Press Briefing by Senior Background Officials

Press Plane

En route to Geneva, Switzerland

3:50 P.M. (L)

SENIOR ADMINISTRATION OFFICIAL: There were four major pieces of business that we did today between Europe and the United States, which dealt with some of most contentious issues we've had over the last several years. One regarding the Iran Libya Sanctions Act, ILSA; the second dealing with Helms-Burton; the third dealing with a joint statement on political cooperation in which we talk about ways in which we can cooperate more closely to avoid the kinds of problems we've had over ILSA and Helms-Burton. And then last, my colleague will give a briefing on the new trade initiative that was announced.

With respect to ILSA, I'll try not to be too tedious. The Secretary of State made about a dozen calls last night, culminating a year of negotiations. And let me give you just a little bit of background. The Iran Libya Sanctions Act was passed in 1996, and it has a range of sanctions from denying Ex-Im Bank loans to not allowing imports or exports from foreign companies that invest in Iran's oil and gas production in amounts over -- initially, it was $40 million and then it was dropped to $20 million. This has been a huge bone of contention by the Europeans.

A particular transaction came to our attention that focused everybody's energy on this issue, and there were threats of retaliation and so forth with respect to it. And that was a deal involving three companies: a large French company called Total; the largest Russian company, in which the Russian government still has a 40 percent ownership, called Gazprom; and one of the largest Malaysian companies, called Petronas. Gazprom and Petronas had 30 percent shares, and Total a 40 percent share, in what was a multi-billion dollar proposed contract in the South Pars field in Iran.

We made every effort to break that deal up at the very highest levels. The President wrote to Chirac, to Yeltsin. The Secretary of State raised this issue. The Secretary of Defense, myself, Tom Pickering, senior officials throughout the government -- with all the senior officials -- to try to encourage these three companies, or even one of the three, to back out of the deal on the ground that as ILSA indicates, giving Iran additional revenue will potentially allow it to acquire weapons of mass destruction and foment terrorism. And that was one of the purposes, although only one, as I'll describe of ILSA.

We were successful in breaking up a separate deal involving a Canadian company called Bow Valley, and an Indonesian company called Bakrie -- helped I might say significantly by the Asian financial crisis -- in a different field, when Bakrie backed out of the investment a few months ago. But Petronas, despite the Asian financial crisis in Malaysia if fairly cash rich, and they did not.

We then had to determine whether or not sanctions under ILSA would be effective. We looked very hard at that and we determined that sanctions would not deter any of the three companies from proceeding. The reason being Total, before this contract was formally announced, divested itself of almost all of its U.S. assets. Gazprom, the Russian company, after the deal was announced unilaterally canceled a $750 million line of credit that they had with our Ex-Im Bank, which was the only lever we had. And Petronas, the Malaysian company, had no connection to the U.S. market of any consequence.

The statute allows two types of waivers. One is a so-called 4-C country waiver, which if given allows any investment from the country given the waiver to not be subject to the sanction. A second type of waiver provided by the statute is a 9-C waiver, which is a project-specific waiver and only covers the particular project in question.

We were trying to find a way to use the statute to accomplish its broader purpose. Although it is a sanction statute, it is much more than that. The basic purpose of the statute -- and it says so and admonishes the administration to try to accomplish that -- is to build a multi-lateral regime to deprive Iran of the capacity to develop weapons of mass destruction and their delivery systems which we know Iran is very much attempting to do, and to deter Iran's capacity to support terrorism.

So we began working with Russia, and separately with the European Union, on that purpose. And as a result of breakthroughs reached this week with the European Union and with Russia, we now have achieved a great strengthening of the export control regimes. Let me start first with Russia.

With respect to Russia, Russia had virtually no real export control regime. And what we had to do is almost start from scratch. On January 22nd, an executive order was issued which would for the first time establish a so-called catchall export control regime that would deal with any civil or military high tech products that could be diverted for end use. On May 14th, just a couple of days ago, a second order was issued. And for the first time it provides real teeth to the January executive order. It establishes supervisory bodies in all enterprises dealing with missiles or nuclear technologies. It gives the Space Agency control over all of their agencies that have any product that can go to a suspect end user.

We established a joint U.S.-Russian working group to help monitor this. Procedures were established for Russian exporting enterprises with red flags which will indicate when a proposed purchaser is a suspect end user. It establishes a range of measures for licensing military exports. It is a first real legal enterprise for a catchall export control system in Russia. We realize it needs much more in the way of implementation. At yesterday's bilateral meeting between President Yeltsin and President Clinton, President Yeltsin in the strongest terms affirmed that it was in Russia's national interest not to have its high tech products diverted to countries which -- including Iran -- are trying to develop weapons of mass destruction.

