Iraq: Oil-for-Food Program, International Sanctions, and Illicit Trade

Order Code RL30472 Report for Congress Received through the CRS Web Iraq: Oil-For-Food Program, International Sanctions, and Illicit Trade Updated May 19, 2003 Kenneth Katzman Specialist in Middle East Affairs Foreign Affairs, Defense, and Trade Division Congressional Research Service ̃ The Library of Congress Iraq: Oil-For-Food Program, International Sanctions, and Illicit Trade Summary The “oil-for-food” program has been the centerpiece of a long-standing U.N. Security Council effort to alleviate human suffering in Iraq while maintaining key elements of the Gulf war-related sanctions regime. It is expected to be phased out in the near future now that Saddam Hussein’s regime has fallen, under U.S. proposals pending before the U.N. Security Council. In order to ensure that Iraq remained contained and that only humanitarian needs are served by the program, the program mandated substantial controls on Iraqi oil exports and humanitarian imports. All Iraqi oil revenues earned under the program have been held in a U.N.-controlled escrow account and were not accessible to the regime of Saddam Hussein. There is a consensus among observers that the program, in operation since December 1996, substantially eased, but did not eliminate, human suffering in Iraq. Concerns about the program’s early difficulties prompted criticism of the United States; critics asserted that the U.S. strategy was to maintain sanctions on Iraq indefinitely as a means of weakening Saddam Hussein’s grip on power. At the same time, growing regional and international sympathy for the Iraqi people resulted in a pronounced relaxation of regional enforcement — or even open defiance — of the Iraq sanctions. The United States argued that continued sanctions were critical to preventing Iraq from acquiring equipment that could be used to reconstitute banned weapons of mass destruction (WMD) programs. U.N. Security Council Resolution 1472, adopted March 28, 2003, restarted and adjusted the program to enable it to serve as a vehicle to provide humanitarian relief for the wartime period and laid the groundwork to continue the program into the post-war period. However, the program was suspended on the eve of the March 17, 2003 start of hostilities against Iraq and has been slow to revive. A U.S.-drafted Security Council resolution, in circulation at the United Nations, would phase out the program and end U.N. sanctions on Iraq. The U.S. draft also addresses such outstanding issues as Iraqi reparations payments, U.N. coordination, debt rescheduling, missing assets earned illicitly by Saddam Hussein’s regime, and other outstanding issues. To facilitate U.S. efforts to reconstruct Iraq, the Bush Administration and Congress have begun easing U.S. sanctions against Iraq. This product will be updated as warranted by major developments. Contents Background and Structure of the Oil-For-Food Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Program Operations Prior to the 2003 War . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Changes Outlined in Resolution 1284 . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Accomplishments of the Program (Pre-War) . . . . . . . . . . . . . . . . . . . . . . . . . 5 Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Health, Sanitation, and Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Pre-War Debates Over Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 The “Smart Sanctions” Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Other Sources of Pre-War Humanitarian Aid . . . . . . . . . . . . . . . . . . . . . . . 10 Pre-War Exportation to Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Pre-War Illicit Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Iran/Persian Gulf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Syria/Military Technology Exports to Iraq . . . . . . . . . . . . . . . . . . . . . 13 Syria and Operation Iraqi Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Oil Sales Surcharges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Oil Exploration Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Other Iraqi Debt / Reparations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Flights to Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 The Oil-for-Food Program In Wartime and Post-War Iraq . . . . . . . . . . . . . . . . . 17 Resolution 1472 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 U.S. and U.N. Sanctions and the Post-War Period . . . . . . . . . . . . . . . . . . . 18 Iraq: Oil-For-Food Program, International Sanctions, and Illicit Trade Background and Structure of the Oil-For-Food Program The establishment of the “oil-for-food” program reflected a longstanding U.N. Security Council effort to alleviate human suffering in Iraq while pressing Iraq to comply with all relevant U.N. Security Council resolutions.1 The program is a temporary and limited exception to the international trade embargo imposed on Iraq by U.N. Security Council Resolution 661, adopted on August 9, 1990, one week after Iraq’s invasion of Kuwait on August 2, 1990. U.N. Security Council Resolution 687 (April 3, 1991) provided for the international embargo on Iraq’s exportation of oil2 to end once Iraq had fully complied with U.N. efforts to end its weapons of mass destruction (WMD) programs. The WMD inspections began in April 1991 but proceeded more slowly than expected, and an end to sanctions did not appear to be in sight by April 1991. Without oil export revenues, Iraq was unable to import sufficient quantities of food and medical supplies, and, according to virtually all accepted indicators (infant and child mortality, caloric intake, and other indicators), living conditions deteriorated sharply during 1991-1995. The first version of an oil-for-food plan would have allowed Iraq to export $1.6 billion in oil every six months. It was adopted by the Council in 1991 in Resolutions 706 (August 15, 1991) and 712 (an implementing plan adopted September 19, 1991), but Iraq rejected it as too limited in scope and an infringement on Iraq’s sovereignty. There was little movement on the issue during 1991-95, despite dramatic declines in Iraq’s living standards. On April 15, 1995, the Council adopted Resolution 986, which took into account one of Iraq’s concerns by allowing the export of $2 billion in oil every six months. Iraq and the United Nations signed a memorandum of understanding on the program on May 20, 1996 (document number S/1996/356) and, after several more months of negotiations on details, the first Iraqi oil exports began on December 10, 1996. After the first year of the program, the Secretary General determined that the program was not meeting the food and medical needs of the Iraqi people, and Resolution 1153 (February 20, 1998) raised the oil export ceiling to $5.256 billion per 6-month phase. In an effort to provide Iraq an incentive to cooperate with a new program of U.N. weapons of mass destruction (WMD) inspections, the U.N. Security Council, in Resolution 1284 (December 17, 1999), 1 For a further discussion of Security Council resolutions and requirements on Iraq, see CRS Issue Brief IB92117, Iraq: Weapons Programs, U.N. Requirements, and U.S. Policy. 2 That embargo was imposed by U.N. Security Council Resolution 661 of August 6, 1990. CRS-2 abolished the export limit. This resolution had a number of additional provisions and implications for the oil-for-food program, as discussed below. Program Operations Prior to the 2003 War The following sections discuss the operations of the oil-for-food program as it has existed from inception in December 1996 until the U.S.