Stuart E. Eizenstat, Under Secretary of State for Economic, Business, and Agricultural Affairs and Rick Newcomb, Director, Office of Foreign Assets Control, Treasury Department, On-the-Record Briefing on US Economic Sanctions, Office of the Spokesman Washington DC, April 28, 1999


Under Secretary Eizenstat:  Good afternoon.  For two years now,
the Administration has been working to ensure that sanctions are
carefully targeted, advance our foreign policy goals and avoid, as far
as possible, damage to other US interests.  We have had and continue
to have extensive discussions of these issues with the Congress with
the goal of comprehensive sanctions reform, by both Congress and
the Executive Branch.

On July 23 of last year, a key moment in our Administration's two-
year effort to rationalize our sanctions policy, the President stated
that food should not be used as a tool of foreign policy, except under
the most compelling circumstances.  Today in another key move, the
president announced that the Administration will exempt
commercial sales of food, medicines and medical equipment from
future unilateral sanctions regimes where we have the authority to
do so.  The Administration will also extend this policy to allow such
commercial sales to currently embargoed countries.

Why this change now?  It's been implemented as part of our
overall approach to sanctions reform, and it is not directed at any
specific country. In fact the national security and foreign policy
concerns that led to the original decisions to impose comprehensive
sanctions on those countries still pertain.

What has changed is our calculation of the impact on our overall
policy objectives of including food and medicine and unilateral
sanctions.  Sales of food, medicine and other human necessities do
not generally enhance a nation's military capabilities or support
terrorism.  On the contrary, funds spent on agricultural commodities
and products are not available for other less desirable uses.

Our purpose in applying sanctions is to influence the behavior of
regimes, not to deny people their basic humanitarian needs.  The
change does not provide for the automatic approval of agricultural
and medical sales.  Instead, it shifts the presumption in favor of such
sales.  Each contract will still have to pay us through a policy filter.
To guide the case-by-case review process, we're developing country-
specific licensing criteria, based on the principle that the sanctioned
government should not benefit from the adjustment of our sanctions
policy.  Mr. Newcomb, at OFAC, will be developing those detailed
criteria.

But we can say this at this point -- only fully negotiated contracts,
as opposed to open-ended proposals will be considered; all sales will
have to be conducted at prevailing market prices; and sales will be
restricted to non-government entities or to governmental
procurement bodies not affiliated with the coercive organs of the
state.  Thus, licensing commercial exports of agricultural commodities
and products, medicine and medical equipment on a case-by-case
basis to -- para-statals -- and government purchasing agencies could
be authorized.  It is also a requirement that there be no US
Government funding, financing or guarantees in support of the sales
authorized by this changed policy.

There are, of course, circumstances under which we will not allow
commercial sales of agricultural products and commodities,
medicines and medical equipment.  Such circumstances, for example,
might include armed conflict involving the United States or its allies,
the diversion by a regime of agricultural or medical imports to its
armed forces or its political supporters or to terrorist groups, or
situations where the regime or its officials would derive an
unjustifiable economic benefit from those exports from us and
imports to them.

Sanctions are a legitimate tool of foreign policy, but must be used
in ways that advance US interests.  This is particularly the case with
unilateral economic sanctions.  In general, we should have the
following hierarchy in responding, short of military force, to actions
by countries that are contrary to our national interest.  First,
diplomatic and political efforts.  If those don't succeed, multilateral
sanctions, which are more likely to be effective at less cost to US
interests.  If neither is successful, there are instances where
unilateral sanctions may be necessary.

The change announced today reflects the basic objectives of our
overall sanctions reform effort to ensure that when we do unilateral
economic sanctions, that they're effective; that the cost to US
interests of imposing unilateral sanctions are minimized; and that the
President retain the flexibility to impose sanctions even on food and
medicine, should circumstances warrant it.

Thank you, and Mr. Newcomb and I will be glad to take your
questions.

