Remarks by Mr. James E. Perrella
Chairman, President and CEO, Ingersoll-Rand Company
before the German-American Business Council
Willard Hotel - Washington DC.
June 24, 1998
Thank you and good afternoon.
I am pleased to have been asked to address a critical and topical issue of American and international trade policy - the need for the United States to change the way it implements economic and trade sanctions against other countries.
I want to address this issue as the CEO of a major multinational corporation with business interests around the world, including Germany, where we sell virtually all of our company's products and where we manufacture air compressors, bearings, pumps and road pavers.
Also, I come here as Chairman of the National Foreign Trade Council. The NFTC played a major role to form a coalition of more than 650 business organizations and agricultural groups to promote alternative policies to economic and trade sanctions.
The next 18 months will be important to the international trade agenda. Next year, the World Trade Organization will begin global negotiations designed to liberalize trade and investment in the agricultural and service sectors.
Also, the WTO will determine its trade agenda and begin a new round of global trade negotiations. This initiative will be launched at the ministerial meeting, which the United States will host in the second half of 1999.
On the regional front, the Asia-Pacific Economic Cooperation forum has an important set of trade liberalization commitments to implement.
And, the nations of the western hemisphere have launched the Free Trade Agreement of the Americas talks, which will lead to the creation of a free trade zone that will stretch from Alaska to Argentina.
At the same time, policy makers and business leaders face a number of economic and trade challenges.
Asia's economic and financial crisis has worldwide implications for trade and investment flows. The slowdown in growth throughout this region is affecting trade and capital flows - even in economies like the United States and Germany, where economic performance has been strong.
Because of our nations' experience, our two economies have unique leadership roles in helping Asia return to growth and stability.
Another challenge the industrialized world faces is public opposition to globalization and economic integration. And this public opposition is on the rise.
Increasingly, the opening of markets is facing opposition from labor movements, environmentalists and other special interest groups who fear that trade and investment liberalization is causing economic dislocations, is lowering labor and environmental standards, and is creating social conflicts.
There is no doubt that globalphobia and protectionism are on the rise, both in America and in other industrialized countries.
Here in Washington, we have seen concrete examples of this in recent months - most notably, in President Clinton's inability to convince Congress last year to grant Fast Track trade negotiating authority to the Executive Branch.
Also, we have seen increasing efforts in Congress and among special interest groups to restrict trade and economic activity between the United States and China,and Congress has not yet passed the proposed funding to the IMF which is needed during these critical times.
It is our responsibility to counteract these forces. Business leaders in America and Germany must increase efforts to build public support for policies that encourage trade and investment liberalization.
At Ingersoll-Rand, this year we are launching a program to better educate our own 30,000 U.S.-based workers on the benefits free trade adds to their lives, their jobs and their country's economy.
We believe that if our workers understand the importance of free and fair trade, they can help in the effort to influence trade policy decisions in Washington.
Now, to the heart of the matter:with such a critical period ahead for global trade and economic integration, the United States must address an issue unique to our own foreign policy and international economic policy - the use of unilateral economic and trade sanctions to demonstrate displeasure or to punish political, economic, human rights or diplomatic policy actions by other nations.
The United States has impose some form of economic or trade sanctions on other countries more than 120 times in the past 80 years.
However, more than half of these cases -more than half --have occurred during the tenure of the Clinton Administration.
These sanctions range from minor cutbacks in U.S. aid or in selected export sectors, to crippling embargoes on all trade - on all trade.
At present, more than 70 countries around the world, which together account for more than two-thirds of the world's population - are subject to unilaterally imposed U.S. sanctions.
In 1996, an astonishing 23 sanctions became law in the final days of the 104th Congress.
Yet, the proliferation of sanctions continues. The United States Congress presently is considering a total of 26 unilateral sanctions targeting 11 countries.
Eleven other bills would target an unlimited number of countries determined to be engaging in some form of objectionable policy.
In addition, four presidential Executive Orders have imposed sanctions in recent months.
The sanctions issue, in fact, has come to the forefront of U.S. policy several times in recent weeks.
The nuclear tests conducted by India and Pakistan triggered automatic economic sanctions against those countries, which includes suspension of U.S. foreign assistance, OPIC and Ex-Im Bank funding, and may curb dual-use technology exports to those countries.
The United States acted alone in imposing these sanctions.
The Clinton Administration was unable to convince other governments to join us.
In fact, some European governments have been critical because the potential of these sanctions failed to deter the nuclear tests and, the implementation will merely increase the suffering of impoverished populations in both countries.
In addition, the United States and many of our most important trading partners have strongly disagreed over imposition of the Helms-Burton Act and the Iran-Libya Sanctions Act of 1996, which are aimed at isolating Cuba, Iran and Libya.
These extraterritorial laws affect not only U.S. firms, but companies from other countries, including Canada, Russia, Malaysia and the European Community.
