U.S. Department of State
Dispatch Volume 7, Number 40, September 30, 1996
Bureau of Public Affairs


ARTICLES IN THIS ISSUE:
1. The Challenges of Globalization - Joan E. Spero
2. Developments in the Middle East - Robert H. Pelletreau
3. Lebanon:   Prospects for Peace, Security, and Economic Development - 
Elizabeth D. McKune



ARTICLE 1:

The Challenges of Globalization
Joan E. Spero, Under Secretary for Economic, Business, and Agricultural 
Affairs
Address to the fifth World Economic Development Congress, Washington, 
DC, September 26, 1996

It is a pleasure to be here with you for this fifth annual meeting of 
the World Economic Development Congress. I would like to talk to you 
today about the challenges of the increasing integration of the world 
economy. The evidence for globalization is striking:

--Capital now moves with startling speed around the world. Each day over 
$1 trillion is traded in a global foreign exchange market that never 
closes.

  --  Technological advances in computers and telecommunications are 
paving the way for a new information-based economy.

  --  Even small and medium-sized companies recognize that the 
competition for market share is global and that participating in the 
global economy is no longer a choice but a necessity.

What is the role of governments in shaping the new global economy? 

One role is to get out of the way--to remove barriers to the free flow 
of goods, services, and capital. But, just as free markets at home 
require an appropriate legal and institutional framework to function 
properly, so a more integrated world economy demands effective 
international institutions and "rules of the game."  These can only be 
established through cooperation among governments. Moreover, the 
domestic economic choices that governments make will have a major impact 
on international patterns of trade and investment, as well as on the 
prosperity of individual countries.

Globalization presents governments with three principal challenges:   
First, how should we further shape a new international economic 
architecture; second, what are the new issues and rules which 
globalization requires us to address; and lastly, how can we attempt to 
assure that all countries and all segments of society benefit from 
globalization?

Economic Architecture

Let me turn first to the new global architecture. By that I mean the 
institutions and structures of the international economic system. In the 
post-World War II era, the United States gave strong support to the 
establishment of a formal international architecture based on the 
Bretton Woods institutions, the GATT, the OECD, and the European Common 
Market. Despite occasional setbacks, this architecture served the needs 
of its era well, and promoted global prosperity and security.  But the 
demands of the current era of globalization on international 
institutions are likely to be much greater.

The lines between domestic and international financial markets have 
increasingly blurred, requiring closer international cooperation in 
monitoring financial institutions. Trade negotiations are as concerned 
with ensuring that domestic policies of individual countries promote 
open market competition as they are with traditional trade barriers, 
such as tariffs. Thus, the relationship between regional economic 
arrangements and the overall global system will have to be even more 
carefully coordinated.

The international financial institutions created at the Bretton Woods 
Conference--the World Bank and the IMF--show how the objectives of key 
parts of the international architecture can evolve over time. While the 
Bank and the Fund were originally established to finance European 
reconstruction and to manage the fixed exchange rate system, they have 
assumed a series of new roles as the global economy has evolved:   
recycling petrodollars in the 1970s, resolving the developing-country 
debt crisis of the 1980s, and aiding the transition to the market in 
formerly socialist economies during the 1990s.

The international financial institutions will remain an important 
element of our economic architecture in coming decades. They will need 
to continue providing guidance and assistance to developing and 
transition countries seeking to reform their economies and follow a 
market-led strategy of development. They also will become increasingly 
involved in assisting environmentally sustainable development, 
alleviating poverty, promoting good governance, and encouraging private 
capital flows.

The recent Mexican peso crisis underscored the extent to which financial 
turbulence in a major emerging market country could threaten global 
financial stability. Subsequent events have demonstrated the 
appropriateness of the international response to the Mexican crisis. 
However, the experience has revealed weaknesses in existing 
international arrangements. A new facility will double the financial 
resources available to the IMF through the General Arrangements to 
Borrow, and will strengthen the ability of the IMF to manage similar 
crises in the future.  The IMF also has improved its ability to identify 
potential crises in advance and take preventive steps through stronger 
surveillance of economic policies.

The successful conclusion of the Uruguay Round resulted in a much needed 
strengthening of our multilateral trade regime. The Uruguay Round 
agreement cut tariffs on manufactured products by more than one-third--
the largest reduction in history. For the first time, international 
trade rules were established to cover trade-in-services as well as 
trade-related investment and intellectual property issues. The Uruguay 
Round agreement also established more effective rules for the prompt 
settlement of disputes.

From an institutional standpoint, of course, the most important 
accomplishment of the Uruguay Round was the creation of the World Trade 
Organization. The WTO provides a permanent forum for resolving disputes 
and for further expanding the scope of multilateral trade rules. The 
first WTO ministerial meeting will be held this December in Singapore. 
It will need to make progress in completing the work of the Uruguay 
Round, in particular the unfinished agreements on basic 
telecommunications and financial services. It will also need to look 
ahead to new issues such as environmental and core labor standards and 
transparency in government procurement.

Regional initiatives also can provide an important impetus for 
international economic integration. A smaller number of countries may be 
able to reach agreement on liberalization measures that go beyond what 
could be achieved at a global level. Their experience also may provide 
valuable lessons for rules or approaches that could be adopted more 
generally and serve as a catalyst for multilateral liberalization.

The United States is building new economic relationships through 
regional efforts in Asia, the Americas, and Europe. Our participation in 
the Asia-Pacific Economic Cooperation forum, or APEC, reflects the great 
importance the United States attaches to economic engagement in that 
dynamic region. First established in 1989 as a loose consultative 
organization, APEC reached a turning point in 1993 when President 
Clinton brought the 18 APEC leaders together for the first time in 
Seattle. The following year, APEC leaders pledged to achieve free and 
open trade and investment in the Asia-Pacific region by 2010 for 
developed countries and 2020 for developing ones. This fall in Manila, 
APEC members will put forward explicit national and regional action 
plans to open markets.

