The Iran and Libya Sanctions Act (ILSA), signed by President Clinton in 1996, is scheduled to expire August 4. ILSA has had no discernable success in achieving its objectives; the Executive Branch has waived its enforcement because of its evident flaws; and it has caused serious and unnecessary problems with our friends and allies. Indeed, its only practical effects have been to isolate and thereby weaken American efforts to curb the objectionable activities of Iran and Libya, while penalizing American companies to the benefit of their competitors. This is the message President Bush should convey clearly to Congress as it considers proposals to extend ILSA for another five years. ILSA is a compelling example of legislation that should be allowed to disappear from the statute books. However, unless the Administration exerts itself vigorously, it is likely to be saddled with ILSA and its negative effect for U.S. interests for the remainder of its term.

There is broad support for the goals Congress had in mind when it drafted ILSA in 1996. With respect to Iran and Libya, the act intended to prevent the proliferation of weapons of mass destruction and the means to deliver them, and to discourage support for terrorism. For Libya, it was also meant to encourage full compliance with U.N. Security Council resolutions regarding the terrorist bombing of PanAm 103. But the mechanism Congress chose was to try to prevent non-American oil and gas investments in the two countries (American companies were already so constrained by Executive Order), believing this would cause sufficient pain for Iran and Libya that they would change their objectionable policies.

Not surprisingly, America’s attempt to impose sanctions on non-American firms has met with strong resistance from our allies, particularly in Europe. They argue that the extraterritorial reach of ILSA violates national sovereignty, is contrary to World Trade Organization rules, and is typical of U.S. bullying. Implicit in their
Arguments has been the threat that if the U.S. penalizes European firms dealing with Iran and Libya, the European Union would retaliate against American companies, thus igniting an expensive and self-defeating trans-Atlantic trade war. As a result, the Clinton Administration exercised ILSA’s waiver authority, so as not to sanction proposed investments in Iran by France’s Total, Russia’s Gazprom and Mayaysia’s Petronas. The Bush Administration has indicated it will continue this policy in regard to pending investments by Italy’s ENI and Japanese oil companies in Iran’s oil and gas sector.

The waiver approach by the Clinton and Bush Administrations is a sensible response to a bad piece of legislation. Were ILSA to be implemented in full, the U.S. would impose significant sanctions on foreign companies investing in the oil and gas sectors of Iran and Libya. There is no question that such a move would alienate governments whose support is vital to confronting Iranian and Libyan threats. It would also elicit commensurate, retaliatory action by the members of the European Union and other affected countries. An unprecedented political and economic brawl would ensue, severely damaging the fabric of the trans-Atlantic partnership that has promoted global peace and prosperity since 1945. Even the proponents of ILSA, both in Congress and outside, have not tried to force this to happen and thus have accepted the waiver strategy of successive Administrations. The effective result is that only Americans – not Europeans, Iranians or Libyans – are penalized as a result of the waivers. This perverse result cannot be in our national interest.

After five years, ILSA clearly has not accomplished its objectives. No convincing arguments have been presented that extending it would produce any different result. Indeed, as Senator Hagel has cogently put it, ILSA “is a policy that contradicts our end-game - stemming the tide of proliferation and terrorism - by breaching the spirit of multilateralism so necessary to achieve success.” Simply to extend ILSA also ties the President’s hands, denying him the opportunity to explore a more effective approach to fight proliferation and terrorism and to promote regional stability.

The President has the opportunity to take a more effective policy approach towards Iran and Libya, by convincing Congress to let ILSA expire as scheduled on August 4. This would not allow American companies to invest in Iran or Libya, as they will still be prohibited by Executive Order. However, allowing ILSA to lapse will most likely enhance our ability to curb Iranian and Libyan actions to develop weapons of mass destruction, support terror, and undermine the peace process. By their nature, proliferation, terrorism and regional stability are issues that can only be tackled successfully through close cooperation with our friends and allies, which will be increased by the removal of the high-handed secondary boycott that ILSA represents. There are a number of ideas that merit serious consideration, such as bolstering intelligence and special operation capabilities against terrorism, improving the counter- terrorist capabilities of friendly governments in the Middle East and Central Asia, and finding mutually advantageous forms of nuclear cooperation with Russia that would give Moscow a strong incentive to curtail its nuclear assistance to Iran.

Letting ILSA expire would remove an irritating yet empty threat that only affects American companies. Letting ILSA expire would strengthen our ability to get friends and allies to in pursuing shared objectives regarding objectionable Iranian and Libyan behavior. It would also signal to other nations that the new administration in Washington has the fortitude to take a politically unpopular stance in the pursuit of the national interest.