Testimony of Tom Donohue--free trade, unilateral and economic trade sanctions

STATEMENT on ECONOMIC SANCTIONS before the SENATE TASK FORCE ON ECONOMIC SANCTIONS for the U.S. CHAMBER OF COMMERCE by Thomas J. Donohue

September 9, 1998
I am Thomas J. Donohue, President and Chief Executive Officer of the United States Chamber of Commerce. The U.S. Chamber is the world's largest federation of business organizations, representing more than three million businesses and professional organizations of every size, in every business sector and in every region of the country. The Chamber serves as the principal voice of the American business community. An important function of the Chamber is to represent the interests of its members before the U.S. Congress, the Executive Branch, the independent agencies of the federal government, and the federal courts. The Chamber welcomes this opportunity to present its views on the efficacy of U.S. economic sanctions to the Senate Task Force on Economic Sanctions.
Engagement, Not Isolationism, Fosters Positive Change
I want to make clear that the Chamber takes no issue with the underlying motives or objectives that sanctions advocates cite as justification for their efforts. The Chamber takes second place to no one in our common quest for basic human rights and political and economic freedom. No reasonable or moral person can countenance the persecution, torture and other atrocities that are committed around the world against our fellow human beings, whatever the political, economic, social or religious pretext. Basic human rights are core American values. We believe just as strongly in the need to combat other man-made scourges, such as terrorism, weapons proliferation, and drug trafficking, that plague us. But we do not believe that unilateral economic sanctions are an appropriate approach toward solving these problems.
Throughout the U.S. and around the world, individual liberty and free enterprise go hand in hand. By their very presence and operations, American companies and the expatriate communities that depend on them contribute mightily to economic, political and religious freedom in their host countries. Continuing U.S. company presence and engagement abroad is critical to the inculcation of American civic values. Evidence of the positive effects of the U.S. presence abounds worldwide.
In 1980, nearly every country in Latin America lived under authoritarian regimes and closed economies. But after years of economic liberalization and efforts to attract foreign investment - much of it from the United States - every nation in Latin America except Cuba is now democratic. While there remain significant problems and challenges to these democratic systems in many countries, there is no question that political and economic liberalization have proceeded together. And our unilateral policy toward Cuba - the hemisphere's last holdout against democratic change - has served to reinforce rather than weaken Castro's dictatorship, and to discourage, rather than encourage, the democratic changes we all seek.
In eastern Europe and the former Soviet Union, a combination of economic collapse and a continuing quest for economic, political and social freedom led to the end of generations of totalitarian Communist rule. Considerable credit for this victory is due to the Catholic Church under Pope John Paul's leadership and the Solidarity labor movement in Poland. But at the same time unrelenting exposure to western culture, economics and politics played a significant role. Through its business council network, the Chamber federation and the U.S. business community have had an organized presence in the former Soviet bloc since at least the Brezhnev era. And it is through networks such as these that western society is best able to maintain a lifeline to the forces of reform and freedom in that part of the world. While progress in the region is clearly uneven, substantial reforms have taken place in the Czech Republic, Hungary, Poland and Slovenia. And despite enormous problems that persist to this day, Russia has cast off seven decades of Communist rule and continues to lurch forward in its own way toward modernity.
In Asia, U.S. trade and investment played significant roles in fostering the transition away from authoritarianism and toward democracy in Taiwan and Korea. And in China, U.S. business presence has resulted in greater job choice for workers, higher wages and living standards, better workplace safety and health standards, improved education and training opportunities, and a host of other benefits sought by workers in the U.S., China and all over the world. And as hundreds of millions of Chinese people continue to migrate from the interior to the coastal regions to take advantage of these imported economic opportunities, the potential for expanded U.S. economic, social, cultural influence will be historic. These workers will make more money, read more western books and periodicals, and receive greater exposure to western ideals of social, economic and political reform than their compatriots who remain isolated. Unilateral restrictions on U.S. firms in China not only imperil U.S. competitiveness in that country, but also compromise a principal source of human progress for nearly one-fourth of the world's people.
In southern Africa, it is precisely the multilateral character of sanctions against South Africa - rather than a unilateral, go-it-alone approach - that permitted those sanctions to have some positive effect. And it should not be forgotten that the de Klerk regime's concerns over increasing internal violence were no less important than external economic sanctions as a motivating force for South Africa's own homegrown version of glasnost.
