say no so we can get it on the --

MR. WAYNE: No, sir. No, Mr. Chairman.

SEN. SARBANES: All right. The point is all this talk about reform in Iran. But I think there are a number of observers who perceive that reform as directed towards domestic issues and not towards international issues. In other words, it is not, at least thus far -- doesn't seem to be a reform that is addressed towards changing Iran's role in the Middle East, its spoiler role in the Middle East, changing its support for terrorism outside, shifting markedly on weapons of mass destruction. I don't see anything that reflects that. Has not the focus of this, quote, "reform," unquote, reform movement been primarily on internal domestic matters?

MR. WAYNE: Mr. Chairman, that's absolutely correct. From what we have seen and observed, it's very clear that the reform that is taking place is primarily for domestic policy rights and economic reform. However, I think many people, even in the region, interpret that as a move towards moderation. But to move to the next level and say that this would necessarily have an impact on foreign policy is something that would be very difficult to conclude, which is why, for example, Secretary Powell said that, despite our differences, we believe that we need not preclude greater interaction with the Iranians to talk over these issues.

SEN. SARBANES: Well, gentlemen, thank you very much. We appreciate your testimony.

MR. WAYNE: Thank you, Mr. Chairman.