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Weapons of Mass Destruction (WMD)




JUNE 3, 1998

Mr. Chairman, there are several principles that should guide our use of economic sanctions.

Properly designed, implemented, and applied as part of a coherent strategy, sanctions, including economic sanctions, can be and are a valuable tool for enforcing international norms and protecting our national interests. At the same time, Mr. Chairman, sanctions are not a panacea and they are not cost-free. The frequency with which we have turned to sanctions has increased dramatically, particularly since 1993. The U.S. has applied sanctions for foreign policy purposes a total of 115 times since World War I, 104 times since World War II, and according to the count of the President's Export Council, 61 times since 1993. Thus more than half the sanctions imposed in the past 80 years have been imposed in only the past four years. These figures do not include the increasing use of sanctions at the state and local levels. Our object must be to learn from our growing experience, to draw the appropriate lessons so that we can find the best, the most effective way to employ this potentially powerful tool while minimizing the adverse costs.

Used in an appropriate way, economic sanctions can be an effective means to further U.S. policy goals. Used under inappropriate circumstances, they can actually impede the attainment of our objective and come at a significant cost to other U.S. policy objectives.

Since October both we in the Administration and you in the Congress have sought to use sanctions, or the threat of sanctions, as a tool to advance our policy interests in several different cases, sometimes effectively, sometimes less so.

-- On November 4, the President, acting under his authority under the International Economic Emergency Powers Act (IEEPA), imposed a comprehensive economic embargo on the Sudan in response to that country's gross violations of human rights, including religious freedom, its continuing support for international terrorism and its attempts to disrupt the Middle East peace process. Although others have not joined us in our comprehensive economic embargo, we are nonetheless working successfully with our allies to block the flow of arms and munitions into that war-torn country.

-- We have used the Iran-Libya Sanctions Act to advance our policy objective of deterring Iran from acquiring weapons of mass destruction and supporting terrorism.

-- We have used the Libertad Act to achieve for the first time an agreement which will impose international sanctions on the acquisition of illegally expropriated property, not just in Cuba but worldwide.

-- We have begun to apply costly unilateral economic sanctions to India and Pakistan in response to those countries' recent nuclear tests.

-- The Congress has also continued to consider legislation authorizing or imposing unilateral economic sanctions. The House recently passed the Wolf-Specter Anti-Religious Persecution Bill which imposes automatic unilateral sanctions on "gross violators." Similar legislation is currently being considered in the Senate. The Senate also recently passed the Iran Missile Proliferation Act of 1997, which was passed by the House last year, and this legislation is expected to reach the President's desk shortly.

-- Unilateral sanctions are also being considered by individual states and localities--for example, Massachusetts has actually imposed sanctions on companies that do business in Burma. Maryland has considered, and rejected, imposing sanctions on Nigeria. Several states and localities have under active consideration, or they have actually imposed, sanctions against Swiss banks for their past actions regarding dormant accounts of Holocaust victims. In addition, several states are considering, or have actually passed, legislation on insurance relating to Holocaust claims. While I share the objectives of the sponsors of such actions, I believe that sanctions are not merited at a time when we are obtaining cooperation from the major Swiss banks and European insurance companies. Moreover, I think such actions are likely to be counter-productive. As we have demonstrated in recent months, we can achieve much more through cooperation than through confrontation.

The Hamilton-Crane-Lugar Sanctions Reform Bill introduced in October of 1997 seeks to impose discipline on our increasing resort to unilateral economic sanctions as a policy tool of choice.

Following are the principles that we believe should guide our use of this tool:

Economic Sanctions a last resort

Economic sanctions should not be a first resort against countries whose actions threaten our interests. Our first line of action against other countries should be to aggressively pursue all diplomatic options that are available to us. Such measures can range from the symbolic, like withdrawing an Ambassador or reducing Embassy staff, to denying visas to target figures, entering into security arrangements with neighboring countries, and, as an ultimate resort, military intervention and everything in between. We should also not forget the power of positive inducements -- rewarding desired behavior. Economic sanctions involving restrictions on the private sector, when they are unilateral, should be considered only after these alternative prior measures have been aggressively pursued and have failed or have been judged inadequate or inappropriate.

Multilateral Sanctions are more Effective

Sanctions are most effective when they have broad multilateral support and participation. Multilateral sanctions maximize international pressure on the offending state. They show unity of international purpose. And, because they are multilateral, these sanctions regimes are more difficult to evade or avoid. Also, multilateral sanctions minimize damage to U.S. competitiveness and distribute more equitably the sanctions burden across responsible countries. We should make a maximum effort to develop a multilateral sanctions regime in instances when sanctions are a viable option, and should give a reasonable period of time to develop an international consensus for such sanctions.