With the European Union, there was already a very high level of cooperation on nonproliferation. But in a joint statement they have gone even further and developed an enhanced system of export controls. For example, there will be a virtual presumption of denial for diversion to suspect end users and we will share information about suspect end users. In a real breakthrough for us, they specifically indicated they will give a high priority to nonproliferation concerns regarding Iran, and Iran is mentioned specifically.

There will be establishing new controls over so-called intangible technology transfers; that is, transfers done through e-mail and electronic means. We will work together to develop export control systems for third countries that don't have them. We will be working together, for example, to help with the Russian system. We also got commitments from the European Union to ratify all 11 counter-terrorism conventions by all of their member states and all of their future member states.

As a result of this enhanced level of control of weapons of mass destruction, we have really begun to build a multi-lateral regime that ILSA anticipates. So as a result of that, the Secretary of State, whose decision it is to make this decision with respect to waivers, decided to exercise a 9-C project waiver, both again on the ground that the sanctions would not have been affected, and to recognize the effect we were having in developing this tighter export control system for Russia's WMD program.

We are required to set forth a number of national interests because 9-C is called a national interest waiver. And we, to summarize, set forth the following kinds of national interests: first, the need to continue to build this multi-lateral regime and the recognition that if we had sanctioned some of the largest companies of the countries involved there would have been less desire to cooperate with us in developing further this WMD program against Iran.

Second, with respect to Russia, Yeltsin is in the midst of a Russian ratification process in the Duma for START II. And we were very concerned that any sanction might affect that negatively. We also recognize that in working with the European Union, there were a number national interest factors. We are working with them and, to some extent with the Russians as well, on issues ranging from Iraq to Kosovo and Bosnia.

We also do not believe we would have gotten the second discipline that I'm going to discuss in a minute, the Helms-Burton discipline, if we had sanctioned a European company. It seemed to us particularly inappropriate to sanction a Malaysian company, particularly one we would have no affect on, in the midst of the Asian financial crisis. And so for all of those reasons, we exercised a 9-C waiver.

With respect to the European Union, we went a step further and we indicated that if they continued to keep their high level of cooperation on controlling weapons of mass destruction and helping with terrorism, that similar projects for oil and gas production in Iran by European companies could expect to receive like treatment, with the exception of pipeline projects that transit Iran from the Caspian area. The reason being that we strongly oppose such pipeline because we think a pipeline carrying Caspian oil and gas through Iran to the West would give Iran a disproportionate influence on the development of economic and political events in the newly independent caucus in Central American states.

With respect to Russian companies, we make no such presumption, or Malaysian companies, because they have not developed that high level of cooperation.

So the long and short of it is we at the same time have avoided a major conflict with Europe, but we've done so in ways that not only are compatible with the statute, but advance the basic purposes of the statute.

Helms-Burton was also part of this multifaceted negotiation. Permit me just to give you a very brief background on Helms-Burton. The Helms-Burton Act was passed at a time when Cuban MIGs shot down unarmed planes with American citizens. The purpose of Helms-Burton -- which is one of the most widely misunderstood acts that I've ever seen -- was simply to deter investors from investing in illegally expropriated property in Cuba.

The reason these became tied together in the mind of the European Union is they called both ILSA and Helms-Burton extra-territorial acts. We disagreed with that, but that was their designation; that is to say that we in our sanctions don't simply sanction our own companies or prohibit our own companies from investing or doing business in a particular country, but we attempt to sanction the companies of a third country.

In April of 1997, myself and Leon Brittan negotiated what I would call a truce in which the WTO, World Trade Organization suit that the European Union brought to challenge Helms-Burton was postponed in return for the following framework which we've now negotiated over the last year. And that framework, which has now come to culmination late last night, establishes the following equation -- and I'll go into more detail, but the basic equation is this:

If the European Union would agree to establish binding, legal disciplines -- for the first time internationally, no one has ever done this before -- to bar future use of illegally expropriated property and to deter investments in illegally expropriated property -- if they would agree to that, including in Cuba, then we would agree to seek waiver authority under Title 4 of the Act. Brief summary: Title 3, we have waiver authority which we have to exercise every six months, that is unchanged by this agreement. Title 3 is the lawsuit title which permits Americans to sue companies using their expropriated property. The President has on four occasions waived that title, meaning that it suspends those suits. But we do not have waiver authority under the visa title and, in fact, we have imposed that sanction, for example, on a Canadian company called Sherrit, whose executives and their spouses and children are not permitted into the United States.

Under the negotiation which we reached, it is really quite path breaking and it will permit us to now seek the amendment for Title 4 to get waiver authority, as we have for Title 3.

The disciplines do the following. First, there's an outright ban in investing in any illegally expropriated property in the future. Second, a claims registry is set up -- an international claims registry -- on which claimants who say their property has been expropriated can file a claim. And that already establishes a sort of yellow light for anyone thinking about investing in that property.