-led war that began March 19, 2003. As discussed later in this report, the international community has adjusted the program to function during the war and the post-war period, and the United States is proposing to phase it out entirely and allow Iraq to resume normal commercial interactions. In order to ensure that only humanitarian objectives are served by the program, the oil-for-food program placed substantial controls on Iraqi oil exports and humanitarian imports. Iraq’s state-owned oil marketing company (State Oil Marketing Organization, SOMO) negotiates with international oil companies to sell Iraqi oil. Oil purchase contracts are reviewed by a panel of oil contract overseers reporting to the U.N. Sanctions Committee,3 which administers the implementation of sanctions on Iraq. The oil overseers review Iraq’s pricing proposals monthly. Iraq is only allowed to export oil under the program, not any other products. The oil sold is exported through an Iraq-Turkey pipeline and from Iraq’s terminals in the Persian Gulf. According to Resolution 986, “the larger share” of oil exports must run through the Turkish route. The proceeds from these sales are deposited directly, by the oil purchasers, into a U.N.-monitored escrow account held at the New York branch of France’s Banque Nationale de Paris (BNP, now BNP- Paribas). Iraq’s oil exports are monitored at the point of exportation by personnel from Saybolt Nederland BV, an energy services firm working under contract to the program. In each six-month phase of the program, Iraq purchases goods and services directly from supplier firms, in accordance with an agreed distribution plan allocating anticipated revenues among categories of goods to be purchased in that phase. Prior to the major amendment to the program approved in May 2002, which is discussed below, the Sanctions Committee reviewed and had authority to approve contracts for the export of goods to Iraq. The Committee operates by consensus. Any Sanctions Committee member could place a “hold” on a contract for goods to be imported by Iraq, and the United States often placed holds on exports of dual use items (civilian items that could have military applications). In deciding whether to place a hold on a contract, the U.S. representative on the Sanctions Committee consulted with agencies of the U.S. government to determine whether Iraq could use the requested items for military purposes. Under the procedures adopted in Security Council Resolution 1409 (May 14, 2002) and placed into effect in July 2002, the U.N. weapons inspection unit (UNMOVIC, U.N. Monitoring, Verification, and Inspection Commission) reviews 3 The Sanctions Committee, set up by Resolution 661, consists of representatives of the member states on the U.N. Security Council. CRS-3 export contracts to ensure that they contain no items on a designated list of dual use items known as the Goods Review List (GRL). If so, the Sanctions Committee then decides whether to approve that portion of the contract containing the GRL items in question. Under U.S. regulations written for the program, U.S. firms can buy Iraqi oil and sell goods to Iraq, including oil industry spare parts and equipment. Over the past few years, purchases of Iraqi oil by U.S. firms have ranged between one-third to one- half of Iraq’s pre-2003 war export volume of about 2.1 million barrels per day. In February 2003, just prior to the start of the war, U.S. imports of Iraqi oil were tending toward the high end of that range, about 1 million barrels per day. The U.S. imports come primarily by purchases from intermediate energy trading firms rather than direct buys from Iraq. (See appendix for an overview of U.S. regulations governing U.S. firms’ participation in the program.) Once a contract is approved, BNP uses the funds deposited in the escrow account to pay letters of credit for the purchased goods. The arriving supplies are monitored at their point of entry into Iraq by about 50 personnel from the Swiss firm Cotecna4 at four approved border crossings — Umm Qasr on the Persian Gulf; Trebil on the Iraqi-Jordanian border; Walid on the Iraqi-Syrian border; and Zakho on the Iraqi-Turkish border. In Baghdad-controlled Iraq, the Iraqi government distributes imports to the population through an extensive government rationing system that employs about 40,000 Iraqis. Distribution is monitored by about 158 U.N. workers from the World Food Program, the Food and Agriculture Organization, the World Health Organization, and UNICEF. The U.N. personnel visit ration centers, marketplaces, warehouses, and other installations to ensure that distribution is equitable and accords with the targeted allocation plans submitted by Iraq for each six month phase. In Kurdish-controlled Iraq, about 65 U.N. workers, accompanied by about 130 U.N. security guards, perform the distribution function. Some goods bound for the Kurdish-controlled areas are combined with Baghdad’s purchases in order to obtain more favorable prices in bulk. Under Security Council Resolution 1051 (March 27, 1996), exports to Iraq of dual use items are supposed to be monitored by U.N. weapons inspectors at their point of entry and site of end use in Iraq. This import monitoring mechanism was altered during 1998-2002 when the U.N. weapons inspection regime was not in operation inside Iraq. Security Council Resolution 1284 (December 17, 1999) replaced UNSCOM with UNMOVIC, which was to perform that end-use monitoring function after reentering Iraq in November 2002, although UNMOVIC withdrew from Iraq on the eve of Operation Iraqi Freedom before beginning those monitoring activities. During the 1998-2002 hiatus in weapons inspections, end use monitoring in Iraq was performed by some of the 158 U.N. employees who monitor the distribution of civilian goods coming into Iraq. However, these monitors were not trained weapons inspectors, and this caused the United States and Britain to closely scrutinize, and to place many holds on, exports of dual use items to Iraq. 4 Cotecna replaced Lloyd’s Register as point-of-entry monitoring contractor on February 1, 1999. CRS-4 The oil-for-food program attempts to help Iraq meet its international obligations and ensure equitable distribution of imports to the Iraqi people. The revenues from Iraq’s oil sales have been distributed as follows: ! 25% is transferred to a U.N. Compensation Commission (UNCC) to pay reparations to victims of Iraq’s invasion of Kuwait. As provided for in Security Council Resolution 1284 (adopted December 1999), the deduction percentage was reduced in December 2000 to this level from its previous level of 30%. ! 59% is used to purchase humanitarian items for Baghdad-controlled Iraq. This account was increased from its previous level of 53% when the reparations deduction was reduced in December 2000. ! 13% is used to purchase supplies in the three Kurdish-inhabited provinces of northern Iraq. ! 