Multilateral support is essential if sanctions are to be a truly effective means for influencing the policies and behavior of other countries. We live today in an interdependent, global economy. The ability of the United States to unilaterally deny key economic benefits to a target country is sharply limited. There are few products or services for which the United States is the sole supplier. Perhaps even more importantly, the world is increasingly multipolar with respect to political and security concerns as well, ultimately decreasing U.S. leverage on individual states.

It has become clear in Bosnia, Kosovo, Cyprus, Ireland, and has been clear for decades in the Middle East, that U.S. leadership on conflict resolution is essential. We have the responsibility to lead and we are not afraid to do so, even if it means, at times, that we act alone. But in the post Cold War world, we must also recognize that though we are an essential and indispensable force for peace and stability, we alone are not sufficient to resolve the world's pressing problems. We need the support and cooperation of like-minded nations. We can do a lot alone, and there will be times when we must act alone, but we can do a lot more with support from others.

We are disappointed by our allies' response on a range of issues from Iran to Sudan, Burma, Nigeria, and Cuba. But we will not succeed by attempting to force our allies to our position. We need to lead them. We need to take the time to build a consensus. A lower intensity of sanctions can have a greater effect than more draconian sanctions applied by the United States alone.

We also need to recognize that unilateral measures, especially those that others charge are "extraterritorial," complicate our efforts to build multilateral support.

Consultative mechanisms with countries that share our goals can be helpful on issues of critical concern. While such mechanisms do not guarantee results, the absence of such a mechanism can almost certainly guarantee failure to garner multilateral support.

We must be prepared to act unilaterally

If we are unsuccessful in building a multilateral regime, and important national interests or core values are at issue, we must be prepared to act unilaterally. We cannot permit other countries to veto our use of sanctions by their failure to act. Our primary considerations in any eventual application of unilateral sanctions must be whether they are effective, whether they are part of a coherent strategy to change behavior, whether they contribute to or detract from our efforts to gain multilateral support for our policy objectives, and whether they are consistent with our international obligations and humanitarian principles. There should be a careful balancing of benefits against costs; that is, do the likely benefits of sanctions outweigh the economic losses to our businesses and workers? There should be some reasonable expectation that the specific sanctions measures will have a significant impact on those targeted, that there is some expectation they can be effectively implemented and enforced, that they will not cause more collateral damage than the wrong they are trying to remedy, and that due consideration is given to the potential adverse impact on vulnerable foreign populations. We must try, whenever possible, in any unilateral sanctions regime to target the sanctions directly on the offending country itself, or even better on the offending entities or individuals in that country, rather than on businesses in third countries.

Effectiveness means improved behavior

Sanctions should seek to influence, not simply to punish. Our measure of success must be effectiveness: what combination of measures can be assembled among like-minded countries to force or induce a change in the conduct of the offending state? That is, after all, the objective. If the best we can do is to act alone, so be it, but we owe it to the American people to exhaust other diplomatic measures first and have some reasonable prospect that our unilateral measures will have the intended effect.

Cost should be proportional

Specific sanctions measures should be designed carefully so that, to the maximum extent possible, the target country absorbs the costs rather than placing them disporportionately on innocent people and on our business community and citizens. Sanctions should be constructed so as to minimize the cost to the U.S. and its allies while extracting maximum leverage.

Sanctions that are ineffective, that impose substantially more costs on U.S. interests than on the sanctioned country, that are unable to garner broader support even among our closest allies, do not send a message of U.S. resolve, or U.S. commitment. Rather they send a message of U.S. irrelevance. Sanctions that are ineffective, that are easy to evade or avoid, that are imposed merely to "make a statement," are not only pointless in achieving our objectives, but in the longer run debase and undermine the value of sanctions as a foreign policy tool.

Sanctions Decisions require Policy Harmony

If our policies are to be effective, we must work together--Administration, Congress, governments at the state and local level, the business community, NGOs--to see that our use of sanctions is appropriate, coherent, and designed to attract international support. Congress should go through the same careful consideration and balancing of interests as the Executive Branch. There must be more structured, systematic discussions between the Executive Branch and Congress when sanctions are an option.

The Hamilton-Crane-Lugar Sanctions Reform Bill is a good example of the kind of effort we need to make to improve the dialogue between the Congress and the Administration on sanctions issues. We agree with many of the ideas proposed in the bill - to encourage sanctions policy-making to be conducted in a deliberate and thoughtful manner, taking into consideration all factors relevant to the sanctions decision. At the same time, we do not believe that Congress should require the Executive Branch to comply with specific procedures in its internal decision-making processes or should otherwise interfere with the ability of the Executive Branch to decide substantive issues in conducting foreign relations. Such legislatively mandated provisions can undermine the President's prerogatives in the conduct of foreign relations. We are willing to work with Congress to perfect the legislation.

