Engagement - A Better Alternative

By Kenneth T. Derr, Chairman of the Board and Chief Executive Officer
Chevron Corporation

San Francisco, California

Thank you. For those of you who heard Senator Hagel speak this morning my remarks may sound somewhat redundant. Because I happen to agree with the Senator's position on unilateral sanctions. But perhaps my perspective as a U.S. businessman who has been involved in global trade for almost 40 years will be helpful.

The United States currently has more than 50 unilateral sanctions on 75 countries. And before the 105th Congress adjourned last week there were another 20 unilateral sanctions being considered.

If you look at just the last four years, the United States government has authorized 61 unilateral sanction measures, covering 35 countries, and 42 percent of the world's population.

The U.S. has sanctions against Algeria and Angola . . . Bahrain and Egypt . . . Kuwait, India, Pakistan . . . China and Russia . . . Saudi Arabia . . . Venezuela . . . and Burma . . . to name just a few.

The sanctions on these, and other countries, constitute a confusing maze of overlapping laws and regulations. Laws and regulations that authorize or mandate the deliberate imposition, or threatened imposition, of unilateral economic sanctions to change the behavior of a foreign nation or the conduct of its nationals.

The foreign policy objectives of these laws and regulations can be far-reaching. They can include anything from opposing terrorism, to supporting human rights, to protecting the environment. Punitive actions against the target countries can include a prohibition on all dealings with that country, restrictions on exports and imports, or withholding financial assistance, to name a few.

I could go on . . . but I think you get the idea.

Sanctions are complicated. But that hasn't kept them from being used a great deal. For instance, Burma, by itself, has seven unilateral sanctions currently imposed on it by the United States. China has eleven. Cuba fourteen.

There's not much disagreement on the facts about sanctions.

The debate begins when you start talking about whether or not unilateral sanctions are the best tool for achieving the diplomatic objectives of the United States. How this debate is settled will have long-term repercussions.

It could well decide America's future role in the world -- diplomatically, strategically and economically.

On one side of the debate are those who favor unilateral sanctions -- people who think they're a useful and effective tool for achieving the diplomatic objectives of this country.

On the other side are those who don't favor unilateral sanctions -- people who say there are too many of them, they don't work very well and they hurt U.S. business and take away U.S. jobs.

I think the evidence clearly shows that unilateral trade sanctions just don't work. They never seem to bring about the changes their sponsors hope for. They never seem to punish the people they're meant to punish.

Have unilateral sanctions against Burma . . . or China . . . or Cuba . . . forced a change in their governments' policies?

The answer would appear to be no.

In spite of this the pro-sanctions people remain convinced that sanctions work. America must stand up for what's right they argue. America needs to send a message to these countries that their behavior is unacceptable.

Now we even pass laws imposing secondary sanctions on friendly nations for doing business with these regimes.

Take the Cuban Liberty and Democratic Solidarity Act, for instance. This act -- also known as Helms-Burton -- grants U.S. citizens the right to sue foreign companies that have invested in, or profited from, expropriated properties in Cuba. And it bars from entering the U.S. all officers, principals and shareholders of any company that invests in that property. Unfortunately, the only thing this law seems to have accomplished so far is to infuriate America's friends and allies -- countries like France and Canada.

Because of Helms-Burton, a coalition of Canadian groups proposed a tourist boycott of Florida, putting at risk some of the $1.3 billion spent there each year by 2 million Canadian travelers.

Only Mr. Castro appears to like this law because it allows him, once again, to play David to America's Goliath.

So far, I've only mentioned U.S. federal sanctions.

If you add state and local sanctions it really gets ridiculous. Nearly two dozen cities and counties around the U.S. have imposed unilateral sanctions of their own. Their top targets have been Burma, Nigeria, Indonesia, Cuba and Switzerland.

In the San Francisco Bay Area alone, six cities and counties have imposed ten unilateral sanctions on foreign countries. Don't you think it would be better for our local governments to focus on improving transportation systems, or education, than delving into foreign policy?

Besides their obvious failure to change the behavior of target countries, is there a downside to imposing unilateral sanctions or the United States?

You bet there is.

This country's unfortunate tendency to impose unilateral sanctions on other countries carries a price. And the price is lost opportunities and lost jobs for Americans.

  • The Institute for International Economics estimates that U.S. sanctions cost this country 15 to 20 billion dollars in lost exports -- and that was back in 1995.
  • The National Association of Manufacturers says U.S. sanctions imposed between 1993 and 1996 have cut off export markets worth almost 800 billion dollars.
  • And a 1994 study done by the Council on Competitiveness found that eight specific sanctions cost the U.S. economy 6 billion dollars and 120,000 export-related jobs.

