Testimony of Mr. Berry--free trade, unilateral and economic trade sanctions

Testimony of Willard M. Berry
President, European American Business Council
Before the U.S. International Trade Commission
May 14, 1998
MR. BERRY: Madam Chairwoman and members of the Commission, thank you for the opportunity to testify. I'm Willard Berry, I'm the President of the European-American Business Council. We are a group of 80 companies, European and U.S.-owned, working for, to secure a more open trade and investment climate. I would like to start by thanking you for these hearings. And we have done a little study ourselves, a survey, and we know how difficult this is. We also know how important, and however we can help you, you know, we would be pleased to do that.
The European-American Business Council strongly opposes the use of unilateral and extra-territorial economic sanctions for foreign policy purposes, and is very concerned about the proliferation of sanctions measures at all levels of government. The use of sanctions by the U.S. has increased despite mounting evidence that these measures are usually unsuccessful.
In light of the fact that sanctions are largely ineffective, the Council has tried to communicate to policy makers how U.S. sanctions policies impact companies, workers, and the overall U.S. economy. In addition to making companies competitive, U.S. sanctions policies have also become a subject of a major dispute between the U.S. and Europe, straining the world's largest commercial relationship. They have posed major threats to the stability and openness of the relationship and stifled progress on important multilateral trade and investment initiatives.
I would like to divide my testimony in two parts. First of all, I'd like to talk about the study that we took on the impact of unilateral sanctions on companies and also I would like to discuss how the sanctions have had effect on our relations with Europe.
Last year, the Council conducted a survey to quantify the impact of U.S. sanctions on both European and U.S. companies. The Council conducted this study because policy makers often do not understand the magnitude of costs that sanctions impose on U.S. economic interests. Not only are sanctions usually ineffective in improving the behavior of target regimes, they harm companies operating in the U.S. and they compete with other important policy goals such as: job creation, economic growth and U.S. competitiveness.
We surveyed a large number of multinational companies with transatlantic investments. The survey, for the first time, collected data demonstrating the links between specific sanctions and their effects. We also were interested in specific sanctions measures and their impact. Of the 42 companies which responded to our survey, 23 were European-owned and 19 were U.S.-owned. The companies employed, together, 750,000 workers in the U.S. and over 3 million worldwide.
They export, on average, a billion dollars worth of U.S. goods per year and average 5 billion dollars a year in U.S. sales. Overall 80% of the companies surveyed said that U.S. economic sanctions had harmed their global operations, including 94% of U.S.-owned companies. Looking exclusively at their U.S. operations, sanctions had a negative effect on 65% of the companies surveyed, including 83% of U.S.-owned companies. Forty-four percent of the companies surveyed said they had to forego a business opportunity to comply with sanctions laws.
As I mentioned, a primary goal of the study was to determine how specific sanctions harm companies. In our survey, we asked companies to assume that a particular sanction were imposed on them, such as denying U.S. bank loans and credits. We then asked whether the sanction would cause negative effects, such as job loss, reduced U.S. exports or lost supply relationships.
This procedure was repeated for nine different sanctions drawn from current or proposed U.S. law, using the same menu of negative effects for each sanction. The resulting data allow policy makers to isolate particular sanctions and effects to answer the following types of questions. For example, if the U.S. imposes sanction X what are the most likely negative effects on companies and what percentage of companies might be harmed. For negative effect Y, for example, job loss, what sanctions are most likely to cause this effect, and what percentage of companies might experience it.
Looking at these data, we found that the most common negative effect of sanctions are lost joint venture opportunities, fewer U.S. jobs and severed supply relationships. For 5 of the 9 sanctions examined, more companies cited the loss of joint venture opportunities than any other negative effect. Joint venture opportunities are extremely important for U.S.-based companies to remain globally competitive.
Looking at the sanctions, the EABC found that denying U.S. entry visas to overseas executives, one of the House burden sanctions, would harm a greater share of companies than any other sanctions examined. Seventy percent of those surveyed said they would be forced to cut back investment in the U.S. and 65% said they would cut back U.S. employment if faced with this sanction.
Other sanctions that our study found particularly harmful are those that would deny U.S. bank loans and credits and imports from overseas companies and deny U.S. export licenses.
Our study also examined existing U.S. sanction laws, state and local sanctions, such as the Massachusetts law targeting Burma, had affected 70% of the surveyed companies. They also had affected 60% -- 66%. Sixty-four percent said they had already been affected by the Helms- Burton law, even though it has been applied in limited circumstances.
We are aware that Congress is calling for aggressive enforcement of ILSA, and the Helms-Burton Act. According to our survey, these actions would further threaten joint ventures involving U.S.-based companies, and reduce foreign investment and jobs in the United States.
Next, I would like to talk briefly about the trans-Atlantic relationship. U.S. extra-territorial sanctions have become the subject of the most significant trans-Atlantic commercial dispute with Europe over the past two years.
Sanctions have complicated many cooperative initiatives, not simply multilateral efforts to address the behavior of rogue states. Sanctions have blocked important market opening initiatives, disrupted trade and investment flows between the two markets, and undermined the credibility of U.S. leadership in advancing stronger and more effective international trade and investment rules.
European countries object to U.S. interference in their right to regulate the actions of their own companies. Extraterritorial laws like Helm-Burton and ILSA deliberately impose U.S. law on foreign companies operating outside the U.S. and enacted by. Europeans, as an infringement on their sovereignty.
First of all, sanctions have complicated multilateral initiatives. U.S. efforts to gather multilateral cooperation to deal with Cuba, Iran and other rogue states are constrained by its sanctions policies. Sanctions policies, in fact, have undercut this approach. Forcing foreign companies to comply with U.S. national law has taken the spotlight off the target country and placed the emphasis on the dispute between the U.S. and its allies.
Sanction laws have also become roadblock to market opening initiatives. For example, they're just two weeks old. The U.S. and the European Union have been discussing a broad trade initiative that might be watched at their bilateral summit on May 18th.
EU member states, most of whom are supportive of this idea announced, this is just two weeks ago, that any discussion of further bilateral liberalization will be put on hold if the U.S. and EU cannot work out agreement to settle the dispute over Helms-Burton and ILSA. The European Commission has estimated that the broad trade agreement between the U.S. and the EU would boost both economies by roughly 1 percent a GDP per year, which is approximately the benefits ascribed to the Uruguay Round agreement.
The MAI is a similar example, you know, it requires U.S. and European cooperation for its success. We need global rules governing investment. It's growing 3 to 4 times faster than trade, but yet we have no global disciplines.
Sanctions have disrupted trade flows and some of this is because of the conflicting requirements: How do companies decide whether they're going to abide by Canadian law, for example, in the Wal-Mart case where they found they were selling Cuban manufactured pajamas, or by the U.S. law.
Also, the problems with the WTO and the European case, which is no longer being pursued, but which could be reactivated, would affect not only the credibility and effectiveness of the WTO, but could affect joint cooperation across the whole spectrum of trade issues in a coming round.
Just to summarize, I think there is a significant impact. We have done a study which talks about trade and investment on a state by state basis, and the jobs associated with that. And, clearly, the findings of our study shows that this positive relationship could be harmed in a number of ways. Thank you very much.

Return to Top