The President needs Flexibility

The President should have the authority to tailor specific U.S. actions to meet our foreign policy objectives. We recognize important Congressional prerogatives in foreign policy, in particular where economic sanctions are involved. This Administration, or any Administration, must take into account Congressional concerns over foreign affairs questions. At the same time, the President is, of course, responsible under the Constitution for the conduct of the nation's foreign policy. Ideally, our foreign policy should be the product of a bipartisan consensus focusing on U.S. national interests. One expression of that constitutional responsibility and comity between branches of government is expressed in sanctions legislation through the inclusion of appropriate Presidential waiver authority. Ultimately only the President can weigh all the issues at stake at any given moment and tailor our response to a specific situation. Legislation should set forth the broad objective but should allow the flexibility to respond to a constantly changing and evolving situation.

In this regard, there are two particular pieces of legislation, Mr. Chairman, which are of particular concern: the Iran Missile Proliferation Act of 1997; and the Wolf-Specter Anti-Religious Persecution Bill, which passed the House by a large margin. The President's senior advisors are recommending that the Iran Missile Proliferation Act of 1997 be vetoed because of its low standard of evidence, its unworkable waiver standard, and because its inflexible and indiscriminate requirement to impose sanctions would be counterproductive to our nonproliferation objectives.

Similarly while we strongly support the goals of the Wolf-Specter Freedom from Religious Persecution Act of 1998, the President's senior advisors have also said that they would recommend a veto of the Wolf-Specter Bill if passed in its current form, because of its automatic sanctions, the confusing bureaucratic structure it would create, and the inappropriate hierarchy of human rights violations in U.S. law the bill would establish. We believe that enactment of the bill would undermine many of our important foreign policy interests, including ultimately the bill's own goal of helping those who face religious persecution.

Mr. Chairman, this rapid pace of change, sometimes unanticipated change, highlights the absolutely critical need for flexibility in the application of economic sanctions. Simply put, without flexibility we will not be able to tailor our actions to meet our foreign policy objectives. There can be no "one-size fits all" approach. Only the President can balance all the factors. It is important the President have the flexibility to respond in an appropriate fashion to changing circumstances. That flexibility also provides the President appropriate leverage to achieve the statute's goals while minimizing collateral damage to other important national interests. If the Congress feels that he has not struck the right balance, then oversight and criticism in a spirit of comity are appropriate, but not removal of the President's discretion -- that would make for bad policy.

Using these general principles as a standard against which to grade our - and your - efforts, Mr. Chairman, I would like to focus on three specific cases where the actual use or prospect of unilateral economic sanctions was an integral part of our policy: our use of ILSA on Iran and Helms-Burton on Cuba to advance our cooperation with the European Union.

Mr. Chairman, to illustrate and underscore these guiding principles, I would like to focus on two specific cases, the Libertad Act and the Iran-Libya Sanctions Act. In both cases the prospect of sanctions rather than their use effectively achieved greater cooperation in support of the Acts' objectives without upsetting our political and economic relations with our allies and friends. In the Helms-Burton case, we decided our success with the property disciplines we agreed upon with the EU merits seeking authority to waive Title IV.

In the ILSA case, we used the flexible authority provided by the Congress to advance the purposes of the law. In so doing, we determined, after weighing our interests, that the imposition of sanctions would be counterproductive to the original Congressional objectives. This flexibility, as represented in the waiver authority Congress wisely gave the Executive Branch under ILSA, is a model for how Congress and the Executive Branch can successfully work together on sanctions issues, and precisely why it is important that the President be afforded similar discretion in other sanctions laws now under consideration.

U.S. EU Summit

At the President's May 18 Summit with European Union leaders, including UK Prime Minister Tony Blair acting in his EU Presidency capacity and European Commission President Jacques Santer, we made considerable headway in advancing our policy goals on sanctions relating to Cuba and Iran

Libertad Act

Mr. Chairman, with encouragement of Congress, the Administration has made a major effort to bring other nations more fully in support of the objectives of the Libertad Act. I have been a strong defender of the Libertad Act against all critics, foreign and domestic, in the United States, around the world -- from Mexico and Central America and through Europe. I am pleased to report that by holding out the possibility of a waiver of Title IV, if the EU would agree to disciplines on investments in illegally expropriated properties, we have made an historic breakthrough. The Understanding we reached with the EU on May 18 builds on the Libertad Act, and for the first time, establishes multilateral disciplines among major capital exporting countries to inhibit and deter investment in illegally expropriated properties.

These restrictions will discourage illegal expropriations and chill investments in illegally expropriated properties. Taken in their entirety, they warn investors to keep "hands off" illegally expropriated properties. They will send an unequivocal message to any country that engages in repeated illegal expropriations that it is not deserving of a normal economic relationship with other states.

As part of the May 18 Understanding, the Europeans have acknowledged that Castro's expropriation of U.S. property "appears to be contrary to international law." This conclusion, and the rest of the Understanding, represent the first such collective acknowledgment by the Europeans since the Cuban revolution that Cuba has engaged in illegal expropriations of U.S. property. It says clearly that it is no longer business as usual with respect to these properties. That message has landed hard in Havana. Fidel Castro understands the significance of our accomplishment and appreciates the serious threat it represents. He has condemned the Understanding "as an internationalization of the principles of the vile Helms-Burton Law." He decries it as "a pact . . . between the United States and the European Union with the purpose of strengthening the blockade of Cuba."