Unilateral Sanctions Do Not Work
Recent history is replete with U.S. actions to terminate, restrict, or impose unilateral conditions on commerce with other nations for the stated purpose of penalizing various aspects of other countries' behavior. The United States has imposed some form of economic or trade sanctions on other countries more than 120 times in the past 80 years. Over half of these have been imposed in the last five years. Currently, the U.S. maintains unilateral economic sanctions of one kind or another against over seventy countries.
And in virtually all meaningful instances, those actions failed to alter materially the target countries' objectionable behavior. Instead, erstwhile "allies" castigate U.S. foreign policy, while the regimes we target gain support and U.S. businesses and their workers bear the burden of market opportunities lost to Asian and/or European competitors, whose own countries have chosen not to embark on similar unilateral courses of action. 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. And this may be an understatement, as it is often difficult to quantify business that was lost because it was never sought.
Moreover, unilateral economic sanctions imposed by the United States often extract horrific costs when measured by the adverse effects on the quality of life of the most vulnerable citizens in targeted countries. The embargo against Cuba is a case in point: despite a nearly four-decades-long embargo against that country, Castro is not only still well-established as head of state, but we maintain restrictions on the sale of food and medicine to that country that we don't maintain against much worse regimes, such as Iraq and North Korea.
Other major industrial countries that find themselves targeted by U.S. sanctions are not sitting still for them. The European Union has made clear on several occasions that it will not remain idle in the event sanctions are imposed on its companies that do business in or with Cuba, Iran and Libya.
Last November, Russia's huge natural gas consortium Gazprom -- which controls 40 percent of the world's natural gas -- cancelled a $750 million Eximbank deal that would have permitted U.S. equipment producers to supply a $2 billion Gazprom gas field development project. Gazprom took this action because U.S. policy objected to the fact that the project is in Iran. Yet, participating French, Russian and Malaysian companies faced no similar constraints, and U.S. sanctions policy will do nothing to stop the project.
The continuing unilateral U.S. embargo of Cuba -- which was codified and expanded with the 1996 enactment of the Helms-Burton legislation -- has not only failed to weaken that country's Communist regime, it has actually permitted that regime to obtain quasi-martyr status by permitting its subjects to focus on an external enemy, namely, the United States. With the enactment of Helms-Burton, the Cuba embargo has mutated into a secondary boycott of a variety of Canadian, European and other interests - some of whose governments have actually passed laws blocking their citizens from complying with this U.S. law in their countries.
In south Asia, the U.S. threat and subsequent application of automatic, non-discretionary sanctions has palpably failed to deter either India or Pakistan from taking steps each regards as indispensable to its national security. Worse, without flexibility and discretion, the U.S. government is in a very weak position to engage the two states in order to stabilize one of the most dangerous conflicts on earth.
Opposition to U.S. sanctions policies is not limited to business leaders, policy analysts and technocrats. During his recent trip to Cuba, Pope John Paul II made very clear his humanitarian opposition to the U.S. embargo against that nation. Similarly, with respect to China, the Dalai Lama has spoken on several occasions of his preference for engagement as opposed to efforts to isolate that country. And prior to his recent visit to the United States, South Korean President Kim Dae Jung called for a relaxation of the multilateral embargo against North Korea, on the grounds that those sanctions have extracted major costs from the North Korean people without achieving significant changes in their government.
State and Local Economic Sanctions Are Unconstitutional
As problematic as federally-imposed unilateral sanctions are, they are by no means the only problems with which we must come to grips.
Increasingly, state and local governments are seeking to express their displeasure at developments in other countries by punishing dozens of them - and their industries and companies - for a variety of human rights, labor, environmental and other policies and practices. Dozens of state and local measures are either on the books or awaiting action which, among other things, would restrict local and state procurement from and/or investment in companies doing business with targeted countries.
On April 30, the National Foreign Trade Council (NFTC), an association representing some 550 companies with substantial international interests, filed a lawsuit challenging the constitutionality of a Massachusetts law prohibiting state agencies and authorities from contracting with companies that do business in Burma. Doing business is defined very broadly and would, for example, include U.S. subsidiaries of foreign parents. This means, for example, that a U.S. subsidiary of a Japanese parent could be subject to sanctions - even if the U.S. subsidiary had no connection to Burma - if the Japanese parent was doing business in Burma, as allowed under Japanese law.
The NFTC's challenge to the "Massachusetts Burma law", as it has come to be known, is based on three principles:
1. Responsibility for the conduct rests with the federal government, and should rest as such, as it is the entire United States that is targeted for criticism or retaliation by other countries as a consequence of foreign policy actions taken by states.