Here, in the Western Hemisphere, countries have joined together to 
support the spread of democracy and to bolster the process of economic 
reform underway in the region. In December 1994, President Clinton 
hosted 34 democratically elected leaders at the Summit of the Americas 
in Miami. There, we committed to strengthen democracy, combat poverty, 
promote prosperity, and protect the environment. We also agreed on a new 
framework for regional cooperation, including the creation of a "Free 
Trade Area of the Americas" by 2005.

Our partnership with Europe also has been updated to meet new 
challenges. Economic cooperation is at the heart of the New 
Transatlantic Agenda we have launched together with leaders of the 
European Union. The Agenda calls for the establishment of a "New 
Transatlantic Marketplace" in which trade and investment barriers will 
be reduced or eliminated.

Finally, I want to point out that business is an especially active 
participant in each of these regional arrangements. Last year in Osaka, 
the APEC leaders established a Business Advisory Council to 
institutionalize the critical role of business in APEC and to ensure 
that the views of the business community are fully considered in setting 
new polices. In Europe, a Transatlantic Business Dialogue composed of 
200 CEOs from American and European companies keeps us focused on 
actions of potential benefit to the private sector.

Emerging Issues

In addition to designing a new international economic architecture, we 
also need to redefine the agenda of these institutions and to identify 
those issues which need to be addressed more effectively in the future. 
The potential list is too extensive to cover comprehensively today. Let 
me focus on three which should be of particular importance to this 
audience:   investment, telecommunications, and corruption.

Foreign direct investment has become perhaps the single-most powerful 
force behind global economic integration. In 1992, the worldwide sales 
of foreign affiliates of multinational companies reached an estimated 
$5.3 trillion, over $700 billion more than total global exports of goods 
and services that year. Foreign direct investment also has spread new 
technologies and improved skill levels, especially in developing 
countries.

In today's global marketplace, trade often follows investment, so host 
government regulations on foreign investment can have a major impact on 
trade flows. That is why we need improved international rules on 
investment. The inclusion of trade-related investment measures in the 
Uruguay Round agreement was an important first step. The United States 
has taken the lead in pushing for a multilateral agreement on investment 
in the OECD, which would establish a broad, multilateral framework for 
international investment. We want a "state of the art" agreement with 
high standards for the liberalization of investment regimes and 
investment protection and with effective dispute settlement procedures. 
The agreement would be open to any country, including non-OECD members, 
willing to accede to its disciplines.

As I noted earlier, the current revolution in telecommunications is 
another key factor in the accelerating pace of globalization. Increased 
competition and improved technology have led to a dramatic decline in 
communications costs. The real cost of making a three-minute phone call 
from New York to London dropped 99% from the 1940s to 1990.

But to realize the full potential of recent advances in communication, 
we need to build a Global Information Infrastructure--GII. This new GII 
should be based on the five principles adopted by the International 
Telecommunications Union:   private investment; market-driven 
competition; flexible regulatory systems; non-discriminatory access; and 
universal service. While considerable progress has been made in 
developing the GII over the past two years, much important work remains 
to be done. New international rules on telecommunications services 
clearly are required. The United States has urged all countries to 
improve their offers in the current WTO negotiations on basic 
telecommunications services and to conclude an agreement by next 
February. We are also pressing for an information technology agreement 
that would eliminate tariffs on a wide range of technology products by 
the year 2000.

Bribery and corruption undermine the most basic principles of good 
governance and the rule of law, and pose an obstacle to economic 
development and fair market competition. This has led the United States 
to push for tougher international rules on corruption.  

While most countries prohibit bribery of their own officials, only a 
few--including the United States--prohibit bribery of foreign officials. 
Earlier this year, the Organization of American States concluded an 
Inter-American Convention Against Corruption. It commits member 
signatories--26 so far, including the United States--to criminalize 
bribery of foreign officials. OECD members also agreed that the tax 
deductibility of bribes should be prohibited and committed themselves to 
working on the next step--criminalizing bribery. This will not only 
improve economic efficiency and spur economic growth, but will also 
level the playing field for business.

Spreading the Benefits

The third and final question I would like to consider today is perhaps 
the most difficult and troubling:   How can we spread the gains of 
globalization more broadly, so that developing countries and all 
segments of society in wealthy industrial countries also benefit?

Poor countries with weak links to the global economy risk falling 
further behind in the next decade. A return to the rhetoric of 
redistribution that dominated the debate over a "New International 
Economic Order" in the 1970s is not the answer. The old statist model of 
economic development has been discredited, as has the view that the 
international economic system is fundamentally biased against developing 
countries. Experience has led to a new consensus on development.  
Successful growth depends primarily on national policies that promote 
macroeconomic stability, trade and investment, human capital formation, 
and good governance.

But such policies may not be enough on their own to restore growth in 
some of the most economically distressed countries. The international 
community therefore will need to continue providing substantial flows of 
development assistance. More explicit emphasis should be given to 
promoting sustainable development, alleviating poverty, and encouraging 
economic reform. Multilateral development banks can play an important 
role in promoting good governance and the development of small- and 
medium-scale private enterprises. And we can promote trade and 
investment opportunities.

Globalization presents challenges for developed countries as well. It 
has been blamed for high unemployment in Europe and the stagnation of 
real wages in the United States. But increased competition from imports 
is, at most, a secondary explanation for the decline in real wages of 
less skilled American workers. Two other factors are almost certainly 
more important:   

  --  Some slowdown in U.S. productivity growth; and 

  --  Technological changes that increase the demand for better-educated 
workers.

