Testimony of Arthur Downey--free trade, unilateral and economic trade sanctions

Testimony of Arthur Downey
Vice President
Baker Hughes

Before the U.S. International Trade Commission
May 14, 1998

MR. DOWNEY: Thank you. My name is Arthur Downey. I am vice-president of Baker Hughes, Inc. We are a Fortune 500 company serving the petroleum and the continuous process industries with our products and services. We are headquartered in Houston, Texas, in the Congressional District represented by Chairman Archer, whose letter of February 18 prompted your investigation. Seventy percent of our revenues come from offshore. We are a major international trader.
Since Chairman Archer's letter was sent in the context of the proposed process reform legislation, I will address most of my remarks to process because I think it does have an immediate impact on your activities. Bad process itself has costs and harms our competitive position.
As you prepare your report, I would encourage you to include a comprehensive presentation of how each of the unilateral economic sanctions arrived. Was it by legislation? Was it by Executive Branch action exclusively? Was it by Executive Branch action under threat of legislation? And also the process by which the sanction was implemented and how it has been enforced.
I might also suggest that you, as you assemble information from industries and companies on the costs and effects, I would encourage you to resist the natural tendency to find comfort and security in numbers and statistics.
This is a struggle, I appreciate, but I would encourage you to move into the territory of impression, hunch, judgement, best guess. These are soft and unverifiable, but my sense is in this area they are going to be more accurate and more real than your normal statistical number driven approach.
All of the economic sanctions that are on the table affect my company. We have lost business with every one of them, but for this purpose, the purpose of this hearing, I will concentrate principally on the U.S. unilateral sanctions against Burma, which calls itself and the rest of the world calls itself Myanmar. The United States, in a petty way to insult them, still calls them Burma, which is their British Colonial name.
I happened to be there last week, and that is not the reason I selected that sanction as an illustration. I did so because it is a good example of process failure all the way around. It is also a good example, ironically, because Burma is not very important relatively to the United States in foreign trade terms or in foreign policy terms. Therefore, one would have thought you would have had the best kind of sanction that we can fashion. In fact, it was not Also, because I know you are interested in state and local sanctions, most of the state and local sanctions have been prompted by concerns about Burma.
U.S. policy toward Burma was set in legislation that was adopted at the end of September, 1996. It was part of an appropriations bill. It is interesting that the Senate Foreign Relations Committee, the committee you would expect to be most interested, had no role. They had no hearings on this.
There were no hearings in the Senate as a whole except for a single, 30 minute Senate Banking Committee hearing to hear testimony of a charming actress who played An Sang Suu Kyi in a film about Burma, which was not filmed in Burma. She was accompanied by her husband, who also testified. Neither the State Department nor the companies who have billions of dollars invested or planned to be invested in Burma testified.
The first process failure was within the Congress. The appropriate institutional framework was not engaged, and information from the business community was not sought.
Needless to say, that process did not inspire great confidence in the business community that the Congress was interested seriously in those issues that arise at the intersection of foreign trade and foreign policy.
The next step was a year later, almost 11 months ago, 12 months, 13 months ago, April, 1997, when the Secretary of State announced the President's intention to issue an Executive Order imposing a ban on new investment in Burma.
The Secretary offered no coherent explanation of this new action. There was no rationale put forward as to why the United States had failed to get any other nation to agree with our assessment or any of the Administration's reasons for believing that somehow this sanction would bring about the desired results.
When confronted with a question about the apparent hypocrisy of the U.S. Government policy in relationship to other non-sanctioned countries where there is no political dissent, the Secretary said, "Different strokes for different folks."
There was no organized effort by the Administration before or after the announcement to seek the views of the business community. A month after the announcement, the President issued an Executive Order banning new investment. The President relied on the appropriations bill legislation, but also on the International Emergency Economic Powers Act.
In doing so, the President made a determination that, and this is a quote, "The policies of the Government of Burma constitute an unusual and extraordinary threat to the national security and foreign policy of the United States." In that context, the President declared a national emergency. Obviously there is no factual basis for such a finding. The invocation for such emergency power was an abuse. Regrettably, this has become commonplace in this Administration, but not only in this Administration. Other Administrations have engaged in the same practice.
Aside from what this teaches us about abuse of emergency authority, it is unfair for the business community to be stuck with the burden of economic sanctions borne of misuse of emergency authority.
The real message that the Congress and then the Administration has delivered to the American business community was that they were not interested, that is Congress and the Administration were not interested, in really achieving effective measures to change behavior in Burma, and they clearly were not interested in the views of the business community. This breeds cynicism, and it belies the political rhetoric about the importance of helping the business community stay competitive in the global market.
The longer term impact, particularly on smaller companies, is why bother? Why get into the struggle of difficult country emerging markets when the United States Government does not care and puts up roadblocks? The third step in the process question is the implementation. It has been a year now since the publication of the Burma sanctions. There are no implementing regulations. I might add, since then there was also an Executive Order on Iran last August and an Executive Order imposing sanctions on Sudan last November. There are no implementing regulations.
So what? Why is that important? It is important because responsible American companies naturally err on the side of conservatism when it comes to potentially making a mis-step. These sanctions, you know, carry criminal penalties, and companies walk away from business, especially in the good economic climate we have today, because of a lack of clarity without implementing regulations.
When the regulations are finally published, you can bet they will not be published in proposed form. There is no obligation on the part of the Executive Branch to publish in proposed form. There is a foreign affairs exemption from the otherwise standard requirement, but surely there is no sensible reason why these kinds of things are not published in proposed form so the business community can comment. The process of dealing with the regulations and the interpretation of the Executive Order is thoroughly opaque. The implementing agency, for reasons that are inexplicable, is the Office of Foreign Assets controlled at the Treasury Department. It used to be the Commerce Department that had authority here. It is an agency set up to deal with the American business community.
You might want to inquire why it is that this function has now been given to the Treasury Department. Why has their role expanded from the banking community, where perhaps it is proper, to others? The opaqueness of the process has a chilling effect. The lack of transparency increased the cost of compliance. Platoons of lawyers are needed to figure out what is prohibited and what is permitted. Internal compliance costs. Do not forget to look at those when you tally up what the costs are of these sanctions. My company this week, earlier this week, had a regular internal compliance program. These things cost hundreds of thousands of dollars for each company.
We have to report on the Iran sanctions of foreign affiliates' transactions. We have 200 foreign subsidiaries. Consider what it costs us to engage in that report. I would encourage you to look at the costs of the process failure, the costs of compliance.
Finally, we have the state and local sanctions. Within the past couple of months, I have had to deal with the City of Oakland, who said you are a terrible company because we think you might be dealing in Burma, and that may force us -- it will force us -- under our city ordinance not to invest our pension funds in your company. You cannot do business with us.
Fortunately, we do not do business with the City of Oakland, but we had to say we are really sorry about that, that you will lose an opportunity to invest in a really good company that we are, but we are acting in compliance with the foreign policy of the United States. We regret that it is inconsistent with the foreign policy of the City of Oakland, but what we are doing is the right thing. The State of Massachusetts also has engaged us in the same kind of discussion.
Bottom line, the sanctions policy with respect to Burma has been a failure in terms of its foreign policy goals, which I appreciate are not the subject of your hearing, but they cost. They cost my company. They cost others. When you add the process costs and others at the federal level to the state and local, it becomes burdensome in a significant way.
Thank you very much. I appreciate your listening.

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