Let me outline for you the key elements of the Understanding.

Where states expropriate property inconsistent with international law in the future, investment in such property will be barred.

A Registry of Claims will be established to warn investors and agencies providing support or assistance that a property has a troubled past. It will be open to any claimant who alleges that its property was expropriated in contravention of international law. If basic information is provided by the claimant, the claim will be included. There will be no screening out of claims.

Where illegal expropriations have already taken place, government support or commercial assistance for transactions related to such properties will be denied. This means:

-- no government loans;

-- no government grants;

-- no government subsidies;

-- no government fiscal advantages;

-- no government guarantees;

-- no government political rise insurance; and

-- no government equity participation.

It also means no government support or advocacy, through embassies, or commercial, foreign and trade ministries, for such transactions. Lists of expropriated properties will be published and investment actively discouraged.

Not only will the disciplines apply to cases of future acquisitions from the expropriating state, but they will apply to transactions with respect to existing investments that involve the acquisition of new rights, including the renewal of leases or management contracts, or the acquisition of new mineral rights. This will fence off existing investments and severely limit new transactions by those investors.

International financial institutions such as the IMF and the World Bank will be urged to adopt programs and policies to discourage investment in illegally expropriated properties.

Tough measures will apply to countries, such as Cuba, which have an established record of repeated expropriations in contravention of international law. Participants will review all requests for government support and assistance for investments to ensure that the transaction does not involve illegally expropriated property before providing any support or assistance. If expropriated property is found to be involved, the support or assistance will be denied and the property will be added to the published list. No support or assistance will be provided unless and until this evaluation has been performed. Close contacts between the EU and the United States will be maintained on requests for assistance. The U.S. will have the opportunity to provide additional information, and will be informed of the decision.

Of paramount importance, the Europeans now acknowledge in writing that one of the primary tools that the Castro regime used in its mass expropriation of property from U.S. citizens "appears to be contrary to international law". Based on this conclusion, they state it is "reasonable to assume" that the disciplines will apply to certain expropriations of U.S. citizens' property under this law, and if these expropriations are "typical of other expropriations," to them as well.

The disciplines will also benefit U.S. citizens whose property was confiscated by the Castro government before they became American citizens. The registry will be open to the claims of all Americans who allege that Castro violated international law by expropriating their property in contravention of international law. The knowledge that properties on the Registry have a troubled past will flash a yellow light at investors as well as investment promotion and assistance agencies that are likely to prefer to devote their resources to less troubled properties. Coordinated action in international financial institutions to discourage illegal expropriations and investment in properties subject to them, as well as the general caution that investors will bring to bear when considering investment in Cuba, will benefit them as well.

Taken in their entirety, these disciplines will effectively deter investment in confiscated property, and discourage investment in Cuba in general by accentuating the high risk of such investment in several ways:

First, they accentuate Cuba's scandalous record of illegal expropriations.

Second, they highlight to potential investors the serious risk that any investment in Cuba could turn out to involve expropriated property.

Third, they proclaim the U.S. and the EU's strong disapproval of investment in illegally expropriated property.

Fourth, they proclaim that, from this day forward, any investor who becomes involved with expropriated property can expect absolutely no help or assistance from their governments, and will stand naked in an insecure and dangerous environment.

It is these factors, their predictable impact on investment in Cuba, and the broader political significance of the European judgment for Cuba policy in general, that has infuriated Fidel Castro. He understands only too well that this Understanding is an effective multilateral endorsement of some of the core principles underlying Helms-Burton. He appreciates that a multilateral commitment to apply these disciplines will have a more profound effect than individual unilateral determinations by the U.S. It is for this reason that we expect he will do all he can to undermine the Understanding.

The Administration does not intend to let that happen. We have agreed in principle with the EU to meet in the next few weeks to begin preparing for implementation of the Understanding. This will include work on the establishment of the registry, and giving effect to the commitment to prevent investments with respect to future expropriations.

We also intend to prepare a joint proposal to incorporate the disciplines into the Multilateral Agreement on Investment under negotiation in the OECD. The MAI will provide the opportunity to expand the arrangements to include a wider range of countries. Even before the MAI is concluded, the Understanding calls for U.S. to consider including other interested states and we intend to be active on this front.

To realize all the gains provided by the Understanding, we need Congressional support. The EU will begin to implement these strong disciplines simultaneously with the receipt of a waiver from the provisions of Title IV of the Libertad Act. Thus, we will work closely with the Congress to seek early action on legislation to authorize the President to waive the provisions of Title IV will respect to countries implementing the disciplines. We believe that such a waiver should benefit only countries that are implementing the Understanding. It should not be time limited, but should provide authority to withdraw the waiver if a participant fails to live up to the Understanding. I can assure you that the Administration would be prepared to revoke such a waiver should a participant fail to implement it faithfully.