In fact, the deepening of international integration in coming decades 
should stimulate economic growth in the U.S. and encourage the creation 
of new, better-paying jobs. During the past 15 years, U.S. exports have 
risen at a faster annual rate than those of any other G-7 country, 
including Japan. The United States was the world's leading exporter 
again in 1995, and our exports support jobs that pay 12-18% more than 
comparable positions in non-exporting firms. 

While the benefits to the United States of participation in the world 
economy are clear, we can only maintain domestic support for further 
trade liberalization and economic integration if the process is 
perceived as fair and equitable. In the short run, liberalization can 
involve adjustment costs. NAFTA recognized this fact and included 
innovative provisions designed to provide transitional assistance to 
displaced workers. NAFTA also recognized the need to set and enforce 
basic labor standards. The United States believes that the issue of the 
relationship between trade and labor must now be addressed in the WTO.

Conclusion

President Clinton has made preparing Americans to compete in the 21st 
century a top priority of his administration. The Clinton Administration 
has stressed the need to invest in training and education to ensure that 
American workers have the skills needed to succeed in the new global 
market. It has committed to ensure access for all Americans to 
telecommunications and information technology.  It has reduced the 
budget deficit, creating a more stable macroeconomic environment for 
private saving and investment. And it has taken the lead in reforming 
the international economic architecture, increasing trade and investment 
opportunities for American firms and creating jobs for American workers.

The future impact of globalization will vary from country to country and 
within countries. But efforts to resist the powerful technological and 
economic forces behind globalization by appealing to protectionism are 
misguided and, in the long run, futile. Rather than fear the future, we 
must redouble our efforts at international economic cooperation. We must 
strengthen the architecture of global and regional institutions to 
promote open trade and investment and prosperity for all. This is the 
best way to ensure that the benefits of globalization will spread to all 
corners of the world and to all sectors of society. 

(###)



ARTICLE 2:


Developments in the Middle East
Robert H. Pelletreau, Assistant Secretary for Near Eastern Affairs
Statement before the House International Relations Committee, 
Washington, DC, September 25, 1996

Mr. Chairman, distinguished members of the committee:   I am pleased to 
appear before you to review recent developments in the Middle East and 
North Africa. I would like to focus my remarks on the central elements 
of U.S. policy in the region:   the Middle East peace process, our 
response to Iraq's aggression and international terrorism, and U.S.  
cooperation with our allies in the Persian Gulf.

An extraordinarily wide range of U.S. national interests converge in the 
Middle East. Among these crucial national interests are:

  --  Achieving a just, lasting, and comprehensive peace between Israel 
and its neighbors;
  --  Maintaining our long-standing commitment to Israel's security and 
well-being;
  --  Combating terrorism and countering the spread of weapons of mass 
destruction;
  --  Nurturing close relations with our Gulf allies and ensuring the 
United States' access to the area's vital petroleum reserves;
  --  Promoting democracy and respect for human rights and for the rule 
of law; and
  --  Enhancing business opportunities for American companies. 

Promoting these interests requires that we continue our active political 
engagement in the region and back it with American military power--with 
the support and cooperation of our allies whenever possible. We are 
putting special energy into containing the disruption from rogue regimes 
in Iraq, Iran, and Libya, and into denying the benefits of membership in 
the community of nations to extremists who foment conflict.

Middle East Peace Process

The United States has been active in the quest for an Arab-Israeli peace 
since the creation of the state of Israel in 1948. This Administration 
has maintained this steadfast involvement and commitment. Under U.S. co-
sponsorship, Israel and the Palestinians have engaged in almost 
continuous negotiations since the Madrid peace conference in October 
1991. Prime Minister Rabin and Chairman Arafat shook hands on the White 
House lawn three years ago this month. Israel and the Palestinians have 
signed two major agreements which are major steps along the road to 
peace. Also since that handshake, Jordan has signed a peace treaty with 
Israel; the Arab League economic boycott of Israel has virtually 
withered away; and Israel has exchanged official representatives with 
Morocco, Tunisia, Oman, Qatar, and Mauritania.

Continued U.S. engagement has been crucial to keeping the peace process 
on track despite numerous setbacks and challenges by extremists and 
other opponents of peace. After eight days of shuttle diplomacy in 
April, Secretary Christopher negotiated an understanding that created a 
new mechanism for calming the situation along the Israeli-Lebanese 
border. After fanatics launched a series of terrorist attacks in Israel 
earlier this year in the hopes of putting new obstacles between Israel 
and the Arabs, President Clinton gathered 29 world leaders at Sharm el-
Sheikh to condemn terrorism and express their support for Israel and the 
peace process. The U.S. has kept up its level of engagement with both 
Israel and the Arabs since the election of the new government in Tel 
Aviv because we believe that progress in the peace process is not only 
possible, but necessary.

Palestinian Track. Over the last 31/2 years, Israel and the Palestinians 
have been engaged in a historic process of reconciliation. Our support 
has been crucial as they have taken courageous decisions for peace. As a 
result of existing Israeli-Palestinian agreements--including the Interim 
Agreement signed in Washington a year ago--Palestinians now govern 
themselves throughout Gaza and most cities of the West Bank; Israeli and 
Palestinian security forces cooperate to root out the terrorist 
infrastructure of HAMAS and the Palestinian Islamic Jihad.

The U.S. has been working closely with Prime Minister Netanyahu's 
government and with the Palestinians to keep up the momentum of 
cooperation across a broad range of issues, political and economic. We 
were pleased by the historic meeting between Prime Minister Netanyahu 
and Chairman Arafat earlier this month.

