President of the National Foreign Trade Council
and Vice Chairman of USA*ENGAGE
Before the U.S. International Trade Commission
May 14, 1998
MR. KITTREDGE: My name is Frank Kittredge, the president of the National Foreign Trade Council, also vicechairman of USA Engage. I did not submit a written statement in advance, but I will by the deadline of May 22 for sure. I would like to talk about three facets of the sanctions issue. I would like to talk a little bit about why USA Engage was formed. Really what is the real concern about sanctions? I would like to make some comments about how USA Engage views the sanctions problem, that is the U.S. business community views it, and then some comments on the cost of sanctions.
Looking first at USA Engage, I guess the major reason USA Engage was formed was the enormous proliferation of sanctions, unilateral sanctions, for foreign policy purposes that has occurred really since the end of the Cold War. I will talk in a minute about the numbers, but this is probably the thing that concerned American business as much as anything. It was very clear that some of the major developing markets, the BEMs as the Commerce Department called them, were being targeted by the sanctions. They were not the most savory governments or countries, but that was where a lot of developing business and, of course, a lot of the world's petroleum resided. They were also getting into secondary boycotts, and you heard Mr. Wagner comment about that, a situation which the U.S. has always been against and fought very hard against on a couple of instances, and yet they were cropping up. Most importantly, U.S. companies and U.S. workers were losing business and job opportunities. We will give you some statistics on that as well. More than that, we were disrupting our relations with our allies, and certainly Mr. Wagner referred to that, and you will hear a good deal more about that. This has only become more serious as we have gone ahead. State and local sanctions began to enter the picture and in a number of cases headed for a challenge in the WTO, which again increased our problems with our allies.
Our determination from all of that was that there was a great need for education on the issue, and there also ought to be a process for addressing sanctions and how they are imposed or how they are contemplated. I will not go into that process, but we have in fact spent a good deal of time on that issue and have been working with the Congress in trying to make that happen.
As far as sanctions in general are concerned, I mentioned earlier the proliferation question. There are now more than 60 sanctions measures imposed since 1935 on more than 35 countries. As we all know, and certainly for what are very serious reasons, sanctions imposed just yesterday on India.
Beyond the federal sanctions, which those numbers represent, state and local. There are 27 laws on the books from 23 different jurisdictions at the state and local level sanctioning four different countries. There are 16 pending laws in six jurisdictions and on multiple countries. One or two of those sanctions cover a great number of countries, and, therefore, it is almost impossible to say how many, but those statistics alone certainly indicate the proliferation.
The second point is sanctions had a very unsuccessful track record. In a globalized economy as we look at today, almost any product or service is available from other countries. The U.S. does not enjoy the ability to affect activities in the marketplace by withdrawing its products from the marketplace.
Another point, I think, that should not be missed is sanctions are a very strong form of isolation. They isolate the U.S. from the country involved, but they isolate the country also from the U.S. As the name USA Engage implies, we believe strongly in the benefits of engagement, the demonstration of the rule of law, of democratic principles, of the values of freedom, of how we treat our workers, are all represented by U.S. business overseas, and there are countless examples of the power of that demonstration and of the presence of U.S. interests.
I do not mean just business in this case. It is cultural, religious, NGOs. The whole range of U.S. influence abroad is an extremely powerful example, and sanctions is simply a form of isolation.
It ought to be pointed out very clearly if there is any question about it that the business community does not disagree with many of the objections of the sanctions laws. Certainly these governments are governments that are very difficult to deal with, carry on practices that would be totally unacceptable in the world community, and we feel very strongly on that. It is a matter of means about how to impact or how to affect them. We believe that a unilateral sanction ought to be the last tool out of the foreign policy tool box rather than the first one. Of course, along with that goes the need to multilateralize the efforts. A unilateral sanction, as we pointed out earlier, in this globalized economy is almost sure to have very limited impact. Multilateralization at least has an opportunity to make an impact.
Another point is they provide an excuse for the failure of authoritarian regimes. Probably the best example of that is the Cuban embargo and now the Helms Burton strengthening of that legislation, but it has provided Fidel Castro with an enormous excuse for why things are as bad as they are in Cuba.
Lastly, they impact mainly on ordinary citizens. The ruling elite can avoid the impact of sanctions almost without question. One of the reasons the Pope is so against sanctions is because they impact on the people least able to sustain the impact of what sanctions are.
Then let's talk about cost. I mentioned earlier, and particularly your question, Ms. Bragg, about the cost. It is not easy to document, but the Institute for International Economics, who you will hear from later today, has done a study, and they estimate that there is a $15 to $20 billion loss of U.S. exports per year as a result of sanctions and that this results in 200,000 to 250,000 lost export related jobs.
In an economy that is increasingly dependent on exports for growth, this is a very significant impact. As I say, you will hear lots more about it somewhat later.
Another point that should not be missed is that sanctions cost U.S. business entry into developing markets, entry that once lost is very hard to recover in some of the truly growing economies with natural resources, with opportunities for business that once lost are very hard to recover. You heard Mr. Wagner talk about the unreliable supplier issue. This has got to be one of the most important ones. Do not miss the point that our competitors, U.S. businesses' competitors overseas, use that argument against us all the time. Why would you want to do business with a U.S. firm when you face this possibility? It is a powerful argument for somebody who is deciding between perhaps a European supplier and a U.S. supplier.
The unreliable supplier issue is bad enough looking at federal sanctions, but if you include that array of state and local sanctions on top if it, it is almost impossible for a U.S. company to avoid some form of sanctions on almost any one of the opportunities they might be undertaking overseas. I think that is a very hard element to document, but it is very real. I am sure that those individuals from the companies here directly will comment on that.
I would like to close with one specific example, which is in China. China, as you will recall, after the Tianenmen Square problems, the nuclear program in China was closed to U.S. suppliers. In the period of time between then and last year, the Chinese ordered $15.8 billion worth of nuclear equipment. $15.8 billion. The U.S. was unable to bid on any of that business.
You can guess what you think the U.S. success rate would be, but the Chinese wanted to do business with the U.S. No mistake about it. Instead of that, the business went to Canada, went to Japan, went to Germany, and that is bad enough Westinghouse, for example, had to lay off workers in their Philadelphia works because of it but what it meant was not only did we not participate, but we know nothing about what the Chinese nuclear program is. The engagement with China was totally lost in the nuclear program. It is not our engineer. It is not our scientist over there. It is Canadian, German and Japanese knowing what is going on in the nuclear program.
The unkindest cut of all is that I think that it has been reported in the papers that the Chinese nuclear reactors I am sorry. The Canadian nuclear reactors that are in service in Canada are experiencing safety concerns right now, which means those will be evident perhaps in the Chinese nuclears when they are provided there. That is an example of loss of business, loss of engagement, loss of intelligence and perhaps a nuclear safety issue, all of which might have been prevented to some degree, at least, if the U.S. had had even a chance to participate. Of course, it had no impact on the Chinese. The projects are going ahead, and other people are participating in the business.
There are many other such examples. You are going to hear about them shortly, but that, to me, is a classic of all of the elements of what the sanctions impose on U.S. business and on U.S. foreign policy for that matter.
Let me compliment you on the study. I think this is an excellent study, very timely and very necessary. I wish you all a great success in coming out with it. It is an issue of critical importance to the business community.
Thank you very much.