This Understanding presents United States with a unique and pathbreaking opportunity to establish new levels of protection of property rights globally through multilateral disciplines. It builds on the success of the Libertad Act in protecting the interests of U.S. citizens whose properties were seized illegally by the Cuban government, and it will reinforce our broader Cuba policy objectives. The realization of the potential of the Understanding will require close cooperation between the Administration and the Congress. My testimony today is only one step in an ongoing process.

Iran-Libya Sanctions Act

Let me turn now, Mr. Chairman, to the Iran-Libya Sanctions Act or ILSA.

On May 18, the Secretary made a determination, pursuant to the authority delegated to her by the President, that the investment by the firms Total (France), Gazprom (Russia), and Petronas (Malaysia) in the development of Iran's South Pars gas field constitutes sanctionable activity under ILSA. This determination followed an extensive review of the facts of the case as they relate to the provisions of the law. At the same time, the Secretary, under the authority of Section 9(c) of the Act, determined that it is important to the national interest to waive the imposition of sanctions against the three firms involved. The Secretary did not believe that waivers under Section 4(c), which require that countries agree to take "substantial measures, including economic sanctions" to inhibit Iran's acquisition of weapons of mass destruction and support of terrorism, were appropriate.

I would like to emphasize, Mr. Chairman, granting the waiver does not mean that we support this investment. We do not. We remain deeply concerned about Iran's support for terrorism and efforts to acquire weapons of mass destruction. While there are indications that the Iranian government may be trying to improve its relationship with the West, we have not seen substantial change in those Iranian policies of greatest concern. ILSA's focus on the dangers of Iranian WMD and terrorism thus continues to be of capital importance. Mr. Chairman, as you are aware, we made vigorous and repeated efforts to stop the South Pars investment, including representations from the highest levels of our government to counterparts in the other governments concerned. But we did not succeed.

We did have some degree of success in another case. Partly as a result of our efforts, the Indonesian firm Bakrie has apparently decided not to proceed with the development of Iran's Balal oilfield, though the impact of the Asian financial crisis was also important to the company's decision. This has delayed the investment of Bakrie's Canadian partner, Bow Valley Energy, which must now seek new partners to replace Bakrie and to provide the financial resources necessary to carry out the project.

As we were making every effort to stop the South Pars investment, we simultaneously and seriously considered the imposition of sanctions. We made an exhaustive examination of how ILSA sanctions would have affected the three firms involved in the South Pars project. All three, for varying reasons, are insulated from any practical negative impact of the imposition of sanctions. Total divested many of its U.S. assets prior to entering into the contract for South Pars. Gazprom canceled possible transactions of up to $750 million under a 1994 Memorandum of Understanding with the U.S. Export-Import Bank. Petronas has only limited connections to the United States. It was clear that the companies were prepared to proceed with this project, even in the face of the potential sanctions in our laws. We concluded that the imposition of sanctions would not prevent the South Pars project from proceeding, though such a step would have had major negative effects on other U.S. interests.

The Secretary's determination reflects an assessment that in this case, the national interest waiver which Congress wrote into Section 9(c) of the Act was by far the most effective way to serve overall U.S. interests, and to advance the fundamental objectives of ILSA --constraining Iran's ability to acquire weapons of mass destruction (WMD) and delivery systems, and its ability to support terrorism. Congress was wise to provide the President with this authority, which we have used with great care to achieve the purposes of the statute. A waiver (1) helps consolidate the gains that we have made with the EU and Russia on strengthening international cooperation to oppose Iranian policies; (2) lays the foundation for further progress in this vital area; (3) enhances our ability to work with Europe, Russia, and Malaysia on bilateral and multilateral concerns many of which we have outlined below; and (4) avoids a major dispute with allies and friends which could have led to trade retaliation and reduced cooperation on WMD and other efforts.

In stark contrast, a decision to sanction would have undermined our efforts at multilateral and bilateral cooperation and would not have stopped the South Pars deal.

In developing the ILSA legislation, Congress expressed its deep concern about Iran's pursuit of WMD and support of terrorism. It asked the Administration to address these problems, and provided in ILSA --with its provisions both for imposing and for waiving sanctions, and its emphasis on multilateral cooperation-- a "double-edged" tool for doing so. In the negotiations which culminated at the recent Summit, we used this tool to great advantage. We have achieved significant, enhanced cooperation on our Iran-related concerns with the European Union, with whom cooperation was already at a high level, and with Russia, which has put into place for the first time the legal framework and detailed regulations for a "catch-all" export control system. Implementation has begun but we recognize that sustained and rigorous implementation will be crucial with the Russians. We will have to continue to monitor the implementation process closely.

