TRADE-IRAN: U.S. Defeat In Sanctions Row Gives Tehran A Break

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Dilip Hiro

LONDON, May 19 1998 (IPS) - U.S. president Bill Clinton views his agreement not to use his country’s sanctions laws to target European Union countries doing business with Iran, Libya and Cuba, as a ‘compromise’ between the United States and Europe.

In reality it was a setback for Washington with wide-ranging implications that will be quickly felt by all involved.

Now that Clinton has conceded the principle of exemption to EU corporations he may have to extend the same offer to, say, companies based in Japan — especially if Tokyo decides to haul Washington before the free trade enforcers at the World Trade Organi sation (WTO), just as the EU did.

Clinton’s decision also sends a clear message to the big oil companies based in the EU that it was fine to do business with Tehran in the field of energy. They find this a mouth-watering prospect. Iran’s natural gas reserves are the second largest in the world; and its oil deposits are the fifth largest.

Moreover, there is the lucrative prospect of laying pipelines from the oil and gas fields of Central Asia to the consuming countries in South Asia and Europe.

The U.S. oil business and the U.S. Congress are not unaware of the EU oil firms’ ambitions. But U.S. attempts to use its domestic law to target foreign firms doing business with Iran and the other two ‘pariah’ states finally faltered on Monday in the fac e of this all-out challenge by the European Union.

Two U.S. laws are in question: the Burton-Helms Act on trading with Cuban firms which took over U.S. properties after the 1959 revolution, and the 1996 Iran-Libya Sanctions Act (ILSA), which stipulates economic sanctions against any company in the world

that invests more than 20 million dollars a year in developing the energy resources of Iran or Libya.

The matter came to a head last September when a consortium led by Total S.A of France signed a two billion dollar contract with Iran to develop its vast offshore South Pars gas field containing an estimated 8,000 billion cubic metres of natural gas.

The other members of the consortium were Gazprom of Russia, and Petronas of Malaysia (holding 30 percent each).

The U.S. legislators demanded instant action against the French corporation. But the White House decided on buying time by sending a state department delegation to the capitals of France, Russia and Malaysia to ‘study’ the issue.

In the meantime French prime minister Lionel Jospin declared that the U.S. did not have the right to apply its legislation abroad, and that any punitive measure by Washington against Total S.A. would violate international law.

Jospin won the backing of all other EU members. The Brussels- based president of the EU’s executive Commission, Jacques Santer, formally complained to the WTO. The EU charged that besides violating international law, the U.S. legislation ran counter to th e principle of free trade on which the WTO was built.

Recognising the weakness of its case, Washington called for a truce, promising to the WTO that it would settle the matter directly with the EU. Brussels agreed.

Following the Group of Eight summit of most industrialised nations in the English city of Birmingham over the weekend, British prime minister Tony Blair, Santer, and Clinton held a meeting to sort out the contentions trade dispute.

As it happens, ILSA allows the U.S. president to waive sanctions for specific projects on the grounds of ‘national interest’ (Section 4c), or for those countries that have taken specific steps to counter state terrorism by Iran or Libya (Section 9c).

Initially U.S. officials were prepared to grant a presidential waiver to Total S.A. on the basis of Section 4c; but the EU insisted on a Section 9c waiver. On Monday the EU won.

Clinton’s agreement to issue a Section 9c exemption will apply to all EU companies retrospectively as well as in the future. Furthermore, he agreed to resist actively any future attempt by the U.S. Congress to pass a trade restrictive law.

In return all Clinton got was a restating of the long-held EU position on combating state-sponsored terrorism and the spread of weapons of mass destruction.

On the eve of the U.S.-EU summit on Monday, 14 U.S. Senators addressed a letter to President Clinton, urging him to refuse a waiver. ‘A decision not to sanction will reveal the United States as a paper tiger, thus opening the floodgates for further inve stments and enriching a nation bent on buying weapons of mass destruction,’ the letter said.

But Clinton’s decision happens to dovetail with his overall aim of improving relations with Tehran, gradually.

On the Iranian New Year, the Spring Equinox on Mar. 21, Clinton sent a message of greetings to his Iranian counterpart, Muhammad Khatami, hoping that ‘the day will soon come when the United States can once again enjoy good relations with Iran’.

Reciprocating the sentiment, Khatami had Clinton’s message broadcast on state-run radio.

Equally significantly, recently U.S. officials have stopped alleging a Tehran hand behind the bombing of a U.S. Air Force housing complex in Saudi Arabia, which killed 19 U.S. servicemen in mid-1996.

Since taking office in August, Khatami has publicly committed himself to increased unofficial exchanges of journalists, academics and sportspersons between Iran and the United States.

Such exchanges are seen by both sides as a stepping stone to official contacts. The consequences, intended or unintended, of Clinton’s climb-down on trade sanctions in his tussle with the EU go beyond the confines of commerce.