        Question: You said only fully negotiated contracts as opposed to
open-ended proposals.  Does that mean that the proposal by the
Nikki trading corporation to purchase a half billion dollars worth of
US foodstuffs -- is that a fully negotiated contract, as far as you're
concerned?

        Under Secretary Eizenstat:  Nikki Trading has a proposal for a
license application before OFAC.  By our announcement today, we are
neither approving nor denying that application.  It will be judged by
the criteria that we have set out -- whether it is fully negotiated,
whether it is to an appropriate entity, whether it is market value and
so forth.  So Mr. Newcomb will make the decision based on that set of
criteria.

        Mr. Newcomb:  I have nothing to add to the comments of the
Undersecretary, other than to say that these criteria will be applied
in that and other situations.

Question:       How do you think these decision will be made?  Mr.
Bliss of Nikki says that within 30 to 60 days after this becomes
formal, he can have ships sailing on the high seas.

        Mr. Newcomb: Between now and that period of time you've
mentioned, we'll be moving to developed-country specific licensing
criteria on the countries affected, depending on the policy
considerations, and have those published in regulations so that all
parties will have the information available to them.

Under Secretary Eizenstat: I want to emphasize now, also, when we
talk about food, we're talking about bulk commodities, processed or
semi-processed.  They include such things as wheat, corn, feeds and
fodders, rice, sugar, soybeans, edible oils, meat and fish, seeds and
processed food and would extend to consumer products such as baby
food and formula.  At this point, we have not made a decision as to
whether it would extend to agricultural inputs such as fertilizers,
herbicides, pesticides or agricultural equipment such as tractors;
although the relevant agencies will be working out a precise
definition of these terms as well.

Question: After the nuclear test by India and Pakistan, you needed
-- got authorization specifically from Congress.  Under the Glen
Amendment, I gather that that would have covered food and
medicine as well.  What's the legal framework under which this was
done?

Under Secretary Eizenstat: This is being announced as a matter of
Executive Branch policy and OFAC licensing policy.  There are now six
countries where we have prohibitions or restrictions on commercial
sales:  Cuba, Iran, Iraq, Libya, North Korea and Sudan.

This policy really has no effect on Cuba, on Iraq and on North
Korea.  For those countries, we already have the following.
Humanitarian donations to relieve human suffering are allowed with
respect to those countries.  With respect to Iraq, commercial sales of
food are already bounded by and permitted under UN Security
Council Resolution 986, the Oil-for-Food program, and subsequent
resolutions which have expanded that program. With respect to
North Korea, applications for commercial sales of humanitarian items
are reviewed already on a case-by-case basis by Mr. Newcomb and
his office.  Since 1996, they have approved several licenses for U.S.
companies to broker commercial sales to the DPRK of corn, wheat,
rice and sugar.

With respect to Cuba, the sale of medicine, medical supplies and
equipment is governed by the 1992 Cuban Democracy Act.  Such
sales are permitted subject to specified conditions and end use
verification to guard against diversion.  Food is covered as well by
Helms-Burton.  So this does not change it in those instances.  This has
most effect in those three cases -- Iran, Libya and Sudan -- where
there are no such exceptions or allowances at this point.

        Again, it was not targeted to any particular country.  It was not
intended to send a signal to any particular country.  It is part of our
overall sanctions reform and to make sure that they're as effective as
possible.  That is, indeed, the first principle of our sanctions policy,
effectiveness.  They are ineffective if they impose substantially more
cost on US interests than on the sanctioned country; if they're unable
to garner broad support; and if they have a disproportionate impact
on US interests relative to the target country.

Question:       Did you say against how many countries the United
States has sanctions?  You mentioned six.

        Under Secretary Eizenstat: There are seven countries that are
on so-called terrorism list -- the six that I mentioned, plus Syria.
But Syria is not subject to comprehensive economic sanctions, so this
would affect the six that I mentioned.  But of those six, the policy is
already set or bounded by either, UN resolutions or existing
practices, as in North Korea, or by legal restrictions.

