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Sanctions Saga Continues Amid Policy Confusion

By Colin Rowat

Published in Middle East Economic Survey
VOL. XLV, No. 23

10 June 2002

 

The following article on Security Council resolution 1409 concerning Iraqi sanctions was written for MEES by Colin Rowat, Department of Economics, the University of Birmingham, UK

On 14 May, the Security Council unanimously approved resolution 1409, modifying the sanctions on Iraq by adopting the ‘Goods Review List’ (GRL) procedure first proposed last May. This initiative was one of Colin Powell’s first after becoming Secretary of State. In March 2001, he explained his interest in sanctions reform to the US Senate Foreign Relations Committee: “It seemed to me the first thing we had to do was to change the nature of the debate. We were being accused and we were taking on the burden of hurting Iraqi people, hurting Iraqi children, and we needed to turn that around.” Whether Powell’s hope is fulfilled depends on whether the GRL procedures lighten sanctions’ actual burden on Iraqi society.  This article explores that possibility.

The principal innovation of the resolution is to move some control over the approval of Iraqi imports from the 661 Iraq Sanctions Committee – the Security Council members – to UN weapons experts. Prior to the GRL, 661 Committee members scrutinized all contracts (except those containing only ‘green list’ items) to determine whether they contained ‘dual use’ items.  Now, Unmovic and the IAEA – the weapons experts – rule on this, with the 661 Committee only reviewing applications if the experts find that they contain items on the GRL.

For this shift in control to be of humanitarian benefit, weapons experts must somehow outperform 661 Committee members.  As some Committee members, like the US and the UK, possess the same expertise that the weapons experts do, the main difference between these bodies is that the Committee is explicitly political, while the weapons experts are not. If this is a real difference, then it is likely to have a significant humanitarian impact: Benon Sevan, the Executive Director of the Iraq Program, has long argued that politicization of the program jeopardises its ability to meet Iraqis’ needs.

On the other hand, the US and British have always maintained that their decisions to place holds on contracts were technically, rather than politically, driven. If so, and the Committee does behave apolitically, one must find another difference between the 661 Committee and the weapons experts if this shift in control is to be of consequence.

Thus, maintenance of the benefits resulting from apolitical decision-making requires that the experts maintain their independence. In the past, they have occasionally disagreed with Committee members over whether contracts contain items on the ‘dual use’ lists that the experts maintain. This is an encouraging sign. Under the new procedures, the experts are not required to publicly justify their decisions, although Committee members can request reports on the experts’ decisions. Washington is already reported to be insisting on seeing a list of approved contracts within 48 hours of their approval. While this may reflect simply a desire to monitor the new procedures, it is expected that the US will inform the experts when it disagrees with a decision.

Initially, the shift in control may have a disadvantage: 1409 requires the experts to scrutinize all contracts, including those formerly processed by the Office of the Iraq Program under ‘green list’ procedures. Having weapons experts scrutinize grain contracts is obviously not a good use of their skills. Fortunately, the resolution allows them to develop ‘green list’ procedures of their own. It is therefore likely that the existing ‘green lists’ will be adopted fairly quickly without major modifications.

A more serious concern is that the GRL may turn into a Goods Rejection List, a term used already by some UN diplomats. They note that, over time, conditions for the approval of ‘dual use’ goods’ have increased. This reflects at least three factors.

Firstly, with the end of weapons inspections after Operation Desert Fox in December 1998, the nature of UN monitoring of ‘dual use’ items in Iraq has changed. While the UN’s humanitarian staff conduct extensive end-use monitoring, the nature of their mandate does not allow them to conduct aggressive, no-notice inspections of facilities and officials as UNSCOM was able to do.  Humanitarian staff also typically lack the specialist military technical expertise that UNSCOM inspectors had.  Thus, the current inspectors are able to offer fewer assurances on end-use monitoring.

Secondly, Iraq’s ‘oil for food’ exports almost doubled in 1999. Whereas, until then, the Iraqi Government only had sufficient resources to meet its most pressing needs, it could increasingly think about repairs and reconstruction afterwards. As a consequence, both the number and complexity of contracts presented to the Committee increased significantly. Sophisticated items, such as engineering and process control equipment, were increasingly placed on hold pending the provision of information and observation arrangements that would address British and American concerns.

