The Washington Diplomat / May 2001
By Larry Luxner
From its nondescript office at 16th and K Streets, a little-known lobby backed by big business is working hard to abolish U.S. trade sanctions against some of the world's most despotic regimes.
The National Foreign Trade Council (NFTC) says the United States currently imposes sanctions of one form or another against 70 countries, with "significant" sanctions against seven nations: Afghanistan, Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria.
J. Daniel O'Flaherty, vice-president of the NFTC and executive director of the U.S.-South Africa Business Council, says that while refusing to trade with these countries may make people feel good, in economic terms these sanctions are not only ineffective but counter-productive.
"The United States pays a high cost for these sanctions," he said, citing a study by the Institute for International Economics that claims sanctions deprive the U.S. economy of 25,000 jobs and at least $15 billion a year in lost business.
"We don't dispute that sanctions are a useful tool. We do dispute that they are a universal solution to a foreign-policy dilemma," said O'Flaherty. "China, for example, is a repressive dictatorship. It is also a very important country, clearly in transition to something else, but we don't know to what. So, the question is how do you best influence them, by isolating them or by engaging them? Our answer is obviously the latter."
O'Flaherty, an economist and an expert on South Africa, has been traveling to that country regularly for the last 15 years. In addition, his associate, Emily Solomon, spent 10 years as the Commerce Department's desk officer for South Africa.
He argues that the international sanctions imposed against South Africa's white-rule government did little to undermine apartheid.
"They were a factor, but not a decisive factor," he told us in a recent interview. "Very frankly, we do the victims of apartheid a disservice when we take credit for that. The inability to compete in international sporting events may have had as much an impact as the sanctions, if not more."
He adds: "The South African business community actually benefitted from the sanctions when the local subsidiaries of IBM, Ford, Procter & Gamble and other U.S. multinationals were taken over by South African companies at firesale prices. Then, when these companies returned to South Africa, they bought their subsidiaries back and benefitted the economy again. In the meantime, South Africa enjoyed a protected market. When they re-entered GATT in 1993, they had the most complex tariff code in the world. The consequence of that was an inefficient economy."
Following Nelson Mandela's jubilant release from prison, barriers against trading with South Africa were repealed -- but then a slew of U.S. sanctions against other countries from Burma to Brazil began sprouting up. Some were trade-driven, like penalties imposed on imports of Brazilian tuna, while others arose from genuine human-rights concerns like child labor, slavery, worker abuse and religious persecution. In the case of Burma, sanctions were declared not on a federal level but by the state of Massachusetts.
The U.S. business community, suddenly alarmed, demanded action from the NFTC.
"In January 1995, our members expected that a Republican Congress would be more friendly than a Democratic Congress, and were therefore surprised when that turned out not to be the case," said O'Flaherty. "We began to work with people in the media, think tanks, Congress and the executive branch over a period of several years to develop data, anecdotes and information to ultimately help draft legislation to reform the way sanctions are imposed."
Eventually, the Massachusetts sanctions against Burma were overturned by the U.S. Supreme Court. Since then, the NFTC -- supported by 550 member companies -- has poured its substantial resources into lobbying for the Hamilton-Crane-Lugar Sanctions Reform Bill, which it says "seeks a more deliberative and disciplined approach to U.S. sanctions policy, so that such measures are driven by common sense instead of being pushed to counterproductive ends by politics and emotion."
In a fact sheet on the proposed law, the organization argues that "unilateral sanctions should be one of the last tools out of America's foreign policy toolbox, not the first."
The Hamilton-Crane-Lugar bill does not prevent Congress or the executive branch from imposing any unilateral sanction. Instead, the proposal:
* establishes a more disciplined and deliberative process for imposing unilateral sanctions, including greater consultation between Congress and the executive branch and consideration of alternatives, such as multilateral pressure and diplomatic initiatives.
* ensures that Congress and the executive branch have adequate information about the likely effectiveness and economic and humanitarian costs of a proposed sanction, and that a detailed analysis be conducted to determine whether the proposed sanction is the best tool for achieving U.S. objectives.
* establishes regular reporting and sunset requirements, so that sanctions are terminated after two years unless a continuing justification exists.
And before any unilateral sanction is imposed, Congress and the President would be required to examine the likely economic costs for American industry and agriculture, including any long-term damage to America's reputation as a reliable supplier.
O'Flaherty says the NFTC goes about its lobbying the usual way, meeting with members of Congress and their aides, preparing position papers and participating in fact-finding trips. Interestingly, the association doesn't have much to do with the embassies of the countries affected by the sanctions it opposes.
"We don't have that many dealings with embassies in Washington," he said. "The embassies are often their own worst enemy. They don't really know how to go about it."
Complicating the situation is the fact that sanctions often target countries without official representation in Washington. The Iranians, for example, are represented only by a consular officer within the Embassy of Pakistan. The Cubans have only an interests section here, and the North Koreans and Iraqis have no presence at all.
This year, the NFTC's agenda is dominated by efforts to lift sanctions against Iran, a nation of nearly 70 million people that was among America's biggest trading partners in the Middle East until the Islamic revolution of 1979 put an abrupt end to that warm relationship.