Only four days later, Prime Minister Netanyahu met with President 
Clinton in Washington and firmly restated his government's commitment to 
achieving peace with the Palestinians. The Prime Minister indicated that 
the Israeli Government remains committed to implementing existing 
agreements and to building on them toward a comprehensive peace in the 
region. The Palestinians also remain committed to progress in this 
historic reconciliation between two peoples whose conflict has unsettled 
the entire region.

We continue to monitor carefully Palestinian compliance with commitments 
to Israel, and we remain satisfied that they are adhering to bilateral 
agreements. On August 12, the President once again stated his 
determination, pursuant to the Middle East Peace Facilitation Act, to 
renew the suspension of certain statutory restrictions on the PLO, based 
on the assessment in the report to Congress of July 13. That assessment 
noted that, in the security area, the Palestinian authorities have 
mounted a sustained campaign against the perpetrators of violence and 
terrorism, particularly HAMAS and Islamic Jihad.

Both Israel and the United States 
are committed to strengthening the economic underpinnings of peace. We 
have taken a leadership role in stimulating the international donor 
community to advance economic development in the West Bank and Gaza. 
Earlier this month, at a U.S.-hosted meeting of the Ad Hoc Liaison 
Committee--the principal coordination mechanism for the West Bank/Gaza 
donor effort--donors examined ways to accelerate assistance and laid out 
a program for the coming months. About $1.2 billion of the five-year 
total of $2.9 billion pledged by the donors has already been disbursed 
since September 1993. About $195 million of the United States' five-year 
pledge of $500 million has been released.

Syrian Track. The United States continues to believe that only a 
comprehensive peace will be a durable peace. For this reason, we have 
long encouraged and facilitated negotiations between Israel and Syria 
and Israel and Lebanon. Both the new Israeli Government and the 
Government of Syria have made clear that they are committed to achieving 
a peaceful settlement of their conflict through negotiations. Gaps exist 
between the two parties on a variety of issues, including the basis on 
which to resume their direct talks. Nevertheless, both have indicated 
that they would like to see negotiations resume and will work with us to 
that end. We are currently in contact with both parties and will 
continue to try to develop an agreed formula for resuming their 
negotiations.

Lebanon Track. We also are interested in seeing the resumption of 
negotiations between Israel and Lebanon, and we have continued to urge 
both sides to be prepared to exploit opportunities for peace. The 
Lebanese Government has indicated that it looks forward to proceeding as 
soon as a favorable atmosphere develops. And Israel,  focused on 
security concerns along its border with Lebanon, would also like to see 
negotiations resume. We will adopt a practical approach to the issues 
when the negotiations begin again.

The Israel-Lebanon Monitoring Group called for by the April 26 
understanding brokered by Secretary Christopher has held several 
meetings since beginning operations in July. The Monitoring Group has 
helped ease tensions in southern Lebanon by affording Syria, Lebanon, 
and Israel a forum for avoiding escalation. The United States is also 
organizing a meeting of a consultative group called the Friends of 
Lebanon to assist in Lebanon's reconstruction. We hope to convene the 
meeting in October.

On September 15, Lebanon completed a five-week cycle of elections in 
which all 128 members of the parliament were chosen. The elections 
appear to have enjoyed a good turnout in most regions, based on 
historical standards. Despite significant flaws, we believe these 
elections represent a step forward for Lebanon. They underscore the 
Lebanese people's desire to put the war years behind them and to focus 
on strengthening their institutions and advancing national 
reconciliation.

Jordan Track. The treaty of peace signed by Jordan and Israel in October 
1994 is a model for regional peace and reconciliation. In January of 
this year, the two sides signed the last of 14 implementing agreements 
called for in the treaty, covering such areas as tourism, trade and 
economic cooperation, energy, and transportation. Commercial air service 
between Tel Aviv and Amman began in April. Israeli Prime Minister 
Netanyahu visited Jordan on August 5, and there is active and regular 
dialogue between Jordanian and Israeli officials at all levels. We also 
are witnessing the beginnings of cooperative ventures in private sector 
areas, such as agriculture and manufacturing--small steps, perhaps, but 
important to laying the foundation of a lasting peace.

The commitment shown by President Clinton and the U.S. Congress to 
assist Jordan has bolstered King Hussein's resolve and highlighted the 
benefits of peace for the Jordanian people. Jordan's bold steps toward 
peace with Israel have been matched by equally courageous domestic 
economic reforms that will lead to economic well-being and strengthen 
Jordan as a bulwark for peace and stability in the region. These reforms 
have not come without pain and disruption for the Jordanian people. We 
appreciate the Congress's generous support for Jordan's economic 
development and security.

Multilateral Initiatives. Israel's bilateral negotiations with Syria, 
Lebanon, Jordan, and the Palestinians are only part of the peace 
process. The peace process's multilateral track complements the four 
bilateral tracks by fostering regional cooperation on issues of broad 
importance such as water, the environment, economic development, 
refugees, and arms control and security. This work takes place in the 
multilateral working groups. We believe that the tangible economic 
progress resulting from these activities will give the people of the 
region a greater stake in the peace process and strengthen the economic 
underpinnings of peace.

The Water Resources Working Group, chaired by the United States, is 
undertaking major initiatives in the areas of water conservation; 
regional water data banks; water supply and demand; and desalination.

The Environment Working Group's activities include an oil spill 
contingency project in the Gulf of Aqaba; an initiative for combating 
desertification; a project on the environmental health effects of 
pesticides; and a project on wastewater treatment and reuse.

The Working Group on Regional Economic Development has created a 
Regional Business Council and a Middle East-Mediterranean Travel and 
Tourism Association to harness the commercial possibilities of a region 
rich in entrepreneurial talent.

