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Despite lack of embassies, U.S.-Libya trade ties evolve rapidly
The Washington Diplomat / September 2004

By Larry Luxner

There's no Libyan embassy in Washington, and the U.S. Interests Section in Tripoli consists of a three-man team operating out of a hotel room.

Yet as Col. Muammar Qaddafi remakes his image from international pariah to respected elder statesman, U.S.-Libyan relations are warming up quickly, and the country Qaddafi has ruled with an iron fist since 1969 is looking more and more interesting to potential American investors.

Known officially as the Great Socialist People's Libyan Arab Jamahiriya, this oil-rich desert nation is the second-largest country in Africa but has only 5.5 million inhabitants 90% of them in the narrow, fertile coastal region along the Mediterranean Sea.

Libya has been off-limits to U.S. citizens since 1986, when Libyan agents blew up a Berlin discotheque frequented by American servicemen, and the Reagan administration retaliated by bombing residential areas of Tripoli and Benghazi, killing 101 people including Qaddafi's adopted daugher.

In December 1988, Pan Am Flight 103 was blown up over Lockerbie, Scotland. Four years later, the United Nations imposed sanctions on Libya after it refused to hand over for trial two of its citizens suspected of involvement in the Lockerbie disaster.

In 1999, however, the United States began secretly negotiating with Libya through backdoor channels, and in August 2003, the Qaddafi regime agreed to pay $2.7 billion as compensation to the families of Lockerbie bombing victims. Libya also formally accepted responsibility for the terrorist attack in a letter to the UN Security Council, which promptly lifted all sanctions.

On Dec. 20, 2003 as U.S. forces remained bogged down in Iraq following their ouster of Saddam Hussein Qaddafi announced that he would abandon all efforts to develop weapons of mass destruction, leading the Bush administration to lift the U.S. travel ban against Libya.

In the past six months, the United States has invited the Qaddafi regime to establish an interests section in Washington and has authorized U.S. companies with pre-sanctions holdings in Libya to negotiate the terms of their re-establishment in that country.

That set the stage for last month's visit to Libya by a 15-member U.S. business delegation the first non-oil group of its kind to travel to Libya in more than 17 years.

The delegation flew into Tripoli's old Wheelus Air Force Base, which was nationalized in 1970 and is littered with abandoned, cannibalized Soviet aircraft relics.

"We were very warmly received," said Mark R. Parris, a former U.S. ambassador to Turkey and leader of the delegation, which was in Tripoli from July 30 to Aug. 2. "Many of the people running the country are U.S.-educated. They speak American-accented English, and they very fondly remember their ties to the United States. Clearly, they were very happy to be re-engaging with Americans. There was a sense of enthusiasm. My sense is that they are anxious to renew their oil ties and develop business relationships."

The trip was organized and sponsored by the Corporate Council on Africa (CCA), a non-profit trade association headquartered in Washington. It included representatives of large conglomerates such as Raytheon, DaimlerChrysler, Northrop-Grumman, Fluor and Motorola. Smaller companies such as Seattle-based Freightliner, Dallas-based Bell Helicopter and J.D. Stark & Associates, a U.S. agricultural company based in Panama, also participated.

Parris, who chairs the CCA's working group on Libya but had never been to the country before, said he didn't feel he was in a police state.

"I didn't get any sense of oppressiveness," he told the Washington Diplomat. "I've lived in the Soviet Union, so I know how that can feel. Tripoli is a bright sunny place along the Mediterranean, with beautiful beaches."

While the group didn't meet Qaddafi himself, they did hobnob with key Libyan ministers, and each company representative had a series of private meetings with government and private-sector officials related to their specific interests.

The visit also included a mini-conference with about 100 members of the Libyan business community, convened by the newly formed Libyan Businessmen's Council. Only in the past year have local private companies been allowed to function openly and normally.

"The Libyan leadership recognizes that it made a critical mistake by eliminating the private sector for the past three decades," said Stephen Hayes, president and executive director of the CCA. "There is now greater unemployment among a restive younger workforce. The government cannot employ all its people. Private business must be the engine of economic growth in Libya, as it is in the rest of the world."