3%, the remaining amount, pays for U.N. costs to administer the oil- for-food program, as well as UNMOVIC’s operating costs. Changes Outlined in Resolution 1284. U.N. Security Council Resolution 1284, adopted December 17, 1999, was intended in part to improve the provision of relief for the Iraqi people and to offer Iraq an incentive to readmit U.N. weapons inspectors. The following highlights key provisions of it and related decisions: ! As noted previously, Resolution 1284 eliminated the limit on the amount of oil Iraq could export, in order to enable Iraq to generate more revenues for humanitarian purchases. ! Resolution 1284 began the process, continued in subsequent oil-for- food program rollover resolutions, of easing restrictions on the flow of civilian goods to Iraq. The resolution directed the Sanctions Committee to draw up lists of items, in several categories, that would no longer be subject to Sanctions Committee review, and therefore would not be vulnerable to “holds.” The accelerated approval procedures for foodstuffs and educational goods began in March 2000, and continued with pharmaceuticals, medical supplies, medical equipment, and agricultural equipment (March 2000); water treatment and sanitation supplies (August 2000) goods for the housing sector (February 2001) and electricity supplies (May 2001). ! The resolution laid the groundwork for foreign investment to explore for and produce oil in Iraq, although the resolution made this investment contingent on full Iraqi cooperation with UNMOVIC. In 2000 and 2001, the Sanctions Committee approved drilling in existing fields by two Russian firms (Tatneft and Slavneft) and a Turkish firm (Turkish Petroleum Company), but exploration of new fields was still not permitted. CRS-5 ! Resolution 1284 created incentives for Iraq to cooperate with UNMOVIC by “express[ing] the intention,” if Iraq is deemed to have “cooperated in all respects” with UNMOVIC, to suspend export and import sanctions for 120 days, renewable by Security Council. The resolution implied that the Security Council would have to vote to implement the sanctions suspension. If sanctions had been suspended under this provision, Iraq would have been allowed to control its own revenues, subject to strict but unspecified financial controls, arms exports to Iraq would have still been banned, and exports of dual use items would still have been subject to scrutiny by the Sanctions Committee. These provisions of Resolution 1284 were rendered irrelevant by the U.S.-led decision to go to war against Iraq. ! Resolution 1284 also made some oil industry spare parts eligible for a streamlined approval process — contracts for such equipment are scrutinized by the same Sanctions Committee panel of oil overseers that review Iraq’s oil sales contracts, without requiring full Sanctions Committee review. U.N. Security Council Resolution 1293 (March 31, 2000) increased to $600 million, from $300 million, the value of oil industry spare parts that Iraq could import per oil-for-food phase. This decision was taken in response to recommendations by the U.N. Secretary General that improving the humanitarian situation was contingent on the rehabilitation of Iraq’s ability to export its oil. As of November 30, 2002, about $1.55 billion worth of oil industry spare parts had arrived in Iraq under the program. Accomplishments of the Program (Pre-War) There is a consensus among U.N. officials and outside observers that the oil for food program eased substantially, but did not eliminate, severe economic hardship in Iraq. The program, as well as some economic liberalization measures and illicit activity outside the program (discussed below), enabled Iraq to achieve 15% economic growth during 2000, according to the CIA’s “World Factbook: 2001.” Few observers question that the program made vast amounts of funds available for the purchase of food, medicine, and essential civilian goods. The information in Table 1, supplied by the United Nations’ Office of the Iraq Program, shows that higher oil prices, coupled with program modifications, enabled Iraq to generate substantial revenues to fund imports. At times since the program began operations in December 1996, Iraq has generated more oil revenue than it did before the U.N. embargo was imposed in 1990 (about $12.5 billion in total exports was generated in 1988), although substantial deductions are taken to pay the cost of implementing the program and for reparations payments. From inception until February 21, 2003, the program generated over $63 billion in revenues. From inception until November 30, 2002, contracts for exports to Baghdad-controlled Iraq of civilian goods worth $38 billion have been approved, with goods worth $24.4 billion having been delivered. For Kurdish-controlled northern Iraq, import contracts worth about $4 billion have arrived from inception CRS-6 until November 30, 2002, including about $3 billion purchased in concert with Baghdad’s purchases. Another $600 million in locally produced goods and contracts in the north were procured during the time period. As noted in Table 1, Iraq’s sales of oil ran significantly below capacity during 2001 and much of 2002. The decrease was largely a result of disputes between Iraq and the United Nations over the formula for pricing Iraq’s oil. Some members of the Sanctions Committee have sought to complicate Iraq’s ability to impose surcharges on its oil buyer — such surcharges of about 30 - 50 cents per barrel constitute illicit revenue and are prohibited. In September 2001, to reduce Iraq’s surcharging ability, the pricing formula was changed to “retroactive pricing,” in which the oil is priced after sale. This significantly reduced Iraq’s oil sales by about 25%, although the United Nations noted a rebound to previous levels (about 2 million barrels per day) as of September 2002. Iraq has sometimes unilaterally interrupted the sale of oil to protest Security Council policy or to challenge the United States and its allies. For example, Iraq suspended its oil sales for the month of April 2002 in protest against Israel’s military incursion into the West Bank. Table 1. CRS-7 Revenue Generated by Oil-For-Food Program (through February 2003) Phase Number (each phase is six months) Volume Sold (millions of barrels) Value of Export ($billion) Average Price per Barrel ($) One December 10, 1996 - June 7, 1997 ($2 billion export ceiling)a 120 2.15 17.92 Two June 8, 1997 - December 4, 1997 127 2.125 16.73 Three December 5, 1997 - May 29, 1998 182 2.085 11.46 Four May 30, 1998 - November 25, 1998 (Export ceiling raised to $5.2 billion by Resolution 1153) 308 3.027 9.83 Five November 26, 1998 - May 24, 1999 360.8 3.947 10.94 Six May 26, 1999 - December 11, 1999 389.6 7.402 19.00 Seven December 12, 1999 - June 8, 2000 (Export ceiling lifted permanently by Resolution 1284) 343.4 8.302 24.13 Eight June 9, 2000 - December 5, 2000 375.7 9.564 25.50 Nine December 6, 2000 - July 3, 2001 293 5.638 19.24 Ten July 4, 2001 - November 30, 2001 300.2 5.35 17.82 Eleven December 1, 2001 - May 29, 2002 225.9 4.589 20.31 Twelve May 30, 2002 - December 4, 2002 232.7 5.639 24.3 Thirteen (as of February 21, 2003) December 5, 2002 - June 3, 2003 130.5 3.618 27.7 Totals 3,117.3 56.412 Source: U.N. Office of the Iraq Programme. [http://www.un.org/Depts/oip/]. a. Applicable U.N. Security Council resolutions allow Iraq to generate revenue, over and above the ceilings, to pay the costs of transit fees for exporting oil through Turkey, which explains why some figures might exceed stated ceilings. CRS-8 The following represent the major accomplishments of the program in improving the living standards of the Iraqi people, taken mostly from a report by the U.N. Secretary General to the U.N. Security Council, dated November 12, 2002. Food. According to the U.N. report, in Baghdad-controlled Iraq, Iraqis were receiving about 2,200 kilocalories of food per person per day - about 90% of the U.N. target caloric intake of 2,463 kilocalories per person per day. The full ration was achieved only during December 2000. The report noted that 60% of Iraq’s families rely solely on the food ration under the program to meet all household needs. The U.N. report did not identify any food problems for the three Kurdish provinces, which is consistent with press reports that food had become relatively abundant there, sometimes to the detriment of local agricultural production. Health, Sanitation, and Electricity. The U.N. report said that there were “notable” achievements in the health sector, including an increase in major surgeries performed and a reduction in communicable diseases. This and previous U.N. reports on the program noted improvement in the diagnostic and other equipment in use in Iraq’s hospitals. In the related area of water and sanitation, the