Trade and Sanctions: "The boomerang effect"

Unilateral U.S. trade sanctions are starting to create a "boomerang" effect among U.S. exporters, who are being financially hurt by the policy. After years of increasing the number and type of trade sanctions aimed against objectionable practices by foreign countries, Congress is starting to feel a backlash from some of their most important constituencies in the agriculture and business communities, whose export sales are threatened. The real or potential loss of U.S. export sales may finally help to slow down or even roll back some unilateral trade sanctions, where foreign diplomatic protests and petitions for redress seemed to have little impact.

The outcome of the debate in Washington will have an impact on the trade interests of Latin American and Caribbean countries. The most significant U.S. trade sanctions currently in place affect SELA countries directly. The "Helms-Burton" sanctions against countries engaged in certain types of commerce with Cuba have directly punished specific Mexican firms and individuals, and constantly threaten other countries engaged in trade with the island country. Countries whose anti-narcotics policies do not meet U.S. standards are also subject to a variety of economic sanctions. The sanctions debate may also affect the outcome of other initiatives that affect the interests of Latin American and Caribbean countries, including the upcoming agricultural negotiations in the World Trade Organization and funding for the International Monetary Fund.

Trade Sanctions Reveal
Mistrust and Party Divisions

Sanctions as a tool of foreign policy are an increasing source of contention between the United States and its trading partners. A study by the President’s Export Council (PEC), chaired by Under Secretary for Economic and Agricultural Affairs Stuart Eizenstat, found that (as of mid-1997) 75 countries encompassing 52 percent of the world’s population are currently under sanction or seriously threatened by one or more trade sanctions. That figure has grown to 76 countries, with a total of 68 percent of global population this year, with the recent addition of India.

While the economic, social, and political problems caused by U.S. sanctions against foreign countries are fairly well known, the political and economic friction that they cause within Washington is less familiar. The political fight over sanctions is heightening divisions not only between the Democratic White House and Republican Congressional majority, but also within the Republican Party itself. As the November 3 congressional elections near, the intra-party divisions are focusing their struggle on trade-related issues.

Since 1994 the Republican Party has held the majority in Congress, while the White House is occupied by Democrat Bill Clinton. Political relations between the executive and legislative branches are historically bumpy and contentious, even when one party holds both Congress and the White House, but relations between this White House and Congress are unusually discordant. Republican and Democratic members alike frequently tell reporters privately that they "distrust" the administration and do not rely on promises or apparent commitments on policy issues. That distrust — the impression that an excessive priority is given to further foreign trade — has contributed to Congress’s impulse to resort to passing punitive trade sanctions.

More than half of the sanctions currently in effect have been enacted since Clinton entered office. This sudden lurch upward in congressional passage of trade sanctions, both with and without waiver provisions, is a clear signal that Congress seeks to increase its own control over foreign policy, and to reduce the president’s authority to act independently. The most significant trade sanctions that have been imposed since Republicans captured control of Congress in 1994 include:

• Cuban Liberty and Democratic Solidarity ("LIBERTAD") Act: also known as the "Helms-Burton act," the law imposes sanctions on those who "traffic" in Cuban properties confiscated from U.S. citizens.

• Iran and Libya Sanctions Act ("ILSA"): imposes trade sanctions on persons exporting certain goods or technology that would enhance Iran’s petroleum industry, and on persons knowingly aiding Libya’s capabilities in weaponry of mass destruction, in its petroleum industry, or in aviation.

• Arms Export Control Act (amended): imposes trade and economic sanctions against any country that engages in nuclear proliferation.

All three of these laws contain at least one provision (and sometimes more) in which a particular sanction is mandatory — that is, the Congress has denied all discretionary authority by the president.