        The President, for example, in Cuba already on January 5
suggested that he would permit sales under appropriate licensing
procedures that Mr. Newcomb's office handles, if they go to  purely
private entities.  Here, with respect to these countries, we're allowing
sales to public entities, governmental entities as well, if they're not
connected to the coercive organs of the state.

Question:       There are a number of other countries, like Burma,
et cetera, against which the United States has sanctions.  Do you have
a rough figure as to how many there are in that category?

        Under Secretary Eizenstat:  Well, it depends on how you
measure it.  I mean, according to some of our business interests who
have done studies, there are sanctions on several scores of countries.
That can be withholding foreign assistance; it can be a whole variety
of things.  Like the sanctions on Burma, they are mostly in the oil and
gas area; they're not comprehensive.  But if you take all the
countries, there are probably 40 or 50 countries that have some form
of restriction, and possibly even more.  With respect to food and
general prohibitions, it is these countries that I've referred to.

Question:       The reason I'm asking is that you indicated
unilateral sanctions will be a last resort option after those whole
series of steps is exhausted.  So it seems to me that maybe far fewer
countries targeted by unilateral sanctions, under what you call this
comprehensive sanctions reform.  Is that a fair statement?

        Under Secretary Eizenstat:  Well, we're not trying to play
numbers.  What we wanted to make sure of is effectiveness.  If we
find that unilateral sanctions are ineffective, then we ought to resort
to other means to change conduct.  Clearly, some of the unilateral
sanctions have diminishing impact; some remain useful.  Some, for
example -- Burma's a good example -- where we have unilateral
sanctions but that in turn encouraged the European Union to impose
its own unilateral sanctions, even though they're multilateral in the
sense of being under UN auspices.

Question:  You say you're not intending to send a signal, but if Iran
chooses to interpret this as a signal, would you be displeased?

        Under Secretary Eizenstat:  Well, they can interpret it however
they wish.  They will be affected by the decision in the sense that
they would become eligible under the circumstances we've laid out
for food and medical sales.  It was not intended to send a signal to
them; it was not intended to send a signal to Libya or to the Sudan.
But it will have an effect on them.

        Let me just go back again on this issue of effectiveness.  One of
the reasons, again, that we're taking this action is that in terms of a
cost-gain analysis, unilateral sanctions which contain prohibitions on
the sale of humanitarian products, medicines, food, etc., tend to have
potentially negative impacts.  The first is that it can create a counter-
reaction in the world community, if it appears that it is punishing
innocent people as opposed to dictatorial regimes, and make it more
difficult to get the cooperation of even our closest allies for their
sanctions.

        Second, it also has negative impacts on U.S. interests; for
example, in the agricultural community.  Our farm community is
hurting at this point; exports are likely to be down by anywhere
from $10 billion to $15 billion from just a few years ago.  We want to
be sensitive to those interests as well.

        The potential gain, on the other hand, from including these
kinds of products is quite minimal, measured against those costs.  If
anything -- and Iran would be an example, as would Libya or Sudan
-- better to have them purchasing food and medicine and using their
scarce funds for that purpose than using it for weapons of mass
destruction, missile delivery systems and support of terrorism.

        Now, I want to again indicate that there may be some
compelling circumstances or extraordinary circumstances where,
even with this general principle, with the presumption that we
would go forward, there still might be a desire not to exempt such
products and include them in a sanctions regime.  If we're in armed
conflict, for example, with a country; if the regime is diverting
imports of these products to its armed forces, to its political
supporters or to terrorist groups; if there's an unjustifiable economic
benefit - for example, if they monetize it and then put the money in
their pocket instead of giving it to their people, then we still would
want the flexibility to be able to include them.  But the presumption
is that in most instances, these sales would go forward.

Question: The practical effect of the restriction on no U.S.
Government money is allowed to be -- I didn't catch the whole thing.
It was something -- U.S. Government --

Under Secretary Eizenstat: It means, in other words, that we can't
have any U.S. government funding or subsidized credit for such sales;
they have to be commercial sales.  A private bank could extend a
letter of credit, but not a U.S. Government entity.

