US Eyes Sanctions Against Iraq

UNITED STATES businessmen are watching anxiously as politics threaten to obstruct access to Iraq's market. At issue is whether the US government should impose economic sanctions against Iraq for mistreatment of its Kurdish population. At stake are American industrial and agricultural exports to a postwar market whose development expenditures Iraq says will exceed $35 billion over the next few years. Current US exports to Iraq are worth only $2 billion a year.

The issue first arose last September when the Senate Foreign Relations Committee introduced a bill calling for sanctions against Iraq.

``The American farmers clearly stood to lose the most,'' says Mary King, director of the US-Iraq Business Forum. Arkansas Gov. Bill Clinton once told Iraqi Deputy Foreign Minister Nizar Hamdoon that Arkansas rice growers enjoyed prosperity because of Iraq.

Pressure from farmers resulted in last-minute removal of commodity-related credits from the proposed sanctions, recalls Tom Sams, Iraq desk officer at the Department of Commerce. Then the bill itself didn't pass, though for bureaucratic reasons rather than majority opposition.

``The issue is not dead,'' a senior staff member of the Foreign Relations Committee says. In June, the committee asked the State Department whether, in its judgment, ``Iraq's conduct toward its Kurdish population exhibits a consistent pattern of gross violations of internationally recognized human rights.''

The committee has again proposed sanctions in an amendment to the foreign aid authorization bill, to be taken up next month. Passage could affect both agricultural credits as well as financing by the Export-Import Bank, a federal agency that underwrites foreign purchases of US goods and services.

The State Department has put together a discussion group of Iraq specialists and policy planning staff members, including chief of staff Dennis Ross, to thrash through the issues. The consensus, according to a member of the group, is that Iraq is impervious to leverage, so trade sanctions would ``hurt us more than them.''

But Iraq desk officer Phillip Remler says that ``the sentiment in Congress is not very protective of our relationship with Iraq.''

``Congress is asking whether we will recommend a measure that has never been taken with any other country in the world,'' Mr. Remler says.

``We have never passed legislation that Chile or the Soviet Union has grossly violated human rights. We're not doing it now with Bulgaria, a country that is busy forcing out its Turkish population. To do so would really open up a Pandora's box in terms of foreign policy.''

``This is not the right approach if one is interested in the Kurds,'' Remler says. ``Action like this will be very damaging - it will cut us off from any dialogue with the Iraqis. It's sort of like conducting foreign policy with a blunt instrument.''

US exporters, who are in a race with international competitors for a foothold in this market, are lobbying Capitol Hill against sanctions. Their efforts are supported by US executives who visited Iraq on June 6 to 8 for high-level talks with the government. The delegation represented 23 US banks, oil and oil-service companies, and high-tech, construction, and defense contractors, with cumulative annual sales of $500 billion.

With Iraq needing to rebuild an economy shattered by eight years of war with Iran, good commercial relations rank higher than good diplomatic relations. President Saddam Hussein, who rarely sees foreign diplomats, spent more than two hours with the businessmen's group.

``It's the commercial relations that have enabled dialogue to take place between the two countries during some very tough times, diplomatically,'' says former Eximbank official William Arnold.

Iraq's state-run television and newspaper reports were splashed with coverage of the US executives and their meetings with government officials.

According to foreign observers in Baghdad, this is the first such positive reporting on the US in memory. Anti-US sentiment in Iraq reached its peak during the Iran-contra hearings. The recovery of US credibility there has been slow.

Sanctions are not the only possible deterrent for US firms wishing to do business in Iraq, exporters say. They complain that the Eximbank's $200 million short-term revolving loan guarantee for Iraq is far too limited to help US firms make a dent there. Trade proponents say that Eximbank's posture doesn't seem to need sanctions to be anti-Iraqi.

Iraq's unorthodox behavior in the international financial community does nothing to improve its credit rating with Eximbank. In fact, it sends all the wrong signals to the Bank's economists.

Bucking the International Monetary Fund, the World Bank, and all other multilateral lending agencies, Iraq has not released financial statistics for more than 10 years. It has refused to meet with the Group of Ten states that consent to the General Agreement to Borrow and only deals with official creditors on a bilateral basis.

``We don't issue any figures. The last time we issued quarterly figures was before 1979 ... and up to now we have not published any, because peace is not yet formalized,'' Subhi Franghoul, Iraq's newly appointed central bank governor, said in a Baghdad interview.

But all of this is secondary to what really irks Eximbank. ``Iraq does not pay back its loans on time, and it doesn't seem to care,'' a State Department economist comments.

``Iraq's trade people want great relations with the US,'' the US government economist observes. ``That's because they need official credit; it's better than commercial credit because it's easier to reschedule. ...

``The US suppliers and contractors see Eximbank as an obstacle. Ask any of them if they would put themselves on the line for eventual payments from the Iraqis. They sure wouldn't do it, but they have no problem asking their government to do so.''

Odeh Aburdene, executive vice president of First City Texas and a veteran of Arab banking, says that Iraq's oil reserves and its export orientation make its current situation a ``five- to six-year cash-flow problem, not a debt problem.''

Still, Eximbank particularly resents the control Iraq exerts by playing one creditor off another.

``The government will only responsibly service its debt to a particular creditor if that creditor can offer fresh credit first,'' says a US government economist. ``If no new money is forthcoming, Iraq gets into the bilateral rescheduling mode. If this, too, fails, Iraq will resort to barter arrangements, with oil of course.''

Iraq's form of repayment, says Mr. Franghoul, is ``up to us. Oil is cash. What's oil? It makes no difference to us whether we repay in oil or in cash. ...''

Iraq owes neighboring Turkey, a vital trading partner, almost $3 billion.

Negotiations on the rescheduling of this debt broke down when Turkey refused to accept payment in oil that Iraq wanted to value above the market. Their bilateral trade agreement has been indefinitely suspended, according to Turkey's ambassador to Baghdad.