Hayes has been to Libya eight times, and has met Qaddafi on four of those visits. Although some products still can't be sold to Libya until all U.S. sanctions are lifted, he said, huge opportunities exist for U.S. business, especially for small and medium-sized companies.

"Libyan citizens are hungry for U.S. products of all sorts, from agriculture to automobiles," he said. "The sooner all U.S. business can enter into the Libyan marketplace, the better for the workforce in our own nation. Right now is the best time to engage the Libyan economy."

The CCA whose 200 member companies represent 80% of all U.S. private investment in Africa worked very closely with the State Department as well as the Department of Commerce in preparing for the groundbreaking trip.

"I think Libya right now is very open to the United States, and we need to take advantage of that for several reasons," Hayes told the Diplomat. "Economically, it provides an opportunity for contracts, which employ a lot of American workers. It's also in our interest, both domestic and internationally, to look at a new relationship with Libya. You can't forget the past, but how long can you hold onto it?"

Especially when you're talking about a country with oil reserves of 36 billion barrels of oil reserves, roughly the same as Nigeria's. Once full diplomatic and business ties are restored, say experts, Libya could easily rank as the fifth or sixth-largest oil supplier to the United States, after Saudi Arabia, Venezuela, Mexico and Nigeria.

"Volumes are significant, Libya has high-quality oil and there's also enormous potential in terms of gas exports," said Parris. "So for all of these reasons, it would be a mistake to suggest that Libya is a minor energy player."

Despite the sanctions, U.S. oil companies have been able to monitor their investments in Libya through foreign subsidiaries, and the Libyan government never revoked their licenses. At the same time, Libya has freely traded with Europe, and in 2003, the country's oil export revenues came to $13.4 billion more than 93% of Libya's total $14.32 billion in export earnings.

"The sanctions kept Libya from modernizing its oil sector for many years, reducing their oil output," said Parris. "When you go to Libya, you see the price they've paid in terms of development. Now that Libya is essentially free of sanctions, and because it does have oil and gas wealth, you'll see a big boost."

Parris, a senior foreign-policy advisor at the Washington law firm of Baker Donelson, was U.S. ambassador to Turkey from 1997 to 2000. He was also director of Soviet affairs during the Reagan administration, principal deputy assistant secretary for Near Eastern affairs at the State Department, and senior director at the National Security Council under the Clinton administration.

The former diplomat says Washington's change of heart toward Qaddafi has a lot to do with the Libyan president's decision to dismantle weapons of mass destruction (WMD).

"My own view is that Iraq wasn't the only factor, but it clearly convinced everyone who's paying attention that the United States is serious about WMD. There seems to be little quesiton that Qaddafi had such programs and that he's working with the U.S. and international community to definitively and verifiably end them."

In March, Assistant Secretary of State William Burns gave Qaddafi a letter from President Bush commending Libya's progress in eliminating WMD. It marked the highest-level meeting between the United States and Libya in decades.

How much was Qaddafi really influenced by the U.S. invasion of Iraq? It's hard to say, though Parris suspects that recent events in the Middle East had a major impact on Qaddafi's thinking.

One thing I've learned in 30 years of diplomacy is that no one case is exactly like another case. Obviously, the Bush administration looking at the record on terrorism and weapons of mass destruction has concluded that Qaddafi is serious."

Parris added: "Sanctions are what countries do when they don't have better options. It's pretty clear that Libya has an economy where there are limitations on expressions. It has been a command economy for many years, but recently Qaddafi has brought in a team who's advocated a more private-enterprise, enterpreneur-friendly approach."

In addition to oil, other promising sectors include agriculture, tourism and telecommunications. Commodities giant Cargill, for example, recently sold 750,000 tons of wheat to Libya; the country also represents a large market for meat and poultry exporters. "Libya today is buying $100 million worth of corn oil annually from European suppliers. Americans can probably provide that cheaper. We do corn real well," said Parris. "That's just one concrete example. Libya subsidizes edibles for their population and they tend to pay cash for those commodities because they're cheaper that way."