Until such time as Iran has begun to change its own behavior, it is particularly crucial to work at the "supply end" of a problem such as Iranian WMD development --that is, to deny Iran's access to sensitive materials and technology by working closely with the countries which are potential sources for these items. ILSA recognizes this, through the emphasis it puts on building multilateral cooperation.

The outcome of this case represents a signal success. It is a success both because of what we were able to accomplish and what we were able to avoid.

Let us look in more detail at what we have achieved in terms of constraints which affect Iran in the areas of WMD and terrorism. Even before the recent agreements at the May 18 US-EU Summit, the high level of cooperation on nonproliferation that existed with EU members --for example within all the major multilateral export control regimes-- was crucial to stemming Iran's efforts to acquire weapons of mass destruction, including missile delivery systems and related technologies.

Given this high level of existing cooperation, the joint US-EU statement on nonproliferation, announced at the Summit, does not break major new ground. Nevertheless, it emphasizes the importance of denying assistance to WMD and delivery-system programs, and outlines meaningful additional steps the EU is taking to further strengthen member-country policies in this area. The statement makes explicit reference to Iran in the context of shared U.S. and EU concerns about efforts by some countries to acquire missile technology and produce weapons of mass destruction. The EU undertook to pursue such concerns in its political dialogue with these countries, "notably Iran."

The statement also highlights the importance of stepped-up diplomatic cooperation to halt WMD-related and missile technology transfers to proliferators. Specifically with respect to an issue of key importance to U.S.-Russian technological assistance to Iran's ballistic missile program-- the statement documents the fact that European leaders and Foreign Ministers have raised their concerns about such activity directly with their Russian counterparts. We know of numerous specific occasions when such representations have been made and they undoubtedly contributed to the recent positive developments on this issue.

As noted in the statement, the EU has adopted a comprehensive, legally-binding regime of dual-use export controls which include stringent "catch-all" provisions covering equipment that might be used in connection with WMD programs. Particular stress is laid on the importance of giving greater scrutiny to end-users previously associated with WMD development. The statement also embodies an EU commitment to improve cooperation with us on export control implementation in a variety of ways: enhanced bilateral information exchanges on nonproliferation; closer coordination of export control assistance programs to third countries; and sharing export control "best practices," including means to strengthen end-use verification and prevent diversion.

The EU is also undertaking to improve its controls over technology transfers which involve "intangibles" --for example training and "know-how," computer software, design technology and products such as plans and blueprints-- and transfers which involve advanced means of communication such as the Internet. As the statement notes, we are strengthening consultations and sharing ideas on these issues.

On counterterrorism, we also enjoy a very high level of cooperation with our European partners. The May 18 Joint Statement on Counterterrorism reinforces the EU's commitment to work closely with the U.S. on promoting greater international cooperation and on coordinating efforts to combat terrorism in all relevant bilateral and multilateral fora. The statement also identifies specific common objectives. Shared concerns and joint efforts are noted in such areas as terrorist fund-raising, chemical and biological terrorism, and the Middle East Peace Process (MEPP). In connection with the MEPP, the statement underscores the EU commitment to enhance the effectiveness of the Palestinian Authority (PA) in counterterrorism, including an extensive program of human rights training. The EU established a Joint Security Committee with the PA in April 1998.

We are also working with EU members and other countries to ensure universal ratification of all eleven counterterrorism conventions. The EU will be giving particular attention obtaining adherence to the conventions by Central and Eastern European states that are seeking EU membership. In addition, the EU will press Iran, through the renewed EU-Iran dialogue, to ratify the seven conventions that it has yet to sign.

Russia has announced new undertakings, including a January 22 Executive Order that strengthens the government's authority to control missile technology and other transfers of concern. As a result of a subsequent Executive Order issued on May 14, 1998, the Russian Government is now taking significant steps to implement the January order to ensure compliance. The new Russian system will: establish supervisory bodies in all enterprises dealing with missile or nuclear technologies, to ensure compliance with relevant regulations; set procedures for exporting enterprises to ensure proper controls, and outline "red flags" which indicate that a proposed purchaser is not legitimate; give the Russian Space Agency responsibility for oversight of the space rocket industry; and establish a range of measures for licensing military exports. The positive start of our joint export control working group is another promising step.

Do we consider this major progress? Yes. Are we fully satisfied? Of course not. While the Russian Government is acting to implement fully President Yeltsin's policy, considerable work remains to be done as we have highlighted in our briefings to the Congress. It cannot yet be said that all is well, and we will remain closely engaged with the Russian Government at all levels to ensure effective enforcement.