2. "The Massachusetts Burma Law also violates the Foreign Commerce Clause of the United States Constitution, which prohibits state laws that discriminate against foreign commerce, burden foreign commerce, or impede the federal government's ability to 'speak with one voice when regulating commercial relations with foreign governments.'"
3. The Massachusetts Burma law conflicts with and undermines more limited and responsible federal efforts to bring about desired changes in Burma's repressive internal policies. Significantly, those federal efforts include a commitment to work with other countries in the region, as well as trading partners, to achieve the desired changes.
The U.S. Chamber views the proliferation of such state and local initiatives around the country with alarm. For this reason, we were pleased to endorse the NFTC effort via an amici curiae brief we filed in U.S. District Court on July 7 in partnership with the Organization for International Investment. Application of a patchwork quilt of often inconsistent sub-federal sanctions on top of our already flawed federal regime - which will prompt numerous, as yet undefinable and hostile foreign reactions -- threatens to do incalculable additional harm to our national interests.
Recommended Changes In U.S. Sanctions Policy
U.S. economic sanctions policy is in clear need of substantial revision. The failure of the automatic sanctions we imposed on India and Pakistan in the wake of their nuclear tests is but one indicator of this need. The current system simply cannot work. Accordingly, to begin coming to terms with the global realities of the 1990s and beyond, we should refrain from using unilateral economic sanctions other than to counter direct threats to the national security of the United States. There is no evidence that such sanctions have achieved their stated objectives. The U.S. experience is that the only measurable consequences of unilateral economic sanctions have been harmful to American businesses and their workers. Congress and the administration should also enact legislation and take other actions as needed to:
Mandate the application of a series of "cost-benefit" measurements and evaluations that must be considered prior to implementation of economic sanctions. U.S. laws currently require that we consider the environmental impact of a wide variety of economic projects and initiatives. Preservation of endangered species, maintenance of clean air and water and other objectives are deemed to be of such importance that we are willing to put a hold on activities that might run counter to these objectives. Yet we maintain almost no comparable standards for protecting our national interests from potentially unwise foreign policy actions. It makes no sense for us to assign lower priority to vital U.S. international interests than we do to our domestic environmental interests. Accordingly, we should establish and enforce a series of criteria that require consideration of costs and benefits before sanctions are imposed. Such criteria should include:
(a) will the sanctions work;
(b) what are the resultant economic costs to U.S. industry and agriculture;
(c) will the sanctions result in a serious backlash against other U.S. humanitarian, security, and foreign policy objectives; and
(d) have other policy alternatives such as multilateral initiatives or diplomacy, been tried and failed? Bipartisan, bicameral legislation by Senator Richard Lugar and Representative Lee Hamilton, the "Enhancement of Trade, Security, and Human Rights through Sanctions Reform Act" (S. 1413/H.R. 2708), are models for achieving these objectives. Economic sanctions activity that should be subject to Lugar-Hamilton criteria includes, but is not necessarily limited to:
(a) prohibitions or restrictions on export or import trade with target countries;
(b) prohibitions on investment or other types of participation in target countries;
(c) denial of access to the benefits of trade and investment development programs, such as Eximbank, OPIC, the Trade and Development Agency or other trade agencies identified in the annual National Export Strategy report;
(d) opposition to World Bank, International Monetary Fund and other multilateral assistance programs in target countries;
(e) secondary boycotts or other penalties against third countries which permit their nationals to do business in U.S.-targeted countries;
(f) government application of "codes of conduct" to U.S. company behavior; and
(g) unilateral prohibitions or restrictions on U.S. travel by nationals of targeted countries or third countries doing business with targeted countries.
Make China's "normal trade relations" (NTR) status permanent. Termination of normal trade relations (previously known as "most-favored-nation" or MFN status) with China would amount to a draconian economic sanction against the world's largest nation and one of its fastest growing economies. U.S. tariffs on imported Chinese products would skyrocket and Chinese retaliation would be certain and severe. Our Asian and European competitors would have our markets handed to them on a silver platter, and we would forfeit countless opportunities for leaving an American imprint on the development of China's rapidly evolving society. Congress did the right thing earlier this summer when it recognized "most-favored-nation" status as normal trade treatment we provide virtually every trading nation and revised U.S. laws to reflect this changed designation. Still, the annual NTR renewal process itself casts a continuing pall over China-U.S. commercial relations - without regard to the actual outcome. Pending China-U.S. deals are in effect held up or suspended for weeks before each annual MFN vote until it can be confirmed that the vote will be "positive." It is time to enact such legislation as may be necessary to make permanent that status. H.R. 1712 (Bereuter) and S. 1327 (Roth) represent positive but partial steps in that they would make China's NTR status permanent upon China's accession to the World Trade Organization (WTO). H.R. 1712 would, on the other hand, also direct the President to increase duties on Chinese products if China was not according adequate trade benefits to U.S. products or making sufficient progress to join the WTO.