Asked about the preponderance of defense contractors on the trip, considering the fact that Libya remains on the State Department list of countries that sponsor terrorism, Hayes said those companies "do a lot of things besides defense."

For example, Raytheon owns Beechcraft, which manufactures small planes that can be used in oil pipeline surveillance. In addition, Libya's director of civil aviation is talking about rebuilding four or five airports and buying American navigational equipment and radars, which is allowed under U.S. law. There's also interest in purchasing U.S. infrastructure for mobile phone networks.

Tourism is another area for potential U.S. investment. Hayes said that despite Libya's 1,200 miles of undeveloped, unspoiled Mediterranean coastline, there are no decent beach hotels, and only two good hotels in Tripoli.

Libya boasts some of the best-preserved Roman ruins in the world, and the fact that it's been off-limits for so many years lends a certain forbidden appeal to Libya as a tourist destination.

Yet certain stumbling blocks remain, including this issue of Qaddafi's longtime hostility towards Israel and the Arab world's efforts to boycott Israeli goods as well as companies that do business with the Jewish state.

"Americans who have traveled to Israel have also traveled to Libya even though they have Israeli stamps in their passports," said Parris, who for a time was the No. 2 diplomat at the U.S. Embassy in Tel Aviv. "Libya still nominally adheres to the boycott of Israel. One of the issues that will have to be resolved is whether U.S. companies that want to do business there will have to conform to the boycott. If they do, then it won't be legal under U.S. law."

Another question is what will happen with regard to U.S. policy toward Libya in the event Sen. John Kerry wins the November election.

"What I do sense, talking to the administration, is that this is a presidential policy, not a State Department policy, and if Bush is re-elected, this will be part of the legacy. It doesn't mean that the U.S. will give Libya a free ride, but it does mean that it's not likely to grind to a halt by bureaucratic inertia on our side," he said. "If Kerry is elected, does the script change? I tend to think it won't."a By Larry Luxner

There's no Libyan embassy in Washington, and the U.S. Interests Section in Tripoli consists of a three-man team operating out of a hotel room.

Yet as Col. Muammar Qaddafi remakes his image from international pariah to respected elder statesman, U.S.-Libyan relations are warming up quickly, and the country Qaddafi has ruled with an iron fist since 1969 is looking more and more interesting to potential American investors.

Known officially as the Great Socialist People's Libyan Arab Jamahiriya, this oil-rich desert nation is the second-largest country in Africa but has only 5.5 million inhabitants 90% of them in the narrow, fertile coastal region along the Mediterranean Sea.

Libya has been off-limits to U.S. citizens since 1986, when Libyan agents blew up a Berlin discotheque frequented by American servicemen, and the Reagan administration retaliated by bombing residential areas of Tripoli and Benghazi, killing 101 people including Qaddafi's adopted daugher.

In December 1988, Pan Am Flight 103 was blown up over Lockerbie, Scotland. Four years later, the United Nations imposed sanctions on Libya after it refused to hand over for trial two of its citizens suspected of involvement in the Lockerbie disaster.

In 1999, however, the United States began secretly negotiating with Libya through backdoor channels, and in August 2003, the Qaddafi regime agreed to pay $2.7 billion as compensation to the families of Lockerbie bombing victims. Libya also formally accepted responsibility for the terrorist attack in a letter to the UN Security Council, which promptly lifted all sanctions.

On Dec. 20, 2003 as U.S. forces remained bogged down in Iraq following their ouster of Saddam Hussein Qaddafi announced that he would abandon all efforts to develop weapons of mass destruction, leading the Bush administration to lift the U.S. travel ban against Libya.

In the past six months, the United States has invited the Qaddafi regime to establish an interests section in Washington and has authorized U.S. companies with pre-sanctions holdings in Libya to negotiate the terms of their re-establishment in that country.