The important thing to recognize, however, is that the will to control these exports and, for the first time, the basic mechanisms to do so, are in place. Moscow has accepted the gravity of the problem and clearly stated its policy. President Yeltsin's May 4 public statement and his speech of May 12, along with strong statements by Prime Minister Kiriyenko, are important reiterations of Russia's commitment to stop the spread of missile technology. Implementation has begun. President Yeltsin, in a bilateral meeting on May 17 during the G-8 Summit in Birmingham, England, emphasized to President Clinton his personal determination to use all the powers of his office to stop sensitive technology transfers to the Iranian missile program. While remaining vigilant, we need to nurture this cooperation with a Russian leadership which is willing to address vital nonproliferation issues and to work with them to make Russian controls increasingly effective. Our decision in the South Pars case strengthens our ability to do this.

We have also made nonproliferation progress regarding Iran with other countries. For example, Ukraine recently agreed to forgo all nuclear cooperation with Iran, including canceling the sale of turbines destined for Iran's Bushehr nuclear plant.

Because of the involvement of Petronas, the state petroleum company, in this deal, we focused closely on Malaysia. Malaysia has not been actively engaged with us on proliferation issues, nor has it been a source of nonproliferation concerns.

It has acted as a force for moderation in Islamic circles. Malaysia is our partner for the upcoming session of the U.S.-ASEAN Dialogue, which will address for the first time the establishment of export control procedures. Sanctions against a major Malaysian company in the midst of the Asian financial crisis could be detrimental to Malaysia and other countries in the regions, and could harm our ability to address the crisis.

In choosing among the options under the Act available to her, the Secretary also took into account a number of other national interest factors. Waivers will enhance our ability to work with the Europeans, Russia, and Malaysia on a host of other bilateral and multilateral concerns. These include:

-- Russian cooperation on nonproliferation, and progress on internal economic and political reform. On this last point, President Clinton has spoken often of America's stake in Russian democracy; as he said recently in Berlin, "We must support this Russian revolution."

-- Resolution of differences over Helms-Burton, including new disciplines to deter investment in illegally expropriated property worldwide, including in Cuba, and further EU support for democratic change and human rights in Cuba, and creation of a new US-EU initiative to liberalize trade. Positive results on these issues were achieved at the US-EU Summit.

-- Multilateral cooperation on Iraq to maintain the isolation of Saddam Hussein and to bring about compliance with UNSCR obligations, including cooperation with UNSCOM/IAEA inspections.

-- Progress on Kosovo and Bosnia, where cooperation of our NATO allies is essential, and on other European security issues.

-- Cooperation with European and Asian partners, including Malaysia, in addressing the Asian financial crisis and the rapidly unfolding events in Indonesia. We were also concerned about the effect of sanctions on a major Malaysian company at a time when Malaysia is feeling the serious effects of the crisis.

Granting waivers in this case has also averted potential retaliation against U.S. firms, which the imposition of sanctions might engender, and avoids possible legal challenges based on claims related to treaties and other international obligations. These considerations buttress the view that a waiver in this case best serves our national interest.

Fundamentally, we believe with respect to the South Pars case that sanctions would have been counterproductive to our ongoing efforts to broaden international cooperation to seek change in Iran's objectionable policies. In the case of EU member states, cooperation on these issues is already at a high level and, through the commitments we have received, will be at an even higher level in the future. We are narrowing our differences with the Europeans on Iran which were a source of comfort for Iranian leaders in the past. Assuming the EU continues this enhanced level of cooperation, we expect that a review of our national interests in future ILSA cases similar to South Pars involving the exploration for or production of Iranian oil and gas resources would result in like decisions with regard to waivers for EU companies. In the case of Russia, while we are encouraged by the recently agreed steps to combat the transfer of technology to countries of concern, we will continue, as I indicated earlier, to monitor closely Russia's implementation of its policies on transfers of missile and other technologies of concern, and to work closely with the Russian government to ensure prompt and effective enforcement.

In announcing our decision in this case, we reiterated that we remain strongly opposed to oil and gas pipelines which transit Iran and that, as a policy matter, we will continue to encourage alternative routes for the transport of Caspian energy resources, such as trans-Caspian pipelines and the Baku-Ceyhan route, and the Caspian Pipeline Consortium route. We will carefully examine any proposals for trans-Iranian pipeline construction for possible implications under ILSA, and any other relevant laws, and take appropriate action. In view of our strong opposition to such pipelines, we intend to continue to challenge them.

Given our continuing concern about Iranian behavior, we expect our friends and allies to take appropriate steps in response to Iranian involvement in terrorist activities. We will periodically review the impact of ILSA cases and our waiver policy on the national interest.

Let me say a word about our opposition to petroleum-sector investments in Libya. I make this point because I want to answer comments, such as the statement attributed to Italian Foreign Trade Minister Fantozzi, which have been made about our policy with respect to Libya in the context of the South Pars decision. Let me state categorically that our policy has not changed. South Pars is about Iran. We strongly oppose any investment in Libya's petroleum sector and we will continue our efforts to discourage and prevent it. We will continue to examine all such investments under ILSA and take appropriate action if any activity is found to be sanctionable. We have offered no expectation, for firms from any country or group of countries, about what result a review of national interests in an investment case involving Libya might produce.

