Testimony Of
ARTHUR T. DOWNEY
Vice President, Government Affairs
Baker Hughes Incorporated

On Behalf of
The National Association of Manufacturers

On
The Use of Unilateral Trade Sanctions as a Tool of
U.S. Foreign Policy in Asia

Before The
Subcommittee on East Asian and Pacific Affairs
of the Committee on Foreign Relations
U.S. Senate

February 26, 1998

Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to testify during today's hearings on the use of U. S unilateral trade sanctions as a tool of U. S. foreign policy in Asia. My name is Arthur Downey of Baker Hughes Incorporated. I am testifying on behalf of the National Association of Manufacturers (NAM).

The 1997 State Department Human Rights Report noted that, though the Chinese government took several positive actions to address international concerns in the area of human rights. the government "continued to commit widespread and well-documented human rights abuses." In Burma, according to the report, the government "changed its name from the State Law and Order Restoration Council (SLORC) to the State Peace and Development Council (SPDC), but not its restrictive practices." Indonesian authorities, the report concludes, "maintained their tight grip on the political process ... Security forces continued to be responsible for extrajudicial killings, disappearances and torture." Vietnam's human rights record, "although somewhat improved, continued to be poor, with significant restrictions on freedom of speech. assembly, association, religion and right to privacy."

No one can help but be moved by reports of human rights violations and other abuses. As America contemplates how to respond. there is a temptation to react alone. rather than rely on existing international institutions -- which is why we turn to unilateral economic sanctions, in Asia and elsewhere.

On March 4, 1997, the NAM released a new study on the use of unilateral economic sanctions for foreign policy purposes from 1993 to 1 996 What we found was a bewildering array of good intentions gone awry. In just four years. 61 U.S. laws or executive decisions were adopted authorizing unilateral economic sanctions against 35 countries. six of them in Asia.

It is important to define what we mean by "economic sanctions." For purposes of the study, these included restrictions on exports from the U.S.; imports to the U.S.; investment in the target country: instructions to vote against loans in international financial institutions; and restrictions on U.S. government programs (e.g. U.S. Export-Import Bank and the Overseas Private Development Corporation). The focus is on "unilateral" sanctions These are sanctions that the U.S. imposes without comparable actions by other countries against the target country. It does not include so-called multilateral economic sanctions taken pursuant to a United Nations resolution, such as those taken against Iraq or Yugoslavia.

The definition of unilateral economic sanctions also needs to take into account the purpose of the sanctions. The focus is on sanctions for foreign-policy purposes, defined broadly to include national security, non-proliferation, anti-terrorism, human rights, democratization, anti-narcotics, and, most recently, environmental protection, which has recently emerged as a new national security objective of the U.S. It does not include the use of trade sanctions as a tool in trade disputes or trade negotiations.

In its report, the NAM recommended that unilateral economic sanctions should not be imposed without full consideration of the likely effectiveness of the measure (in terms of changing the behavior of the targeted government); the impact on humanitarian. security and other foreign policy objectives; and the economic costs The report also urged the use of other policy alternatives, such as multilateral initiatives or diplomacy, prior to consideration of unilateral economic sanctions. Finally, the report called for sanctions measures to sunset absent reauthorization by Congress, or be waived if a determination is made that the sanctions are no longer effective or are counterproductive.

The major problem with the use of unilateral economic sanctions to pursue foreign policy objectives in Asia or elsewhere is simple: they don't work Early last year, seven U.S. senators wrote the President urging him to invoke a new sanctions law against Burma, which the President eventually did, Yet, in the letter, the Senators write that, "Since the (Burma sanctions) bill was signed into law, the situation has gone from bad to worse." Although the letter's signers would argue to the contrary, they unintentionally make the point that unilateral sanctions don't work. Most recent studies indicate that unilateral economic sanctions did not achieve their stated foreign policy objectives more Than 80 percent of the time in the 1970s and 1980s. There is reason to believe that the failure rate will increase due to the effects of globalization, as more and more countries are able and willing to fill the void left when U.S. companies are denied the opportunity to trade and invest.