U.N. report said that there had been some recent improvement in access to potable water, although access was still insufficient in both quantity and quality. The U.N. report said the situation in the electricity had been “improving gradually,” noting a more reliable supply of electricity to Iraqis than was the case previously. In mid-1999, UNICEF released its first country wide survey of infant and maternal mortality in Iraq since 1991. The survey took a number of precautions to ensure that the survey results would not be altered or modified and UNICEF is confident that the survey information is accurate. It showed that infant mortality in the southern and central sections of Iraq (under the control of the Iraqi government) rose from 47.1 deaths per thousand live births during 1984-1989 to 107.9 deaths per thousand during 1994-1999. The under five-year-old mortality rate rose from 56 to 130.6 per thousand live births in the same time period. According to the report, this increase in mortality resulted in about 500,000 more deaths among children under five than would have been the case if child mortality trends noted prior to 1990 (imposition of sanctions) had continued. In northern Iraq, the mortality rate has declined over the same period: infant mortality dropped from 63.9 per thousand live births in 1984-1989 to 58.7 in 1994-1999 and under five-year-old mortality dropped from 80.2 per thousand live births to 71.8 per thousand. Education. The U.N. report identified significant shortages of materials and equipment throughout the education sector, particularly school overcrowding. The report says that the recent distribution of 1.2 million school desks has met 60% of the need at primary and secondary schools. According to an earlier report (September 8, 2000), Iraq’s literacy rate (53.7% of adults and 70.7% of the youth) “has remained fixed for a number of years.” CRS-9 Pre-War Debates Over Sanctions The accomplishments of the program did not end debate over how strictly to enforce some of the program’s restrictions. The United States and Britain tended to place most of the blame for the program’s shortcomings on Iraq, alleging that the Iraqi regime disregarded the needs of its people. U.N. administrators of the program criticized Iraq on similar grounds, but they also attributed program deficiencies to U.S. and British policy, which they said slowed or halted the flow of infrastructure equipment that was required to realize the program’s benefits. The issue of contract “holds” on infrastructure equipment was one of the most contentious that the United Nations has faced. Past U.N. reports on the program claim that infrastructure equipment, such as trucks, communications gear, forklifts, electricity, and water treatment equipment, were crucial to the timely distribution and proper storage and functioning of foodstuffs and medical products. At the time of the adoption in May 2002 of aspects of the “smart sanctions” plan discussed below, the United States had placed almost $5 billion of goods on hold. In response to criticism of the holds, the United States asserted that 90% of all contracts were approved and that the holds had minimal impact. The United States maintained that all contracts needed to be scrutinized to ensure that no equipment would be used to rebuild WMD programs, especially during the time U.N. weapons inspectors were not in Iraq (December 1998 - November 2002) to monitor dual use exports that were shipped there. U.N. reports did not accuse Iraq of purposely diverting imports from the program to the military or regime supporters, although some U.S. reports, such as a February 28, 1998 State Department fact sheet, made such allegations. The “Smart Sanctions” Plan. At the start of the George W. Bush Administration, with no permanent end to international sanctions in sight due to the lack of U.N. weapons inspections, the debate over further modifications to the oil- for-food program was the centerpiece of a broader debate over Iraq policy and sanctions. The debate intensified in May 2001 when the five permanent members of the U.N. Security Council began discussing the U.S. plan to adopt “smart sanctions” on Iraq. The smart sanctions plan represented an effort, articulated primarily by Secretary of State Colin Powell at the beginning of the Administration, to rebuild a consensus to contain Iraq. When it came into office, the Bush Administration asserted that international sanctions enforcement was collapsing and that Iraq was using the relaxation to acquire prohibited goods and raise illicit revenue. The U.S. smart sanctions proposal centered on a trade-off in which restrictions on the flow of civilian goods to Iraq would be greatly eased and, in return, Iraq’s illicit trade with its neighbors would be brought under the oil-for-food program and its monitoring and control mechanisms. The net effect, according to the concept, would be to target sanctions only on limiting Iraq’s strategic capabilities, and not on its civilian economy. The smart sanctions plan was intended to defuse criticism by several governments, including permanent members of the U.N. Security Council France, Russia, and China, that the United States was using international sanctions to promote the overthrow of the Iraqi government or to punish Iraq indefinitely for the invasion of Kuwait. These governments appeared to believe that no amount of Iraqi cooperation with the United Nations would be sufficient to persuade the United CRS-10 States to lift sanctions on Iraq, and they and other governments moved unilaterally to skirt or erode the sanctions regime. Differences between the permanent members over how to implement these measures prevented immediate agreement on the U.S. plan. However, the September 11, 2001 attacks and the war in Afghanistan brought the United States politically closer to Russia and, to a lesser extent, China, and the Security Council reached agreement to adopt some elements of the U.S. plan, as provided for in Security Council Resolution 1409 (May 14, 2002). The resolution created the Goods Review List (GRL), mentioned above, a list of dual use items that are subject to review by UNMOVIC before they can be exported to Iraq. The Goods Review List is contained in U.N. document S/2002/515 of May 3, 2002; it can be found online at the U.N. oil- for-food program web site [http://www.un.org/depts/oip]. Resolution 1447 (December 4, 2002) contained a pledge to add, within 30 days, certain items to the GRL, items that the United States said could be used by Iraq to counter a U.S. military offensive. The Security Council added 36 U.S.-suggested items to the GRL on December 30, 2002 (Resolution 1454). Enhanced border control provisions, a central element of the original U.S. smart sanctions plan, were not included in Resolution 1409, largely because of strong opposition by Iraq’s neighbors to controls on illicit trade with Iraq. Iraq’s neighbors maintained that enhanced border controls would harm their economies. The resolution did not contain U.S. proposals that would have restricted civilian flights to Iraq. It did not permit new foreign investment in Iraq’s energy sector, a provision that had been sought by Russia, France, and China, whose energy companies had signed deals to explore for oil and gas in Iraq once sanctions are lifted. Other Sources of Pre-War Humanitarian Aid UNICEF, the World Food Program (WFP) the U.N. Development Program (UNDP), the European Community (ECHO), the International Committee of the Red Cross (ICRC), governments, and private relief organizations such as Catholic Relief Services and Save the Children provided additional relief to supplement the oil-for- food program. UNICEF, ECHO, and WFP focus their humanitarian aid on the South and Central part of the country rather than on