Thirdly, some analysts believe that the December 1998 bombings signalled, in part, American frustration with the complexities of Iraq policy that continues to the present.  In the absence of clear policy leadership from Washington, those responsible for managing it have not been inclined to give Iraq the benefit of the doubt.

Before continuing, mention of the GRL’s actual contents should be made. As of 3 June, although the GRL had been awarded a UN document number (S/2002/515), only an unofficial version was in circulation. This version still reflected some of its heritage as the confluence of three lists: the existing ‘dual use’ list, focused on inputs to potential programs for the development of chemical, biological and nuclear weapons and missiles; a version of the Wassenaar Arrangement’s list, the heir of the Cold War’s technology transfer regime, COCOM; and a short list of assorted items designed to plug the gaps in the previous two.

Thus, the bulk of the GRL’s 480 odd pages is drawn from existing lists with which the arms control community has experience.  Experts from this community have, however, yet to publicly comment on the GRL’s version of these.  In some cases, the GRL is much more stringent than are existing controls. For example, the GRL requires the review of “optical fibre cables of more than 5 m in length”, as compared to Wassenaar’s “500 metres” and “capable of withstanding a proof test tensile stress of 2 x 109 N/m2”.  The unofficial version has also been poorly edited, containing not only 81 fibres, but 51 fibers and repeating verbatim 30 of its pages.

Perhaps the second most important aspect of the new resolution lies in what it does not contain, namely enhanced border controls.  British and American drafts circulated in early 2001 sought to respond to concerns about the sanctions ‘crumbling’ due to growing trade outside of UN control. The drafts’ intention was to increase monitoring at Iraq’s borders and create a system of bilateral escrow accounts between Iraq and its neighbors under UN supervision. Learning from a failed British attempt to do this with Iraq’s Turkish trade in 1999 – Ankara opposed it, seeing little benefit in having the UN regulate its trade with its neighbor – there was some discussion of financial compensation for Iraq’s trade partners.

This aspect of the drafts immediately became the most contentious. The Iraqi Government would certainly have sought to direct trade away from the neighbors complying with the enhanced monitoring.  To Iraq’s neighbors, the proposed border controls seemed a step backwards. As the KDP in Erbil earned much of its income over the past decade by ferrying Iraqi oil into Turkey, it would have been particularly badly hurt by stricter controls. By December, reference to them had disappeared.

A number of lesser innovations are also contained in the resolution.  Firstly, its procedures make explicit reference to Iraq’s purchase of service contracts ancillary to goods imported. These are clearly necessary: complicated infrastructural items such as generators require skilled technicians to install and maintain them. Yet the permission may be of minor importance as service contracts ancillary to goods imports are already permitted. There is some concern that Washington’s interest in approved contracts will be particularly directed towards service contracts, where it has taken a hard line in the past.

Secondly, individual items in a contract may now be held or rejected, subject to new price negotiations between the Iraqi Government and the supplier, without delaying approval of the rest of the contract’s items.  This is likely to increase efficiency. To the extent, though, that all items contracted may be necessary for a project, holding a single item in the worst case scenario may be equivalent to allowing the remainder of the contract items to lie idle in Iraqi warehouses rather than in their suppliers’.

Thirdly, the revised contract forms allow suppliers to indicate whether they have previously submitted applications for identical goods. While this may seem trivial, a November 2001 experts’ briefing to the 661 Committee noted that, in 71% of electricity sector applications on hold, all questioned line items were similar to previously approved items.  In some of these cases, the Committee may have been acting on non-technical information, such as that relating to the contract’s price or supplier; in others, they may have acted inconsistently. These latter cases may be reduced by this tick box.

Finally, the new procedures introduce a formal appeals process against Committee, Unmovic and IAEA decisions.  While the appeals body is in all cases the body that made the original decision, this is nevertheless a welcome development.

Thus, the new resolution should be thought of primarily in terms of possible efficiency increases in imports to Iraq under “oil for food” (OFF).  It does not take steps to lighten directly what is probably the sanctions’ main burden on Iraq’s economy, namely constraints on Iraqi income. Commenting on the resolution, Benon Sevan observed that, “Without funds, the whole exercise will be meaningless” [“Iraq-UN Oil Price Dispute Bankrupts UN Goods Plan”, 29 May, Evelyn Leopold, Reuters].  Although the Council has not imposed a cap on Iraq’s oil exports since December 1999, the sanctions continue to limit Iraq’s income in other ways.