Under the terms of our April 11, 1997, Understanding with the EU, we committed to work with the EU toward the objective of meeting the terms for 9(c) waivers with respect to Libya. In London, we indicated a willingness to engage the EU, as we pledged last year, in a sustained process toward this end. But we made no commitment whatever to grant waivers. We and the EU also undertook to work together to achieve strict enforcement by all countries of UN Security Council sanctions against Libya.

Finally, we fully recognize the dangers to our ally, Israel, posed by the potential development of weapons of mass destruction by its adversaries in the region. The Administration has worked closely with Israel to address possible missile threats and will continue to do so. Since 1988, the United States has jointly funded the ARROW missile defense system; provided Israel with space-based early warning notification of ballistic missile launches; and jointly funded a feasibility study of the Israeli Boost Phase Intercept Concept. We will continue to engage with Israel to assure that our cooperation supports Israel's ability to resist such threats.

India-Pakistan and Non-Proliferation

Let me turn now, Mr. Chairman, to the very difficult issue of India and Pakistan. On May 11 and 13, 1998, India conducted a series of underground nuclear tests. Unfortunately, and despite sincere and energetic efforts by the President and other U.S. officials to dissuade Pakistan from following suit, that country conducted its own series of tests on May 28 and May 30.

Mr. Chairman, these actions represent a serious violation of international nonproliferation norms, and a repudiation of international efforts to contain the further spread of nuclear weapons and pursue nuclear disarmament. More than that, they could herald a dangerous and destabilizing competition between the two countries, with extremely negative ramifications far beyond the region.

Indian officials cited a variety of issues as their rationale for testing -- unresolved border problems with China; concern over China's ties with Pakistan; and what they view as continuing hostility from Pakistan and Pakistani support for terrorism in the disputed territory of Kashmir - all of which we found unconvincing. We cannot see, Mr. Chairman, how any of these concerns have been effectively addressed by testing nuclear weapons.

The Administration deeply regrets where the events of the past two weeks have brought us in our efforts to engage India and Pakistan and to establish broad-based, cooperative relations with the two major regional powers.

The actions taken by India and Pakistan have also triggered the imposition of automatic sanctions pursuant to Section 102 of the Arms Export Control Act, otherwise known as the Glenn Amendment. These sanctions, initially designed to deter testing, place stiff penalties on both countries, and will affect a wide cross-section of our current activities including: development assistance; military sales and exchanges; trade in specified dual use goods and technology; U.S. financial assistance, guarantees, and credits; loans and credits by U.S. banks to those two governments; and denial of support within the International Financial Institutions for loans.

We should not lose sight of the fact that the Glenn Amendment's automatic sanctions were not intended solely to punish, but more importantly to influence. The sanctions threatened under the Glenn amendment were intended to serve as an additional and powerful incentive to others not to pursue nuclear arms. That both countries chose to go forward with their decisions to test, knowing full well the monumental consequences, underscores that ultimately sanctions may not deter nations from actions that they view -- however incorrectly -- as fundamental to their national security concerns. We will need to keep the Congress fully informed. In the meantime, we will be looking for India and Pakistan to take such steps as signing and ratifying the Comprehensive Test Ban Treaty immediately and without conditions; agreeing to halt production of fissile material and participate constructively in negotiations toward a fissile material cut-off treaty; agreeing not to deploy nuclear missile systems; agreeing to maintain restraints against sharing technology and equipment with others; and agreeing to a framework to reduce bilateral tensions, including on Kashmir.

As this is the first ever instance in which we have invoked the Glenn amendment, we have in some respects entered uncharted territory. We have worked hard, and are keeping you and your colleagues fully informed as we develop the mechanisms and procedures for implementing these sanctions.

The act permits the Administration little discretion to tailor its response to the specific situation, it includes no waiver authority, and, once the automatic sanctions have been imposed, it appears to provide no mechanism other than separate Congressional action to lift them. Should we at some future stage reach a consensus on lifting sanctions, we will also need to deal with an underlying web of Pressler and Symington amendment restrictions that still apply to Pakistan alone for actions that well preceded the current crisis.

I leave to you, Mr. Chairman, to judge what a difficult task that would be.

In conclusion, Mr. Chairman, I would like to go back to the basic principles with which I began my testimony. I believe that the issues I have laid out in my description of our actions on Helms-Burton, ILSA, and in the cases of India and Pakistan, underscore and reinforce the appropriateness of those principles. In order for sanctions to be an effective policy tool, they must be part of a coherent and well designed strategy. The Administration and the Congress need to work together on a bi-partisan basis both to agree on and to advance our overriding national foreign policy goals if we are to be effective. Specific sanctions measures must be carefully targeted, and their effectiveness weighed against their costs. We need multilateral support. But the most essential, Mr. Chairman, is adequate flexibility to allow the President to tailor our response to the specific situation.

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