Mr. Chairman, members of the Committee, thank you for the opportunity to testify on sanctions reform for agriculture and on the bill before the Committee to exempt agriculture and medicine from unilateral sanctions legislation. In my statement, I will address the Department of Commerce's views of agricultural sanctions and Commerce's activities in regard to the export of food and medicine to sanctioned states.
This Administration has been working for the last two years, in conjunction with the Congress, to rationalize the sanctions process. A major step in this effort occurred last month when the President announced that commercial sales of food and medicines will generally be exempt from unilateral sanctions. This will allow sales to Iran, Libya and Sudan, countries to which U.S. farmers could not previously sell food. This change is part of the Administration's overall approach to sanctions reform and is not directed to any specific country. It is an important step for several reasons.
First, when we look at the broad outline of sanctions policy, it is clear that multilateral sanctions are generally more effective in enforcing international norms, advancing U.S. interests and defending U.S. values. Multilateral sanctions maximize international pressure while minimizing damage to the U.S. economy. Unilateral sanctions are usually much less effective since there are few products or services for which the United States is the only producer. For agricultural products, the large number of alternative suppliers means that unilateral sanctions may do more damage to U.S. farmers than to their intended target. The President's decision takes this into account.
For example, when the U.S. imposed a grain embargo after the Soviet invasion of Afghanistan, the Soviets were able to replace the majority of the embargoed grain with imports from other sources; the GAO concluded that the embargo caused almost no change in Soviet consumption. The economic cost for the United States, however, was high. In addition to the loss of the direct sales, manufacturers of agricultural equipment, savings and loan associations in wheat-farming areas, the shipping industry, and trading companies all suffered losses. Additionally, there was long-term damage to business relationships and market share. Nevertheless, there are clearly times when important national interests or values are at stake, and unilateral sanctions should remain available as a tool to address these situations.
In revising its approach, the Administration is building in part on long-standing humanitarian precedent. Since the 1960s, within certain specific guidelines, the United States has generally encouraged and authorized donations of food and medical equipment to sanctioned and embargoed nations. However, the sale of food and medical items has been restricted in certain instances. The President's April decision changed this and will allow sales of food and medical products to Iran, Libya and Sudan.
Commerce is assisting the Department of State in developing a list of medical items that will need to be exempted from the President's policy of general approval. The list will include certain chemicals, pharmaceuticals, vaccines and medical equipment, which will be subject to stringent review because they are controlled for chemical and biological weapons' concerns.
We are also working with other agencies to develop precise definitions of the affected products and country-specific licensing criteria. Commerce expects that changes in the regulations for Cuba, North Korea and Syria are not necessary because sales of food and medicine are already permitted to these destinations. In the case of Iraq, sales are permitted under the United Nations oil-for-food program and U.N. Security Council resolutions, and as a result, regulatory changes are not expected.
Let me now describe briefly Commerce Department licensing activities vis-a-vis food. In 1998 the Department of Commerce's Bureau of Export Administration (BXA) processed 10,378 license applications for the export of controlled U.S.-origin goods. Two percent of all BXA's licenses applications, or 221, were for food and medical items to sanctioned states. These licenses are processed under existing Commerce authorities, in consultation with the Departments of Defense and State, and under the aegis of Executive Order 12981, which imposes discipline and transparency on BXA's licensing process. Donated goods can, under Commerce regulations, be exported without a license.
As spelled out by the Cuban Democracy Act of 1992, the United States will generally approve licenses to export medicines, medical supplies, instruments and equipment to Cuba that meet a set of five criteria. In 1998, BXA processed 107 applications worth $97 million for food and medical exports to Cuba.
In March, 1998, the President announced that export applications for the sale of medicine and medical supplies and equipment to Cuba would be simplified and expedited, that direct cargo flights for humanitarian reasons would be restored, and that the monetary value and allowable frequency of family remittances to Cuba would be increased. In the aftermath of this announcement, Commerce's approved licenses for medical sales increased significantly, from a total value of only $22,500 in 1997 to $19.2 million in 1998. However, we understand that actual shipments are substantially below the authorized level.
In January of this year, the President announced a series of new initiatives for Cuba designed to help the Cuban people transition to democracy without strengthening the current regime. The initiatives included a provision permitting the sale of food and certain agricultural items (i.e., seeds, pesticides and fertilizer) to independent organizations and nongovernmental entities. Through the implementation of this initiative, the US hopes to support the small but vital private sector of the Cuban economy. Treasury will also implement a counterpart regulation on the Cuban initiatives under its jurisdiction. The Commerce regulations liberalizing the sale of food to Cuba and the accompanying Treasury regulations go into effect today.
The newest initiative for Cuba involves the sale of food and agricultural items, including but not limited to pesticides, herbicides, seeds, and fertilizer.
In regard to North Korea, although sales of goods including food and medical items are permitted under the embargo, the country's lack of hard currency makes payment a problem, and as a result, most food exports are donations. As the scale and intensity of North Korea's food shortage has intensified, the number of export licenses BXA has processed has increased. In 1994, for example, BXA processed a total of ten licenses for North Korea; by 1998, the number had increased to 48 with a value of $173 million. Many of the license applications for North Korea are filed by organizations, such as USAID and CARE, that are working under US Government contracts to fulfill US obligations under the Agreed Framework and other agreements we have with North Korea. These shipments represent direct food aid from the US to the Democratic Peoples' Republic of Korea.
While Syria has been designated as a supporter of terrorism and is under strict export controls for many U.S.-origin goods as a result of that designation, it is not an embargoed state. Therefore, although some agricultural commodities, such as pesticides and vaccines, are controlled, the majority of food and medical items exported to Syria do not today require a license.
Finally, let me comment briefly on S.425, the "Food and Medicine for the World Act of 1999," although I want to be clear that we are still studying the bill and have not taken a formal position on it. While we sympathize with the objective of this bill, we do have some concerns in regard to the limited flexibility it offers the Administration. That said, this bill also shows that there is an important opportunity here for Congress and the Administration to continue to work together. The President's April 28 initiative is an important step forward in rationalizing sanctions. As we assess the effect of this decision, further steps to rationalize agricultural sanctions and sanctions in general may be possible.
Commerce looks forward to continuing work with this committee and others in the effort to ensure that sanctions advance the United States' foreign policy goals but minimize burdens on other U.S. interests. While multilateral sanctions are a strong and effective foreign policy tool, unilateral sanctions should only be used when the United States is unable to rally other states to the defense of national security interests.
In April of 2002 the Bureau of Export Administration (BXA) changed its name to the Bureau of Industry and Security(BIS). For historical purposes we have not changed the references to BXA in the legacy documents found in the Archived Press and Public Information.