14 October 1997
Journal of Commerce
Aviva Freudmann, Editorial

The sanctions war dance

London -- The European Union and the United States are in the midst of Helms-Burton Two -- a renewal of their long-running disagreement over the extraterritorial application of U.S. trade laws.

At issue in this round is a $2 billion contract shared by the French energy company Total SA with two other firms, one Russian and one Malaysian, to develop natural gas fields in Iran.

That deal flies in the face of Washington's 1996 Iran-Libya Sanctions Act, which threatens reprisals against any company, U.S. or foreign, that invests in Iran's or Libya's energy sectors.

The contract to develop the rich gas reserves in Iran's South Pars field has put Total and its partners in the cross-hairs of the Iran-Libya law sponsored by Sen. Alfonse d'Amato -- and at the center of another fist-shaking European furor.

"Nobody accepts that the United States can pass a law on a global scale," said French Prime Minister Lionel Jospin.

Washington, said EU trade commissioner Sir Leon Brittan, should "reflect long and hard" about taking any action under the d'Amato act. The EU is threatening to renew its complaint to the World Trade Organization over the Helms-Burton Act -- the U.S. law aimed at discouraging investment in Cuba -- if insufficient progress toward a compromise is made by Oct. 15.

Clearly, European politicians win points by blustering on about America's trade-law imperialism. The Clinton administration, for its part, hopes to avoid an outraged congressional reaction by putting on a public show of support for these laws.

But that task is becoming increasingly difficult. In the face of mounting evidence, White House officials have had to argue that imposing trade penalties will somehow stop Iran and Libya from sponsoring terrorists and destabilizing the Middle East, or will somehow persuade the Cuban people to overthrow Fidel Castro.

No one outside of Washington is prepared to believe that. The worldwide reaction to the two laws -- and to the roughly 50 other U.S. sanctions laws passed since 1993 -- has been hard to avoid. The unanimous international opposition has created a greater risk of retaliatory sanctions against American companies, and has contributed to a difficult atmosphere in a range of unrelated trade negotiations.

White House officials also are increasingly hard-put to explain away obvious inconsistencies in Washington's approach toward governments with which it has policy disagreements.

In China, for example, the United States has decided that constructive engagement is the way to bring about improvement in human rights practices. In Syria, the United States hopes to persuade the regime to abandon its sponsorship of terrorism. But in Iran, Libya and Cuba, Washington has decided that economic isolation is the only way.

There also is mounting pressure from U.S. business to give up an approach that clearly does little to damage the targeted regimes, and much to hurt U.S. companies and their workers.

Canadian, European and Mexican companies have been happy to fill the trade and investment vacuum the United States left in Cuba. And the Total deal in Iran came about in part because U.S. energy companies were kept out of the competition. With other energy projects under negotiation in Iran, U.S. companies are rightly angry about being shut out.

That said, the United States is not alone in using trade sanctions to achieve political aims. The European Union tries to discourage other nations from using leg-hold traps for hunting certain species by threatening to deny access to EU markets to nations -- including the United States, Canada and Russia -- that don't meet its standards.

This measure, like the U.S. sanctions laws, exists to placate a vocal interest group -- in this case, environmentalists. The best hope of stopping the proliferation of such measures is to reach an international agreement to curb the use of third-party sanctions.

Such an effort is under way on the fringes of Organization for Economic Cooperation and Development negotiations aimed at reaching a Multilateral Agreement on Investment. The EU wants Washington to adopt a "best practices" code limiting the use of boycotts and secondary boycotts of the sort called for under the d'Amato law.

There is no deadline for reaching agreement on that code. Indeed, the investment treaty talks themselves are proceeding at a glacial pace. Still, the existence of the forum may be the cover that politicians on both sides of the Atlantic need to avoid a round of sanctions and WTO complaints stemming from the two U.S. laws.

It's a thin reed on which to rely for keeping the peace. But it seems to be the best one available at the moment.

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