Question: I don't know if this would apply, but the Ex-Im Bank or
OPIC or anything like that?

Under Secretary Eizenstat: No Ex-Im Bank, no OPIC, no CCC credits,
no PO-480.

Question: Do you have idea if that would substantially reduce the
number of possible sales that might be eligible?

Under Secretary Eizenstat: It is possible, but we didn't want the
U.S. Government subsidizing those kinds of sales.

Now, our estimates in terms of value -- the Department of
Agriculture has estimated that the countries subject to existing
sanctions -- that's Cuba, Iraq, North Korea, Libya, Iran and Sudan --
imported $6.3 billion of agricultural commodities in 1996, which is
the last year we have figures, or about 2% of world trade in
agriculture.  If U.S. exporters were as competitive in those markets
as they are in the larger world market and if those countries chose to
purchase from the U.S., potential sales would amount to about $500
million, primarily in bulk commodities, such as wheat, corn, feeds
and fodder, rice and vegetable oils.

Question:       Every year?

Under Secretary Eizenstat:  Yes, on an annual basis.

Question:  This decision deals with only part of the sanctions policy.
When do you think that you may be completing an overall review,
and specifically on the energy sectors?

        Under Secretary Eizenstat:  Well, first, we would like to have
comprehensive sanctions reform, and we're working with a variety
of senators - Senator Dodd, Senator Hagel, Senator Biden, Senator
Lugar and others - to try to develop a comprehensive framework.
We have already indicated that if the Congress is willing to restrain
itself and put a filter, a sort of cost-gain analysis -- not that you end
sanctions, but at least you put it through a cost-gain analysis -- that
we would then be willing to do an executive order ourselves on a
comprehensive basis, also with a cost-gain analysis.  We think there
ought to be comity and symmetry between the branches; that
Congress ought to put itself under the same kind of limitations as
we're putting ourselves.  I want to make it very clear we do not see
the action we're taking today as a substitute for that comprehensive
action.  Quite the contrary, we hope it will be a goad and a prod to
comprehensive reform.

Question: When do you expect comprehensive reform to happen,
though?

        Under Secretary Eizenstat:  Well, Congress is already
introducing legislation.  We're working with them now.  We have
some concerns with some features of the Lugar legislation because
we don't think it grants the President the kind of waiver authority
over sanctions that we have under the Iran-Libya Sanctions Act and
Helms Burton, which we've used effectively to effectuate the
purposes of the act.  But we are working with Senator Lugar and
we're working, again, with Dodd and Hagel and others.  We hope at
this session there can be legislation that passes.

Question: So even though you're doing this piece as an Executive
administrative act, comprehensive reform will have to be legislative?

        Under Secretary Eizenstat: We can potentially do
comprehensive Executive Branch reform by an executive order, but
what we prefer to do is to have that part of a package with the
Congress acting legislatively, in terms of limiting its own capacity to
do sanctions by putting it through this kind of a cost-gain filter.

Question:       So you envision, then, a comprehensive legislation
capturing the Helms-Burton legislation, the Iran-Libya Sanctions
Act?

Under Secretary Eizenstat: We would expect that that legislation
would be prospective not retroactive and that it would not affect
Helms-Burton or ILSA.

Question:       If I could just follow up on Carole's question, why
was the decision made for this to be an executive order?

Under Secretary Eizenstat:  Well, first, it's not being done by
executive order; it's being done by licensing criteria, which, again,
I'm going to let him talk about the process that he'll now follow.  It
was decided because we thought that it was important that we act
now.  We are seeing our unilateral sanctions -- the effort
compromised by the arguments made that it is impacting on the
average citizen and not being properly targeted to the regimes --
we're seeing our agricultural sector suffer under those.  We see very
little useful benefit in terms of the goals of the sanction.

So rather than wait for comprehensive legislation, which could take
much longer, we thought it was important to act now without further
delay.  Rick, do you want to talk about the process you'll use, in
terms of developing the criteria?