The Middle East-North Africa Economic Summit process, begun two years 
ago in Casablanca, is one of the most important multilateral 
initiatives. Last October, more than 1,000 business leaders, along with 
government representatives from 70 countries, came together in Amman to 
formulate plans for regional economic integration, private investment, 
and regional economic institutions. We look to this year's economic 
summit in Cairo in November to build on the foundations laid in 
Casablanca and Amman.

The regional economic cooperation stimulated by the Casablanca and Amman 
summits has broadened Israel's involvement in the regional economy and 
helped bring Israel out of political isolation. The Arab League boycott 
is a vestige of the past, and Israel is actively engaged in a range of 
economic projects with Jordan, Egypt, and the Palestinians.

The Middle East Development Bank (MEDB) can play a crucial role in 
supporting the economic framework necessary for a durable peace, and we 
urge the committee to support the Bank. The Bank is designed as an 
innovative financing institution, emphasizing co-financing with the 
private sector and other financial institutions. Its mandate is to 
promote private sector growth and entrepreneurship; support regional 
development projects, particularly trans-border infrastructure; and 
enhance regional economic policy dialogue and coordination.

The Persian Gulf

The eastern Mediterranean is not the only part of the Middle East where 
the United States actively secures regional peace and stability. Both 
Iran and Iraq blatantly disregard international norms of behavior, seek 
to dominate the Gulf and its petrochemical resources, and pose a direct 
threat to their neighbors. The United States is committed to preventing 
either of these rogue states from asserting hegemonic influence over the 
Gulf or acquiring weapons of mass destruction.

Iraq. Our policy objective on Iraq is constant:   to deter the threat 
the Iraqi regime poses to the peace and security of a region of vital 
national interest to the United States.

We want to see a unified Iraq at peace with its neighbors and its own 
people, and we want economic growth and normal international commerce  -
-  including in oil. However, Saddam Hussein's Iraq uses force against 
its neighbors and its people; it represents a threat to the wider Middle 
East; and it is pursuing weapons of mass destruction.

U.S. Policy and Actions. Our policy is to contain Iraq, employing 
political, economic, and military measures. This policy has enjoyed 
bipartisan support through two administrations. Each time Iraq has 
endangered the region's security, the United States has been there to 
confront it and to isolate the Iraqi threat.

The key elements of containment are:

  --  Inspections and monitoring by UNSCOM to prevent Iraq's pursuit of 
weapons of mass destruction;
  --  A strong UN sanctions regime;
  --  No-fly zones below the 33rd parallel and above the 36th parallel 
to prevent Iraq's use of air power; and
  --  A no-drive zone pursuant to UNSCR 949, whereby Saddam is 
prohibited from reinforcing his ground forces in the south.

In response to Saddam's latest aggression--his attack on Irbil on August 
31--the U.S. expanded the southern no-fly zone. We launched air strikes 
against air defense sites in the south to protect our aircrews enforcing 
the new zone. Together with the British, we warned Iraq not to threaten 
coalition aircraft enforcing the zones and said we would do whatever is 
necessary to protect our pilots.

The seizure of Irbil required a strong, immediate response. Failure to 
make Saddam pay a price would have emboldened him to act again--next 
time even more recklessly and more dangerously for our interests. We 
chose the time, manner, and place of our response. We imposed a 
strategic cost on him by expanding the no-fly zone in the south. We now 
control the skies from the Kuwaiti border to the suburbs of Baghdad. We 
have strengthened the strategic straitjacket on the Saddam regime. 

The Iraqi regime initially reacted to the expansion of the no-fly zone 
by threatening coalition aircraft, but it 
has stated since that it is ceasing such threats. However, we will judge 
Saddam by his actions, not his words, and we will respond by the means 
of our choosing.

The containment of the Iraqi regime is not a struggle only between the 
U.S. and Iraq. There is broad and enduring support within the 
international community for containing Saddam. Even those who did not 
explicitly endorse our actions have no illusion about the threat from 
Saddam. The British and French patrol the no-fly zones with us and have 
agreed to increase the number of patrol flights. Our regional friends--
including Saudi Arabia, Kuwait, and Bahrain--welcomed the deployment of 
additional U.S. aircraft and troops and have continued to provide the 
essential cooperation on which our ability to contain Saddam depends.

In the north, the situation is fluid in the wake of the August 31 
seizure of Irbil and the subsequent KDP capture of Suleimaniya and most 
of the Kurdish part of Iraq. I met with KDP leader Barzani in Ankara on 
September 18. I left no doubt of the U.S. Government's view that 
reliance on Saddam Hussein's armed forces could not ultimately serve the 
interest of the citizens of northern Iraq. Barzani said that Iraq's 
military intervention was limited to Irbil. He said the KDP was in the 
process of consolidating its control over northern Iraq without Iraq's 
assistance and that his goals were to see stability reestablished 
through cooperation among the communities and groups in the north and to 
see international humanitarian assistance resumed. He hoped there would 
be continuing U.S. involvement in the north. He gave us assurances that 
he would do his best to protect Americans and other foreign citizens 
engaged in international assistance or monitoring and any Kurds or 
others who were associated with them. We expect to continue discussions 
with the KDP and other groups in the north and follow developments 
closely. We also will maintain contacts with the PUK.

Because the situation is still uncertain, we have, with Turkish 
cooperation, moved all those who were employed by the United States and 
their families out of the north to facilities in Guam where they are 
being processed for entry into the United States. We are working with 
NGOs who received U.S. assistance to compile lists of their employees 
and families who might be endangered and to move them out of northern 
Iraq as well. Mr. Barzani is cooperating fully with these efforts.

