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I take great pleasure in welcoming the distinguished Administration and private sector panelists before the Committee this morning to discuss the "Iran Libya Sanctions Act - ILSA" and give us their perspective on the effects of this Act one year after its enactment on August 5 of 1996.

The Committee's review of ILSA implementation comes at a time of heightened debate within the Administration and within Washington policy circles over the future direction of U. S. Policy toward Iran and other terrorist nations.

Some prominent outside observers are calling for a dialogue and more "moderation" in our policy toward Iran as part of a review of a broader strategy of "dual containment" of both Iran and Iraq. The debate thus far centers around the question of whether the U. S. should offer incentives to moderate its behavior toward its neighbors in the Gulf and in the Middle East region as a whole.

This debate over our Iran policy has only accelerated in the wake of the May 23 election of Mohammad Khatemi as President. A relative moderate, on social and domestic issues, he was elected with nearly 70 percent of the vote and will take office in mid August.

The Administration has reacted with justifiable caution to these events stressing, I believe correctly, that there should be no change in U. S. Policy unless Iran takes clear steps to improve its international behavior.

These steps should include a declared end to its support for international terrorism, a reduction in its conventional arms build up in the Gulf and a clear statement that it is not trying to acquire or produce nuclear weapons or the means to deliver them.

Unless and until Iran is moving to accomplish these objectives we should not alter our stance toward this country and we should vigorously enforce the Iran Libya Sanctions Act as an important component of our overall dual containment strategy toward both Iran and Iraq.

In this regard, I would note that the only oil development contract that Iran has signed with a foreign firm since the imposition of U. S. sanctions now appears to be floundering because of a lack of financing according to a recent report in the Iran Times.

A key oil industry publication has also reported that this deal to develop the Balal field is "on the brink of falling apart" because the Canadian and British firms involved in the bidding have been unable to arrange financing.

I would welcome the comments of our panelists this morning on the effects of ILSA on this proposed transaction and several others that are now pending between the Iranians and foreign companies.

I understand that one potential firm waiting in the wings for this particular deal to fall through is the China National Petroleum Corporation. If this report turns out to have some validity, this could be a potential flash point in U.S.-China relations particularly in light of increasing Chinese support for Iran's military build up.

I would also ask our panelists to comment on reports that another Iranian oilfeld development - the Soroush Field - has the backing of Germany's Westdeutshe Landesbank. This Bank has reportedly put together a syndicate of other banks to provide $90 million in financing this year and another $70 million in subsequent years.

To the extent that the Administration witnesses and other panelists today can confirm these reports, this Committee will be asking the German government to clarify its position in this matter. In light of the recent German court decision clearly implicating the Iranian government in terrorist acts on German soil, I would like to know why a prominent German bank like Deutsche Landesbank, that has in the past been subsidized by government credits, is financing this project -- and reportedly doing so with its own funds.

More troubling still are recurrent reports that foreign firms, particularly the French oil company Total might be on the verge of signing contracts with Iran to develop the large South Pars gas project expected to require more than $2 billion in capital.

In a letter I received on July 15 from the Chairman and Chief Operating Officer of Total, Mr. Thierry Desmarest. He indicates that increased investment in Iran will "help further stimulate democratic reform in Iran". It would in fact appear that this company is intent on proceeding with its contract with Iran which is clearly a sanctionable event under the terms of ILSA.

With recent indications from the French government that it is willing to support French firms in Iran with a new $500 million insurance line of credit, we need to enter into an immediate high-level dialogue with France to ensure that it aware of the implications of imposing sanctions on its leading oil exploration and development firm.

I would welcome the comments of our panelists on these and other issues related to ILSA as we review its effects on our policies in the region. We also need to explore in particular the prospects for multilateral cooperation in an effort to stop Iran from developing its offshore oil fields and using any revenues generated from these fields to fund its nuclear and conventional weapons build up.

I would also ask our panelists to comment on recent developments in Libya and the impact of the legislation on our policy toward this country. I would like to know how the U. S. has responded to calls by other countries for the lifting of UN sanctions against Libya in light of the continuing refusal by Libya to hand over for trial two suspected intelligence agents indicted for the bombing of Pan Am Flight 103 on December 21, 1988.