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Rogue States: Why Washington May Ease Sanctions

Should the U.S. overhaul or even lift economic sanctions on rogue states such as Iran, Libya, and Iraq? A major battle will take place in Washington in the coming months over just this issue.

The fight pits powerful interests such as the pro-Israeli lobby and the U.S. oil industry against each other. And it is sure to preoccupy the Bush Administration and Congress. The Administration is currently reviewing both U.S. energy needs and its policy on sanctions. Congress is expected to vote this summer on whether to renew the five-year-old Iran-Libya Sanctions Act, which penalizes U.S. and foreign companies that invest in the two countries' energy sectors. The law expires on Aug. 5. Meanwhile, because of eroding support, the U.N. is likely to revise its tough sanctions policy toward Iraq.

ALL BETS ARE OFF. The issue poses a dilemma for the Bush Administration. Vice-President Richard B. Cheney, former CEO of oil equipment giant Halliburton Co. (HAL), has long considered U.S. sanctions policy ineffective. Richard N. Haass, recently appointed chief of the policy planning office at the State Dept., has also called for gradually easing sanctions on Iran in exchange for better behavior.

But any Administration or congressional decision on sanctions will be tightly bound with the politics of the targeted countries. Iran is the most immediate problem. Presidential elections are scheduled there for June 8. President Mohammad Khatami, who has been fighting to introduce reforms in the Islamic Republic, hasn't yet announced his candidacy. If he runs and loses, all bets are off. But if he runs, wins, and strengthens his position, the U.S. would be in a better position to ease sanctions--especially if Khatami makes a conciliatory gesture such as renouncing terrorism. The American Israel Public Affairs Committee, a Washington-based lobby, would do its best to block such a shift in policy before a clear change in Iran's conduct, however.

Libya and Iraq are also troublesome. Tripoli has declined to pay damages for the infamous Pan Am 103 bombing, even though a Libyan was convicted for the incident. Saddam Hussein refuses to admit U.N. weapons inspectors to Iraq.

Even so, pressure from business is intensifying. "American farmers, workers, and companies have sacrificed without any progress toward U.S. foreign policy objectives," wrote Donald A. Deline, Halliburton's director of government affairs, to Senate Majority Leader Trent Lott (R-Miss.) on Apr. 18.

The reason business argues for an overhaul: massive leakage in the sanctions regime. In March, for example, Japan's state-owned aid bank ponied up 85% of the financing for a $3 billion oil deal with Iran, a move aimed at paving the way for rights to develop part of the country's Azadegan oil field. South Korea wants to bid on $5.5 billion in energy construction projects in Iran.

Although a review of sanctions policy is under way, Administration officials are reluctant to discuss how they plan to square their goals on energy and foreign policy. One way may be to move from broad prohibitions on trade to narrower curbs on items for building weapons of mass destruction such as nuclear technology. Secretary of State Colin L. Powell has proposed such "smart sanctions" for Iraq. Former National Security Adviser Robert C. McFarlane has advised the Administration that such an approach could also work for Iran and Libya. "I'm optimistic the sanctions regime will be changed," he says.

Signs are growing that the Bush Administration would like to go that way. But it will have to be prepared to take a lot of short-term heat for eventual economic gain. Was it a gaffe or an important policy signal? When President George W. Bush went on television on Apr. 25 in a series of interviews to celebrate his first 100 days in office, he shocked China watchers by declaring that the U.S. would do "whatever it took to help Taiwan defend herself" if China attacked the island.

Bush's words seemed to mark a step away from the long-standing U.S. policy of "strategic ambiguity": For years, Presidents have avoided openly stating that America would militarily defend Taiwan, to deter Beijing from attacking and discourage Taiwan from provoking aggression. In a later interview, Bush confused matters further by reasserting U.S. support for the one-China policy--the bedrock of existing relations between the mainland and Taiwan. It assumes that the island will not declare itself independent.

Not to worry, says a White House spokesman. There's no change in U.S. policy. So what's the President up to? Bush may be talking tougher on Taiwan to appease conservatives--including those in his Administration--who want him to do so. Bush's comments came a day after he approved a major weapons sale to Taiwan but not the destroyers equipped with Aegis radar systems Taipei wanted. Some conservatives were disappointed.

Intentionally or not, the President's comments are likely to shake up the Chinese leadership. Beijing already says the U.S. decision on Taiwan arms sales could bring "devastating damage" to the U.S.-Chinese relationship. Expect more tough talk from both Washington and Beijing.

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