The international framework of Security Council resolutions remains 
intact. The Security Council on September 3 unanimously agreed to 
continue the sanctions. We will work to maintain them until the Iraqi 
regime complies fully with all UN resolutions, including those dealing 
with weapons of mass destruction. Saddam must be shown that his refusal 
to cooperate with UN inspections of Iraq's program for weapons of mass 
destruction is unacceptable. Finally, we will work closely with our 
allies to keep up the vigilance of the international coalition that is 
so vital to containing Iraqi adventurism.

In closing my remarks on Iraq, I wanted to address a specific question 
from Representative Gilman regarding Syrian-Iraqi relations. We have 
heard rumors of a resumption of Syrian border trade with Iraq. The U.S. 
is opposed to actions of any state which violate the sanctions regime 
against Iraq.

Iran. Since I last appeared before this committee, Congress passed the 
Iran and Libya Sanctions Act of 1996, and President Clinton signed it 
into law. The Department's Bureau of Economic and Business Affairs, in 
consultation with my bureau and others, is currently devising guidelines 
and procedures for implementing this law. We expect this process to be 
completed soon. In the meantime, we continue to work to deter foreign 
investment that would increase Iran's revenues. We also are gathering 
the information needed to make the determinations required under the 
act.

The act demonstrates American leadership to compel Iran to change its 
rogue behavior, and this committee deserves a good deal of the credit. 
This has not been popular legislation among most of our friends and 
allies, but it underscores the gravity with which we regard Iran's 
several threats:   support of terrorism, including support for groups 
that use violence to oppose the Middle East peace process; pursuit of 
weapons of mass destruction and the means to deliver them beyond Iran's 
borders; and meddling in the affairs of neighbors.

The Sanctions Act and earlier steps by the U.S. have begun to slow 
investment flows to Iran. Last November, Iran hosted a petroleum 
conference to promote a dozen projects Tehran was opening for foreign 
investment. Nearly a year later, not one of these deals has gone 
through. The U.S. has made Iran a more risky prospect, economically and 
politically. As long as Iran pursues aggressive external policies, we 
will continue seeking to deprive it of external financial support and to 
develop international economic pressure to change its threatening 
behavior. The Sanctions Act helps us do this and bolsters the impact of 
the unilateral trade and investment embargo President Clinton imposed 16 
months ago.

Securing the support of our allies is important to our overall strategy 
of containing Iran. Although the European states have not participated 
in our embargo and do not support the Sanctions Act, they have reduced 
their commercial ties with Iran. The European strategy remains one of 
engaging Iran in a "critical dialogue," although the Europeans admit 
that such dialogue has had little impact on Iran's behavior. We continue 
to urge the EU to add an element of economic pressure to its dialogue to 
effectively challenge Iran's renegade activities. 

Our allies also have agreed on the need to block Iran's efforts to 
develop its conventional military capabilities and acquire technology 
needed for its program to develop weapons of mass destruction. The 
Wassenaar Arrangement enshrines a commitment by 33 weapons-producing 
countries not to sell arms or sensitive dual-use items  to military end-
users in countries of concern, including Iran. Russia, formerly Iran's 
largest arms supplier, is a party to this commitment. In addition, most 
nuclear supplier states have agreed not to provide Iran with any form of 
nuclear cooperation. Russia and China remain important exceptions to 
this international consensus. We believe our mutual interests are served 
by ending all existing nuclear cooperation with Iran, and we continue to 
make this case at the highest levels in Moscow and Beijing.

The Gulf Cooperation Council. Our Persian Gulf policy consists of two 
elements, of which countering Iraqi and Iranian hegemonic aspirations is 
only one. The second is to sustain close political, economic, and 
security relations with the states of the Gulf Cooperation Council 
(GCC). 

The U.S. works closely with the six states of the GCC to contain the 
military threat from Iran and Iraq. Working with U.S. Central Command, 
we have made steady progress in improving security cooperation with 
these states since Desert Storm. Our approach has three dimensions. 
First, we help each Gulf state strengthen its own defense forces through 
our defense sales and training programs. Second, we encourage regional 
defense cooperation among the Gulf states through the GCC's collective 
security arrangements. Third, we promote bilateral U.S. security 
cooperation with individual states. 

In this last area, we have made dramatic strides since 1991:   
increasing U.S. forward presence in the region in a careful, non-
permanent way; pre-positioning equipment in Kuwait and Qatar; and 
carrying out an expanded program of land, sea, and air training 
exercises with the GCC states. We are also steadily increasing our 
regional consultation and intelligence exchanges.

As the heinous bombing of our troops in Khobar, Saudi Arabia, reminds 
us, security has many dimensions, including security from terrorist 
attack. In many parts of the Gulf, local and foreign extremists work 
against U.S. interests as well as those of our friends. As we respond to 
this threat, we must weigh measures to preserve security and order 
against their potential to inflame domestic extremism. We believe that 
our current efforts to increase security and economic cooperation both 
advance U.S. national interests and increase stability among Gulf 
states.

Although internal tensions exist in many GCC countries--notably Bahrain-
-the GCC states are politically stable overall. All the GCC states are 
able to work with internal opposition effectively. The rulers of the GCC 
states are acutely aware of the need to address the reasons for internal 
dissent of a portion of their populations. While this internal political 
concern may affect the scope of bilateral cooperation in some areas, it 
is not evidence of a serious lack of internal stability.