And that's just the export picture.

Unilateral sanctions also bar U.S. companies from competing for new business ventures in the target countries. Countries where our international competitors are under no such restrictions.

So, if sanctions aren't the best tool for bringing about the changes we would like -- and they end up hurting the U.S. economy more than the regimes they target -- what else can we do? What other tool could we use to better people's lives in countries around the world?

I can answer that in one word. Engagement. Unfortunately, engagement sounds too academic. It's really just a fancy word for people working hard to build solid long-lasting relationships with other people. Talking to them, listening to them, working with them, every day.

The fruits of engagement, of course, are not harvested quickly. The positive effects might not manifest themselves for years. But the eventual changes that come from engagement stand a much better chance of becoming permanent.

Look at Indonesia, for example. Anybody who follows the news knows that Indonesia's economy is in pretty bad shape, mainly due to the bad side effects of what some call "crony capitalism." But up until last year, real GDP (Gross Domestic Product) in Indonesia grew at a phenomenal rate of more than 7 percent per year for the 10 years prior to 1997.

GDP per capita had surpassed 1,000 dollars by 1996, compared with 70 dollars in 1965. The growth in GDP was greatly responsible for building up the sizeable Indonesian middle class, the very people who are now pushing for political reform. And it was foreign investment -- from companies like Chevron -- that helped drive the economy that built that middle class.

Democracy, of course, has not yet arrived in Indonesia. But the seeds have been planted.

It's often true that once people become accustomed to economic freedom they usually want a taste of political freedom as well. Once the free market genie is out of the bottle, it's hard to keep the hunger for political freedom bottled up.

But free markets need foreign investment to thrive and foreign investment is impossible if trade sanctions forbid it.

By imposing sanctions I think people are trying to force instant change. Unfortunately, the task of changing people's attitudes and behaviors doesn't lend itself to a quick resolution.

As I said, I think engagement works much better.

There are many examples from Chevron's operations around the world where our employees and the local citizens have benefited from our presence.

In West Africa, for instance, we are producing oil and gas in two countries that are currently under some form of unilateral sanctions: Angola and Nigeria. Fortunately, the current sanctions don't affect our operations.

But history shows that sanctions, once imposed, have a tendency to breed more sanctions.

So, the threat to Chevron's vital West African operations is real, if the U.S. government continues on this path.

Once again, my personal experience, and those of other Chevron employees, shows that engagement is by far the better path.

In Angola, engagement has allowed us to repair and build schools and classrooms. It has allowed us to improve local health care and build and refurbish sports facilities. It's allowed us to provide funds to drill water wells in local communities, support higher education and provide counseling services for those affected by war. None of this would have been possible if the unilateral sanctions imposed by the U.S. on Angola in the early 1990s hadn't subsequently been lifted.

Who's to say what might have happened to Angola if those sanctions had remained. Angola might not have the world-class oil reserves it has today. It's currently the hottest place in the world for finding new oil reserves. If the sanctions had remained, Angola might not be one of this country's most important sources of oil, like it is today. And the citizens of Angola wouldn't have benefited from U.S. investment that has since poured into that country. In fact, the U.S. Export-Import Bank is about to finalize a 350 million dollar loan to help American companies supply equipment to offshore oil producers in Angola.

Even in a country like Nigeria, with all of its current problems, I'm convinced that engagement works better than sanctions.

We're helping to build classrooms and town halls there. We're drilling water wells and even building footbridges to help link local communities. We provide support for university and community scholarship programs and environmental programs through the Lekki Conservation Center -- built and donated by Chevron. We're working with UNICEF to build a rainwater collection and purification system and upgrade sanitation facilities in some of the communities. And, just like Angola, engagement in Nigeria comes with a human face.

Sina Oripenaye, who lives in one of the communities near our operations, recently enrolled in a technical training program sponsored by Chevron. After he completed his training. he made a special point of saying, "I want to thank Chevron for this great opportunity. With the new skills I have acquired, I will be able to contribute to the progress of my community."

Just ask Sina which works better -- sanctions or engagement.

Now let's look at a couple of places where sanctions completely prohibit us and other U.S. companies from doing business. Iraq and Iran.

