US Shifts Attack on Iraq Trade


By Alan Sipress

Washington Post
March 26, 2001

The Bush administration is crafting a plan to overhaul sanctions on Iraq that calls for posting United Nations monitors just outside the country's borders and at key foreign airports to prevent President Saddam Hussein's regime from importing military goods.To entice neighboring countries to cooperate, they would be allowed to buy Iraqi oil at discounted prices. Some or all of their payments might be deposited into special accounts that Iraq could use only to buy imports from these neighbors, such as Jordan, Syria and Turkey.The United Nations would draft a list of oil companies authorized to buy Iraqi petroleum, aiming to eliminate shadowy middlemen believed by Western officials to be making illegal payments to Hussein's regime.

The Bush administration has been working extensively with European allies to revamp the 11-year-old sanctions, but few details of the emerging plan have previously been disclosed. Some of the elements described by U.S. officials and foreign diplomats could be adopted by the United States alone. Others would require steps by the U.N. sanctions committee and perhaps a resolution from the 15-member Security Council, where these measures would have to win assent from longtime critics of the embargo such as France, Russia and China.The Bush administration announced last month that it favors eliminating many of the economic sanctions and refocusing the remaining restrictions on imports and revenue that could be used for Iraqi military programs, in particular the development of chemical, biological and nuclear weapons and long-range missiles. U.S. officials now hope to hammer out all the specifics by June, when the Security Council is scheduled to review Iraqi sanctions.

By that date, the administration also plans to have answered two other central questions about its Iraq policy: what kind of support to provide to Iraqi opposition groups, and whether to change the enforcement of the "no-fly" zones over northern and southern Iraq.American and European officials said the sanctions proposals advanced so far have been welcomed by key members of the Security Council, including France and Russia, though discussions on technical details are just beginning.

The primary challenge for this ambitious program, which includes tighter controls on trade and oil revenue coupled with economic incentives for countries to participate in enforcement against smuggling, is winning cooperation from the "front-line" countries that neighbor Iraq. "These are the directions as long as the front-line states play ball," said a European diplomat.None of the bordering countries has warm relations with Hussein's regime. But because of mounting concerns over the toll on the Iraqi people, they have grown highly critical of the embargo placed on Iraq after its 1990 invasion of Kuwait. Moreover, the neighboring governments may fear that ending the smuggling across Iraq's borders would harm their economies and provoke reprisals from Hussein.

Western officials are "haggling" with these countries about the incentives they will be offered for signing on to the new sanctions, a foreign diplomat said."We've only begun to probe these ideas with them," a senior State Department official said. "We have not hit any insuperable barriers to any of these concepts. The light is still green."Secretary of State Colin L. Powell discussed some elements of a new sanctions program with Middle Eastern leaders during a trip last month. Edward S. Walker Jr., assistant secretary of state for Near Eastern affairs, held further talks in the region this month.

U.S. officials envision a revised list of banned items. Some items would be taken off because they are considered benign but are now prohibited by the United Nations as "dual use" -- meaning they can be put to either civilian or military purposes. Banned items would be described in greater detail so that countries looking to export to Iraq could better judge whether their shipments would be allowed.Import contracts would continue to be reviewed by Security Council members, but goods that are not explicitly prohibited would be allowed to proceed automatically. If a contract appeared to run afoul of the restrictions, the exporter would have a limited time to clarify the nature of the goods or substitute another item.The goal, officials said, is to "shift the burden of proof" away from the Security Council members who screen trade with Iraq.

Under the existing system, Security Council members have frozen more than 1,500 contracts for imports to Iraq worth about $3.3 billion. The United States has placed holds on the vast majority of the blocked sales, more than $3.1 billion, requesting further information on the products or citing military applications. The new arrangements would remove the need for the United States to put so many goods on hold, the senior State Department official said.To prevent smuggling, the Security Council would dispatch monitors -- either U.N. officials or private contractors -- to work with local customs officers in countries bordering Iraq. Inspectors would also operate at a limited number of airports from which cargo flights to Iraq would be allowed. These monitors would not be a substitute for U.N. weapons inspectors, who were withdrawn from Iraq in December 1998. The Security Council continues to insist they must be allowed to return before sanctions can be eliminated.

Neighboring countries could be compensated for the cost of patroling borders, conducting inspections and other enforcement, perhaps out of the U.N. escrow account where the proceeds of Iraqi oil sales are deposited, the State Department official said.The countries would receive a further incentive for cooperating by receiving discounted prices for Iraqi oil imports, which are regulated by the United Nations.The neighboring countries could reach barter agreements with Iraq, allowing them to pay for oil with local products. Jordan already has such an arrangement with Iraq. Or the money could be placed in escrow accounts that Iraq could use only to buy goods produced in each country, ensuring that Hussein does not retaliate by taking his trade elsewhere, the senior State Department official said.

Turkey, a crucial American ally and the base for U.S. planes patrolling the no-fly zone over northern Iraq, has an enormous amount at stake in how the sanctions program is revamped. Hundreds of Turkish tanker trucks ply the border with Iraq, carrying vast volumes of oil and diesel fuel outside U.N. control. Most families in the poor, unstable corner of Turkey near the Iraqi border depend on the proceeds from smuggling for their livelihood, officials said.The new sanctions program would bring this trade under U.N. control while seeking to ensure that Turkish truckers buy petroleum at a profitable price. It would also ease restrictions on commercial trade, providing other business opportunities for Turkish merchants.

Similar arrangements could be made for Jordan, Syria and Iran, officials said.Turkey has previously balked at stopping the smuggling, arguing it is being singled out. Jordan, sharing similar concerns, last year removed independent Lloyd's of London inspectors who oversaw Iraq-bound shipments at the port of Aqaba.

Although each country faces its own problems, the United States has sought in recent weeks to convince officials in the region that no one neighbor will be unfairly burdened. "This has taken the wind out of a lot of the criticism," a European diplomat said.Powell said he was told by President Bashar Assad during their meeting last month that Syria would put under U.N. control a pipeline that industry analysts say is pumping between 120,000 and 200,000 barrels of Iraqi crude a day. That would take up to $3 million a day out of Hussein's hands.

The revised sanctions program would also target kickbacks that U.N. officials say Iraq is demanding from oil middlemen. These officials said Iraq has been imposing surcharges ranging from 10 to 50 cents a barrel. Two relatively unknown companies from Italy and Malaysia have emerged this year as the leading buyers of Iraqi crude, signing contracts to purchase more than 55 million barrels, according to U.N. diplomats."Many of the current contract holders seem to be intermediaries who are not known in the petroleum industry," according to a confidential U.N. report. "They are very small in size and seem to have limited credit facilities."

U.S. and U.N. diplomats said they suspect that dozens of these trading companies, some with no more than a single employee, are paying Iraq the surcharges in return for cut-rate prices. These middlemen, in turn, sell the oil to major American, European and Asian oil companies, diplomats said.To prevent this diversion of revenue, the new sanctions plan calls for the United Nations to limit Iraqi oil sales to a list of authorized companies that would have to submit to audits.

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