The U.S. has considerable economic and commercial interests in the Gulf 
states, and we are working hard  --  particularly within the framework 
of the U.S.-GCC economic dialogue--to expand this aspect of our 
relations.  We encourage Gulf states to privatize and open up their 
economies and to promote free trade through easing investment 
restrictions and protecting intellectual property rights. Four of the 
six GCC members have joined the World Trade Organization (WTO); 
applications for the other two are under active consideration. 
Economically as well as politically, the GCC states are important 
partners for the United States and linchpins of the peace process.

Other Middle East Partners and Problems

Egypt. Egypt remains a key partner in the search for peace and security 
because of its historical influence in the region and its close 
relations with all parties. President Mubarak has provided a constant, 
constructive influence on the Israeli-Palestinian track and has been 
instrumental in encouraging Syria and other Arab states to remain 
engaged in the peace process. The dialogue between Egypt and Israel 
needs to be strengthened as the parties to the negotiations grapple with 
both old and new issues.

The "Gore-Mubarak" Partnership  --  officially known as the "Partnership 
for Economic Growth and Development" between the United States and 
Egypt--operates through several high-level, public and private sector 
committees to promote expanded economic growth and job creation in Egypt 
and to strengthen economic and commercial ties between our two 
countries. We have discussed with the Egyptian Government--most recently 
during the July visit to Washington  by President Mubarak--the need for 
Egypt to maintain momentum in its creation of a business environment 
favorable to investment, including the implementation of policies to 
spur privatization, liberalize trade, develop a unified commercial law, 
create a dispute settlement process, and protect intellectual property 
rights.

Economic reform efforts encouraged by the Partnership have begun to pay 
off. Since Prime Minister Ganzouri took office in January, the Egyptian 
Government has taken action to speed up privatization, ease foreign 
investment restrictions, and reduce trade barriers. The implementation 
of these reforms will help promote economic opportunities and greater 
prosperity for Egypt's 62 million people. We look to the Cairo Economic 
Summit to add to the momentum of Egypt's growth and reform.

Algeria. The Algerian Government also has made some headway in the 
months since President Zeroual's election in November 1995 toward 
obtaining a political consensus for a return to legislative elections. 
At a "national entente" conference held in Algiers on September 14-15, 
Algerian delegates endorsed the broad principles proposed by President 
Zeroual. However, several opposition parties boycotted the conference, 
charging that the process is insufficiently democratic.

The United States supports the government's efforts to foster national 
reconciliation based on political pluralism and democratic institutions, 
but our continued support is conditioned on real progress. Continued 
crackdowns on newspapers and limitations on the functioning of political 
parties will call into question the seriousness of the government's 
intentions. We are also concerned that the essential economic reform is 
stalling. I have held and will continue to hold consultations on the 
political process--including the need to open the process to groups of 
all persuasions who reject violence, including Islamists--with both 
Algerian party leaders and government officials.

Libya. Libya's renegade leadership poses a threat to the United States 
and our allies through its support for terrorism and its efforts to 
develop weapons of mass destruction. Despite international condemnation, 
Libya is constructing the world's largest underground chemical weapons 
facility near Tarhunah, about 60 kilometers from Tripoli. We have 
collaborated closely with our allies to prevent Libya from acquiring the 
technology it needs to make this nightmarish facility a reality. No good 
can come from a state sponsor of terrorism with this kind of destructive 
capability.

On July 19, the UN Security Council voted for the 13th time to continue 
its sanctions regime against Libya for another 120 days. This vote 
reflects the Security Council's continuing opinion that Libya has not 
yet met the requirements of Security Council Resolution 731 concerning 
the bombings of Pan Am 103 and UTA 772. We continue to condemn strongly 
Libya's lack of cooperation in helping to bring these tragic episodes to 
an end, and we will continue to support the international community's 
resolve to see that justice is served.

Mr. Chairman, as you well know and as I stated earlier, the President 
signed into law the Iran and Libya Sanctions Act of 1996 on August 5. 
Even as we work to establish mechanisms for enforcing this law, we 
already have received many inquiries which indicate that companies which 
once considered investing in Libya are now having second thoughts. This 
can be viewed as a successful first effect of the Iran and Libya 
sanctions legislation.

Conclusion

Mr. Chairman, the United States has a broad and complex set of interests 
in the Middle East, and we face many daunting challenges. We have an 
equally broad, complex, and ambitious policy toward the region. We have 
taken courageous steps toward advancing peace and cooperation between 
the countries in the region, assuming a role that only the United States 
can play. Sustained political engagement by the United States is crucial 
to the future of the Middle East peace process and to regional 
stability.

At the same time, security is the foundation of U.S. policy in the 
Middle East. This Administration has taken significant steps, both in 
the United States and in the region, to combat the threats of extremism 
and terrorism. We will continue to deter and, when necessary, respond to 
attacks against our allies and against our interests. Iran's and Iraq's 
defiance of international norms must not go unchallenged, and their 
adventurism cannot be allowed to destabilize a region where peace has 
begun to take root after so many decades of conflict. Thank you. 

(###)



ARTICLE 3:


Lebanon:   Prospects for Peace, Security, and Economic Development
Elizabeth D. McKune, Director, Office of Jordan, Lebanon, Syria, and 
Palestinian Affairs
Statement before the Subcommittee on Near Eastern and South Asian 
Affairs of the Senate Foreign Relations Committee, Washington, DC, 
September 25, 1996

Mr. Chairman, I am very pleased to have the opportunity to address the 
subcommittee concerning Lebanon's prospects. Lebanon is a country with 
historically warm ties to the United States. Lebanese-Americans have 
strengthened and enriched our country and its institutions. I understand 
and appreciate the interest of Members of Congress, Lebanese-Americans, 
and others on this issue, and welcome the opportunity to present the 
State Department's views.