Current U.S. economic policy toward Iran is governed by two laws: executive orders dating from 1995, which prohibit most trade and investment with Iran, and which President Bush renewed in mid-March, and the 1996 Iran-Libya Sanctions Act (ILSA), which punishes the two Muslim nations for supporting anti-Israel terrorist activity.
O'Flaherty says the two regulations constitute a "double barrel" devised by the influential American-Israel Public Affairs Committee "for the purpose of excluding foreign oil and gas firms from Iran and Libya in order to deny them dollars for developing weapons of mass destruction."
Under ILSA, the U.S. government may levy penalties against foreign companies that make annual investments of more than $20 million in Iran's oil industry, though the Clinton administration waived the penalties in every case, arguing they could damage relations with key allies of the United States.
ILSA comes up for renewal on Aug. 5, and according to the Washington Post, many analysts believe Congress will allow it to expire or modify it to focus the embargo more narrowly around weapons-related materials. The Bush administration is considering similar changes to United Nations sanctions against Iraq, which were imposed by Western nations following Saddam Hussein's 1990 invasion of Kuwait.
"Iran is a very big country, Libya is somewhat less important, and Iraq is a special case," says O'Flaherty. "Our job is not to show that these countries are not that bad. U.S. policy toward Iran should not be contingent on domestic policy (either Iranian internal issues or the Arab-Israeli conflict). There are significant U.S. strategic interests in Iran that warrant an adjustment in our policy. It's not up to us to say what policy the Bush administration should adopt. But we are encouraging Congress and the Bush administration to permit an opening to Iran that would allow more commercial relations."
Such openings have been gradual. In 1999, the United States loosened regulations under the Treasury Department's Office of Foreign Assets Control to permit the export of agricultural and medical goods to Iran. In March 2000, those rules were loosened even further to allow Iranian carpets, pistachio nuts and other luxury goods into the U.S. market.
Shahriar Afshar, president and founder of the San Diego-based Iranian Trade Association, says trade between Washington and Tehran is negligible, but that in 1979 -- the last year the two countries had diplomatic relations -- U.S. agricultural exports to Iran alone came to $500 million.
"We think building an economic bridge to Iran is the best way to engage the Iranians in a dialogue. It's in the national economic interests of both countries," says Afshar, whose member companies include Exxon-Mobil, Caterpillar, Phillips Petroleum and Chevron. "We know that American companies want to export products to Iran, and Iranians are eager to export their products. We definitely have an economic common denominator we should take advantage of."
Afshar says that unlike the Cuban-American community, which generally opposes a relaxation of the U.S. trade embargo against Cuba, only a "small segment" of Iranian-Americans are against better ties with Tehran. At any rate, he said, the sanctions have been totally ineffective.
"It would be a tremendous falsehood to say that U.S. sanctions have changed Iran's domestic or foreign policies in any way, shape or form for the better. I don't think sanctions have changed anything domestically. They've had an economic impact on both American and Iranian companies, but if you can buy wheat from the Australians for the same price, or get Italian oil companies to invest in Iran under the same terms, the impact of ILSA is lost."
The most promising markets for U.S. companies in Iran are, of course, energy related -- oilfield equipment, drilling operations and the like. O'Flaherty named Halliburton, Baker Hughes, John Deere and Exxon-Mobil among the companies eager to re-establish diplomatic and trade ties between the two nations. In fact, when Vice President Dick Cheney was chief executive of Dallas-based Halliburton in the mid-90s, he blasted the Iran sanctions as "self-defeating."
In the meantime, U.S. companies have lost out as European competitors such as Total move in. "That is not unique," he said. "There are other oil development projects from which U.S. companies have been excluded."
Meanwhile, last year, Iranian trade with the European Union skyrocked by 64%, climbing to over $12 billion.
Asked if the U.S. sanctions have hurt Iran, O'Flaherty says: "Maybe a little. But in a globalized economy, the unilateral sanctions are a self-inflicting wound. We have no leverage anymore."
Adds Afshar: "The timing is bad. The Bush administration has not had a chance to come out with its own Iran policy. Iranian elections are just around the corner in June, and for AIPAC to push for ILSA renewal in the middle of these two uncertainties is just a poor exercise of power. If the administration could be given enough time to assess its Iran sanctions policy, then we'd be in better shape."
O'Flaherty says his association also supports the lifting of the U.S. trade embargo against Cuba, which has been in effect since 1962. Yet the two situations are hardly similar.
"More than half of the Iranian population in the United States wants to normalize relations with Iran," he said. "In the Cuban case, there's a grass-roots political dimension."
What O'Flaherty means is that the overwhelming majority of Cuban-Americans bitterly oppose any rapproachment with the Castro regime -- even though the U.S. tourism, agribusiness, energy and construction sectors are losing out to their Canadian and European competitors, who are free to trade with and invest in Cuba.
Asked when the embargo might be lifted, O'Flaherty says that would depend largely on internal politics in Florida, where most of America's one million Cuban exiles reside.
"There is no debate on Cuba policy," he says with a helpless gesture. "At this point, it doesn't look promising."