2 August, 1999
Richard Lawrence
Journal of Commerce

Sanctions debate enters critical phase

The U.S. Army wanted them, needed them: replacement parts for its construction gear in Kosovo. Caterpillar Inc. was ready and able to supply them but U.S. economic sanctions bar trade with Yugoslavia. Finally, about 10 days ago, the Treasury Department's Office of Foreign Assets Control granted Caterpillar a waiver, allowing the Army to get the parts.

Just another frustration, businessmen sigh, wrought by that old bugaboo: foreign-trade sanctions. No other government imposes nearly as many trade sanctions as the United States. They are applied, unilaterally or in concert with other countries, for reasons ranging from preventing nuclear proliferation to protesting human-rights violations.

The horror stories U.S. businessmen tell of sales lost to sanctions tally in billions of dollars. Their ire is particularly directed at sanctions the federal government applies for "foreign policy" reasons -- unilaterally.

Four years ago, the Institute for International Economics estimates, those unilateral sanctions pared U.S. merchandise exports by as much as $19 billion. And that took no account of the many state and local sanctions. The institute is updating its data, and, says Gary Hufbauer, who heads the study, annual sanctions-related business losses are mounting year by year.

Adding to the exasperation, unilateral sanctions are becoming less and less effective, thanks to globalization. If the United States cuts off trade or investment in a targeted country, an increasing number of other nations can rush in to fill the void.

Alarmed at the U.S. sanctions spree, several hundred U.S. firms and trade associations formed the USA*Engage coalition in 1997. Thanks largely to its work, more than 90 House members and almost 40 senators now co-sponsor legislation providing for, among other things, cost-benefit analyses before unilateral sanctions are applied, protection for existing contracts, and a nominal two-year limit on future sanctions.

Indeed, Congress' attitude toward sanctions appears much changed from only a short time ago. In September 1997, roughly 20 bills advocated tighter sanctions. Now, of roughly three dozen bills pending, most would rescind sanctions or reform the sanctions process.

"We've come a long way in changing the thinking" on Capitol Hill, says Frank Kittredge, USA*Engage's vice chairman.

The business coalition may also have helped influence Clinton administration sanctions policy. Witness the recent lifting of food and medicine sanctions against Libya, Iran and Sudan -- a step that could clear the way for a half-billion dollars or more in U.S. sales.

And the administration has largely neutralized the 1996 Helms-Burton Act, which threatens sanctions against foreign investors in Cuba, notes Ralph Galliano, publisher of the US*Cuba Policy Report.

In yet another encouraging development for business, the National Foreign Trade Council, which manages USA*Engage, has won a court decision that could lead to the dismantling of the more than two dozen state, county and city unilateral sanction laws.

Still, there have been disappointments, among them the new Freedom from Religious Persecution law, which contemplates more unilateral sanctions, and recent Clinton administration sanctions against Afghanistan.

The next few months are likely to be critical for the USA*Engage crusade. Despite the number of legislators co-sponsoring broad sanctions reform, there are key players who are less than enthusiastic, among them the chairmen of the two committees having primary jurisdiction over the legislation. Sen. Jesse Helms, R-N.C., the Foreign Relations Committee chairman, has dismissed USA*Engage as a "small cabal of lobbyists" that greatly exaggerates the costs of unilateral sanctions, which he claims are in fact "minimal." U.S. sanctions policy is working "just fine," he contends.

But under pressure from other Foreign Relations Committee members, Helms says he is willing to consider legislation. "There can be room for compromise and consensus," he avows. A bill just drafted by his staff makes some concessions to the USA*Engage quest for reform, requiring, for example, "cost-gain" studies before sanctions are invoked.

To some extent, the draft bill appears to mirror Clinton administration views. The administration questions proposals that require much advance notice of a new sanction, a two-year limit on sanctions and strong protection of existing contracts.

However the Senate proceeds, there remains a major hurdle in the House International Relations Committee. Most members, including Chairman Ben Gilman, R-N.Y., have declined to sign onto a broad reform bill.

Meanwhile, other, more narrowly focused bills would cut down on agricultural trade sanctions. The House has passed one measure to limit any future farm-trade embargoes. But the last one -- on grain sales to the Soviet Union -- dates back to the early 1980s.

On the judicial front, reformers hope that the U.S. Supreme Court will take up an appellate ruling that strikes down a Massachusetts sanction against companies doing business with Myanmar, formerly Burma. If the Supreme Court upholds the lower court, it could wipe out more than two dozen state and local sanctions laws around the country.

Even absent a sanctions reform law, there is now the prospect that both the Clinton administration and Congress will be more circumspect about future unilateral economic sanctions, thanks in part to USA*Engage's engagement.

Reprinted with permission - Copyright © 1999 Journal of Commerce

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