Upcoming Elections Create Dilemma for Republicans

On November 3, all 435 seats of the House of Representatives, and one-third of the 100 seats in the Senate will be contested. While virtually all political analysts believe that the Republicans are certain to hold their majority of 55-45 in the upper chamber, and could even increase it, the outcome in the lower house is less certain. The Republicans currently have a slender, eleven-vote majority in the House of Representatives. The stakes in this election are thus unusually high, and activists in both wings of the Republican Party believe that the debate over trade sanctions offers them a political opportunity.

The pro-sanctions camps have two different policy aims. The more traditional justification for sanctions is national security. Ideologically conservative Republicans have strongly supported trade sanctions, such as the Helms-Burton law and the Iran-Libya trade sanctions. This group remains active, having recently won approval for the "Iran Missile Proliferation Sanction Act" (H.R.2709). This legislation is aimed primarily against Russia, but could be used against any country determined to have aided Iran in its ballistic missile development program. The bill passed the Senate on May 22 by a vote of 90-4, and in the House on June 9 by a vote of 392-22. President Clinton vetoed this bill on June 23, but the wide margin of support in Congress suggests that his veto might be overridden (which requires a 2/3 vote in both chambers).

More recently, religious conservatives have called for restrictions on trade with unfriendly states. Their first foray into this policy came in opposition to abortion, with conservative Republicans attaching anti-abortion language to bills that would provide U.S. funding for the United Nations programs, the International Monetary Fund, and other initiatives. Their objectives are now much broader, as exemplified by the "Freedom from Religious Persecution Act of 1998" (H.R.2431). Representative Frank Wolf (Republican-Virginia) won passage for this bill in the House. This bill would impose trade and economic sanctions against countries that actively suppress religious observance. The bill passed in the House on May 14 by a vote of 375-41. A similar bill (S.772), sponsored by Senator Arlen Specter (Republican-Pennsylvania) awaits Senate floor action.

Anti-Sanctions Movement Gathers Force

While the pro-sanctions camp is on the march, it is facing opposition from U.S. exporters. A "boomerang" effect of the sanctions is now starting to emerge, with consequences for both sanctions policy and party politics. The pro-export agricultural and business groups are, like their opponents, aligned with the Republican Party. This poses a difficult problem for the party leadership. They must somehow balance the demands of contradictory constituencies, and do so in the heat of a congressional election year.

It is possible that the recent imposition of sanctions on India and Pakistan may be a turning point. When legislators enacted in 1994 the law requiring sanctions on nuclear proliferators, they hoped that the deterrent effect of this threat would mean that it need never be used. They reinforced the threat by declining to include a presidential waiver authority in the law. After India and Pakistan exploded their nuclear weapons, legislators had second thoughts about this move. Pakistan is one of the leading purchasers of U.S. wheat, and in the current environment with Asian purchases declining and world prices plummeting every sale counts. The short-term response has been a rewriting of the nuclear sanctions law. In a politically embarrassing turnabout, the Senate unanimously approved the "Agriculture Export Relief Act of 1998" (S.2282) in July. The bill lifts sanctions against agricultural exports, agricultural credits, pharmaceuticals, and similar humanitarian items for Pakistan and India, despite their status as nuclear proliferators under the Arms Export Control Act. Correcting the original law, the bill specifically authorizes the president to suspend the application of any sanction against India and Pakistan until March 1, 1999. The House may act on this bill soon.

The pro-sanctions camp is suffering other tactical defeats, such as President Clinton’s recent veto of the "Iran Missile Proliferation Sanction Act." Similarly, on May 18 the Clinton administration struck a deal with the European Union to seek new waiver authority from the Helms-Burton Title IV sanctions. The White House has also signaled to Congress that the president is prepared to veto the "Freedom from Religious Persecution Act of 1998" as well.