It might surprise you to learn that even though Iraq possesses huge reserves of oil and gas -- reserves I'd love Chevron to have access to -- I fully agree with the sanctions we have imposed on Iraq. Why? Because Iraq's behavior has been especially egregious -- so much so that other countries have been willing to join the United States by adding sanctions of their own.

And multilateral sanctions, like the ones on Iraq, can sometimes be effective -- unlike unilateral sanctions.

Iran, however, is a different story. Even though it continues to involve itself in actions some find unacceptable, I don't see what good can come from continuing U.S. sanctions on Iran.

For one thing, none of America's allies have chosen to impose their own sanctions on Iran, which makes this country's sanctions on Iran almost useless. There's a new, more moderate government in Teheran, a development that provides the U.S. government with a golden opportunity.

In the ongoing struggle between the hard-liners and the more moderate forces in that part of the world, I think the United States should show its support for the latter by re-establishing relations and dropping its unilateral sanctions against Iran.

Iran is also opening up development of some of its oil and gas projects to foreign investment. Since U.S. companies are barred from participating -- British, Italian and French companies are getting all the business -- which means fewer jobs for Americans.

In late September, I co-signed, along with more than 100 other CEOs , a letter addressed to the President and the members of Congress recommending that we take urgent steps to address the global economic crisis.

  • First, we asked the President, and the members of Congress, to provide the full 18 billion dollars of U.S. funding for the International Monetary Fund. Thankfully, both the House and Senate passed the appropriations bill and President Clinton signed it on October 21.
  • Second, we asked the Administration to renew the President's fast track trade negotiating authority. Unfortunately, the House voted that down by a decisive margin for the second time in two years. Passage of fast track would've shown that the United States had not lost its commitment to free trade and open markets.
  • Third, we strongly encouraged the Federal Reserve to lower U.S. interest rates. As we all know, they did, twice. And finally . . .
  • We asked that the use of unilateral trade sanctions be reformed. Thankfully the possibility of sanction reform is still alive. Unfortunately, the Lugar Amendment which would do much to bring back some sanity to the use of sanctions has been tabled until next year. If enacted, the Lugar Amendment would require the Congress, and the President, to seek answers and report on the following questions before they impose unilateral sanctions.
    1. Is the unilateral sanction likely to be effective in achieving clear-cut U.S. objectives?
    2. What are the likely economic costs for U.S. industry and agriculture?
    3. Is there likely to be a serious backlash against other U.S. humanitarian, security, or foreign policy objectives?
    4. Have other alternatives -- such as multilateral actions or diplomacy -- been tried?

I don't think it's unreasonable to require answers to these questions before we impose sanctions. I therefore encourage the members of Congress, and the President, to pass this critical legislation. We need to get started back in the right direction and stop penalizing American business for the actions of others.

Unfortunately, something happened recently that suggests we're still headed in the wrong direction. Early last month the Senate passed the International Religious Freedom Act by a vote of 98 to nothing. This legislation directs the President to take action against countries that restrict freedom of religion -- actions that include the use of unilateral sanctions. Although the final version of this legislation was watered-down somewhat from the earlier version, it still demonstrates this country's unfortunate propensity to tell other people how to run their countries.

This legislation has the potential to htrade with some of this country's closest allies and trading partners. Countries like Saudi Arabia . . . Turkey . . . Egypt . . . Pakistan . . . India . . . Russia . . . and China . . . to name just a few. As many as 77 countries could be affected by this legislation.

Not too many years ago the United States was a leader in the worldwide movement toward free trade. That movement pushed the combined value of imports and exports in this country from 48 billion dollars in 1960 to nearly 2 trillion dollars today. In spite of that, there seems to be growing desire lately among some people to return to the bad old days of isolationism and protectionism. But I say we can't turn back the clock. Whole sectors of the American economy now rely heavily on overseas markets. Agriculture . . . forestry . . . electronics . . . to name just a few.

Most of the world's population growth is taking place outside the U.S. Tapping those emerging markets is absolutely imperative if U.S. companies are to continue to expand and prosper.

In the last 10 years, U.S. companies have worked themselves into fighting trim and are now leaders in the global marketplace. People used to look to Japan as the model. Today they look to the U.S. This means more growth for U.S. business and more U.S. jobs.

But only if this country can stop imposing sanctions on other countries.

I'm concerned that what our competitors can't do, our elected representatives might do. Put handcuffs on us. We need to move away from this trend towards isolationism and protectionism and move towards unrestricted free trade.

Sanctions won't get us there.

Engagement will.

Thank you very much.

Updated: November 1998