When these laws brought the United States to the brink of a major trade dispute with Europe, the Clinton Administration waived the sanctions for selected projects.
Earlier this month, during his state visit to the United States, South Korea's new President, Kim Dae Jung, publicly called for the United States to ease economic sanctions against his country's arch-enemy - Communist North Korea.
President Kim's plea was a dramatic recognition that sanctions have caused great suffering and have brought very little change in North Korea.
Similarly, Pope John Paul II deplored U.S. sanctions against Cuba during his visit to that nation earlier this year.
Unlike multilateral sanctions, which are debated and agreed upon by the international community - such as those which helped bring down Apartheid in South Africa, or which helped defeat Iraq in the aftermath of its invasion of Kuwait - unilateral sanctions are disruptive and divisive.
Unilateral sanctions have little impact, are easy to get around, and in the end hurt U.S. competitiveness in the world economy.
Various studies have indicated that unilateral sanctions have cost the American economy between $15 billion and $20 billion a year in lost export sales, and up to 250,000 export-related jobs.
No longer are these unilateral sanctions imposed solely against so-called "rogue" nations that violate widely-respected international standards.
Today, the United States imposes sanctions against many of America's largest and most important trading partners - including Canada, Mexico, Italy and Brazil.
The recent imposition of sanctions against India and Pakistan illustrates the need to avoid sweeping, "one size fits all" unilateral approaches.
The Glenn Amendment that invoked these sanctions does not mention India or Pakistan by name. Instead, it targets any non-nuclear state that tests or detonates a nuclear explosive device.
The Administration recognizes that flexibility must be incorporated into the sanctions implementation process. Their early actions indicate some evidence of flexibility.
It is clear that America's sanctions policy is broken and needs to be fixed. The reality is that in today's increasingly global economy, unilateral sanctions almost never help the people we want to help, and almost always fail to bring about the actions they seek to promote.
Sanctions limit the exchange of ideas that promote greater understanding between peoples. Whether they are used as a diplomatic weapon to help isolate an adversarial nation, or as an economic tool to protect a sector of the U.S. economy from foreign competition, trade restrictions are almost invariably ineffective and self-defeating.
In short, economic and trade sanctions have become outdated tools of the Cold War era.
Today, commerce is becoming increasingly globalized. Engagement at all levels -political, diplomatic, economic, cultural, religious, educational and charitable - is our best tool to promote freedom, human rights, security and prosperity.
Ideas flow through engagement. The information revolution poses new challenges and new opportunities to influence events and policies in other countries.
Economic activity - such as trade and investment - promotes growth and the development of large middle class populations, which in turn, strengthens democratic institutions and builds pluralistic societies.
Unfortunately, Washington is not alone in seeing sanctions as an easy means of demonstrating disapproval to actions and policies in other nations.
The sanctions movement has spread to state legislatures and city halls across the country. They, too, are trying to punish dozens of foreign countries, industries and companies for human rights, labor, environmental and other policies.
As a CEO of a major multinational corporation that makes industrial equipment and components in over 100 locations around the world, I am concerned that unilateral sanctions have become our country's foreign policy "fix-it" tool of choice.
In the international trade arena, perceptions easily become reality.
In my visits with our overseas operations, customers frequently express concern about potential U.S. economic sanctions.
These international customers doubt the reliability of U.S. companies as future suppliers and business partners. This perception jeopardizes America's economic future.
The proliferation of sanctions is deeply disturbing to a company such as ours, which has a history of commitment to free trade and always has had a strong international perspective.
To keep on a growth path, Ingersoll-Rand tries to stay as competitive as possible in the international arena.
Unfortunately, while businesses have control over the price, quality and availability of their products, they cannot control Washington's ability to undermine any company's reliability by imposing unilateral sanctions.
We are only one company. Just imagine the economic impact of others forced to curtail profitable business because of sanctions.
Many of my colleagues in the business community share this view.
So last year, we decided it was time for us to work together to change America's sanctions policy.
Through the National Foreign Trade Council, we created USA-ENGAGE, a coalition of companies, associations and farm groups that would work to awaken policy makers in Washington to the cost and ineffectiveness of unilateral sanctions - and to build support for alternative policies.
USA-ENGAGE was founded on the belief that American values and business practices are best advanced by engagement with other nations - not by isolating ourselves, ceding markets to foreign competition, or angering allies through the use of threatened or actual sanctions, secondary boycotts and extra-territorial actions.
The coalition believes that bipartisan, active diplomatic and cultural and commercial involvement is the preferred way to achieve U.S. foreign policy, economic, security and human rights objectives around the world. USA-ENGAGE has been working to increase the information available to policy-makers, opinion leaders and workers.