Second unilateral economic sanctions imposed against Asian countries too often fail to recognize humanitarian, security and other foreign policy objectives. Consider the recently-applied sanctions against Burma: before the ink was dry, Burmese officials were saying that the action would have no effect on its policies. Japan indicated that it would not go along with the U.S. approach. Burma's neighbors were not willing to along with the U.S. The Association of Southeast Asian Nations (ASEAN) admitted Burma in July 1997, notwithstanding pressure by the U.S. When Nelson Mandela -- himself no stranger to a repressive regime or the issue of sanctions -- was asked if South Africa would boycott Burma, he declined, stating the sanctions would only cause chaos and suffering in Burma and that South Africa preferred to act through international bodies such as the United Nations. In short, the U.S. unilateral investment sanction marginalized American influence with ASEAN and other Asian countries that have political and diplomatic contact with Burma, and pushed Burma closer towards the strategic embrace of China. We cannot afford to take measures that only serve to isolate the region from American influence.

Third, unilateral economic sanctions imposed against Asian nations ignore the beneficial social impact of American trade and investment. American values are best advanced by engagement of American business and agriculture in the world, not by ceding markets to competitors. In our view, economic freedom and advancement leads to human freedom. In the case of China. for example, the 1997 State Department Human Rights Report concluded that "as a result of economic and social changes, average Chinese citizens now go about their lives with more personal freedom than ever before." In the words of a former U.S. Secretary of Labor, "where capitalism lurks, democracy is just around the corner."

Fourth, the continued use of unilateral economic sanctions as a foreign-policy tool in Asia would seriously undermine U.S. exports and jobs in a region of growing commercial and strategic importance to the U.S. A recent study by the Institute for International Economics found that in 1995 alone, U.S. unilateral economic sanctions cost an estimated $15 billion to $19 billion in lost exports and 150,000 U.S. jobs. Nearly a third of all U.S. goods and 40 percent of U.S. agricultural exports went to Asia. From 1991-97, Asia accounted for 45 percent of U.S. export growth The global marketplace is where the action is. Nearly a Third of all U.S. growth comes from exports, and an increasing share of that export-driven growth is associated with continued U.S. commercial engagement in Asia. notwithstanding financial difficulties in the region.

Finally, U.S, unilateral economic sanctions against Asian and other countries create a reputation for American commercial unreliability. The effects of unilateral sanctions are likely to be felt for decades. as U.S. companies establish a reputation for unreliability. In the same way as an ordinary consumer avoids buying an appliance that has a reputation for unreliable service and parts supply, foreign purchasers avoid becoming dependent on global suppliers that represent a commercial risk because of U.S. government political sanctions. Chinese leaders have indicated that they are reluctant to commit important large-scale infrastructure projects in electrical energy to U.S. suppliers. They fear that over a project's life, U.S. trade with China will become hostage to U.S. politics. India and China hedge against potential commercial aircraft sanctions by maintaining a significant share of Russian aircraft in their fleets.

There is, however. more to the national interest than market share. Americans expect the U.S. government to play the leading role in the promotion of human rights, and U.S. industry understands, respects and supports this. Make no mistake about it, the panoply of evil is large and vivid, It troubles our consciences and makes us want to act. But action taken without calculation of its effect is mere shadow boxing. an exercise that achieves nothing. Diplomacy, negotiation, and, when our national security is directly at stake, military resolve, are the appropriate tools by which we can alter unacceptable behavior in Asia and elsewhere.

Unilateral economic sanctions in Asia do the exact opposite, causing suffering and hardship for the very people they are designed to help. It is argued that trade with certain regimes is immoral. But how is causing economic dislocation and pain for people in developing countries any less immoral, or whether deepening their poverty will cause people to rise up against their well-armed oppressors?

Nearly two decades ago, former Secretary of State George Schultz warned against the dangers of "light-switch" diplomacy: the belief that commercial relations could be turned on and off like a switch. This warning is more relevant now than it was two decades ago At the end of the first session of the 105th Congress, 25 bills imposing unilateral economic sanctions against 15 countries were pending. In addition, 20 sanctions measures were pending at the state and local level alone targeting 17 countries. Our commercial relationships are not an electrical current. For the sake of American prosperity and interests, let's leave the light switch alone.

Thank you.

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