the economically better off Kurdish north. It is impossible to determine precisely the total amounts of bilateral and multilateral aid by all donors. However, these aid sources declined as donors perceived that the oil-for-food program was largely satisfying Iraq’s needs. Secretary General Annan called for increased international assistance to Iraq, and Resolution 1284 “encourages” countries and international organizations to provide supplementary humanitarian aid and educational materials to Iraq. After Baghdad’s incursion into the Kurdish north in late August 1996, the United States virtually ended its assistance program for northern Iraq, which had been about $45 million per year. The incursion caused all American-based humanitarian relief organizations in northern Iraq to leave in fear of Iraqi reprisals against them. CRS-11 There is no single source for information on pre-war humanitarian assistance to Iraq. A report of the Organization for Economic Cooperation and Development (OECD), which provides donor information for the years 1994 through 1998, indicated that Iraq received a total of $76.36 million in bilateral assistance in 1998.5 This did not include any funds provided by U.N. agencies but does include grants by the European Commission (ECHO). A Washington-based official of the European Commission said in June 2001 that the European Union had given over $200 million in aid to Iraq since 1991. Pre-War Exportation to Iraq Although the oil-for-food program did not open Iraq to free and unfettered international trade, firms of many countries participated in the program by buying Iraqi oil and selling civilian goods. Table 2 provides a list of countries whose firms exported more than $25 million worth of goods to Iraq in 1998, the latest full year for which international statistics are available. It is probable that almost all of the exports in these statistics represent oil-for-food related transactions, although it is possible that some transactions were conducted separately from the program, under pre-existing U.N. regulations that allowed Iraq to import certain civilian items using its own funds. The statistics do not cover illicit trade that, by nature, generally goes unreported to statistics-keeping organizations. 5 Geographical Distribution of Financial Flows to Aid Recipients. Disbursements, Commitments, Country Indicators. 1994-1998. OECD. 2000. Table 2. CRS-12 Major Exporters of Goods to Iraq (1998) (in millions of dollars) Country Value of Goods Exported Australia 196 Belgium/Luxembourg 66 China 105 France 256 Germany 86 India 36 Indonesia 45 Iran 30 Italy 37 Jordan 150 Malaysia 31 Russia 43 Switzerland 28 United Kingdom 42 United States 106 Pre-War Illicit Trade In order to generate funds that it could use without restriction, the regime of Saddam Hussein allegedly conducted illicit oil dealings with its neighbors and other countries, imposed surcharges on oil buyers, and solicited kickbacks from suppliers of humanitarian and other civilian goods. The primary concern of U.S. officials was that Iraq was reportedly using these revenues to buy prohibited military and WMD technology. In February 2000, the Clinton Administration accused the Iraqi government of using such resources to build nine lavish palaces (valued at about $2 billion) and to import non-essential items such as cigarettes and liquor,6 rather than to alleviate economic hardships for the Iraqi people. There are no authoritative figures for the value of illicit trade with Iraq. However, the most widely cited estimates come from a study, released in May 2002 by the General Accounting Office (GAO).7 According to the GAO study, Iraq earned $6.6 billion in illicit revenue from oil smuggling and surcharges during 1997-2001. Of that total, GAO estimates $4.3 billion was from illicit oil sales and $2.3 was from 6 Alcohol is classified as a food, so the imports are technically legal under the international sanctions regime in place since Iraq’s August 2, 1990 invasion of Kuwait. 7 GAO-02-625. Weapons of Mass Destruction: U.N. Confronts Significant Challenges in Implementing Sanctions Against Iraq. General Accounting Office, May 2002. CRS-13 surcharges on oil and commissions from its contracts to buy civilian goods (kickbacks). The study estimated that during 2001, Iraq earned $1.5 billion from illicit oil sales through Jordan, Syria, Turkey, and the Persian Gulf; and about $700 million from surcharges and contract kickbacks. Additional details on the Baath regime’s illicit dealings are discussed below. Jordan. After the Gulf war, Jordan notified the Security Council that it was importing Iraqi oil (between 70,000 - 100,000 barrels per day as of March 2002, according to the GAO study) at below-market prices. According to Jordanian officials, the oil was in exchange for civilian goods and write-downs of Iraq’s debt to Jordan. The United States supported the Sanctions Committee decision to “take note of” the Jordanian purchases - neither approving them nor deeming them a violation. The Administration routinely waived unilateral sanctions on Jordan that could be imposed because of this trade.8 In October 2000, Jordan cancelled an agreement with Lloyd’s Registry, in force since 1993, for the firm to inspect Iraq- bound cargo in Jordan’s port of Aqaba. This inspection agreement covered goods other than those imported under the oil-for-food program; goods imported under the program are monitored at all points of entry, including the Iraq-Jordanian border. Iran/Persian Gulf. The GAO study estimates that Iraq was exporting illicitly about 30,000 - 40,000 barrels per day through the Persian Gulf in March 2002. This exportation was apparently conducted with cooperation from Iran. Of the funds generated through this export channel, about one-half went to Iraq, one-quarter to smugglers and middlemen, and one-quarter to Iran’s Revolutionary Guard for “protection fees” to allow the shipments to hug its coast and avoid capture. Many believe that exports through the Gulf were higher during 1998-2000, but they fell because Iraq was diverting oil to the Syrian route, where there were fewer middlemen to pay. Syria/Military Technology Exports to Iraq. In late 2000, according to several press reports, Iraq began exporting oil through an Iraq-Syria pipeline, closed since 1982 but now repaired. According to the GAO study, Iraq exported 180,000 - 250,000 barrels per day through this route in March 2002, and exports through Syria are believed to be at similar levels as of early 2003. This exportation was reputedly under a bilateral agreement with Syria under which Syria refined the Iraqi oil for domestic use, and paid Iraq about half the world market price for oil, freeing up extra Syrian oil for export. The United Nations did not formally approved this export route and the U.S. position was that it is illegitimate. Many experts believe the United States did not forcefully press Syria to cease this importation in order to enlist Syria’s support in the global war on terrorism and the U.S. effort to build international support for confronting Iraq. Before the war, there was growing U.S. concern that Syria was becoming a major transit point for prohibited imports by Iraq of military equipment and technology that could be used for WMD. In July 2002, a respected Israeli military 8 Every fiscal year since 1994, Congress has included a provision in foreign aid appropriations cutting U.S. aid to countries that violated the Iraq embargo. CRS-14 expert reported that Syria had served as a transit point for Iraq’s importation of Russian-made engines for combat aircraft (sold by Ukraine) and tanks (sold by Bulgaria and Belarus), and Czech-made anti-aircraft cannons (sold by the Czech Republic).9 According to the same article, Syria also passed on prohibited equipment to Iraq sold by Hungary and Serbia. In late September 2002, the Bush Administration initiated what it called a “temporary pause” in U.S. assistance to Ukraine (about $55 million held up) because of allegations that Ukraine had provided the “Kolchuga” early warning radar system to Iraq. If the system was shipped to Iraq, it is not known whether it was transported through Syria. In February 2001, the United States struck an air defense network that was being upgraded with the help of a Chinese firm, according to press accounts, although it is not known how the fiber optic equipment reached Iraq. Syria and Operation Iraqi Freedom. Syria opposed U.S. efforts to obtain specific U.N. Security Council authorization for war against Iraq, and it publicly sided with “the Iraqi people” during the war. After the start of the U.S.