Future of Trade Sanctions

The question now is whether this short-term response can be translated into a broader assault on sanctions. Dozens of multinational companies, major exporting firms, and agricultural groups hope to do so. In 1997 they founded a lobbying group, USA*Engage, to fight the growing tendency in favor of new sanctions. That group is now making headway. Their primary legislative vehicle is the "Enhancement of Trade, Security, and Human Rights Through Sanctions Reform Act" (H.R.2708/S.1413). It is sponsored in the Senate by Chairman Richard Lugar (Republican-Indiana) of the Senate Agriculture Committee, and in the House by Chairman Philip Crane (Republican-Illinois) of the Ways and Means Committee’s Subcommittee on Trade. The bill would impose a "stop-and-examine" period on all potential sanctions legislation, requiring a series of steps that Congress would have to take to measure the likely effects of sanctions. The bill was carefully drafted to avoid affecting any sanctions already in place. This was done primarily to avoid a direct confrontation with the powerful chairman of the Senate Foreign Relations Committee, Senator Jesse Helms (Republican-North Carolina).

The bill did not seem to be gaining much momentum until Congress moved forward on the new sanctions bills this Spring. The potential for the new sanctions to shut off U.S. markets was suddenly seen as a serious problem for the U.S. agriculture and business communities. A lobbyist for USA*Engage told Antenna on June 23 that "we’re very pleased. Last year, you couldn’t get anybody to focus on the damage these sanctions are doing to our own people. That’s all changed. Now they are listening. We’re making real progress here."

The Lugar initiative was gathering strength until Senator Christopher Dodd (Democrat-Connecticut) on June 25 introduced his "Sanctions Rationalization Act" (S.2224). This bill would actually roll back sanctions in place, including the Cuban sanctions imposed under Helms-Burton. In his introductory remarks, Dodd said that the "perfect example" of problematic sanctions are those against Cuba. "For 39 years we have pursued an increasingly stringent embargo policy against the Cuban government, yet it remains in power. Similar arguments could also be made with respect to North Korea, Iran, and Libya." This bill could be an example of how the perfect is sometimes the enemy of the good. The Dodd bill may have overreached, threatening to destroy a delicately balanced coalition of legislators willing to support the Lugar bill, but not willing to attack existing sanctions.

Despite this setback, Lugar hopes to move forward with his bill. He now has 34 cosponsors for his bill to force Congress to undergo a series of procedures before being allowed to move forward with any new sanctions bills. He plans to try to attach his bill to the Fiscal Year 1999 agriculture appropriations legislation (H.R.4101), which passed the House in June (without the amendment) and now awaits Senate consideration.

Conciliatory Moves in the Republican Party

The Republican leaders in both the House and the Senate are now trying to find some compromise between the pro- and anti-sanctions camps. In the House, Speaker Newt Gingrich (Republican-Georgia) is clearly concerned that the fight over sanctions could hurt his party in the agriculture community. On June 25 he wrote a letter to House Agriculture Committee Chairman Bob Smith (Republican-Oregon), in which Gingrich said that he would move forward this Fall on five major trade initiatives. These include a vote on fast-track trade authority, funding for the International Monetary Fund (IMF), and "legislative action on exempting financial assistance for exports of agricultural commodities from international sanctions." Gingrich’s declaration on fast track is widely considered to be mere rhetoric, as the White House has definitely decided that it will not take up this politically contentious issue this year. The IMF and sanctions initiatives may however be taken up soon.

Senate Majority Leader Trent Lott (Republican-Mississippi) announced on June 26 that he was forming a special Senate Task Force on Economic Sanctions, chaired jointly by Senator Mitch McConnell (Republican-Kentucky) and Senator Joseph Biden (Democrat-Delaware). Lott set out a complete work program for the group. It met a short-term goal of July 15, by producing the bill to relax agricultural trade sanctions against India and Pakistan. It now faces a deadline of September 1 to report on the larger issues of economic sanctions policy in general. Even with the partial rollback of one sanction however, dozens of other trade sanctions remain in place. Furthermore, Congress does appear determined to approve the two major new sanctions bills now pending. On July 12 Lott reaffirmed in a television interview that he intends to hold a vote on the religious persecutions sanctions bill, and will also schedule a vote on the veto-override of the Iran missile proliferation sanctions bill.