A stable, independent, economically vibrant and democratically governed 
Lebanon is in the U.S. national interest. U.S. policy toward Lebanon 
remains firmly committed to Lebanon's unity, sovereignty, independence, 
and territorial integrity, and we encourage Lebanon's continued 
adherence to democratic principles.

Despite great strides since the end of the civil war, much remains to be 
done to restore Lebanon's infrastructure and fully revive its economy. 
Through participation in the peace process, continued reconstruction and 
national reconciliation, free market policies, and the fulfillment of 
the Taif Accords, Lebanon can achieve these political and economic 
objectives.

The U.S. is interested in seeing the resumption of negotiations between 
Israel and Lebanon, and we have continued to urge both sides to be 
prepared to exploit opportunities for peace. The Lebanese Government has 
indicated that it looks forward to proceeding as soon as a favorable 
atmosphere develops. Israel also would like to see negotiations resume 
to address its concerns about security along its border with Lebanon.

The Israel-Lebanon Monitoring Group called for by the April 26 
understanding brokered by Secretary Christopher has held several 
meetings since beginning operations in July. The Monitoring Group has 
contributed to easing tensions in southern Lebanon by affording Lebanon, 
Syria, and Israel a forum for avoiding escalation. The U.S. also is 
organizing a meeting of interested countries in a consultative group 
called the Friends of Lebanon to assist in Lebanon's reconstruction. We 
hope to convene the meeting in October.

On September 15th, Lebanon completed a five-week cycle of elections in 
which all 128 members of the parliament were chosen. The elections 
appear to have enjoyed heavy campaigning and a good turnout in most 
regions. Despite significant flaws, we believe these elections represent 
a step forward for Lebanon. They underscore the Lebanese people's desire 
to put the war years behind them and to focus on strengthening their 
institutions and advancing national reconciliation.

The Lebanese Government has been able to gradually expand its authority 
in the country. There has been an improvement in the security situation 
since the last U.S. hostages were released in 1991, and there have been 
no recent attacks against Americans. The government has limited the 
activities of many violent individuals and some groups in Lebanon, taken 
steps to combat terrorism, and acceded to some international anti-
terrorism conventions. The government also continues to provide personal 
security to some high-profile Americans visiting Lebanon. Lebanon 
recently extradited a suspect in the Berlin disco bombing to Germany for 
prosecution. Three U.S. servicemen were killed in that April 1986 
incident.

Mr. Chairman, having served in Lebanon, I know personally about the 
security risks we face. We judge that Lebanon continues to be a 
dangerous place for Americans. Lebanon remains a safehaven for armed, 
organized groups with a demonstrated history of terrorist attacks 
against Americans. These include Hezbollah, the Abu Nidal Organization, 
the PFLP-GC, and other groups. These groups remain outside of government 
control and continue to demonstrate a special hostility toward the 
United States and our citizens. We continue to receive terrorist threats 
against Americans and credible reports of terrorist surveillance of 
Embassy Beirut and its personnel.

Lebanese authorities have made progress in upgrading airport security 
measures, but travel to or through Beirut International Airport--BIA--
remains risky. Most travelers using BIA transit the airport road which 
passes through Hezbollah-controlled areas of south Beirut and near 
several Palestinian camps.

The restriction on the use of U.S. passports and the strong travel 
warning are a result of our continuing concerns about the security 
threat to American citizens. The passport restriction was extended 
annually until January 1994. Since then, it has been extended for 
periods of six months in order to review the security situation on a 
more frequent basis. Regulations also allow for circumstances in which 
the State Department may grant an exception to the passport 
restrictions. The State Department--through the Consular Affairs Bureau-
-adjudicates such Lebanon-validation requests on a case-by-case basis 
and on an expedited basis for emergency travel. As Assistant Secretary 
Pelletreau testified last February, we responded to a request from 
Senator Spencer Abraham and other Members of Congress to Secretary 
Christopher for a modification of the humanitarian passport validation 
category by expanding the definition of the family allowed to travel 
under that category. As a result, more Americans have received 
validations for travel to Lebanon for family reunification and family 
emergencies.

Other restrictions have long been in place on the purchase of airline 
tickets with itineraries including Lebanon; the use of Beirut 
International Airport by U.S. carriers and U.S.-registered aircraft; 
landing rights in the U.S. for Lebanon's flag carrier, Middle East 
Airlines, and some restrictions on air cargo originating in Lebanon. In 
1995, the U.S. eased ticketing restrictions to allow the purchase of 
airline tickets in the U.S. for non-Americans and Americans with 
properly validated passports. These groups were previously forced to buy 
their tickets in third countries. These instances show that we are 
prepared to make changes in our restrictions and relax aspects of them 
as conditions warrant.

While the U.S. has no trade sanctions against Lebanon and no special 
export license requirements apply, we are aware that the restrictions 
make it harder for U.S. commercial interests to compete for business in 
Lebanon, but a growing number of U.S. companies do successfully conduct 
business in Lebanon, usually through partnership agreements. Our 
embassy's commercial section and our ambassador also make every effort 
to be of assistance. We are advocating forcefully on behalf of U.S. 
business on several major projects. Our colleagues at the Departments of 
Commerce and Agriculture, the Exim Bank, and other agencies are actively 
supporting U.S. business efforts in Lebanon. The United States remains 
one of the major exporters of products to Lebanon.

We look forward to the day when  the security situation in Lebanon will 
have improved to the point that the travel restrictions can be lifted 
and citizens using their American passports can travel freely in all 
parts of Lebanon without concern for their safety. Similarly, we look 
forward to the day when Lebanon, at peace with her neighbors and free of 
all foreign forces, resumes her traditional place in the Middle East. 

(###)

[END DISPATCH VOL. 7 NO. 40]

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