-led war against Iraq, Defense Secretary Rumsfeld accused Syria of allowing transshipment of military goods to Iraq, including night vision equipment, and warned Syria to cease allowing such transit. Administration officials have accused Syria of allowing former members of Saddam’s regime to flee there as the regime fell, although Syria has expelled some former regime members to Iraq where they were subsequently captured by U.S. forces. On April 15, 2003, about a week after the Baath regime fled Baghdad, U.S. military officials announced that they had shut the flow of Iraqi oil through Syria. Turkey. According to the GAO study, Iraq exported the equivalent of 40,000 - 80,000 barrels per day of oil through Turkey in March 2002. The exportation was in the form of 450 Turkish trucks per day carrying Iraqi oil products (not crude oil) through the Iraqi Kurdish areas into Turkey in spare fuel tanks. The Turkish government taxes and regulates the illicit imports. As in the case of Jordan, the U.S. Administration had routinely waived the imposition of U.S. sanctions on Turkey for permitting this illicit trade. Some reports suggest that commerce between Iraq and Turkey slowed to a crawl, if not halted entirely, in February 2003 in anticipation of the U.S.-led war against Iraq. Oil Sales Surcharges. As noted above, the GAO study estimated that Iraq earned over $700 million in 2001 from oil sales surcharges and kickbacks on purchases of goods. The GAO study obtained that estimate by assuming that Iraq obtained a surcharge of 35 cents on each barrel of oil sold under the oil-for-food program. The GAO estimated the “kickback” percentage for Iraq at 5 percent of the value of each purchase contract. In September 2001, the Sanctions Committee moved to curb Iraq’s ability to surcharge on oil sales by adopting a “retroactive pricing” formula. The United Nations said in late September 2002 that Iraq, in part due to the pricing formula, had ended its surcharging practice and that Iraq’s oil sales were rebounding. 9 Schiff, Ze’ev. Syria Buys Arms for Iraq. Ha’aretz, July 15, 2002. CRS-15 Prior to adopting retroactive pricing, the Sanctions Committee had evaluated but not adopted another idea - to limit Iraq’s oil buyers to major international oil firms, rather than smaller oil traders that were willing to pay Iraq the surcharge. A press report in March 2001 (Reuters, March 8, 2001) listed companies that were purchasing Iraqi oil; many are small companies from countries that seek to do business with Iraq or are sympathetic to easing sanctions on Iraq. U.S. major oil companies are said to buy Iraqi oil shipments from these small traders. The list included Italtech (Italy); Mastek, and Quantum Holdings (Malaysia); Zarubezhneftegas, Mashinoimport, Slavneft, Sidanco, and Rosneftimpex (Russia); Fenar (Lichtenstein); Emir Oil, Coastal Oil Derivatives, and Benzol (United Arab Emirates); Nafta Petroleum, and KTG Kentford Globe (Cyprus); Glencore, and Lakia Sari (Switzerland); Al Hoda (Jordan); Belmetalenergo (Belarus); Samasu (Sudan); Erdem (Turkey); African Petroleum (Namibia); Shaher Trading (Yemen); Aredio (France); Commercial Home (Ukraine); Awad Ammora (Syria); Montega (South Africa); Afro Eastern (Ireland); and Bulf Drilling (Romania). Oil Exploration Contracts. There are no public allegations that any international oil companies had begun new oil exploration investments in contravention of existing U.N. resolutions. However, a number of companies have signed exploration deals that would go into effect if the ban on oil exploration is lifted. Much of the focus of U.S. officials has been on oil exploration deals by Russian firms. In general, Russia seeks to obtain repayment of Iraq’s $7.6 billion in debt to Moscow and possibly to earn funds selling arms to Iraq if such sanctions are eventually lifted. In August 2002, it was reported that Russia and Iraq had agreed to a $40 billion economic cooperation agreement, although it is not clear that any of the planned cooperation would have violated oil-for-food or other sanctions guidelines. Russian- Iraqi commercial relations were set back somewhat in December 2002 when Iraq overturned a presumptive contract with Russia’s Lukoil to develop the West Qurna field (see below). Iraq acted reportedly on the grounds that Lukoil had held discussions with Iraq’s opposition about Lukoil’s possible role in developing the energy sector of a post-war Iraq. France10 has long had substantial economic interests in Iraq as well and reportedly is owed $5 billion to $ 7 billion by Iraq, although some reports cite a French National Assembly study that contains a much lower figure of about $2.25 billion. As noted above, France has been a major exporter of goods to Iraq and several major French companies export equipment to Iraq under the oil-for food program; these companies include Peugeot (automobiles and parts), Renault Trucks, and Alcatel (telecommunications equipment). 10 Some of the information and analysis in this section was provided by Paul Gallis, Specialist in European Affairs, Foreign Affairs and Trade Division. CRS-16 Some of the presumptive contracts for oil exploration in Iraq, signed with the government of Saddam Hussein, include the following:11 ! Al Ahdab field — China National Oil Company (China) ! Nassiriya field — Agip (Italy) and Repsol (Spain) ! West Qurna — Lukoil (Russia) ! Majnoon — Total Fina Elf (France) ! Nahr Umar — Total Fina Elf (France) ! Tuba — ONGC (India) and Sonatrach (Algeria) ! Ratawi — Royal Dutch Shell (Britain and the Netherlands) ! Block 8 — ONGC (India) It is not known whether these contracts will be considered valid in post-war Iraq. Some of the companies listed above, and their parent governments, fear that the United States and Britain might invalidate the contracts and award new exploration deals predominantly to U.S. and British firms. Since the fall of Saddam Hussein’s regime, no decisions on these issues have been announced by the United States or Britain. Other Iraqi Debt / Reparations. There are no authoritative figures on the amount of Iraqi debt owed to other countries, although some press reports quote totals over $100 billion in official and commercial debt.12 As noted above, Iraq is believed to owe France about $5 billion to $7 billion, although the figure might be as low as $2.25 billion, and Russia is owed almost $8 billion. Germany is owed about $4 billion, and Japan is owed about the same amount. Some press reports say Iraq owes at least $1.1 billion to South Korean companies. Poland is owed about $1 billion. Iraq also owed about $35 billion to the Persian Gulf states for monies lent to Iraq to help it fight the Iran-Iraq war, although most experts believe that the Gulf states had not expected to be repaid. Some press reports have Iraq’s debt to the Gulf states at about $55 billion. The Bush Administration is now pressing foreign governments to write off the bilateral debt owed by Iraq to free up additional funds for post-war reconstruction. The issue of bilateral debt is separate from that of that of reparations payments mandated by the United Nations after the 1991 Gulf war. Under that process, about $320 billion of total reparations claims have been filed, although not all claims filed are paid, or paid at the asserted value. Some experts expect that, once all claims are evaluated, about $200 billion in total claims, including those already decided, will be approved, although some press reports, quoting U.N. Compensation Commission officials, say the final figures are likely to be far lower, perhaps $40 billion.13 As of April 2003, the United Nations has approved about $44 billion in claims, of which about $16 billion have been paid. Seeking to free up funds for reconstruction, the 11 Morgan, Dan and David Ottaway. In Iraqi War Scenario, Oil Is Key Issue. Washington Post, September 15, 2002. 