That set the stage for last month's visit to Libya by a 15-member U.S. business delegation the first non-oil group of its kind to travel to Libya in more than 17 years.

The delegation flew into Tripoli's old Wheelus Air Force Base, which was nationalized in 1970 and is littered with abandoned, cannibalized Soviet aircraft relics.

"We were very warmly received," said Mark R. Parris, a former U.S. ambassador to Turkey and leader of the delegation, which was in Tripoli from July 30 to Aug. 2. "Many of the people running the country are U.S.-educated. They speak American-accented English, and they very fondly remember their ties to the United States. Clearly, they were very happy to be re-engaging with Americans. There was a sense of enthusiasm. My sense is that they are anxious to renew their oil ties and develop business relationships."

The trip was organized and sponsored by the Corporate Council on Africa (CCA), a non-profit trade association headquartered in Washington. It included representatives of large conglomerates such as Raytheon, DaimlerChrysler, Northrop-Grumman, Fluor and Motorola. Smaller companies such as Seattle-based Freightliner, Dallas-based Bell Helicopter and J.D. Stark & Associates, a U.S. agricultural company based in Panama, also participated.

Parris, who chairs the CCA's working group on Libya but had never been to the country before, said he didn't feel he was in a police state.

"I didn't get any sense of oppressiveness," he told the Washington Diplomat. "I've lived in the Soviet Union, so I know how that can feel. Tripoli is a bright sunny place along the Mediterranean, with beautiful beaches."

While the group didn't meet Qaddafi himself, they did hobnob with key Libyan ministers, and each company representative had a series of private meetings with government and private-sector officials related to their specific interests.

The visit also included a mini-conference with about 100 members of the Libyan business community, convened by the newly formed Libyan Businessmen's Council. Only in the past year have local private companies been allowed to function openly and normally.

"The Libyan leadership recognizes that it made a critical mistake by eliminating the private sector for the past three decades," said Stephen Hayes, president and executive director of the CCA. "There is now greater unemployment among a restive younger workforce. The government cannot employ all its people. Private business must be the engine of economic growth in Libya, as it is in the rest of the world."

Hayes has been to Libya eight times, and has met Qaddafi on four of those visits. Although some products still can't be sold to Libya until all U.S. sanctions are lifted, he said, huge opportunities exist for U.S. business, especially for small and medium-sized companies.

"Libyan citizens are hungry for U.S. products of all sorts, from agriculture to automobiles," he said. "The sooner all U.S. business can enter into the Libyan marketplace, the better for the workforce in our own nation. Right now is the best time to engage the Libyan economy."

The CCA whose 200 member companies represent 80% of all U.S. private investment in Africa worked very closely with the State Department as well as the Department of Commerce in preparing for the groundbreaking trip.

"I think Libya right now is very open to the United States, and we need to take advantage of that for several reasons," Hayes told the Diplomat. "Economically, it provides an opportunity for contracts, which employ a lot of American workers. It's also in our interest, both domestic and internationally, to look at a new relationship with Libya. You can't forget the past, but how long can you hold onto it?"

Especially when you're talking about a country with oil reserves of 36 billion barrels of oil reserves, roughly the same as Nigeria's. Once full diplomatic and business ties are restored, say experts, Libya could easily rank as the fifth or sixth-largest oil supplier to the United States, after Saudi Arabia, Venezuela, Mexico and Nigeria.

"Volumes are significant, Libya has high-quality oil and there's also enormous potential in terms of gas exports," said Parris. "So for all of these reasons, it would be a mistake to suggest that Libya is a minor energy player."

Despite the sanctions, U.S. oil companies have been able to monitor their investments in Libya through foreign subsidiaries, and the Libyan government never revoked their licenses. At the same time, Libya has freely traded with Europe, and in 2003, the country's oil export revenues came to $13.4 billion more than 93% of Libya's total $14.32 billion in export earnings.

"The sanctions kept Libya from modernizing its oil sector for many years, reducing their oil output," said Parris. "When you go to Libya, you see the price they've paid in terms of development. Now that Libya is essentially free of sanctions, and because it does have oil and gas wealth, you'll see a big boost."