Third, and this is particularly important politically to Senator Helms and Congressman Menendez and Congressman Burton and Senator Torricelli, and Ros-Lehtinen and Lincoln Diaz-Balart and others -- this also applies in a very specific way to Cuba and it applies in the following way. A country which has a pattern or practice of expropriation is treated in a special way. And even in cases where expropriations occurred prior to the effective date of these new disciplines, these disciplines can apply.

For the first time since Castro has taken power as a result of an investigation that an expert team for the European Union has done off of some 6,000 claims filed by Americans for Cuba for illegally expropriated property, the European Union has said that it appears, using a sampling of those claims, that these expropriations appear to have been in violation of international law and that these new disciplines would apply. And that if in the sampling they looked at those are similar to the others, the other 6,000 -- which will be the case because they almost all were done under Cuban Law 851, which was clearly in violation of international law -- that these disciplines will apply.

Now, what does it mean the disciplines apply? It means that if a European investor wants to invest in Cuba, in almost every instance you have to go to a commercial assistance agency to get risk insurance, to get investment insurance, to get some kind of insurance because of the risk of investing in Cuba. And the essence of this agreement is that no commercial assistance agency in Europe can allow or can give such assistance to an investor in cuba without satisfying itself that it's not providing such assistance on illegally expropriated property.

We believe this will provide the greatest protection for property rights worldwide -- quite apart from Cuba -- ever done, and it will kill investment in the greatest way since Castro came into power with respect to expropriated U.S. property. And Castro is trying at fire-sale prices to sell that property off to foreign investors to bail out his economy. This will be a real blow for both property owners; and with the cooperation of Europe, a real blow to Castro's efforts to use illegally expropriated American property, to take advantage of it. So that is the essence of both of these. There are many more details provided in the fact sheets which myself, Assistant Secretary Larson, who was very helpful in negotiating these; Tony Wayne is here, our Deputy Assistant Secretary.

I'll be glad to take questions on both ILSA and Helms-Burton and then I would turn the mic over to my colleague, because we have a major trade initiative with the European Union which she will brief on, as well. So perhaps we could start -- if people could come up and I'll try to repeat the question that's asked.

Q: Two questions. What does Congress have to do on ILSA. And the second question is, in this permanent waiver that you're granting, there's a line in there that also seems to indicate that we would grant similar waivers to other companies interested in doing the same thing.

SENIOR ADMINISTRATION OFFICIAL: The question was what is Congress's role in all of this. It's important to recognize that the waiver authority that we exercise under ILSA, the 9-B project specific waiver, is provided for specifically by the statute. We do not need new legislative authority. We are exercising the authority that as given to us by Congress. No new authority is necessary.

With respect to Helms-Burton we would need an amendment to Title 4 to give us the waiver authority before these new disciplines would apply. I have consulted very closely with leading members of Congress. I can't speak for them, you'll have to ask them. But I can say even before we got further concessions from the European Union over the weekend that they were quite impressed with the application of this to Cuba. There's never been anything like this before. And our belief is that it's much more effective to have a joint effort to deter investment in Cuba than it is for us to try to act unilaterally; just as we believe it's much more effective to have a multi-lateral regime with many other countries trying to deny Iran weapons of mass destruction than it is trying individually to do so ourselves.

Q: The second part of that question was on -- the waiver seems to indicate you would grant similar waivers to other companies.

SENIOR ADMINISTRATION OFFICIAL: Okay. The question was asked about the issue of similar projects. We wanted to provide an element of predictability so if the next contract was announced -- and we believe that there are others that will be announced for investment in Iran in oil and gas -- we didn't go through this same very tortuous and difficult process.

So what we have said is that similar projects to the Total-Gazprom-Petronas project for oil and gas production in Iran would get like treatment so long as there is continued cooperation of the enhanced variety we have by the European Union, with respect to these weapons of mass destruction.

We have, however, accepted from that similar treatment, or like treatment, any transit pipeline that transits through Iran -- we believe that that is so fundamentally violative of our security interests and our energy interests and those of the caucus and central Asian states that there we would look at it on a case-by-case basis under ILSA. We're not saying we would or wouldn't sanction it; we would have to look at the transaction. But we are not getting any presumption or expectation of a waiver in that situation.

Q: Regarding Helms-Burton, the only thing the EU gets from this deal is an amendment to Title 4, there is no change with Title 3; is that correct?

SENIOR ADMINISTRATION OFFICIAL: The question was the only thing the European Union gets under Helms-Burton is an effort and amendment at Title 4. The answer is yes. You will see language in there which simply says that we'll seek soundings with respect to Congress on Title 3, but we're under no obligation to seek an amendment, only with respect to Title 4.