Perhaps most significantly, they prohibit foreign investment. Thus, while Iraq sits on the world’s second largest proven oil reserves, its crippled oil industry has a very limited ability to convert this wealth into income. Indeed, at its peak in 1980, Iraq exported about the same value of oil as it has over the whole six years of ‘oil for food’.  The comparison is imperfect – the Iraqi Government exports outside of OFF, it has withheld exports at times, and Iraq’s population has almost doubled since 1980, halving the per capita revenue – but the point remains.

Recognizing this, last year’s French proposal for sanctions reform would have allowed “civilian investments in Iraq by foreign companies, including into the Iraqi oil industry and production capabilities.” This proposal, which could have made a significant economic and humanitarian difference, was quashed. The rationale for this decision seems to be that the sanctions, while more closely resembling a technology transfer control regime since the GRL’s adoption, are still intended to induce desirable behavior by hindering recovery until it is displayed. If so, the costs of retarded recovery would likely continue to be borne primarily by Iraqi civilians, rather than by the decision-making elite, as they have been since their imposition.

 

The compensation process, which currently receives a quarter of Iraq’s OFF revenue, imposes a second large constraint on Iraqi income. As of 9 April, $15bn of Iraq’s OFF income had been paid to victims of Iraq’s invasion of Kuwait. In contrast, as of 29 May, Iraq had received $22bn worth of supplies and equipment under OFF. While OFF does not operate on a per capita basis, calculation of per capita figures provides a crude estimate of the program’s scale: about 50 cents per person per day.

Again, the comparison is not perfect: OFF receipts would be higher if the Iraqi Government did not interrupt oil sales, and choose suppliers for strictly commercial reasons, rather than seeking to reward its political allies; another $11bn worth of supplies are on their way.

Comparing the relative needs of victims of Iraq’s invasion of Kuwait and Iraqis may seem impossible and inhumane.  Nevertheless, as the Council decides how Iraq’s oil revenues are to be divided between these populations, this is the Council’s job. As the UN’s Compensation Commission decided on small claims first, the remaining claimants are firms, governments and individuals with claims in excess of $100,000.  Perhaps recognising this, the Council reduced the share of Iraq’s oil revenues paid to compensation from 30% to 25% in late 2000.

Of lesser importance, the sanctions prevent non-oil exports. In the decade before sanctions, these accounted for a small fraction of Iraq’s exports. Under present conditions, with a reduced oil industry and a military that absorbs less of the potential labor force than it did in the 1980s, the non-oil sector might take on a more important role if allowed.  Non-oil exports could also encourage economic and political decentralization as all of Iraq’s OFF revenues accrue to the government under the current arrangements. This, of course, would require the development of provisions for private sector exports, provisions that the Iraqi Government would be required to approve.

A second burden imposed by the sanctions, less tangible than that on income, may actually be worsened by 1409.  Debate over Iraq’s economic performance and humanitarian situation for the past decade has been characterized by finger pointing: the Iraqi Government blames the sanctions; the US Government blames Saddam Husain. Each has convinced its domestic constituency of its position sufficiently to reduce the pressure for improvement that it faces.

SCR 1409, with its intuitively appealing explanation (“effectively lifting UN controls on civilian goods”, according to a 14 May State Department release), is likely to further reduce US domestic pressure for change. The New York Times’ 18 May editorial on the resolution appeared convinced that the sanctions’ humanitarian constraints had ended: Washington is now in a better position to lead the international debate on the future of the Iraqi regime without the distraction of accusations over humanitarian concerns.” This complacency is particularly worrying as, for all the signs of material improvement in Baghdad, the consensus seems to be that daily life for most Iraqis is a struggle, and Iraqi society as a whole is becoming less cosmopolitan, less educated, more corrupt, more conservative and more hopeless. A constructively engaged US is ultimately necessary if public services in Iraq are to return to pre-sanctions levels: foreign investment in Iraq’s oil industry cannot be smuggled in; it needs the US vote in the Security Council.

The corollary of 1409’s appealing sales pitch is that it might increase the pressure on the Iraqi Government to improve its performance. Iraqis have been kept from famine by a government ration system described by the UN monitors as “second to none” and Baghdad’s present condition is testimony to a desire to rebuild. Yet, at the same time, the Iraqi Government has not only failed to take some basic steps to improve public health, but seems to have blocked some.  The most glaring example of this is the fate of the successful grassroots targeted nutrition programs that arose from the governorates’ departments of health in the mid-1990s. Such programs, directed towards malnourished and vulnerable children and their mothers, are particularly important in Iraq, where the summer heat both worsens water contamination and quickly dehydrates small children with diarrhoea. Responding to the success of their programs, the Iraqi Government gave control over them to a central institute created in the 1980s to address Iraqi obesity.  Since then, the requisite supplies have not been properly ordered and the programs are struggling to maintain momentum in the face of a shortage of supplies and support from the central government.