Lift the embargo on Cuba, beginning with food and medicine. The "Cuban Democracy Act" (incorporated into Public Law 102-484) and the "Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1995" (Public Law 104-114) should be repealed. Both statutes are notable for their isolating effects on U.S. foreign policy and continuing failure to weaken the Castro regime. The latter, more severe statute, often referred to as the "Helms-Burton" law, codifies and goes beyond the three-decades-old unilateral U.S. embargo of Cuba. However, it has failed to weaken Castro's regime as intended. But its extraterritorial provisions providing for lawsuits and entry restrictions against foreigners doing certain business in Cuba have undermined U.S. interests and reputations in Canada, Europe and elsewhere. As noted above, both Canada and Europe have enacted blocking statutes which prohibit compliance with the Helms-Burton law in their countries. But the real humanitarian tragedy caused by the embargo lies in our uniquely harsh restrictions on the sale of food and medicine to Cuba. The "Cuba Women and Children Humanitarian Relief Act" (S. 1391), sponsored by Senators Dodd, Warner and others, and the "Cuban Humanitarian Trade Act of 1997" (H.R. 1951), sponsored by Representatives Torres, Leach and many others, are models that would further this objective, and, as such, represent an important first step toward the complete lifting of the embargo - a step that addresses most directly the humanitarian crisis exacerbated by the embargo.
Repeal requirements for unilateral sanctions against Iran and Libya as contained in the "Iran and Libya Sanctions Act" (Public Law 104-472). Among other things, this law (often referred to by its acronym ILSA) directs the President to impose extraterritorial U.S. sanctions against foreign firms engaged above a certain financial threshold in the development of those countries' petroleum sectors. National security waiver authority is available. Nevertheless, like the Helms-Burton law, ILSA has provoked significant European opposition because Europe depends heavily on those two countries for petroleum and other energy resources. ILSA has also failed to alter materially the target countries' objectionable behavior. At the same time, ILSA has added to the pall of unreliability that U.S. firms operate under, through no fault of their own.
Prevent enactment of H.R. 2431 (Wolf) and S. 772 (Specter), the "Freedom from Religious Persecution Act of 1997" or similar proposals. Among other things, these proposals would establish mechanisms for monitoring religious persecution as defined in the bills and (subject to certain waiver authorities) require the president to impose certain unilateral sanctions. These sanctions include prohibitions against certain trade development assistance and export promotion for trade with countries where defined levels of persecution exist. Target countries include major trading partners with whom the U.S. shares a variety of vital interests. Moreover, no other major trading partner is enacting comparable statutes. Even with proposed authority to waive actual sanctions, these and other similar proposals would result in isolation of U.S. interests without material "improvement" in target countries' conditions. This approach is especially problematic in that it would require very public U.S. identification of, and possible retaliation against, potentially dozens of countries with whom the U.S. shares a variety of vital interests. Some of these countries are bastions of pro-U.S. assistance in parts of the world where substantial American interests are literally in the gunsights of terrorists - whose religious justification for their mayhem is tragically ironic.
Conclusion
As the twenty-first century approaches, global competition becomes more acute, and U.S. leadership becomes ever more critical, we as a nation must take stock of our mission, our capabilities and our limitations. Despite numerous conflicts and differences we share with other nations, the United States is still both the sole remaining superpower and an inspiration to billions of our fellow human beings. The fall of Communism demonstrates that the market-based American approach to prosperity is critical to our continuing status, power and influence. But leadership requires a willingness of others to follow. If we use our clout to engage other societies as they aspire to our freedoms and accomplishments, we can grow and lead indefinitely. But if we insist on adhering to a restrictive, isolationist model that has no relevance to the global community, other nations will look for other paths - paths which may lead not only to tragic consequences for them, but diminished horizons for us as well.
Going it alone no longer works, if it ever really did. As President Reagan was fond of repeating, we have a choice: lead, follow or get out of the way. Through engagement, we can lead. With unilateral sanctions, we encourage others to push us out of the way.
That concludes my testimony. I will be happy to try to answer any questions you may have.

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