12 Maclean, William. War Claims and Debt May Stall Iraq’s Oil Schemes. Middle East Times, June 2000. The Cold Calculation of War. The Economist, April 5, 2003. 13 Iraq May Owe Less Than Previously Expected in Gulf War Claims. Bloomberg News, May 2, 2003. CRS-17 U.S. draft Security Council resolution, circulated on May 9, 2003, proposes reducing the deduction for reparations payments to 5% of Iraq’s total revenues, from the current rate of 25%. Flights to Iraq. Since September 2000, Iraq may have conducted an unknown amount of additional illicit trade aid from flights to and from Iraq. These flights began as relief flights carrying humanitarian aid, intended to challenge the U.S. and British interpretation of U.N. Security Council Resolution 670 (September 25, 1990). Resolution 670 requires the banning of flights to or from Iraq that are carrying any “cargo to or from Iraq or Kuwait other than food in humanitarian circumstances, subject to authorization by the Council ...” or the Sanctions Committee. Prior to September 2000, the U.S. interpretation prevailed that all flights to Iraq require Sanctions Committee authorization prior to takeoff. France, Russia, and other governments, although not opposed in principle to inspecting cargo bound for Iraq, argue that passengers are not “cargo” and that the U.S. interpretation that Resolution 670 restricts all flights to Iraq was not correct. The cargo on these flights was not subjected to any U.N. monitoring to ensure that the cargo comports with oil-for-food guidelines. Since September 2000, regular charter flights took place between Iraq and Syria and Iraq and Jordan. The United States criticized those governments that allowed the flights to proceed without approval, but no U.S. or U.N. measures were taken against the flights or against Jordan or Syria. One donation to Iraq in November 2000 drew strong U.S. criticism and a sanction. A member of the royal family of Qatar presented Saddam Hussein with a Boeing 747 jumbo jet as a “gift.” The Qatari, Hamad bin Ali bin Jabr Al Thani, heads the Gulf Falcon air services company, which gave him access to the aircraft. On November 24, 2000, the Clinton Administration announced that exports and reexports of many U.S. goods would need specific Commerce Department approval for sale to Mr. Al Thani or his businesses. U.S. officials said that sanctions were imposed to ensure that U.S. goods would not be improperly diverted to Iraq. The Oil-for-Food Program In Wartime and Post-War Iraq The Bush Administration has begun to implement its plans for administering Iraq now that the regime has fallen in the course of Operation Iraqi Freedom. The Administration, as noted above, is seeking to phase out the oil-for-food program and lift U.N. sanctions in order to transition Iraq to a more normal economy. The oil-for- food program was suspended just before hostilities began, when U.N. staff in Iraq that help run the various aspects of the program departed Iraq. As the war began, $9 billion worth of humanitarian goods were in the process of being delivered or in production, and about $2.7 billion remained in the escrow account unallocated. Iraq’s oil infrastructure is currently being repaired and Iraq does not have the capability, at this time, to produce enough oil to allow for exports. CRS-18 Resolution 1472. At the height of the fighting in Operation Iraqi Freedom, on March 28, 2003, the U.N. Security Council adopted Resolution 1472 that restarts the program and empowers the United Nations to take more direct control of the program for 45 days. The resolution authorized the U.N. Secretary General to set priorities for and redirect the delivery of shipments of goods contracted for. The resolution also eases international sanctions on Iraq to facilitate the delivery of humanitarian supplies to Iraq by international relief organizations and groups. U.N. staff have begun to return to Iraq and the coordinator of the oil-for-food program, Benon Sevan, has begun allocating a number of supply contracts for entry into Iraq under the authority of Resolution 1472. n April 24, 2003, the U.N. Security Council adopted Resolution 1476, extending the authorities of Resolution 1472 until June 3, 2003, which is the date the current phase of the oil-for-food program is to expire. It is possible that Iraq’s distribution network, which employs about 40,000 Iraqis, might not fully function again until security returns to Iraq’s major cities. The issue of Iraq’s resumption of oil exports is a further complication. Some experts believe it might be several months before Iraqi oil exports resume. Even if all oil infrastructure were repaired, there is still the question of who is legally able to contract for sales of Iraqi oil once they are able to begin. The U.S. occupation administration has set up an oil sector oversight team headed by former Shell Oil executive Phillip Carroll and including several Iraqi oil industry professionals including Fadhil Othman and Muhammad Ali Zainy. Iraq’s oil ministry is being run by Thamir Ghadban, who reports to the oversight team. Once exports resume, there will likely be a debate about the proportion of oil revenues to be devoted to upgrading Iraq’s oil production facilities; such reinvestment is crucial to boosting Iraq’s production to about 3 million barrels per day from pre-war output of about 2.4 million barrels per day. U.S. and U.N. Sanctions and the Post-War Period 14 The United States has decided to press for a lifting of international sanctions in order to permit normal commerce with Iraq, rather than depend on a continuation of the oil-for-food program. The United States is seeking to lift U.N. sanctions through a U.N. Security Council resolution that the United States began circulating on May 9, 2003. The Bush Administration wants a vote on the draft resolution the week of May 19, 2003, but some countries, reportedly including France, are still seeking changes to the draft. If adopted in its latest reported form, the resolution, among other provisions related to Iraq’s post-war governance and such outstanding issues as the fate of missing Kuwaitis, would: ! end the U.N. embargo on trade with Iraq, except for the sale of supply to Iraq of arms or technology that could be used for WMD; 14 Source: Iraq: What You Need to Know About the U.S. Embargo. An Overview of the Iraqi Sanctions Regulations – Title 31, Part 575 of the U.S. Code of Federal Regulations. U.S. Department of the Treasury, Office of Foreign Assets Control, [http://www.treas.gov/ofac/]. CRS-19 ! establish a “Development Fund” for Iraq, held by the Central Bank of Iraq and audited by accountants reporting to an advisory board that includes representatives of the IMF and World Bank; ! transfer the unallocated funds of about $2.7 billion in the oil-for- food program escrow account into the Development Fund, ! phase out the oil-for-food program over a period of