If 1409 makes this sort of negligence more difficult, then it might yield real improvements. It is unlikely, however, that 1409 will generate focused pressure on the Iraqi Government to improve its performance on particular issues as the government is in a position to suppress the collection and dissemination of the public health data necessary to assess its performance. Thus, the targeted nutrition program’s apparent abandonment has not been reported by the Iraqi Government or the UN.

The resolution contains some question marks.  Firstly, its procedures remove the UN’s ability to consider price information when assessing a contract. This facilitates kickbacks: the Iraqi buyer and a supplier agree to an inflated price; upon receipt of that price, the supplier deposits a share of the excess into an account named by its Iraqi counterpart.  These were already occurring under the ‘green lists’ [“Iraq Is Running Payoff Racket, UN Aides Say”, Barbara Crossette, 6 May 2001, New York Times], but may become even more prevalent. Odd here is the Council’s approval of such arrangements after a recent battle with the Iraqi Government over oil sales kickbacks that probably reduced oil sales by $1.2bn [“Iraq-UN Oil Price Dispute Bankrupts UN Goods Plan”, Evelyn Leopold, 29 May 2002, Reuters].

Secondly, the resolution may create a de facto ‘cash component’, something that the Iraqi Government and the Council have yet to agree on explicitly in spite of informal discussions dating back to at least 1998. Yet, under 1409, the Iraqi Government will be able to import non-perishable commodities, such as gold, without Council involvement.  Once in Iraq, the Iraqi Central Bank can print dinars against these imports.

In practice, this may be of little importance.  Even prior to 1409 the Iraqi Government could make domestic expenditures by printing dinars. In a growing economy, this need not be inflationary. If inflation does result, it suggests that the underlying problem is one of insufficient real resources, something that a cash component can not remedy.

Thirdly, there is the question of the price of Russia’s support for the resolution. As agreement between the US and Russia on the GRL was being finalized, Yuri Fedotov of the Russian Foreign Ministry explained that the agreement with the US “has the effect of freeing $740mn in Russian contracts to supply goods to Iraq” [“Deal Revises Iraq Penalties”, Patrick Tyler, 28 March 2002, New York Times].  One diplomatic source claimed “the decision marked the boldest move yet by the US to use the holds to buy political agreement” [“Block on Russian contracts to Iraq lifted”, Carola Hoyos, 3 April 2002, Financial Times].

The resolution’s procedures divide all contracts currently on hold into two categories.  Those in the first category are returned to the submitting Mission or UN agency, which can then resubmit them under the new procedures.  Those in the second are re-circulated automatically under the new procedures.  It would therefore seem that, if Russia has been offered a release of holds, it must be a promise that future contracts deemed to contain GRL items will receive lenient treatment.

Some of these question marks may be clarified by the end of the year, when the procedures will be reviewed. Indeed, that discussion is already taking shape: the role of the Distribution Plans, for example, is likely to be questioned.  As it stands, the Iraqi Government is still required to submit a distribution plan and categorised list of imports to the Secretary-General, who is required to approve it.  However, the new procedures then do not allow a contract’s correspondence to the plan to be used as a criterion for its evaluation.

In conclusion, resolution 1409 contains some innovations that may improve the OFF program’s efficiency.  At the same time, it avoids the problems that have dogged the sanctions for over a decade now.  In leaving unaltered the sanctions’ heaviest economic burdens, it continues to make Iraqi civilian well being contingent upon the behavior of a government whose insensitivity to civilian well being is trumpeted by the US and the UK, the resolution’s proponents. The resolution actually heightens this inconsistency by increasing the Iraqi Government’s freedom of action within OFF without providing it with clear incentives to improve its humanitarian performance. Neither the people ofIraq nor Colin Powell are likely to receive much relief from this resolution. This is distressing in its own right, and particularly so when it represents the culmination of a year’s work by the Security Council.

Copyright © 2002 Middle East Economic Survey

 

 

 

 

 

 


 

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