Mr. Newcomb: Following today's announcement, we will be meeting
with the State Department and other relevant agencies on a country-
by-country basis where this applies to be developing the licensing
criteria so that on a case-by-case basis we're able to review these
ales according to the criteria, which Under Secretary Eizenstat has
laid out.  We will clearly need to be looking at other issues as well so
we have a comprehensive package for each country affected that is
able to be applied uniformly.

Question:       May I just follow up, please?  I'm sorry, would you
elaborate, please, on how our unilateral sanctions have been
compromised?  Can you give any examples?

Under Secretary Eizenstat: Well, our basic point is that when you
look at the unilateral sanctions that are now being applied to Iran,
Libya and Sudan insofar as they effect food and medicine, it's very
difficult to say that they've accomplished the purposes of including
those products.  The conduct hasn't changed.  They simply use it as
an argument that we're hurting the average citizen.  This is also an
argument that Iraq has made and that's garnered a lot of sympathy
for Iraq.       And, in effect, one of the reasons we championed the Oil-
for-Food program is to mitigate that kind of an argument which can
be made.

Question: As you know, Secretary Albright announced a change in
policy toward Cuba, permitting sales of food and agricultural imports
-- this was 3 or 4 months ago.  What has happened since then?  Have
the regulations been  written; have the U.S. exporters shown interest;
have the Cubans shown interest?

        Mr. Newcomb: Those regulations have been written.  They're in
the final review stages, and we anticipate their publication within
the coming weeks.

Question: What about the exporters and what about the Cuban
Government?

        Mr. Newcomb:  We've not consulted with the Cuban
Government.  We certainly have heard from people that have
potential issues relating to the policy changes announced on January
5, and have taken their views into consideration in developing
policies with the State Department.

        Question:         We certainly know that Nikki has an interest in
selling to Iran, but have you gotten any other proposals or contracts
from other companies on any of those countries?

        Under Secretary Eizenstat: No, but in part that is because there
has been a general prohibition.  We would expect and anticipate that
there will be others that will apply, and I think our own farm
community would be very interested in this as well.

        Question:       I know that you said that you're not trying to send
a signal to anybody and we shouldn't read more into it than that, but
we can't help it; that's what we do.  What's the relationship or the
timing of this announcement to the release of the State terrorism
report, if any?

        Under Secretary Eizenstat: Well, I had been asked in a different
context also, does this somehow relate to the turning over of the two
suspects in Libya.  I really can categorically say we have been
working on this without respect to that -- this is not meant as a
reward to Libya.  It had its own track and its own dynamic.  It
wasn't either speeded up or slowed down because of that.  That
process has been going on for years.  We had no idea it was going to
break open and have a breakthrough now.  This process has been
driven on a completely separate track.

        Again, in terms of signals, we're not intending to signal to any
particular country change in policy.  At the same time, it does have
an affect on countries like Iran, in the sense that it will potentially
permit, subject to these criteria, the sales of food and medicine.  So
obviously it does have an effect, but we're not trying to signal a
change in policy.  That policy has been laid out very clearly.

We've talked about trying to normalize relations under the
conditions that the Secretary laid out - the road map and so forth.
We remain very concerned, with respect to Iran, about their policies
supporting terrorism, procuring weapons of mass destruction, missile
delivery technology, their opposition of the Middle East peace
process.  We see no change at all in that policy.  So those policies
aren't addressed.  What has changed is our calculation of the impact
on of the inclusion of food and medicine in unilateral sanctions
regimes and the impact that has on our overall policy objective.  And
again I would reiterate -- and this is particularly the case with
respect to Iran, but would be true with other countries on the list as
well - and that is sales of food, medicine and other human necessities
don't generally contribute to a nation's capacity to pursue enhanced
military capabilities or weapons of mass destruction and missile
development programs or to support terrorism.  On the contrary,
money spent on these will be diverted from those uses.

Thank you very much.


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