four months, including completing all contracts already agreed under the oil-for- food program. ! reduce the percentage of Iraqi oil revenue devoted to reparations from the current 25% level to 5%. ! require the identification, freezing, and turnover to the Development Fund of all Iraqi assets located abroad. The Bush Administration has begun to ease U.S. sanctions in a manner it calls “wholly consistent” with current U.N. sanctions. The easing of U.S. sanctions was implemented by a May 7, 2003 Executive order that exercises the sanctions easing authorities provided to the President in Sections 1501 - 1504 of the FY2003 supplemental appropriations bill (H.R. 1559, P.L. 108-11) The President had requested that authority in his request to Congress for FY2003 supplemental funding to pay for the costs of the war, submitted March 25, 2003. The following discusses major U.S. sanctions in place on Iraq and the Bush Administration’s exercise of authorities to ease them. The post-1990 Iraqi Sanctions Regulations implemented Executive Orders No. 12722 (August 2, 1990) and 12724 (August 9, 1990), issued after Iraq’s August 2, 1990 invasion of Kuwait. The executive orders imposed a ban on U.S. trade with and investment in Iraq, and froze Iraq’s assets in the United States. The Iraq Sanctions Act of 1990 (Section 586 of P.L. 101-513, signed November 5, 1990 reinforces those executive orders. The August 9, 1990 executive order amended the August 2 executive order to align U.S. sanctions with U.N. Security Council Resolution 661 (August 6, 1990), in keeping with the United Nations Participation Act (22 U.S.C. 287c). That resolution imposed a comprehensive embargo on all Iraqi imports and exports. In the aftermath of Iraq’s invasion of Kuwait in 1990, Iraq was again placed on the U.S. list of state sponsors of terrorism under Section 6(j) of the Export Administration Act (P.L. 96-72). Iraq had been removed from the list in 1982. Countries on the terrorism list are barred from receiving U.S. foreign assistance, votes in favor of international loans, and sales of munitions list items (arms and related equipment and services). Exports of dual use items (items that can have military applications) are subject to strict licensing procedures. As noted above, the FY2003 granted the President the authority to lift or render inapplicable most U.S sanctions in Iraq - authorities that were exercised in the May 7, 2003 Executive order. The authority is available until September 2004, according to P.L. 108-11. The following represent the U.S. sanctions that have now been eased: CRS-20 ! The President’s exercise of the authorities suspends the application of the Iraq Sanctions Act (Section 586 of P.L. 101-513), mentioned above, but the provisions of the Iran-Iraq Arms Non-Proliferation Act (P.L. 102-484) would remain in effect. That Act imposes sanctions on persons or governments that export technology that would contribute to Iraq’s advanced conventional arms capability or weapons of mass destruction programs. (Section 1503 of H.R. 1559 gives the President the authority to suspend the application of “any provision” of the Iraq Sanctions Act, while keeping intact the provisions of the Iran-Iraq Arms Non-Proliferation Act.) ! The Executive order “makes inapplicable” the sanctions imposed on Iraq as a consequence of its place on the terrorism list. (Section 1503 of H.R. 1559 gives the President the authority to “make inapplicable” the sanctions that flow from Iraq’s presence on the terrorism list.) ! The President requested the authority to render inapplicable to Iraq any U.S. laws that direct the U.S. government to vote against or oppose international lending to Iraq. (This authority is provided in Section 1503.) ! the President requested authority to render inapplicable to Iraq Section 307 of the Foreign Assistance Act of 1961. That provision requires cuts in U.S. contributions to international programs that work in Iraq (and other countries named in that section). (This authority is provided in Section 1503.) ! Authority was requested that would enable the President to authorize the export to (post-war) Iraq dual use items or arms if the President determines that doing so is in the national interest. (Section 1504 gives the President the authority to export to Iraq non-lethal military equipment and to export military equipment to a reconstituted or interim Iraqi military. Section 1503 requires the President to submit regular reports to Congress on any export licenses granted for the exportation of dual use items to Iraq.) In advance of congressional action, the Bush Administration began the process of easing post-war sanctions on March 24, 2003. The President issued Presidential Determination 2003-18, determining that providing direct assistance to Iraq is important to the national security interests of the United States. That waiver, for use in providing humanitarian relief to Iraq, is provided for in Section 507 of P.L. 108-7, the consolidated appropriations for FY2003. That section bars direct assistance to Iraq as well as the other six countries on the terrorism list (Syria, Iran, Cuba, North Korea, and Sudan). President Bush’s May 7, 2003 Executive order also eases the regulations that previously governed U.S. commerce with Iraq. However, because the United Nations has not yet lifted sanctions, most of the U.S. regulations that previously existed remain in place. According to those regulations, U.S. firms have to apply to the CRS-21 Office of Foreign Assets Control (OFAC) of the Treasury Department for specific licenses for the activities below under the oil-for-food program. The activities previously needing specific licenses include the following: ! “the sale and exportation to Iraq of medicines, health supplies, foodstuffs, and materials and supplies for essential civilian needs.” The goods can be sold, subject to a license, to the government of Iraq or to a U.N. entity distributing aid under the program. ! “the purchase and exportation from Iraq of Iraqi-origin petroleum and petroleum products;” ! “the trading, importation, exportation or other dealings in or related to Iraq-origin petroleum and petroleum products outside Iraq; and” ! “the sale and exportation to Iraq of parts and equipment that are essential for the safe operation of the Kirkuk-Yumurtalik (Iraq- Turkey) pipeline system in Iraq.” In addition: ! The regulations “generally” prohibit “the performance of contracts in support of industrial, commercial, public utility, or governmental projects” in Iraq. U.S. persons may not provide financing or consulting services to a foreign country company where those services would benefit such projects in Iraq. U.S. persons may not provide consulting services or goods, in connection with Iraqi projects, to foreign subsidiaries of U.S. corporations, although foreign subsidiaries themselves are not subject to U.S. regulations. ! All transfers of funds by U.S. persons to the government of Iraq or to persons in Iraq, are prohibited, as are “all commitments or transfers of credit, financial transactions, or contracts.” ! All transportation-related services, or the use by U.S. persons of vehicles, ships or aircraft registered in Iraq, are prohibited. Travel- related transactions by U.S. persons are also prohibited, with the exception of travel related to journalism, or U.S. government or United Nations business. The May 7, 2003 Executive order allows some U.S.-Iraq commerce to take place under general license. These include providing humanitarian aid, spending money for the purpose of performing reconstruction contracts in Iraq for the U.S. government, and making personal remittances to Iraq.15 15 Konig, Rachel and Rex Nutting. U.S. Lifts Some Sanctions on Iraq. CBS Marketwatch, [http:// www.marketwatch.com] , May 7, 2003.