Furthermore, we want to develop a process that ensures the Congress and the Executive Branch fully deliberate the costs of any future unilateral sanctions on the American economy, as well as evaluate the likelihood that sanctions will lead to any behavioral changes by the targeted country.
To this end, USA*Engage strongly supports the Hamilton-Crane-Lugar Sanctions reform bill currently under consideration in Congress.
This legislation has several objectives:
· First, it will establish a more disciplined and deliberative process for imposing unilateral U.S. sanctions. This includes greater consultation between Congress and the Executive Branch, and consideration of alternatives, such as multilateral pressure and diplomatic initiatives.
· Second, it will ensure that Congress and the Executive Branch have adequate information about the likely effectiveness and economic and humanitarian costs of a proposed sanction. In addition, it will ensure that policy makers have conducted a detailed analysis of whether the proposed sanction is the best tool for achieving U.S. objectives.
· Third, it seeks to establish regular reporting and sunset requirements, so that sanctions are terminated unless a continuing justification exists.
We understand that Senator Lugar plans to attach his reform bill to the Agricultural appropriations measure.
The sanctions issue has come into the forefront of Congressional attention in recent weeks due to the automatic sanctions imposed on India and Pakistan in the wake of their nuclear tests.
In addition, Senator Lugar last week called for the formation of a commission to review existing U.S. sanctions for the purpose of determining when they should be continued, amended or modified.
The USA*ENGAGE coalition is also actively working to counter the proliferation of sanctions at the state and local levels.
Across the United States, states and localities are considering sanctions on a broad group of countries, including Switzerland, Egypt, Indonesia, Cuba, Vietnam, Myanmar and several former Soviet Republics.
State and local sanctions also cut off engagement. They undercut efforts to attract international investment that supports jobs and economic growth.
And they are ineffective because states and localities do not have the economic leverage to influence a foreign country.
Indeed, even the United States rarely has sufficient leverage when it acts alone.
State and local sanctions also undermine American leadership. They interfere with national foreign policy. In fact, they often run counter to federal policy. That is why the U.S. Constitution vests foreign policy and foreign economic powers at the federal level.
The National Foreign Trade Council is seeking to test the legal and constitutional validity of state and local sanctions laws.
We have filed a suit in Massachusetts challenging that state's law prohibiting companies that do business in Myanmar from providing goods and services to Massachusetts state agencies.
This legislation has been the centerpiece of recent trade friction between the United States and the European Community.
Our lawsuit will be an important test case to determine the constitutionality of state and local sanctions.
We believe that the Massachusetts law violates the Foreign Commerce Clause of the U.S. Constitution, which specifically prohibits state laws that discriminate against foreign commerce.
It is not for reasons of simple self-interest that many of us in the U.S. business community believe in unimpeded international trade. It is for reasons of enlightened self-interest.
International trade promotes economic development and political stability worldwide.
This does not mean that trade is a panacea that can ensure peace, or that other nations will adhere to internationally acceptable human rights, labor or environmental policies.
But we know that the ability of the United States, and our friends and allies in Europe and elsewhere, to influence policies and actions around the world, can be more effectively realized through a policy of engagement, not isolationism.
Proof of this can be found nearly every day, throughout the developing world:
In China, American and Western engagement is promoting our mutual interests across a broad spectrum of issues - stability in Asia, preventing the spread of weapons of mass destruction, increasing awareness of the environment, and building an economy where the private sector is increasingly becoming the engine of growth.
In the next several days, we will witness first-hand how engagement works, and why it must be the centerpiece of our international relationships.
President Clinton's trip to China has important implications for our bilateral agenda with the world's most populous nation. But this Summit will also be watched closely in political capitals and markets around the world.
And in the weeks ahead, the U.S. Congress has an opportunity to vote for engagement when it considers the annual renewal of Most Favored Nation Trading Status for China.
In Indonesia, the presence of many American and European companies will help that country rebuild its economy and implement a broad program of economic reforms.
President Habibie has spent a great deal of time in both our countries, and he knows many German and American business leaders.
Both our nations have an important stake in helping Indonesia through this period of political and economic uncertainty.
In India and Pakistan, where we in the United States and Europe have not sufficiently addressed the legitimate security needs of the South Asian subcontinent, increased engagement will do more to promote stability and economic progress than sanctions.
Rather than imposing punitive trade sanctions, we should be helping India and Pakistan to become more integrated with global economic markets and to be more secure in its region.
Across Sub-Sahara Africa, increased political, economic and diplomatic engagement in countries like Nigeria, Zaire, the Sudan, Rwanda and Burundi will do more to improve the conditions of these impoverished nations than any of the sanctions we currently impose on them.
In closing, those of us in the international business community look forward to the day when engagement replaces unilateral sanctions at the forefront of American foreign policy.
It is clear that economic power is the prime mover in today's world. It is a power - when engaged - that can be applied to effect positive change in nations and peoples around the globe.
Thank you.
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