Testimony of William C. Lane
Washington Director -- Governmental Affairs
Caterpillar Inc.
Before the U.S. International Trade Commission
"Overview and Analysis of Current U.S. Unilateral
Economic Sanctions"
May 14, 1998
Madam Chairwoman ... members of the Commission, on behalf of Caterpillar I would like to thank you for this opportunity to share our concerns about the proliferation of U.S. unilateral foreign policy sanctions and the importance of engagement. Caterpillar is proud to be a leader of the USA*ENGAGE effort, however, for the purposes of this hearing, I would like to restrict my comments to how Caterpillar has been affected by recent sanctions. At Caterpillar, we believe we have special standing to discuss the issue of unilateral sanctions. As you may know, Caterpillar's business strategy is somewhat unique in that we compete globally from what is primarily a U.S. manufacturing base. As a result, we rank as one of America's largest exporters. But relying on a U.S. manufacturing base also means that when the U.S. imposes unilateral sanctions, the impact is greater on us than on many other companies. Caterpillar also has a keen appreciation of how unilateral sanctions undermined our competitiveness in the early 1980s as a result of the Soviet pipeline sanctions. You may recall that at that time Caterpillar was forced to cede the Soviet market to our Japanese competitors. As a result of that policy:
- 12,000 man-years of work was transferred from Illinois to Japan.
- Caterpillar and other U.S. exporters were tainted as unreliable suppliers.
- Komatsu of Japan grew in strength which allowed them to more effectively compete against Caterpillar on a global basis -- a legacy that's still with us today.
- And the Soviets completed their pipeline ahead of schedule.
- Lost Exports and Jobs. Clearly, the most obvious impact of U S. unilateral sanctions is the impact they have on U.S. exports, and American jobs. At Caterpillar, we can document exports lost as a result of numerous sanctions regimes. A few recent examples include:
- Colombia. As a result of sanctions Imposed in 1996/97, Caterpillar lost several 1mportant contracts to sell mining equipment to Colombia's coal industry. The reason, European competitors had access to competitive export financing which was forbidden to American companies by the U.S. government.
- China. White House efforts to discourage the export of American made products to China's Three Gorges Dam have reduced Cat sales in Central China. Even though the world's largest construction project is progressing as scheduled, U.S. companies still don't have access to export financing. Consequently, American companies are at a competitive disadvantage vis-a-vis their foreign competitors.
- Iran. As a result of U.S. export restrictions unposed against Iran in 1995, the entire Iranian market for construction equipment and engines was completely ceded to European manufacturers.
- Canada. Fear of being entangled in U.S. extra-territorial sanctions prompted a Canadian Cat customer to buy diesel engines from Europe. Last year, the potential customer told a Caterpillar sales representative that "since the engines were being incorporated into products that might be sold in the Mideast, the best way to avoid problems is to buy German."
- Sudan. Immediately after President Clinton's November 4, 1997 position of a trade and investment embargo, Komatsu of Japan took out newspaper ads in Khartoum announcing its new Sudan sales and support locations. Since then. Caterpillar has lost several important export contracts.
- Tainted as Unreliable Supplier. To determine the cost of unilateral
sanctions, one must recognize that lost exports can also occur as a result of
being labeled as an unreliable supplier. This is of particular concern
for producers of capital equipment. After all, when you buy a Caterpillar
bulldozer or an off-highway truck, you are making a decision that
will last decades. Any uncertainty about our ability to provide
long-term product support from the United States gives our European
and Japanese competitors a significant competitive advantage.
Currently, the issue of being a reliable supplier is a major hurdle we must overcome in our efforts to sell in Russia, Malaysia, and several Republics of the former Soviet Union.
- Enhanced Competitiveness of Foreign Rivals. Even though it is hard
to quantify, it is important to recognize that U.S. unilateral sanctions can enhance the competitiveness of our foreign competitors. When the U.S. cedes an export market to its foreign competitors, it has in effect provided them with a protected "home market." As a result, they not only benefit from increased economies of scale, but have the opportunity to cross subsidize sales in other markets.
Put another way, when the U.S. government gave the Soviet market to Komatsu, Cat also ended up with a more formidable competitor in Europe, Asia, and the Western Hemisphere.
- Undermine other U.S. Objectives. Perhaps the biggest cost of sanctions
is how they impact other U.S. foreign policy goals.
We note with concern that, at a time when we are trying to maintain multilateral support for a united policy toward Iraq, we find that the United States has imposed or threatened sanctions against all Arab members of the Gulf War alliance -- except Kuwait -- and 3 of 4 other permanent members of the UN Security Council. You don't have to be a foreign policy expert to realize that these sanctions may be one of the reasons why it has been so hard to win an agreement an a multilateral sanctions policy toward Iraq.
In Asia, at a time when the IMF is working diligently to stabilize the financial crisis there, -- which directly affects the entire U.S. economy -- the United States is maintaining sanctions against South Korea over the issue of worker rights and threatening sanctions against Malaysia. In addition, several U.S. state and local governments are further complicating U.S. foreign policy by targeting sanctions against Indonesia.
There is also a cost when U.S. sanctions violate our trade and treaty obligations. When this occurs, we undermine the very multilateral institutions that can play an important role not only enhancing the world economy ... but promoting positive change. For example, if extra-territorial sanctions violate U.S. commitments made to the World Trade Organization, the United States has less leverage to force other countries to honor their GATT obligations. As a result, the WTO loses credibility and Americans don't fully benefit from a more open trading system.
Allow me to conclude by emphasizing that Caterpillar fully recognizes that much of the world remains a dangerous place. We realize, that at times, sanctions may be necessary.
If that appears to be the case, we believe that unilateral sanctions should be considered only after Congress and the Executive Branch have exhausted potential alternatives such as diplomatic initiatives and multilateral pressure. If unilateral sanctions must be considered, they should be judged by:
- whether they actually can achieve their intended results;
- the harm they will cause to ether national interests;
- and the costs imposed on Americans.
At this time I should emphasize that Caterpillar is unapologetic in its belief that engagement can be a powerful force for positive chance when pursued at all levels -- political, diplomatic, economic, charitable, religious, educational, and cultural. In contrast, a unilateral sanction can isolate America -- taking away the influence and credibility we gain by being involved. It's time that the United States treated the issue of unilateral sanctions in a more serious and deliberative manner.
I'd like to thank the International Trade Commission for taking the first step by agreeing to analyze this important issue. At this time, I'd be pleased to answer your questions.