Parris, a senior foreign-policy advisor at the Washington law firm of Baker Donelson, was U.S. ambassador to Turkey from 1997 to 2000. He was also director of Soviet affairs during the Reagan administration, principal deputy assistant secretary for Near Eastern affairs at the State Department, and senior director at the National Security Council under the Clinton administration.

The former diplomat says Washington's change of heart toward Qaddafi has a lot to do with the Libyan president's decision to dismantle weapons of mass destruction (WMD).

"My own view is that Iraq wasn't the only factor, but it clearly convinced everyone who's paying attention that the United States is serious about WMD. There seems to be little quesiton that Qaddafi had such programs and that he's working with the U.S. and international community to definitively and verifiably end them."

In March, Assistant Secretary of State William Burns gave Qaddafi a letter from President Bush commending Libya's progress in eliminating WMD. It marked the highest-level meeting between the United States and Libya in decades.

How much was Qaddafi really influenced by the U.S. invasion of Iraq? It's hard to say, though Parris suspects that recent events in the Middle East had a major impact on Qaddafi's thinking.

One thing I've learned in 30 years of diplomacy is that no one case is exactly like another case. Obviously, the Bush administration looking at the record on terrorism and weapons of mass destruction has concluded that Qaddafi is serious."

Parris added: "Sanctions are what countries do when they don't have better options. It's pretty clear that Libya has an economy where there are limitations on expressions. It has been a command economy for many years, but recently Qaddafi has brought in a team who's advocated a more private-enterprise, enterpreneur-friendly approach."

In addition to oil, other promising sectors include agriculture, tourism and telecommunications. Commodities giant Cargill, for example, recently sold 750,000 tons of wheat to Libya; the country also represents a large market for meat and poultry exporters. "Libya today is buying $100 million worth of corn oil annually from European suppliers. Americans can probably provide that cheaper. We do corn real well," said Parris. "That's just one concrete example. Libya subsidizes edibles for their population and they tend to pay cash for those commodities because they're cheaper that way."

Asked about the preponderance of defense contractors on the trip, considering the fact that Libya remains on the State Department list of countries that sponsor terrorism, Hayes said those companies "do a lot of things besides defense."

For example, Raytheon owns Beechcraft, which manufactures small planes that can be used in oil pipeline surveillance. In addition, Libya's director of civil aviation is talking about rebuilding four or five airports and buying American navigational equipment and radars, which is allowed under U.S. law. There's also interest in purchasing U.S. infrastructure for mobile phone networks.

Tourism is another area for potential U.S. investment. Hayes said that despite Libya's 1,200 miles of undeveloped, unspoiled Mediterranean coastline, there are no decent beach hotels, and only two good hotels in Tripoli.

Libya boasts some of the best-preserved Roman ruins in the world, and the fact that it's been off-limits for so many years lends a certain forbidden appeal to Libya as a tourist destination.

Yet certain stumbling blocks remain, including this issue of Qaddafi's longtime hostility towards Israel and the Arab world's efforts to boycott Israeli goods as well as companies that do business with the Jewish state.

"Americans who have traveled to Israel have also traveled to Libya even though they have Israeli stamps in their passports," said Parris, who for a time was the No. 2 diplomat at the U.S. Embassy in Tel Aviv. "Libya still nominally adheres to the boycott of Israel. One of the issues that will have to be resolved is whether U.S. companies that want to do business there will have to conform to the boycott. If they do, then it won't be legal under U.S. law."

Another question is what will happen with regard to U.S. policy toward Libya in the event Sen. John Kerry wins the November election.

"What I do sense, talking to the administration, is that this is a presidential policy, not a State Department policy, and if Bush is re-elected, this will be part of the legacy. It doesn't mean that the U.S. will give Libya a free ride, but it does mean that it's not likely to grind to a halt by bureaucratic inertia on our side," he said. "If Kerry is elected, does the script change? I tend to think it won't."

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