I, please, want to make it clear: the similar treatment or like treatment for similar projects only applies to the companies from the European Union countries, the reason being their extremely high level of cooperation on weapons of mass destruction, enhanced by this new agreement. We are not -- underscore not -- providing such expectations for future Russian deals, even though the Russians have made sufficient progress for a 9-C deal.

So what we call this -- to be sort of in our lingo -- is a 9-C-plus waiver for Europe, a 9-c waiver, meaning that there is an expectation with respect to similar projects for the European companies. There is none for Russia because they have not yet demonstrated that these new laws they put into effect for controlling proliferation will be effectively implemented and there are a number of issues still outstanding there.

Q: When will you submit the request for the amendment to Congress and when would you expect action on it?

SENIOR ADMINISTRATION OFFICIAL: We are going to work on an expedited basis to draw up the amendment. We think it will be introduced shortly. We, of course, can't control the congressional calendar. But the disciplines applying to Cuba, which are very effective we think, do not go into effect until the waiver is passed.

Q: First off, the waiver that you're seeking to Title 4 would not have any time restriction? It wouldn't be a six month waiver? And, secondly, you mentioned that one of your national security justifications was concern over ratification of START II. Did the Russians make any representations that they would pass START II if they got this?

SENIOR ADMINISTRATION OFFICIAL: The question is the length of time for the waiver under Title 4. Title 3, as I mentioned, allows us to waive upon a certification every six months. But that is because the President has to make a certification and to do so will promote democracy in Cuba. And as part of the agreement that I reached with Sir Leon Brittan in April of '97, the European Union has something called a common position in December of '96. And that common position says that the European Union countries will not improve or expand their political or economic relations with Cuba unless there are specific improvements in human rights and democracy in Cuba.

Title 4 is different, however. Since Title 4 is tied to these disciplines, and since these disciplines would be permanent, under Title 4 we would seek a permanent waiver. Now, any time the President can indicate that they're not applying; but the effort is what we call a no-time waiver.

Now, with respect to what assurances President Yeltsin, Foreign Minister Primakov and others -- but Yeltsin yesterday, in a very strong statement to President Clinton said that he was going to make every effort to assure that this new legal regime was implemented, he was going to put his personal backing behind it, he was going to make sure that the bureaucracy understood the importance of this. And because Russia is, in fact ,one of the real concerns that we have in terms of Iran's acquiring weapons of mass destruction, this is particularly important to us. But we have to monitor it very carefully. we're going to make sure that this is actually implemented. And that's why we haven't given any further expectation of Russian deal.

Q: Who's going to assess the validity of the property claims?

SENIOR ADMINISTRATION OFFICIAL: With respect to an applicant, say, in Europe who submits a petition or an application to get commercial assistance to help them invest, it will be the responsibility of the commercial assistance agency in Europe to do the screening and to be the filter. We will provide information. We are going to cooperate with them so that hopefully when we get knowledge of such an application we can submit information that we have. Claimants, U.S. claimants can submit information. And they have to make a determination that the property is not illegally expropriated before they can grant the commercial assistance.

They are also under an obligation to keep us continually informed of applications.

I think that perhaps I ought to let my colleague come one.

SENIOR ADMINISTRATION OFFICIAL: The Transatlantic Economic Partnership which we launched today is a major new trade initiative. This builds on the new transatlantic agenda and it arises from discussions that Ambassador Barshefsky had with Sir Leon Brittan almost a year ago.

It is an initiative that is both broad-based in scope and pragmatic in approach. It will deepen our economic relations, reinforce our political ties and reduce trade frictions that have plagued our bilateral relationship.

There are three basic elements to this new initiative. First, we will reduce barriers that affect manufacturing, agriculture and services sector. In the manufacturing area we will focus on standards and technical barriers that American businesses have identified as the most significant obstacle to expanding trade.

In the agricultural area we will focus on regulatory barriers that have inhibited the expansion of agriculture trade, particularly in the biotechnology area. In the area of services we will seek to open our markets further and to create new opportunities for the number of service industries that are so active in the European market.

The second basic element of the initiative is a broader, cooperative approach, both short- and long-term. Under this element we will seek innovative ways to address a wide range of trade issues. For example, on electronic commerce we have agreed not to impose duties on electronic transmissions, as well as develop a work program in the WTO for this very significant sector.

In intellectual property we will seek to adopt common positions and effective strategies for accelerating compliance with WTO commitments. In government procurement we will seek to promote government procurement opportunities, including promoting compatibility of electronic procurement information and government contracting systems. In labor and environment areas we will seek innovative ways to promote our shared values around the world. In the competition area we will seek to enhance the compatibility of our procedures with potential significant reductions in cost for American companies.

The third significant element of this initiative is that we will, as President Clinton stated today, engage a wide spectrum of our public in this initiative and seek their input so that it can shape and inform the process.

Are there any questions? None.

END 4:30 P.M. (L)